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How the Rich Make Money

Written on April 27, 2009 by George Krueger & Mary-Lynn Foster in Money, Passive Income

The Federal Reserve recently published some new wealth data [PDF]. They looked at levels of net worth and the income associated with each. They defined net worth as total assets (including a primary residence) minus any money owed.

You need a net worth of over $8 million to make the top 1%, $2 million gets you in the top 5% and it takes about $900,000 to place yourself in the top 10%.

So those are your targets if life on your own terms means being in the top 10% or above.

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Making more doesn’t mean having more

This report also looked at share of total wealth. As it turns out, the richest of the rich – the top 1% – didn’t get richer. They still held approximately one-third of the country’s total wealth in 2007, the same as 1995.

However, their share of income was up significantly – from 17% in 1997 to 22% in 2007.

The wealthiest people in our country saw a bigg increase in share of income, but their share of net worth didn’t go up. Does that mean rich people got caught up in the “spend, spend, spend” economy? Possibly.

We often think, “If I could just make a little more money.” This study offers further proof that making more doesn’t necessarily translate into having more – even for the richest among us!

Make do, then make more

The crucial thing – the starting point – is to figure out how to make do with what we already have. Then when we make more, we’ll have more because we manage it all better.

We can enjoy some of it now and invest the rest for our future – for the life we dream of living.

How the rich make money

As might be expected, the average person gets most of their income from salaries and wages. As we move to the top 5%, we see that a larger share of income comes from business ownership and investment real estate.

It really kicks in for the top 1%. Plus they have built up enough assets to get a significant boost from selling those assets for a profit. It’s Economics 101 – buy low and sell high.

But it’s no panacea

We’ve recently seen people losing money in business and real estate. Like most things, it’s no panacea. It’s risky. But if you aren’t trying to get rich quick, you can greatly improve your odds.

The best advice

We also found it revealing that this study showed that the bottom 50% lost money holding assets and from the ownership of businesses and real estate.

The rich made a lot. The bottom half lost money. What do the rich know?

Before you jump into investing in a business or real estate, educate yourself. Get advice from someone who’s actually succeeded at it. If they’ll mentor you, that’s great. If they charge you for it, it will be worth every penny.

You’ll get where you want to be faster by learning from people who have done it rather than trying to learn it on your own.

So if life on your own terms means building wealth, get started creating multiple streams of income today – even if it’s just part-time!

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Please join us next time when we ask, “Are you talking to the right person?”

Thanks for reading our post today. Until next time, here’s to your bigg success!

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Am I Paying My Salesperson Too Much?

Written on June 26, 2008 by George Krueger & Mary-Lynn Foster in Bigg Solutions, Business, Business Ownership, Challenge, Money

Bigg Challenge
Max is a business owner. He hired a salesman about a year ago. Max put him on the same compensation plan that his other sales people were on (a small base salary with an incentive).

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The guy has done a phenomenal job. Max’s company is showing record sales and profits, largely due to this sales person. But here’s the problem: this salesman is now making more money than Max.

Max wants to know if he should adjust his salesperson’s compensation.

Bigg Advice
What should you do about this, Max? Here’s what we think …

Nothing!

Here’s why …

Is it costing too much?
It is possible to over-compensate your people. You can’t design a system where a small number of top performers win bigg while the company loses money.

But that’s not the case here. You’re also making more money, Max. So if it ain’t broke, don’t fix it!

Handle with care
We’ve heard of great sales people who were let go when a situation like this occurred. It does happen. But remember the nursery rhyme about the goose that laid the golden egg?

This sales person is the goose. Handle him with care. Like the old Proverb says,

“Kill not the goose that lays the golden eggs.”

Your bigg payoff
Don’t miss the bigg picture. The bigg payoff for owning a business often isn’t what you make each year. It’s what you make when you sell it.

You’re building an asset whose value is based on the income of the business, sometimes called owner’s cash flow. As your bottom line increases, so does the value of your asset. That’s your bigg payoff.

How you can get paid more
You’re making record sales and profits so you can probably afford to add another salesperson. Before you do, look at your infrastructure and capacity to make sure you can support an additional salesperson.

If you can, then go for it!

There’s a good chance, if you do that, you’ll be the highest paid employee of the company again!

Model this employee
We would suggest cloning, but okay … we won’t go there!

So try to find someone with traits and characteristics similar to this salesperson. To do that, think about what you know about him.

What industry did he come from, if he came from outside your industry?

What experience did he have?

What education?

Are there any other clues you can get from his background?

If you did a personality assessment as part of your hiring process, what did his look like?

And ask your sales person if he knows anybody who might work out well. Bigg goal-getters know bigg goal-getters.

Thanks Max for sending us your bigg challenge. We wish you bigg success!

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