You can afford it

Sunrise from my balcony

One of the biggest separations from reality between those with money and those without is an understanding of the size and value of money.  Put simply, a rich person knows the difference between $1,000, $100,000 and $10,000,000.  A poor person sees $10,000 the same as $10 billion.  This is why so many lottery winners go bankrupt in 5 years.  They win $10 million and think that the money will last forever.

Lets do the math: if you spend a million dollars a year, you’re broke in 10 years.  But since the average poor person can’t see the difference between a large amount of money and a King’s ransom, they can easily burn through $10,000 because in their mind, the money will last forever.

This comes to mind because a year ago, one of my best friends asked me a question.  He had seen that I had retired a year earlier and really had no means of income from a traditional source (like a 9 to 5 job).  He asked me, out of the blue, “Do you have seven figures?”  And like an idiot, I answered yes, and (feeling good about myself), I added, “Just in cash.”

The very next evening, when the bill came at the restaurant, he and his Wife looked away as though they were so poor and just expected me to pay.  My buddy’s Wife and her Mother approached my Wife about a donation for some charity that they worked in.

In their eyes, I have a million bucks, the $ will last forever, so surely I can share some with them.

What most poor people don’t realize is that it takes 50 to 100 times longer to save money than to spend it.  And once the spending begins, it is hard to stop.  This is why most poor people are poor, they can’t save and just “have” to spend.

Some six months later, we were shopping for a new car for my Wife an I was working hard to find a good deal.  I don’t believe in buying new cars as a year old car is a MUCH better value.  And so, I was dealing and negotiating and my buddy asked about my progress and I told him.  He, and then his wife began to chide me, “Don’t be so cheap, go and buy her a new car. You can afford it.”

What you can afford is relative.  If I buy a new car, a new this and that, soon, you’ve spent a hundred thousand dollars.  Do that a few years and you’ve burned through a million.  But this is the difference between my buddy and I.  This is why I have seven figures in the bank and he doesn’t.  I used a large part of the money I saved (like buying a used car instead of a new) to afford a 6 bedroom apartment on the beach (see photo above).  And in my buddy’s mind, now, more than ever, I can “afford” most anything.  But in reality, I am able to live at this “million dollar house” because I didn’t have the blase attitude that I could afford anything.

Think about this: how much money can you save each month?  For most people, it is only $500 or $1,000 per month.  And so, $50,000 is TEN YEARS OF SAVINGS.  If you get a large bonus at work or you win a lottery scratchier, if you blow through $50k, you didn’t just spend fifty thousand dollars, you spent TEN YEARS OF SAVINGS.

You will never accumulate a million dollars if you always have the attitude, “You can afford it.”  If the goal in your mind is to save a million dollars or to have a house on the beach, YOU CAN’T AFFORD IT.

One of the biggest impediments to your financial success is family and friends.  Family members don’t understand how money works and as soon as you have a few thousand dollars “extra,” they think it is the same as a billion dollars and won’t understand why you can/t/won’t share it with them.  You have to be brutally firm with friends and family.  Don’t ever give the idea that you’ll pick up the tab or pay their bill because you’re financially successful.  Guard your money.  Not only will they spend their money, they’ll freely spend yours too – if you let them.

Good luck!

Thanks for dropping in, I’d love to hear your comments on this topic!

Why We Lied to Our Kids

From Stansberry Research:

By Mark Ford, founder, The Palm Beach Letter

Five years ago, Bill Bonner, my friend and business partner, asked me to speak to a group of about 50 old, wealthy white people meeting in an exclusive beach resort. He wanted me to discuss “the challenge of intergenerational wealth.”

What the heck is intergenerational wealth?

It’s the wealth you’ve acquired for your children, grandchildren, and maybe even your great-grandchildren.

The challenge is how to preserve it. History tells us that people usually squander any money they inherit. And if they don’t squander it, their children surely will.

This is a serious problem for seriously wealthy people. But I believe it’s a problem for middle-class people, as well.

It’s not just about keeping your kids from throwing away the money you worked so hard to save. It’s about keeping that money from turning them into the kind of adults you don’t want them to be.

The experience of speaking to that bunch of 50 grumpy old folks gave me a number of new and useful ideas about this problem. I’d like to share those ideas with you in this essay.

