MY little brain simply can’t stop putting things into categories and seeking to find the patterns in life.
One of the many patterns I’ve noticed is that some people in the United States are much richer than others. We have a nation filled with opportunity: free education, easy investing, and cheap interest rates. And yet there’s stunning financial inequality.
Disparity by the Numbers
According to my wonderful pal, Phil DeMuth, the top 1 percent of all wealth-holders in the U.S. own about 44 percent of the financial assets of the country, mostly in stocks and bonds. The top 10 percent own about 80 percent of the financial assets of the nation.
The top one-tenth of 1 percent of earners in the nation earn about as much as the bottom 40 percent. That is, about 130,000 high-income Americans earn as much as the bottom 120 million Americans combined.
To me, this is stunning -- almost frightening. But the real question it poses is, how did the ones at the top get there? Obviously, some do it through inheritance, and some have spectacular athletic or musical abilities. But what about the others? How did they get to the pinnacle of wealth?
Think First, Get Rich Later
I’ll to offer some homely speculation. First, as the genius financial planner Ray Lucia would say, the first step is to have a plan to save. Without equilibrating assets and liabilities by accumulating lots of stocks, REITs, and cash, you won’t get there
But I’m looking for something more basic here. How do you get the income to start saving meaningful sums?
Here’s a clue: think. In 1996, when I started shooting “Win Ben Stein’s Money,” I was assigned a bodyguard named Yaniv. He was a former Israeli soldier, and as tough as old boots. We worked together happily for about 900 shows, and then we worked on “Star Search” together, after which we went our separate ways.
Occasionally, Yaniv would help me set up electronics equipment. He always did a great job because he read the instructions and then followed them.
Up the Ladder
Not long ago, I bought some new stereo equipment for my house and I called Yaniv to come over to install it. He showed up in an immense truck and told me what he’d been doing for the past few years.
He’d become a construction foreman on a jobsite building condos. He was so good at reading instructions that he became a contractor. He was so good at that, investors hired him to build still bigger buildings and paid him a good chunk of the profits.
Now he’s building large developments and gets an even bigger share of the startlingly large profits. If a unit costs $300,000 to build, it’s not unusual for it to sell for $600,000 to $800,000. Of course, you have to factor in the cost of the land, permits and legal issues, advertising, and the time value of money. But all in all, the profits are consistently immense.
Yaniv, a 32-year-old who still gets a thrill out of his Ford truck, is well on his way to being in the top 1 percent and, after that, the top one-tenth of 1 percent.
Outstanding in Your Field
How did he do it? He reads instructions. Yaniv reads building plans very carefully, then he reads permit applications carefully, and soon a building is done.
Beyond that, he reads life’s instructions carefully, too. People make a lot of money building condos in Los Angeles even in an economic slowdown, so Yaniv entered a field that leads to making money.
If he’d continued on as a bodyguard he would’ve had fun, but he never would’ve gotten rich. And here his experience proves the great advice of Warren E. Buffett: It’s better to be medium-good in a great field than great in a medium field. There are some fields where a lot of money can be made, and real estate development is one of them.
Law is another one, at private firms. Medicine -- if you’re a surgeon -- is another, and finance is the highest-paid one. Starting a restaurant isn’t a moneymaking field. Teaching and writing, except in the rarest of cases, aren’t either. Acting is almost never highly paid, and police work never is highly paid.
Making the Choice for Wealth
Please notice a pattern: the most interesting and psychologically rewarding work is rarely the best-paid. So choices must be made.
If your goal is to be in that top 1 percent of wealth-holders, you have to do what Yaniv did. Follow the instructions to where the money is, and to where it isn’t.
There’s nothing -- absolutely nothing -- about people who have money that’s better than people who don’t. But if you want it anyway, simply follow the instructions as to where to find it. It’s not that complicated.
Ben Stein is a lawyer, economist, and commentator on finance