Why do people never get rich by working as an employee? originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Jonathan Kroll, Product Manager, on Quora:

Allow me to shatter your preconceived notion of how people get rich.

Consider Sundar Pichai, CEO of Google (pictured above). His net-worth: $1.05 billion[1]

Sundar Pichai has only worked as an employee at companies founded by other people. But the value of his assets, i.e. the shares of stock in Alphabet (parent company of Google) that he has accumulated in his career thus far, makes him a wealthy man who can objectively be considered "rich".

Now, consider Evan Sharp, co-founder of Pinterest. His net-worth: $1.05 billion[2]

Evan Sharp is just as wealthy as Sundar Pichai, but he traveled a different road to get there, having amassed his wealth as an entrepreneur, as opposed to having worked as an employee in a company owned and founded by other people.

"So you're saying the entrepreneur and the employee can both get really really rich? That can't be true."

It's true. And it's not just some isolated phenomenon either.

There are many incredibly wealthy people who've never been entrepreneurs. In fact, they've only been employees of other people's (or public) companies. But they still amass incredible wealth on the same echelon as some of the most famous and wealthy entrepreneurs.

"But how can that be? I thought the richest people make money for themselves rather than working to make money for someone else?"

I can see how it's hard to believe, but that line of thinking is nothing more than a relatively common misconception. And it's not even remotely true.

Here's why:

The average person with a college degree will earn roughly $2,300,000 over a 30-year career. This is an average income of $77,000 per year, rounded to the nearest thousand.[3]

The average person with a Harvard MBA will earn $3,639,643 over a 30-year career. This is an average income of $121,000 per year, rounded to the nearest thousand.[4]

The average entrepreneur earns an income of $68,000 per year. [5]

Now, do you notice anything interesting? None of these people are "rich" by any commonly held definition, at least not in the US.

Why?

Because, quite simply, none of the income figures above account for the assets a given person might accumulate over the course of his or her career, whether it's the average college graduate, Harvard MBA, or entrepreneur.

Assets could be personal investments, real estate, stock options, RSUs, or the equity an entrepreneur holds in his or her company. Salary is earned, but assets are owned. And to get rich, you need to either have ownership of lots of assets whose value appreciates over time, while continually investing in additional assets, or have ownership of an asset whose value increases exponentially.

Simply put, to "get rich", you need to own stuff.

And "owning stuff", like company stock, for example, is possible no matter if you're an employee of someone else's company or the founder of your own.

It's all about the value of the assets you own, no matter who you are or who you work for. Being an entrepreneur vs. a non-entrepreneur employee is just a matter of the road one travels to ultimately own assets of great value. It's entirely possible to "get rich" or have average wealth on either path.

In response to some of the feedback I received, let me make clear that the question, as asked, is: "Why do people never get rich working as employees?"

Note that the operative word here is never, meaning "not ever" or "on no occasion".

Thus my answer takes issue with the assertion that a person can never -- that is, on no occasion -- get rich as an employee. And I provide evidence to the contrary, that it is indeed possible for an employee to "get rich".

Although I used the example of a CEO of a large public company to illustrate this point, the types of employees who have the potential to gain substantial wealth from their employment go well beyond the C-suite. In fact, this includes a diverse range of job titles and functions, such as professional athletes, software engineers at private tech companies or early-stage startups, personal injury and class action attorneys, managing directors and partners at investment banks, hedge funds, private equity firms, venture capital firms, and other types of investment firms, as well as senior partners at management consulting firms, just to name a few.

What the question does not ask, however, and thus what my answer does not speak to, is the probability or likelihood that one might amass such wealth as an employee of a company he or she did not found or does not own. While it is true that most employees will not have the opportunity to amass wealth at a level commensurate with that of the job titles of employees named above, this fact is nonetheless outside of the scope of what was originally asked in the question.

Footnotes

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Published on: Apr 14, 2017