The Downside of Helping Your Children

Let’s be realistic: It feels good to give, and we want to think of giving as a purely beneficial act. (With a stroke of the pen we can make someone’s life easier.) But giving away money – whether to your children or to strangers – often results in unintended consequences… some of them undesirable.

Giving money to your children – at any age – can make them wasteful. It might make them dependent. It might weaken their ambition and strip away their self-confidence. And the expectation of getting money from you might even make them greedy.

It’s easier to understand this when our children are very young. We recognize that giving a small child everything he wants is likely to spoil him.

My wife, K, and I were concerned about this 30-odd years ago, when our children were small. We lived in Boca Raton, where high-income baby boomers climbed over one another in some fiendish, unspoken competition to out-spend each other on their offspring.

Parents taught their grammar-school children to distinguish Hondas from BMWs. High school kids knew which of their friends’ parents had the highest-paying jobs. Some of them felt proud to come to school wearing Rolex watches and Gucci shoes.

As our family CEO, K waged a war against this by having high expectations of our kids as students and as family members. She was strict with household rules and stingy with luxuries.

If our boys failed to maintain a B+ average, we didn’t allow them to go out. Period. Before they could play on weekends, they had to work around the house. And the work was real: cleaning toilets and cutting the lawn.

We had no live TV. Video games were verboten. We never bought them clothes or toys when they asked for them. They had to wait for their birthdays or Christmas. But most of all, we expected our kids to be respectful to us and to others.

In other words, they were part of the universe, not the center of it.

K’s approach worked. Our children were not spoiled. Although – I must admit – I had doubts at times. Once, a few hours before picking up his date for the junior prom, I found my eldest son polishing the vinyl seat of the vehicle he was driving to the event: his 20-year-old, rusted-out pick-up truck. (He bought it from his grandfather.) He worked away at it in good spirits, seemingly oblivious to the stuffing coming out of a large tear in the middle of the seat. I wondered if we had gone too far.

Now, I have no doubts.

The Inheritance Question

What about leaving your kids money after you die?

I have a friend who doesn’t speak to his siblings because of a dispute over the distribution of his mother’s belongings after she died.

I’ve heard my neighbor refer to her mother-in-law as a “selfish bitch” because, at 80, the woman remarried and began spending some of her money on her new husband. When my father left more of his property to two of his daughters because they were unmarried, it caused a resentment that lasted several years.

“Family fights among children after death occur in a large percentage of families,” Tim O’Sullivan, an estate planning and tax attorney, told U.S. News & World Report. “If the No.1 goal is to create family harmony, then the estate plan ought to be designed in a way that preserves it. It’s so sad to see what happens in these situations.”

The last thing a parent wants is for the money he leaves his children to become a source of discord. And yet, it happens all the time.

This is precisely why K and I always lied to our children.

Whenever the subject arose, we told them – in clear terms – they would “never inherit a nickel” from us. We said we intended to spend all our money before we died. If we couldn’t spend it all, we would give it to a charity. We told them that we expected them to earn their own money – that they weren’t entitled to any of ours.

And we meant it.

Well, we meant the part about expecting them to make their own money. But we lied about the inheritance. Of course we’re going to leave them our money – at least some significant part of it.

We lied because we were afraid that if they expected an inheritance, they might become less ambitious. And it seems to have worked. Our boys have grown into young men who work hard, pay their bills, and never ask us for money.

Another – Maybe Better – Approach

Meanwhile, my friend Bill and his wife, E, took a different approach. They avoided lying when their children were small by simply avoiding the topic of money. Talking about money – they taught their children – was gauche.

But then, as the children grew into adults, they began to talk frequently and openly about their money. In fact, they formed a legal structure designed to preserve the family’s intergenerational wealth.

In preparing the speech Bill asked me to give on “the challenge of intergenerational wealth,” I had a conversation with him about our different approaches. And it changed some of my thinking.

I told him what we had done and said that we were happy with the results. I also told him that now that my children were adults – and their characters were largely formed – I was having trouble not helping them.

And then we talked about the inheritance issue.

He was surprised to hear that our children still believed they would not inherit anything from us.

“How long do you intend to continue with this lie?” he asked.

