Why the rich get richer

Ever heard the saying that the rich will become richer and the poor will become poorer? How can financial advisers help their clients to become richer?

There is a very good reason why the rich become richer and the poor, poorer - the rich are asset owners and the poor are income earners. "Understanding the difference between the mindset and approach of an asset owner, compared to that of an income earner is a critical step on the way to creating wealth," says Pierre van Wyk of Property Bargain Finder. "Financial advisors can open a whole new world for their clients by helping them understand this one essential aspect of wealth creation."

The income earners

Income earners' income is limited by their salaries. And as inflation takes its toll and prices escalate, the income earners actually become poorer each year, since their salary increases can't match the increase in the cost of living.

Their salaries are completely consumed by their living expenses. Worse yet, as their living expenses increase, Income Earners start funding their lifestyle with credit. And before they know it, they find themselves in a debt trap.

What is an asset?

An asset is something that increases in value over time and generates income. For example, property is an asset. It will increase in value over the years and can generate income – for example you could rent out your granny flat or even a room in your house. A business is an asset – it will increase in value as it grows and it will create income for you and for others. A car, clothes, furniture and electronic gadgets are not assets. They will be worth less than what you paid for it as soon as walk out of the shop's door.

Asset Owners

Although Asset Owners also need to meet their living expenses, their focus is on acquiring assets that will generate income, with which they can acquire even more assets. For example, they do not put in a swimming pool because the neighbours did, they use their income to build a granny flat on the property, which they can rent out to generate income. Or, they improve their qualifications so they can become a consultant. Or they invest their money wisely with the help of an investment expert. Or they invest in a buy-to-let property.

It comes down to working smarter, rather than working harder. The asset owners' income is linked to how many assets they own that generate passive income – in other words, even if they do not work at all, they are still earning money. Their income earning potential is unlimited. That is the smart way.