In my last article, “The Twenty-Something’s Guide to Financial Stability,” I discussed some of the common financial mistakes that are often made by young folks. But it is true that you can be broke at any age. For me personally, I’ve been both rich and poor. I was raised by a working, single mom with six kids on government assistance, and today, I’m considered an accredited investor.
What I didn’t go very far into last week is the impact of debt and taxes, especially on one’s ability to access capital or build wealth.
Access to Capital
One thing that I recognize is that income inequality and the wealth gap are growing in this country between the rich and poor, while the middle class is shrinking. If I were to narrow it down to one of the biggest reasons for this, it would be one’s access to capital.
The difference is that poor folks just don’t have very much access. Just think about when you try to get a loan; it’s often based on your credit, income, and assets. Also, they often have to work for or earn all of their money, and then they’re usually taxed the most (as a percentage of earned income).
Maybe the real struggle is getting out ahead of these things. I remember listening to Jim Rohn tell the story about how you can be a good guy, work really hard, and still never get ahead.
It wasn’t until I understood the different types of money and how they’re taxed, along with the various tax breaks available, that I realized the true path to wealth.
As much as debt and taxes made poor folks poorer, it also made rich people wealthier. So, why is that?
This article first appeared on BiggerPockets.com.