“‘Til the bitter end,” I answered.

“So they will find out after you are gone that they have all this money,” he said. “Just like that?”

“Right.”

“And they won’t have had any guidance from you on how to manage that money… how to work together to preserve and grow it… how to use it productively?”

That hit me like a ton of bricks.

My kids knew how to work hard. They knew how to enjoy their lives. But I now realized that one day they would inherit many financial assets about which they knew nothing.

So K and I decided to have a family meeting. We made it a formal meeting and asked our family attorney to preside. At that meeting, we showed our three boys – for the very first time – the sum of our assets. And we told them that we intended for them to inherit some portion of that.

I am pleased to report that their first reaction was negative. “We don’t need your money,” they told us. “And we don’t want it.”

I told them that I was happy they felt that way. But like it or not, they were going to inherit a sum of money one day. And we had to start talking about what they would do with it.

Since then, we’ve had several more meetings. And those meetings are influenced by a publication and organization that Bill and his eldest son, Will, started. It’s called – appropriately – The Bonner Family Office (BFO).

One big idea that we borrowed from the BFO concerns the purpose of inherited wealth. Bill doesn’t believe in cutting up wealth among the children so that they can do with it what they like. He sees the wealth as an integral family asset that should function more like a bank.

Rather than inheriting lump sums of money, the children inherit an interest in the family fund. The purpose of that fund is to help individual family members enrich their lives… but how they do that must make sense.

Children can borrow from the fund. But if they do, they must return the borrowed money with interest. They can use the money to start businesses or pursue education, but they can’t use it to buy sports cars or yachts. They also should help the fund grow in value. That way, when they die, it’s larger than it was – large enough to help their own children.

As it happens, I had formed The Ford Family Limited Partnership 20 years prior to this, so we used that structure to accomplish these goals.

We’ve already used the partnership to extend two loans: one to help our eldest son buy a house and another to help our second son start a business. Without access to these funds, neither of them could have done those things.

Their credit may not be good enough for banks, but it is good enough for us. Having the limited partnership structure allows us to provide a financial benefit to them without spoiling them.

Another thing we’ve done is include our children in a charitable project I started in Nicaragua a number of years ago. It’s a community center that provides educational and recreational facilities for local people. Originally, I saw this as a personal project – my own experiment in charitable giving. But now, by inviting the family to get involved, I’ve benefited in two ways: I have their help in developing the center, and I can expect that it will be preserved after my death.

Our youngest son took over as director of the center two years ago. He’s done a great job of it, hiring capable people and vastly improving the scope and quality of services. He receives a stipend for doing this. In addition, he’s learning how to manage a somewhat complicated business with 20 employees and hundreds of “customers.” (He asks me questions and sometimes listens to my answers.)

The Ford Family Limited Partnership owns rental real estate, which seems to be the perfect vehicle for our purposes. And recently, our second son agreed to manage those properties. As a musician and composer, he had very little exposure to real estate investing or business management. But he’s taken to it like a duck to water.

He spends several hours each week learning about the real estate business, learning that – like the music business – it can be both fun and challenging. Like our youngest son, he receives compensation for his efforts. This gives us a way to help him out financially that is merited rather than entitled.

Our oldest son hasn’t gotten involved in any of the family businesses, but perhaps he will one day. If not, there’s always the chance that a cousin or grandchild might want to get involved.

We still have plenty of assets to figure out, but we are comfortable with what we have done so far.

The community center in Nicaragua is fast becoming a project we all feel proud to contribute to. And the real-estate business has already become a cool little private bank that can make loans to family members while it grows its asset base steadily and safely.

In general, I feel like we’re doing a smart thing: involving our children in the management of the assets that they will one day inherit while we are still around to provide advice and guidance.

So what have we learned about this complicated subject?

While your children are young…

Don’t buy them expensive things just because you were poor and never had them. Remember that giving your children less is sometimes giving them more.

Expect them to work – and not just at their education. Give them menial household chores and pay them fair market value for their work. Never overpay them.

Avoid discussions of family wealth. If the subject of inheritance comes up, tell them they aren’t getting anything.

When your children leave home…

Make it clear that their bedroom is no longer their bedroom. Put their personal effects in storage. Tell them they are welcome to come home for brief periods as a guest. Remind them that guests are always well-mannered.

