Last week, Wealth-X reported that the number of billionaires in the world has grown by 6.4% to 2,473. (Alas, most of my friends and family fell a little short.)

Their combined wealth increased 5.4% to a record $7.7 trillion.

Yet the overwhelming majority of these billionaires were not born with silver spoons. A whopping 87% of them made their fortunes themselves. Only 13% inherited their money.

[ad#Google Adsense 336×280-IA]This is hard news to take for middle-class workers who have seen their wages and retirement accounts stagnate for several years.

There are two ironclad reasons the rich keep getting richer, however.

The first is pure mathematics. Wealth compounding creates more wealth.

If you have a net worth of $50,000, for instance, and earn a considerable 20% return in the year ahead, you’ll have $60,000.

But if Bill Gates parks his roughly $78.1 billion net worth in a money market account paying 0.05%, he would earn hundreds of thousands of dollars more than you… and continue increasing the inequality between you.

Yet, aside from the power of compounding, there is another ironclad reason the rich keep getting richer: There are proven rules of wealth creation. And they follow them.

So can you. Unfortunately, most people don’t.

Instead, they carry high-interest debt. They don’t save enough – or at all. They don’t invest what they do save wisely. In short, they don’t make good financial choices.

As I’ve pointed out before, anyone who invested $190 a month for 40 years – and earned nothing more than the stock market’s average annual return for the past 200 years (10%) – would have accumulated more than $1 million.

(If $190 a month would have been too ambitious, even $47.50 a month would have turned into more than a quarter of a million bucks, providing some level of financial security.)

Yet the majority of us did nothing of the sort.

Some were too poor to manage this. Others were simply uninformed about the power of equity ownership and compounding. (A good reason basic financial literacy should be taught in high school.) Still, others realized the power of saving and investing but didn’t have the discipline to do it.

In short, it’s not that the economy is rigged. It’s that most people don’t follow the proven principles of wealth creation.

Here’s another example.

The Dow, the S&P 500 and the Nasdaq each hit a new all-time high last week. That’s great news for most of our subscribers, but not for most investors.

According to BlackRock’s 2015 Global Investor Survey, the average American portfolio is – believe it or not – 65% in cash.

You read that right. The bull market is 7 1/2 years old – it has more than tripled from the bottom – yet investors have chosen to put most of their money in an asset that pays essentially nothing.

That was not bad luck. That was a bad choice.

Here’s yet another example.

According to S&P CoreLogic Case-Shiller Indices, U.S. home prices are now just 2% below the peak reached in July 2006. Great news, right?

Not for tens of millions of Americans. The homeownership rate fell to 62.9% in the second quarter, a 51-year low.

Nearly 40% of Americans aren’t building equity and aren’t enjoying any home appreciation. (They also aren’t getting a mortgage interest deduction.)

Some folks never bought a home. Others bought one and then mailed the keys to the bank when prices took a sharp decline in the Great Recession.

Both were poor decisions.

If you want to turn your financial life around, you can start today. The formula is straightforward:

Maximize your income. Minimize your outgo. Religiously save the difference. Invest your savings in a diversified portfolio of high-quality securities. Minimize your taxes and expenses. And leave your investments alone while they compound.

Can it really be that simple?

It not only can be, it is. If you’ve read The Millionaire Next Door by Dr. Thomas Stanley – still the best survey of the habits of America’s wealthy – you know that’s exactly how most self-made millionaires did it in this country.

Follow these proven principles, and you can do it, too.

Good investing,

Alex

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Source: Investment U