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7 Real Reasons Why It Is Harder For Lower-Income People To Grow Their Wealth

Don’t blame yourself; there is nothing much that can be done

 

Being poor is tough. It is not something that anyone would want but that is just the way life is – Unfair. Moreover, poverty can be a vicious cycle that is difficult to get out.

They are some reasons why it is harder for lower income people to grow their wealth. Here are 7 reasons we can think of.

1. Inability To Earn Passive Income

To earn passive income, you first need to have the resource to set up what you are intending to strive for.

For example, to earn passive income from multiple properties for your retirement, you would first need to have the money to invest in them. A person with $1 million dollars can easily buy a private apartment that gives him a monthly income of $3,000.

When you are poor, such opportunities do not exist.

2. Inability To Leverage On Credit Card

Credit cards, when used correctly, can be utilized as a money saving tools. Discounts, cash backs and air miles are perks that are worth accumulating. A family that spends $1,000 can easily get cash saving of about $30 a month, on top of any discounts that they are already enjoying.

Unfortunately, not everyone is entitled to enjoy the perks of credit cards. With a minimum annual salary of $30,000 required, the lower income earners who don’t qualify for a credit card will be paying the full price for items that they buy.

Read Also: Credit Cards: The Good, The Bad, And The Ugly

3. Insurance Are A Luxury, Not A Necessity

Most finance savvy people will know that insurance is important. It protects you and your family against unexpected bill shocks such as medical care needs or the loss of a breadwinner. This is why health and life insurances are essential.

Unfortunately, what appears to be a necessity for rich people becomes a luxury for those who are not as well off. Spending $40 a month on life insurance may be nothing for a millionaire, but becomes a significant expense relative to their income for those who are not as wealthy.

When unexpected circumstances do occur, it is usually the people who need the most help (i.e. the poor), that would be most underinsured.

4. They Don’t Have An Emergency Fund

Having an emergency fund is important. It ensures that you have sufficient money to weather tough times in the event of a loss of a job. It also gives you a better peace of mind to think through on what your next steps in life should be, rather than to rush and make a hasty decision that could ultimately make your current situation even worse.

Hasty decisions would include borrowing money from financial institutions or licensed moneylenders that charge high-interest rates. The borrowing of such money hardly ever turns out well.

Read Also: How Much Should My Emergency Fund Be

5. They Do Not Get The Best Financial Advice

Let’s try a question. Will a top-notch and trusted financial advisor who has limited time rather advise a person who earns $50,000 a month or a person who earns $1,000 a month?

The fact is that all good financial advisors have limited time to earn a living for themselves. A millionaire who has multiple children will need more financial products and hence, be a higher margin client for an advisor compared to another person who earns much lesser.

That is just how the world is.

6. They Have Fewer Opportunities To Earn Interest

When you have more money, you earn more interest. Below is a non-exhaustive list of ways a richer person can earn risk-free interest from.

Asset Amount Interest Monthly Returns
Bank Account $60,000 2.25% per annum $125
Singapore Saving Bonds $100,000 2.6% per annum (10-year bond) $216
CPF Special Account $100,000 4% per annum $333
Total $260,000   $674

Just by being rich and doing nothing, a rich person can easily earn an extra $674 per month.

7. They Can’t Afford To Take Risk

It is a common understanding that earning good returns on your investment is not possible without taking some form of risk. All investments, even the really good ones, carry some form of investment risks.

People with more free cash flow will be in a better position to take more investment risk compared to those who are cash tight. This gives them the opportunity to continuously make more investments, take more risks, and earn higher returns over the long run.

What are some other reasons on why it is harder for less well-off people to grow their wealth? Share your views with us on Facebook.

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