When your children become adults…

After your children have proven to you that they can take care of themselves, you can begin to discuss family wealth, including what they might one day inherit.

Consider putting a business or some income-producing assets into a legal structure that can operate as a family bank, making loans to them when merited.

Consider establishing a family charity (if you believe in charity).

Use the family bank and charity to teach your adult children what you have learned about managing wealth.

Best,

Mark

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net

Its all about your attitude

Happy grimmace sad

As I think more and more about the road to financial independence, I become more and more convinced that your attitude is the primary factor for success. Unlike the graphic above, whether or not you are happy or sad won’t decide if you will make a million dollars but your attitude towards getting to that goal will be everything.

At my work I’m surrounded by colleagues who make six figure salaries and barely can put together ten thousand dollars for a house down payment. There is NO reason why they can’t be financially successful (savings I mean, not earnings) except for their attitude. They treat money like air, something to be breathed in and out without a thought to saving, investing or planning for the next step in their lives. Opportunities about; the average person probably has about a half dozen opportunities in their life to stake a claim on their fortune. Whether or not you are prepared will mean everything.

I have one old buddy from high school who started real estate investing in the last 6 or 7 years. I even went in on one of his deals and it is paying off nicely. He first bought a 3 room house and then rented it followed by a one bedroom apartment. He paid enough down so that his monthly cash flow was positive on both properties. Later he bought (also with positive cash flows) a 3 unit condo complex and later a 4 unit apartment building (the unit I helped to finance). He has just informed me that he closed on an 18 unit apartment building. Each property has a positive cash flow and I estimate that he is earning somewhere between $6,000-8,000 per month in EXTRA income.

I say extra because he still has his job and his wife still has hers. Because the cost of financing is cheap (rates in the 4% range), he uses the extra $6k each month to finance new properties. After a year, you have an extra $80k – this can be used for a down payment on a new property. I guess that he will hit his million in a decade.

Realize now that he started with NOTHING. He and his wife worked, skimped and saved until they had enough to buy their first rental property. After that, they skimped and saved more. And over time, it is paying off handsomely. I suppose that in a few years he will be so busy managing his properties that he won’t have time to go to work. What a glorious day that will be when he can quit his job and be self employed.

The American Dream.

And so, what set him apart from his friends and colleagues who aren’t growing their net worth like him? It was all his attitude. He made a goal to own 20 properties and started with just one. When his first was bought, he set his sights on the next.

It was all ATTITUDE.

If your attitude isn’t such that your mindset is that you’re ALWAYS looking for your chance to stake a claim to one of your life’s jackpot opportunities then you’ll probably never succeed. Have an attitude check on yourself and ask if you’re motivated and focused on becoming a millionaire. If you are, you can find a way. If you aren’t, someone else will take that opportunity that you pass. They’ll be the “lucky” one who was “at the right place at the right time.”

Luck is when preparation meets with opportunity.

Good luck!

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net

The Morality of Wealth

Religious symbols

In talking with others about wealth and investing I find that there is a HUGE pressure on American Christians to be, act and remain poor.  I did a Google search for Bible verses on wealth, money and materialism and I found quite a few results that included many admonitions to be poor and to give up all of your wealth and possessions.

Now, I’m not going to get into a religious or philosophical discussion here – that’s a whole other website and I’ll leave it to someone to tackle those issues.  But I can say that almost my entire family comes from (very) religious stock & they are all quite poor.  I’m guessing that if you’ve come here, you are probably interested in getting rich.  If you are a Christian, you will have to balance your Biblical beliefs with your desire for wealth and how to merge the different philosophies.  Aside from Americans, this website is most visited by Chinese.  So, to my Chinese readers, whether you are Atheist, Buddhist, Christian or some other religion or philosophy, having a positive subconscious view that money and morality can coexist will be easier for you.

If you are a Christian person and you struggle with the idea that Jesus told the disciples to be poor and give up their possessions, you may consider some other logic.  Personally, I believe that any religious texts, if they were divinely inspired, have quite a bit of “influence” added by the writer.  And when I say influence, I mean distortion.  Now, if God’s hand came materialized and came down from the sky and wrote the book, it would be one thing.  But when a man puts it to paper, after first hearing it from someone else, there is a bit of distortion.

