One of the saddest ironies of personal finance and wealth-building is that being poor is a very expensive state of affairs, while being wealthy tends to open doors to more wealth and more savings.

It turns out that inertia isn’t just something that applied in the 12th grade physics tests I struggled through—it’s observably applicable with money, too. An object in motion tends to stay in motion. A person with money tends to stay that way. A person without it? You guessed it. Momentum matters.

And I don’t mean “poor” in the colloquial, “I have $12 in my checking account because I’m 24 and went to too many bars this weekend” poor; I mean the “37 million Americans living in poverty as of 2020” poor. For contextual scale, there were 329 million Americans as of 2020—meaning slightly more than 1 in 10 Americans is experiencing these circumstances.

(If you’re interested in some of this data, you can download the tables from the US Census Bureau’s Income & Poverty statistics and peruse them at your leisure. I was unable to find anything more recent than 2020.) 

Only 13 million did not work at all in the year the data was pulled (2020) which means the other 24 million were employed in some capacity.

(For financial context, the threshold for poverty was defined in the Census Bureau data in 2019 as one person earning less than $13,171 per year, on average, or a household of two people earning less than $16,733, on average.)

Exploring the data surrounding poverty

The reasons for entering poverty vary: Job loss, addiction, a series of unfortunate events, mental illness, divorce, an unexpected child…the list is long and not exhaustive, I’m sure. But once you become poor, it’s incredibly challenging to escape the cycle. For many already living close to the edge (read: paycheck-to-paycheck) they’re just one or two emergencies away from finding themselves without shelter. 

But regardless of those reasons, once you’re in poverty, it’s difficult to escape the cycle.

This reality is captured well in tweets like this one:

When you consider that nearly half the jobs in the United States pay less than $30,000 per year pre-tax, it’s easy to see how close to the edge some people really are. On $30,000 or less, your margin of error is relatively small.

A few examples of why it costs so much to be poor

• A major fixture of historical middle class wealth accumulation—owning a home—relies on the lending industry, which (understandably) has stringent qualifications for recipients of loans. On a smaller scale, this whole “credit risk” thing plays out with cars, too. In effect, being poor likely means you don’t have a very good credit score (if you have one at all), and your credit score directly impacts the type of rates you’ll get in the future and—by extension—the amount of interest you’ll pay, if you’re extended a loan at all.

• In some notable ways, our system disincentivizes escaping poverty (namely, Medicaid’s coverage “cliff”). Once you earn more than 133% the federal poverty line (so, rounding up, earning about $19,000 per year) you no longer qualify for Medicaid. If staying poor is what you need to do to keep your health insurance…well, your options are now at odds with one another.

• A large part of getting wealthy in the first place is having enough extra income to invest in cash-flowing assets, which becomes a bit of a positive self-reinforcing cycle as your assets accumulate more assets for you. If you’re never able to start, you never benefit from that cycle. Low-income Americans spend 80% of their income on necessities, which makes it difficult to save.

• You’re unable to partake in some of the traditional money saving tips—like buying food in bulk, since your cash flow is limited—and you don't have much room to trim your budget. I’m the first to admit that one of my biggest money-saving tips is to stop shopping and eating out, two things that contributed substantially to my overspending in my early twenties. The problem with that advice for those below a certain threshold? Most people living near the poverty line don’t have that type of discretionary wiggle room to rein in to begin with. 

Between the increased cost (and difficulty) of lending to use leverage to your advantage, relatively stagnant 21st century wages, exploding cost of living, and competing incentives, it’s easy to understand why someone who finds themselves in this position would have a difficult time getting out. Look no further than the series Maid on Netflix for a poignant (and true) case study.

Of course, this isn’t to say that nobody escapes poverty, but it becomes more difficult the longer you’re in it. If you’re poor for just one year, the “exit rate” is 56%. If you’re poor for seven or more years, the exit rate is only 13%. (Both statistics from the Center for Poverty and Inequality Research at UC Davis.)

Inertia observed.

One step forward, three steps back. This excerpt from an article by Barbara Ehrenreich for The Atlantic sums it up well:

“For most women in poverty, in both good times and bad, the shortage of money arises largely from inadequate wages. When I worked on my book, Nickel and Dimed: On (Not) Getting By in America, I took jobs as a waitress, nursing-home aide, hotel housekeeper, Walmart associate, and a maid with a house-cleaning service. I did not choose these jobs because they were low-paying. I chose them because these are the entry-level jobs most readily available to women.

What I discovered is that, in many ways, these jobs are a trap: They pay so little that you cannot accumulate even a couple of hundred dollars to help you make the transition to a better-paying job. They typically give you no control over your work schedule, making it impossible to arrange for child care or take a second job. And in many of these jobs, even young women soon begin to experience the physical deterioration—especially knee and back problems—that can bring a painful end to their work life.”

(I had to read Ehrenreich’s book for a high school English class, presumably a valiant effort by one of my teachers to teach a group of relatively privileged middle class women that we were not bound for success on our own merits alone, but because we came from the socioeconomic backgrounds that were putting us at a distinct advantage.)

Having money and access in the first place is a difference maker

These self-perpetuating cycles are observed at scale in the widening wealth gap itself. When you’ve accumulated mind-boggling wealth (tens of millions, if not hundreds of millions, of dollars), your money is multiplying much faster than you can spend it. 

