Stories of the super wealthy or super rich often highlight those who have taken unique paths: Mark Zuckerberg, Warren Buffett, Kim Kardashian. If you want to get rich or build wealth, taking cues from them might seem like a good idea.
Often, it's not, says Esteban Argudo, an assistant professor of economics at Vassar College whose research focuses on diversity and inequality. Many millionaires and billionaires in the public eye did not earn their fortunes by working a decently paid, 9-to-5 job and steadily investing part of their earnings. And yet, that is how most people get rich, he says.
To improve your chances of building wealth, don't buy into these three common misconceptions.
"I think that people usually think about the stock market as the ultimate vehicle to becoming rich," he says. While this is "not a complete misconception," it's unlikely that stocks will make you wealthy quickly.
"What most people fail to realize is that the stock market pays off in the long term. It will not get you rich overnight," he says. A vast majority, 70%, of super rich people are retired, according to Argudo's research, which is based on the 2019 Survey of Consumer Finance. Their average age is over 70, too, meaning their wealth comes from years of contributions and compounding growth in the market.
That's why it's so important to invest early, says Kevin Mahoney, a certified financial planner and founder of Illumint in Washington, D.C.
"If you can take advantage of time by saving prudently and investing responsibly at a young age, the benefits of compounding really does make big difference compared to someone who doesn't start until their 30s or their 40s," Mahoney says.
"Another common misconception is that to become rich you need to start your own business," Argudo says. This idea is understandable, considering some of the world's most famous billionaires own their own businesses. However, most wealthy Americans don't.
"The majority of the rich, ignoring the retired, actually work for someone else," he says. "The position you hold plays an important role; most of the rich hold managerial or similar positions, as opposed to technical, sales, or services positions."
That means, instead of quitting your job to start a business, you could focus on negotiating pay raises and moving up within your company. You could also start another, secondary income stream, or pick up a side hustle, so you could earn extra money without taking the risks of being fully self-employed.
"It is worth pointing out that becoming rich or wealthy might depend on one important factor that is completely beyond our control: receiving gifts, trusts, inheritances or similar transfers," Argudo says.
These gifts could come in the form of college tuition, an inherited home, or simply not having to support other family members. That assistance could also take the form of larger windfalls.
"The data shows that 40% of the rich and wealthy have received at least one transfer in their life," Argudo says. "Furthermore, the amount the rich or wealthy have received in transfers is on average four times the size of their income."
This is vastly different from the transfers those in the bottom 90% of the population get, if they get substantial gifts of money at all. "Only 20% of regular folks have received a transfer in their life and the average size of these transfers amounts to only 60% of their income," he says.
So, along with whatever good financial choices they made, a lot of wealthy people benefitted from good fortune. That's a good reminder not to compare your journey to anyone else's. A person who appears to have reached a milestone before you might have gotten some help along the way.
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