And, you have to look through a lens of context: when was the text written?  The Bible used to command people to stone those who worked on the Sabbath, but that has been done away with.  When Jesus told the disciples to “go poor,” did he mean EVERYONE or just those who personally followed him?

Is it possible to be rich and at the same time be religious?  Of course.  Provided that you’re smart with your money.  Giving it all away to your church isn’t smart.  Actually, I think over-donating (to your church or ANY other cause) is irresponsible.  If God gave you children and you give all your money away and your child becomes ill or you can’t afford to clothe them or pay for a good education, then you’re really a bad parent.  Good church-goer, but bad parent.  Bur really, this is what the New Testament says.  It says for the disciples to give up EVERYTHING for Jesus.  Does that mean that God expects ALL Christians WORLDWIDE to abandon their spouses and children?  Of course not.

When you look at what was written in context, you can see that there is no prohibition to wealth.  When looked at, in its totality, the Christian scripture warns against love of money more than God.  In other words, if you are so hungry for money that you will lie, cheat and steal, then, that is a bad thing.  And I can honestly say that I haven’t lied, cheated or stolen to save my first million dollars.

The good book does warn against indebtedness yet I see most Christians in debt.  Funny, so many Christians will chastise affluent people for violating God’s rules but a page later, when it says not to be in debt, they do the same thing.

And so, in our American culture, we have an inset bias against wealth and affluence.  it is no wonder that the immigrants to this country regularly beat Americans in the wealth competition game.  The average American seeks a “job” and the average immigrant seeks “opportunity” (often to start their own business.

I suggest that it is morally right to be affluent.  Have a look at God’s “chosen people,” the Jews.  They are, by capita, the richest people on Earth.  They don’t have any guilt trip when it comes to being wealthy.  This is an interesting paradigm because if they are God’s chosen (as believed by most Christians), how can they also be so wealthy?

Remember, all things in moderation.  God wants you to be happy and prosperous.  Saving enough money so that you can set up your children and grandchildren in their life is a good thing.  It is a moral thing.  Don’t let anyone tell you that having money goes against God’s will.  That is just silly.  If you look closely at your own religious beliefs and take them into the context of your whole religion, you will probably find that become affluent is good and it is moral.

Good luck, and good investing.

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net

On being frugal

There are several disciplines that must be mastered in order to become wealthy.  Aside from inheriting money or winning the lottery, these steps are crucial and failure to master them most assuredly makes wealth growth nearly impossible.  In order to grow your wealth you must increase your income, manage and grow your investments, manage your expenses, and manage or eliminate your debt.  We’ll talk about income, investments and debt at a later time but for now, let us focus on managing expenses.  There is no more direct way to managing expenses than to just be plain frugal.

I get grief from my friends all the time about being a “tightwad,” being “cheap,” and they even nicknamed me “Jew.”  Now before I get a rash of hate-mail for being anti-semetic, let me just say that I take the Jew nickname as a compliment.  Let’s face it, per capita, Jews are the most wealthy people on the planet.  Why is this?  It is because they respect money and they teach that respect to their children.  All of my Jewish friends have told me the stories of being scolded by their parents for leaving $.35 cents in change on their dresser drawer at the end of the day.  “Respect that money, that isn’t how I raised you, put that money away.”  Quite to the contrary, most Gentile families criticize you if you don’t spend outside of your means, calling you cheap.

Well, lets just look at the results.  Being frugal with your $ = long term wealth creation as demonstrated by, not only Jewish families but also many in the Asian community, Armenians and even the American Scottish.  It may not seem like much, $.35, but added each day, over 10 years, when invested wisely, those pennies add up to dollars and then to thousands of dollars.

Now, I’m not talking about being “cheap,” wherein you sacrifice quality to save money.  I’m talking about getting good bargains, buying things on sale, spending within your financial situation and not overspending on silly things like tipping at restaurants.  My brother is notorious for tipping the wait-staff 25% for every meal.  He is an owner of a large corporation that does millions in business and I’d be surprised if he has $1,000 in the bank.  He also spends lavishly going out to dinner and to bars, on expensive cars and on gifts for his children.  I’m all for buying a nice Rolex watch or a Mercedes sedan, but only if you can afford it.  If you don’t already have a million bucks in the bank, if you have to borrow to afford it, guess what, you can’t afford it!

