Quick Lesson: What the Rich Does, and the Rest Don't (part 1)

Many people around me always whine about how the rich seem to get richer, and the poor just stays poor. And when I'm talking about poor people, I don't just mean families or individuals that make less than $20,000 a year.

First of all, what makes an individual wealthy? By the car they drive? House? Monthly expenditure? You've got to understand, even if you make $5000 a month, but you squander away all that money within that month on luxury stuff, you might appear wealthy, but in fact you are not. Here is why.

Most wealthy have the ability to put aside a large proportion of their income to investment. Most of us don't. The wealthy have the ability to to that due to their large income. Many of us can't due to our small pay check. And even when we get a raise, we would just increase our monthly expenditure, and that includes our year end bonuses.

"The rich get richer cause they know how to spend their bonus and pay raise, not on material gains, but in investments."

Most of the wealthy people reinvest their investment returns. Most of us don't. Many of my peers make $1000 from their $10,000 shares, and immediately sell and splurge on a holiday or a material gains. They remain that "10,000-dollar-air". You should reinvest to enjoy compounded returns.

"Spending your profits in shares really leave you standing in Square 1"

The fact of the matter is, if you are interested in trading in shares, and you are here reading my blog, really means you have that spare cash (that you really don't need) to invest! So ask yourself, why do you need to spend the cash that you made on your investments?! Isn't it better for you to reinvest those gains, for larger absolute gains next time? Yes I do understand the need to enjoy yourself. My guide is not to use more than 10% of your gain on celebration.

"The fact of the matter is that if you are reading my blog, you probably have the spare cash that you don't ever need to use to invest. So stay vested."

So to answer the question, the ricch have the ability to not only make their capital grow, they know how to make their investment returns grow as well.

Over the next week, I'll be talking about "compounded interests" and several other things that the rich do, but the rest don't.