You can observe this phenomenon playing out in near-real time on the aptly named “realtimeinequality.org.”

 In 2021, the bottom 50% had similar wage growth to the top 1%—11.7% and 12.7%, respectively. For context, the “bottom 50%” is earning, on average, $30,000 or less. The top 1%, for comparison’s sake, represents those earning greater than $250,000 per year.

This is why the “percentage increases” are a little misleading: For the bottom 50%, that growth translated to about $2,000 for the year. For the top 1%? $180,000.

The top 0.01% saw the greatest gains: A real wage growth of 14.5% worth a staggering $4.1 million. (The top 0.01% represent those who earn $3.2 million or more per year.)

As Bridget Casey noted astutely on Twitter, the experience of money for the 0.01% is so completely removed from that of even the top 10% that it functions like a different asset entirely. So much so that trying to “project” our interpretation of wealth onto them is not possible, because they have “different money” than we do (paraphrasing Bridget). 

Weird examples of ways wealth begets more wealth

There are plenty of examples of rich people using their wealth to create more wealth, but I think we fail to recognize just how different the rules of the game are for them. 

For example, a piece of IRS tax code that was originally instituted to help farmers buy trucks for their land (Section 179) is now used as a way for business owners to write off their luxury car purchases. This Range Rover dealership even advertises the tax deduction and helps the buyer find a large enough Range Rover to qualify. In the event a business owner bought a Range Rover weighing more than 6,000 pounds, the entire purchase is now tax-deductible, wiping anywhere from $48,700 to $93,800 fully off the top of their taxable income, saving them anywhere from $15,000 to $34,000 in taxes (32% lowest high income bracket applied to the cheaper car vs. 37% highest income tax bracket applied to the more expensive car), for example.

This is just the tip of the iceberg. 

There are other perks that can help impact your interest rates as well, beyond just having a decent credit score. For example, once you’ve accumulated assets worth $10 million or more, you’re eligible to join special subsegments of major banks, like Chase Private Banking. You’ll receive lower interest rates on loans and receive higher yields on deposits, among other things. (Because yes, those with $10 million or more are definitely the same people who need a discount on their mortgage interest.)

These two examples were randomly selected based on information I’ve come across; the majority of wealth hacks the ultra-wealthy employ are likely so far beyond my comprehension that they’d never make it to this blog.

But I’ve heard of everything from borrowing against your own wealth and never incurring capital gains taxes to moving temporarily out of state to protect a giant windfall so your “trust” can be established somewhere with more favorable tax treatments.

To be fair, though, 57% of Americans paid no federal income tax in 2021, so it’s not just a millionaire’s game. I don’t mean to suggest that people are doing anything illegal—some of these households received COVID relief funds, tax credits, and stimulus checks—but for others, those with wealth often find that their wealth begets more wealth.

The biggest difference between a regular high earner and Jeff Bezos is not necessarily the amount of money, but what that amount of money can buy in the form of teams of people to manage their wealth. The best accountants and wealth managers in the world are focused on finding all the loopholes they can, a luxury that regular people (and especially poor people) cannot afford. 

The irony, of course, is that Jeff Bezos is practically the last person on the entire planet who needs the help from the loopholes. 

Wealth begets wealth. Poverty reinforces poverty. 

So what’s the broader picture here, beyond the conclusions one could draw about wealth inequality? (By the way, I have no idea how we fix this. I’ve heard arguments that basically postulate progress is delivered to all, but not equally; this is why the average American family saves modest money and time thanks to Amazon but Jeff Bezos is a hundred-billionaire.)

For one thing, I find these conversations tend to make people uncomfortable. Maybe it’s because we don’t like acknowledging that 11% of Americans are struggling through a situation that’s unimaginable to most of us, or maybe it’s because recognizing the role of momentum in our lives can feel like it discounts or cheapens our own accomplishments. Regardless, momentum plays a larger role than we often give it credit for.

Momentum matters

Much like compounding returns in the stock market, once you find yourself in a particular situation, the easiest thing to do is stay in it. The inertia of being very poor or very wealthy tends to maintain itself, to some degree, because the cycles are self-perpetuating. 

It takes a lot of effort to break out of poverty (in the same way that it takes a lot of mistakes to lose all your wealth once you amass seven+ figures worth of it).

After a certain point, it’s less about you and more about the cycle you’re in. Just like someone who’s poor may not be poor because of their own decisions, someone who’s rich may not be rich because of their decisions, either. Despite our 21st century efforts in the US to grant equal opportunities to everyone, outcomes will likely never be equal. 

We don’t give much credit to friction in our everyday lives, but I’m going to be a basic and predictable Twitter ThinkBoi and quote James Clear here: “The greater the friction, the less likely the habit.” In this context, I’d replace “habit” with “outcome.” The more friction standing between you and your goals, the less likely it is you’re going to achieve them. 

The flywheel can start spinning in either direction, burying you deeper in poverty or propelling you to wealth beyond your wildest dreams. 

The scary thing? In some ways, it’s not entirely up to you which flywheel you get sucked into—but once you’re there, it’s hard to start spinning in the opposite direction. 

Understanding the economic reality of roughly half our nation (and how people end up in the situations they do; i.e., hard work and glorious wealth are not correlated as strongly as many of us want to believe) can help us extend empathy and understanding to one another—wherever we’re at in our financial journeys.