If you haven’t already read my earlier article on how your Money is Designed to Lose its Value, then I strongly recommend you read it before continuing.

What is your house, car or TV worth?

Chances are, you answered that question using a number with some form of currency attached to it – something like $200,000 or £10 (ok maybe not that low – unless you’re a boomer reading this on a black and white TV).

Almost everything you see around you has some sort of value to it that can be exchanged for money. The opposite is also true: money can be exchanged for almost anything in the world.

If you’re familiar with the million dollar scenario from one of my previous posts, you’ll know that if you gave everyone a million dollars to spend, then the prices of everything will begin to go up. With a million dollars for everyone, everybody will be able to afford to buy a house in a world where aren’t enough houses around. We’re now in a situation where everyone will compete to buy a house or two.

Someone that wants to buy a $300,000 house would be outbid by another millionaire who would be willing to put down $350,000. Another newly-minted millionaire will then come along and put down $400,000, this bidding war continues until you end up with the house being sold for a price that only some can afford. After all, if there are only a few houses around, then only a few can own them. In the million dollar scenario, these houses would sell for well over $1,000,000 as only a few people will have more than that to spend.

This doesn’t just happen with houses, it happens with almost everything around us, as long as there is more demand than supply . As explained by the example above, an excess supply of money results in an increased demand for most goods, resulting in the price of most things going up until the supply of goods matches consumer demand. Economists call this the law of supply and demand.

But not all prices go up equally! House prices tend to go up much faster than the prices of food, TVs or clothes example. The bigger the gap between supply and excess demand, the faster prices will rise until the two match.

To understand why certain things go up so much in value, we need know where the demand is by following the money trail. The easiest way start is by looking at who has most of the money:

By adding up the figures for the top two wealth groups (>$1m and $100k to $1m), it is evident that the top 18% of people on the planet own about 87% of all global wealth.

The richest of the rich are so wealthy that they couldn’t spend it all even if they tried! Jeff Bezos (owner of Amazon, worth $221 billion) would have to spend $1m a day for 500 years to even come close to becoming broke!

Sure, the wealthiest people spend their money on outrageously expensive luxuries, such as designer outfits, cars, yachts (Jeff’s got one worth $500m), extravagant holidays, and so on, but there’s only so much money they can spend on these things. The wealthy still end up spending much less than they make. In economist speak, the rich have a low marginal propensity to consume.

So what do you do with your money if you’re so rich that you can’t (and won’t) spend it all?

As discussed in a previous Resciply article, holding it in cash would be a stupid idea – the central banks can print as much as they wish, making every dollar or pound worth less and less over time.

The ideal place to park your money would be:

• Proven to maintain wealth over time
• In something that generates more money
• In demand in the future (and increase wealth), or
• Be able to accept large deposits of cash

To put it simply the wealthiest park their money in assets such as stocks and real estate (property).

Businesses such as Amazon and Apple (stocks) are worth money because they generate money for their shareholders (owners) and if they continue to make more money, they’ll be worth even more in the future. According to the Financial Times, the wealthiest own about 93% of all stocks.

As the wealthiest fund the development of the latest technologies and creations for us to enjoy, they also hoard more of the world’s wealth in the process. Every product sold by every company generates profits for their wealthy owners – every iPhone bought makes Warren Buffet richer and every product bought off Amazon makes Jeff Bezos wealthier.

Similarly, most real estate is also owned by the wealthy – its an easy place to park lots of cash, is always in excess in demand and generates plenty of money – the biggest expense for you and me is probably the monthly rent!

As the wealthy get wealthier, more and more of their money inevitably flows back into stocks and real estate – there’s nowhere else to park all that money they’ll never spend!

This explodes the demand for housing and stocks in a world where there are only so many houses in London and profitable companies on the stock markets. As excess demand overwhelms existing supply, like in the million dollar example, prices for these assets go up until demand matches supply.

It’s a viscous cycle that sees stocks and real estate increase in value over the long term.

Now you’re probably wondering what you can do to protect your own wealth as the rich get richer. The easy, simple answer is to buy stocks, real estate and other assets while cutting down on your non-essential spending.

Now it’s painfully obvious to us that it is easier said than done (everyone would be doing it otherwise). There are a lot of obstacles for most people to even get started.

That’s why I’ve set out on a mission here, at Resciply, to educate people on how they can set themselves up for a successful future in an increasingly expensive world.

Life is not easy, but it certainly will be.