There is no way you will ever grow a million dollars if you are extravagantly spending money on things like this…

There is a lot of social pressure to “not act cheap” so much that people feel obliged to tip 20% or more at restaurants.  Didn’t tipping used to be 10%?  Then it went to 15% and now people are tipping 20-25% or more!  On a hundred dollar bill (not uncommon for a diner for two), you’re looking at an additional $25 for the tip!  Multiply that times twice a week and at the end of the year you’ve spent an extra thousand dollars!  Put that thousand dollars in a stock mutual fund and after ten years, you could have as much as $20,000!  Every time I tip 10% and sometimes 15% and I get that “look,” I just smile and think about that $20k in my bank account.

If you want to become wealthy, you have to be strong enough to ignore social convention and do what is right for you!  

Sometimes thinking of yourself first instead of other people (the waiter) is the difference between financial mediocrity and serious wealth generation.  Suppose you do cut back on tips and you do save $20k in the next decade.  You later hear that a house is up for sale because of some financial problems and you are able to step in and buy it at a discount.  Later, you sell the home and make an additional $50k profit.  This is how and why rich people get rich and stay rich – they have the financial means to take advantage of opportunities when they arise.  I bet deals pass you all the time and you don’t have the $ to take advantage of them.

Cut back on your extravagant spending now to have $ available for those “once in a lifetime” bargains that occur more often than you realize.

I have a colleague here at work, young, maybe in his 20′s.  He has a six-figure salary and he has no idea how to manage his money.  Last year he bought a Cadillac Escalade for $70k and put on $15k worth of rims and then bought two Breitling watches and a Rolex for an additional $25k.  Despite his six-figure salary, he is close to bankruptcy now.  Heaven forbid he should ever get laid off from work, he surely will be in bankruptcy court.  Meanwhile, banks are almost giving houses away to anyone with a serious down payment.  With the money that he spent on these luxury items, he could have easily bought four houses in the Texas area netting two thousand dollars a month in rent.

I made a deal with myself – when my account hit $750,000, I would buy an Omega watch to reward myself.  I told myself that when I hit a million, I’d buy a Rolex.  The photo at the top of this post is the watch that I’m going to buy.  But why haven’t I bought it yet?  Because I haven’t found the right deal.  Why do I want to spend $8-12k on a watch when I can find someone who spent outside of their paycheck, ran into financial trouble and now they’re selling theirs at a discount.  I’ve seen watches like this sell for as low as $3,800.  I’ll be patient and get a good deal.

When you go to buy ANYTHING, shop for the best price.  Most people say, “Oh, its not worth the trouble.”  Isn’t it?  If you save $50 here, $100 there, over time, those bits add up (just like the Jewish kid’s $.35 cents) and eventually, you’ll see a once in a lifetime deal and you’ll have the means to capitalize on it.

In my case, I worked and saved hard and when the 2008 stock market crash happened, I had a few hundred thousand in the bank.  I loaded up on stocks and in 2009/2010 I realized about $400,000 in stock gains.  If I hadn’t been frugal, hadn’t saved that money, I would have missed out on the best stock-buying opportunity of our generation.

When someone looks “down” at you for leaving a moderate tip, turn it around on them and tell them that to do otherwise is foolish and fiscally irresponsible.

Your bank account will thank you in the long run!

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net

How Rich People Think

Now that I’ve “made it” to a significant financial milestone – one that the vast majority of Americans will never see, I can confidently say with some experience that this article is right on the nose.  I just saw this on Yahoo Finance last week and thought that it would make a superb post.  In this article, the author interviews some rich folks and looks at how they think compared to poor folks.  Some of the answers I already knew but some surprised me.

Have a look at this list of 21 differences between how Rich and Poor think and ask yourself how do you think?  If you’re answers match the poor folks, it is likely a time to adjust your thinking.

By Mandi Woodruff | Business Insider – Tue, Sep 4, 2012 10:50 AM EDT

World’s richest woman Gina Rinehart is enduring a media firestorm over an article in which she takes the “jealous” middle class to task for “drinking, or smoking and socializing” rather than working to earn their own fortune.

