Poor Keeps Getting Poorer

#1. Life Gets Cheaper

The richer you get, the cheaper things become. The main savings is with insurance. Do you realize how much money is being stripped out of your pockets each year for insurance?

For the 62% of Americans that have less than $1,000 in savings, they’re getting ripped off when it comes to insurance. Do you know why? Because if anything breaks, they wouldn’t be able to afford to get it fixed! So what do they do? They get insurance on almost everything!

The poor get poorer by purchasing loads of insurance:

• Appliance insurance
• Additional warranty coverage for electronics (TV, stereo, etc.)
• Burial insurance
• Life insurance
• Full-coverage car insurance
• Medical insurance
• Home insurance

Do you know what the rich do? They stop paying for half of the insurance items above. Do you know why? Because if something happens, they have the money to simply pay for the fix!

If their washer breaks, they have enough in savings to buy a new one. If their car got totaled, they would just shake their head at their misfortune… and then buy another new-used car with cash.

And here’s the big kicker. The rich don’t need life insurance (*gasp* – no life insurance?! That’s just so irresponsible!). Think about it though. If they die and have a net worth of $10 million, do you think their spouse and children would be able to survive? Ummm, yup. No need to have a $500,000 life insurance policy then, huh?

One of the reasons the rich get richer is because they stock up their savings account and cancel a lot of their insurance policies. Chances are that they won’t total their car, so why pay $2,000 extra in insurance each year on full coverage? They’re better off increasing their deductible and paying far less money every month.

Action Items:

1. Stop buying insurance on non-essentials like your TV. If it breaks, do without it. The rich hardly ever watch TV anyway.
2. Pay off your consumer debts and start an emergency fund. If you save up $5,000 and your car is only worth $3,000, then there’s really no need to put full coverage on it right? Increase the deductible to $5,000 and pay far less in payments each month. Beyond car insurance, self-insuring is almost always the way to go and it will save you thousands of dollars over the long haul.

#2. They Live Below Their Means

Have you ever heard net worth millionaires talking about how they can’t make all their payments?

Nope.

Your likely response: “Of course they don’t complain about payments because they have millions of dollars. If I had millions I wouldn’t complain about my payments either.”

You missed the point. They’re millionaires because they live below their means. Not the other way around.

If you were able to invest $12,000 a year from the age of 25 to 65, you’d be worth $3.3 million. THAT’s the power of living below your means.