If You Want to Be Rich, You Need to Stop Thinking Like A Poor Person

If You Want to Be Rich, You Need to Stop Thinking Like A Poor Person

Whether you think it makes the world go round or it’s the root of all evil, there are few things that motivate human beings the way that money will. But in a world where most of us have the desire to be rich, most people spend their entire lives stuck in a poor person’s mindset, because that is what society, as well as an antiquated education system, has taught them to do.

If you won $1,000,000 in the lottery, what would be the first three things you bought? For most people, the first things they’d buy are:

  • A house
  • A car
  • A vacation

Now, there is nothing wrong with wanting nice things. I dream of one day owning one of these. But depending on how extravagant you are with your purchases, you could very quickly find your sum of $1,000,000 has quickly evaporated into next to nothing. Stories about lottery winners who end up broke, or professional athletes filing for bankruptcy are so common because people are unable to control the impulse that tells them to ‘Spend, spend, spend!’

A Poor-Minded Way Of Thinking

We’re taught the importance of getting good grades in school, so you can get a good job and a good salary, so you can buy a nice house in the suburbs. That’s the dream, or so we’re told. Work hard, earn money, spend money.

Photo by Morning Brew on Unsplash

We live in the age of consumerism, where you can buy almost anything on credit, and 80% of Americans are in some form of debt. We’re taught to work to pay your bills, then try to save some money if you can. But with rising numbers of Americans unable to cover a $1,000 emergency expense, something needs to change.

The fault lies at the feet of society and the education systems. By the time we leave school, we know Pythagoras Theorem, trigonometry, and how to make a battery out of potatoes, but we haven’t the foggiest idea of how to deal with money.

Photo by King Lip on Unsplash

But have no fear, Super-Jon is here, with four money lessons that most people never learn.

1) Pay yourself first

This one goes against everything the world has ever taught you. Where most people spend their paycheck and then save if there’s anything left at the end of the month, the path to financial freedom takes a different road.A Policy Shift that Takes From the Poor and Gives to the Rich | Data Driven InvestorI remember when I was working on my PhD in economics at Georgetown, one of my classmates actually called Paul Volcker…www.datadriveninvestor.com

In the same way that your mortgage company would start knocking down the door if you stopped paying, you need to think of yourself as your most significant creditor. Your financial future, and that of your family, should be your most important obligation, but it never will be unless you prioritize paying yourself first.

Work out your monthly income and your expenses, then work out how much you can afford to save, while still being able to pay your bills. Then stick to it. Set up an automatic transfer on payday, so you don’t even see it. Even if it’s only $25 or $50, the fact you’ve paid yourself first means that $25 or $50 is in your pocket at the end of the month. And if you have to sacrifice your daily $5 latte or the $60 per month gym membership you never use? So be it.

Pay yourself first, then spend what’s left.

2) It’s not about how much you earn, but how much you keep

If you ask people why they struggle to save money, most answers would be, “Because I don’t earn enough.” But nobody ever says, “I spend too much money,” do they? That would be the honest answer for a lot of us, and it’s the root of the problem.

Imagine two people, let’s call them Mike and James:

  • Mike earns $250,000 a year. James earns $100,000 a year.
  • Mike enjoys the finer things in life, and every year he spends almost his entire $250,000 a year salary. At most, he saves $5,000 a year.
  • James manages to keep his expenses in check, and he saves a third of his $100,000 salary every year.

Assuming their situations stayed the same, who’s the wealthier of the two after five years?

It’s not about how much you earn, but how much you keep.

3) Invest early, invest often

I’ve written a lot about investing, and have spent even more time studying it. I began working at the age of sixteen; if I’d had the same understanding of investing as I do today, I’d be well on my way to retirement by now. Don’t believe me? Then let me introduce you to the magic of compound interest.The Simple Truth About Stock Market InvestingThe best investment you can make is probably the most boring onemedium.com

Compound interest is the process through which the interest you make on your money, also makes interest. Sounds boring as hell, right? Let’s make it a little more interest-ing.

Imagine that you have $1,200 lying around that you’re not sure what to do with it. You’ve heard you can get decent returns in the stock market, but your neighbor told you he once lost money on investments and advised that you steer clear. You put the money in a savings account instead, which pays interest of 0.1%. You make additional deposits of $100 per month, a total of $1,200 a year. Let’s see what happened after forty years.

Screenshot property of the author.

*Based on the historical rate of return from the stock market

Pretty impressive right? And all it took to achieve that sum was a relatively small initial investment, followed by a deposit of $100 a month. It sounds simple because it is that simple.

Time is one of your most precious assets. Take advantage of it, and you can set yourself up for financial freedom. Play around with this calculator to see what it would take for you to retire a millionaire. It is very achievable if you start early enough.

Invest early, invest often

4) Know what you own — the difference between assets and liabilities

In his best-selling book, Rich Dad, Poor Dad, Robert T. Kiyosaki discusses the differences between the rich, the poor, and the middle-class. He writes:

“Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.” “An asset puts money in my pocket. A liability takes money out of my pocket.” — Robert T. Kiyosaki

You often hear people saying that their house is their greatest asset. The reality is quite the opposite. Unless you’ve fully paid off your mortgage, your house is taking money out of your pocket every month, making it a liability, not an asset. If you were to buy a second property through which you can earn rental income, that would be an asset, as it puts money into your pocket.

Similarly, people that buy brand-new cars often refer to them as assets, yet we all know that if you pay $50,000 for a car, the car is worth less by the time you’ve driven it home, and is worth roughly 40% less by the time you’ve owned it a year.

Know what you own, and remember: assets put money into your pocket, liabilities take it out again.

A shift in mindset

The path to achieving wealth takes more than merely sticking money in the bank or an investment account and hoping to get rich. It requires a significant shift in mindset. It requires you to unlearn the poor person’s “earn money, spend money” mindset that we’ve all been indoctrinated into. It requires you to look at every single dollar you earn through a lens and imagine the possibilities it can provide. Remember:

  • Pay yourself first
  • It’s not about how much you earn, but how much you keep
  • Invest early, invest often
  • Know what you own — the difference between assets and liabilities

The lessons required to truly master the power of money would require much more than I can fit into a single blog post. But by remembering these four lessons and putting them into practice, you’ll have taken the first steps down the long path towards financial freedom.

Jon Peters is a 29-year-old author who lives in Cornwall, UK with his wife and two children. If you enjoyed this article, you’re sure to love my other work, which can be found on my profile. You can get there super-quickly by clicking here. Happy reading.

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