The Cost Of Being Poor in 2021 - Why Being Rich is Cheaper!
American billionaires earned $434 billion during the pandemic.
It seems like everyone should suffer in one way or another, even billionaires, because
the entire nation was a lockdown.
But the exact opposite is happening.
Jeff Bezos added 35 billion dollars to his net worth in the last few months since the
pandemic has started and even witnessed his net worth to hit records high a 189 billion
dollars.
Zuckerburg was also one of the biggest gainers.
He added over 25 billion dollars to his net worth in this pandemic.
These numbers are uncomprehensive to ordinary people.
And that's not by accident.
The modern capitalistic world we have built over the centuries is designed to favor the
rich over the let's say not so fortunate.
It's actually much more expensive to be poor than rich.
It might sound a bit controversial but hear me out because when you have extra money sitting
in your bank account, a lot of things suddenly get cheaper.
So before we start, just smash that like button, because apparently, that's what the
YouTube algorithm wants.
And now, since you have smashed that like button, we can get right into the video.
Leverage: the tool that keeps the rich richer
If you have ever tried to get a loan from your local bank, they probably asked to check
your credit score.
As a bank, you want to lend money to people who are financially responsible and have the
means to pay back that loan plus interest on top of that, which is the whole purpose
of a bank.
So they will check your credit history, your income, maybe your assets, and based on all
of that, they will base their decision on whether to give you a mortgage.
If you have a low credit score or low income, you might be rejected and end up renting instead
of becoming a homeowner, even if that means waiting for 25 years for complete ownership.
But Let's say you are an amateur with an average salary and with a decent credit score and
let's say the bank approves your margate.
You can expect a margate rate of 3 to 4 percent, which is not bad.
But do you know what Zuckerburg's mortgage rate?
1 percent.
That sounds insane!
The guy has a net worth of 90 billion dollars.
Why on earth would the bank charge him 1 percent and someone who is struggling financially
and barely makes ends meet, the bank would charge him like 4 percent.
In fact, the inflation rate is around 2 to 3 percent.
How is that even possible?
It might not make sense to you, but that's how it works.
Lending a few million dollars to Zuckerburg isn't risky at all.
I mean he can pay his mortgage easily at any point he can even buy the bank maybe.
While you who are hardly making your monthly payments can default on your loan, so the
bigger the risk, the more they are going to charge you.
This is, of course, an extreme example.
Comparing one of the richest people to an average person isn't fair, but even if you
are moderately rich, let's say with a net of just a few million dollars, you are a much
safer bet to financial institutions than your friend Billy who lives paycheck to paycheck.
Considering that purchasing a house is the biggest transaction in most people's lives,
your house is going to cost much less if you are rich compared to someone who has a lower
income.
That's just part of the equation.
Let's say you have 25 thousand dollars.
What are your investment options, if you want to buy a house and rent it out?
You probably need a lot more.
The median house price in the US is around 200K dollars.
It will take you a lifetime to save another 175K dollar.
But if you are rich, with your 25K dollars you can make an investment that worth 200
thousand dollars, any bank would gladly provide you with a mortgage even if you plan to rent
it out and pocket the difference after deducing all of your expenses and create another source
of cash flow.
The exact same 25K dollars worth a lot more in the hands of a rich person than in a poor
person.
Because if you have low income and already have a mortgage, chances that the bank will
approve another mortgage are extremely low.
What's also quite interesting is that since
its a mortgage, you can deduct it from your income and avoid paying taxes, while as a
poor person, you will have to pay every dime in taxes.
Let's say you have 1 million dollars in cash and you want to invest in real estate.
The logical option is to buy a property and then rent it out, but why do that when you
can head to your local bank and use leverage to purchase real estate worth 5 million dollars
and create even a bigger source of income.
Let's say you came across an opportunity to purchase a car for 10 thousand dollars.
You buy the car and turn around and sell it for 11K dollars.
Congrats!
You made 1 thousand dollars in profit.
But here is a better idea.
If you use leverage, You can borrow 990K dollars, and now you have 1 million dollars.
You turn around and buy 100 cars and sell them for 1.1 million dollars.
After paying back your bank the 990K dollars plus interest, which amounts to 10K dollars,
and if we deduct your initial 10 thousand dollars you have used, you are left with 90
thousand dollars in profit.
Leverage allows you to earn a hundred times more than you would otherwise.
The hidden tax on the poor
We have already talked about how the rich always find loopholes in tax systems to avoid
paying taxes.
However, there are other kinds of taxes that we all have to pay no matter who you are,
such as sales tax or property taxes.
The latest iPhone might cost $999, but if you are buying it in California, you will
pay a sales tax of %7,75, which will amount to 77.5 USD.
They are known as regressive taxes, a fixed percentage over particular goods or services.
The keyword here is a fixed percentage.
At first glance they seem fair, everyone pays the same percentage, but in reality, poor
people pay far more.
Regressive taxes don't differentiate rich people from the poor.
It doesn't matter whether you are earning 1 billion dollars or 50 thousand dollars a
year, both of you are going to pay the exact same 77.5 dollars in taxes.
To your fellow billionaire, that's not even money, its an extremely small percentage of
his income (0.0000000775%) but to you who is earning 50K a year, that might be one week
of groceries.
We pay regressive taxes every single day every time we buy something.
The missed opportunity
But the biggest cost by far is the opportunity cost.
When you are struggling financially, your primary concern is to put food on the table.
You don't have time to think and contemplate to figure out what could be the next big thing.
Opportunities are everywhere, but you need the time to figure them out.
However, when you barely make ends meet, you don't even think about it and end up missing
all those opportunities to make much more money.
Even if you want to take advantage of them, you can't afford to take time off.
Whereas if you are financially free, you can take all the time you want and end up earning
much more in a very short period.
But this concept goes far beyond.
It turns into a lifestyle where you are much more price-sensitive and end up buying what's
cheaper instead of what's really valuable.
And no one can blame you for that because every penny makes a huge difference in your
lifestyle, especially if you have a family to feed.
It's not easy to break the cycle of poverty, but here are a few pieces of advice I can
give you.
First, always use a credit card, But use it responsibly, which means never borrow more
than what you can pay back and always cover your debts on time.
You have to build a good credit score to be trustworthy in the eyes of financial institutions.
And secondly, don't be distracted by short term rewards.
Focus on making your time more valuable; don't be afraid to invest in yourself.
A higher price doesn't always mean a better product or service but always look for more
value in return for your time and money.
And if you want to see more similar videos, make sure to subscribe to our channel.
We are always trying to put our best into every single video and bring maximum value
to you because we know that your time is the most precious thing you have, so make sure
you subscribe and keep the notifications on.
In case if you want to support us for additional perks, you can check out our pattern page.
Other than that, thanks for watching and until next time.