What if she has a point?

Steve Siebold, author of “How Rich People Think,” spent nearly three decades interviewing millionaires around the world to find out what separates them from everyone else.  It had little to do with money itself, he told Business Insider. It was about their mentality.

“[The middle class] tells people to be happy with what they have,” he said. “And on the whole, most people are steeped in fear when it comes to money.”  Average people think MONEY is the root of all evil. Rich people believe POVERTY is the root of all evil.

“The average person has been brainwashed to believe rich people are lucky or dishonest,” Siebold writes.  That’s why there’s a certain shame that comes along with “getting rich” in lower-income communities.  “The world class knows that while having money doesn’t guarantee happiness, it does make your life easier and more enjoyable.”

2. Average people think selfishness is a vice. Rich people think selfishness is a virtue.  “The rich go out there and try to make themselves happy. They don’t try to pretend to save the world,” Siebold told Business Insider.

The problem is that middle class people see that as a negative––and it’s keeping them poor, he writes.  “If you’re not taking care of you, you’re not in a position to help anyone else. You can’t give what you don’t have.”  Average people have a lottery mentality. Rich people have an action mentality.

“While the masses are waiting to pick the right numbers and praying for prosperity, the great ones are solving problems,” Siebold writes.

“The hero [middle class people] are waiting for may be God, government, their boss or their spouse. It’s the average person’s level of thinking that breeds this approach to life and living while the clock keeps ticking away.”

4. Average people think the road to riches is paved with formal education. Rich people believe in acquiring specific knowledge.  “Many world-class performers have little formal education, and have amassed their wealth through the acquisition and subsequent sale of specific knowledge,” he writes.

“Meanwhile, the masses are convinced that master’s degrees and doctorates are the way to wealth, mostly because they are trapped in the linear line of thought that holds them back from higher levels of consciousness…The wealthy aren’t interested in the means, only the end.”

5. Average people long for the good old days. Rich people dream of the future.  “Self-made millionaires get rich because they’re willing to bet on themselves and project their dreams, goals and ideas into an unknown future,” Siebold writes.

“People who believe their best days are behind them rarely get rich, and often struggle with unhappiness and depression.”

6. Average people see money through the eyes of emotion. Rich people think about money logically.  “An ordinarily smart, well-educated and otherwise successful person can be instantly transformed into a fear-based, scarcity driven thinker whose greatest financial aspiration is to retire comfortably,” he writes.

“The world class sees money for what it is and what it’s not, through the eyes of logic. The great ones know money is a critical tool that presents options and opportunities.”

7. Average people earn money doing things they don’t love. Rich people follow their passion.  “To the average person, it looks like the rich are working all the time,” Siebold says. “But one of the smartest strategies of the world class is doing what they love and finding a way to get paid for it.”

On the other hand, middle class take jobs they don’t enjoy “because they need the money and they’ve been trained in school and conditioned by society to live in a linear thinking world that equates earning money with physical or mental effort.”

8. Average people set low expectations so they’re never disappointed. Rich people are up for the challenge.

“Psychologists and other mental health experts often advise people to set low expectations for their life to ensure they are not disappointed,” Siebold writes.

“No one would ever strike it rich and live their dreams without huge expectations.”

9. Average people believe you have to DO something to get rich. Rich people believe you have to BE something to get rich.  “That’s why people like Donald Trump go from millionaire to nine billion dollars in debt and come back richer than ever,” he writes.

“While the masses are fixated on the doing and the immediate results of their actions, the great ones are learning and growing from every experience, whether it’s a success or a failure, knowing their true reward is becoming a human success machine that eventually produces outstanding results.”

10. Average people believe you need money to make money. Rich people use other people’s money.  Linear thought might tell people to make money in order to earn more, but Siebold says the rich aren’t afraid to fund their future from other people’s pockets.

“Rich people know not being solvent enough to personally afford something is not relevant. The real question is, ‘Is this worth buying, investing in, or pursuing?’” he writes.

11. Average people believe the markets are driven by logic and strategy. Rich people know they’re driven by emotion and greed.  Investing successfully in the stock market isn’t just about a fancy math formula.  “The rich know that the primary emotions that drive financial markets are fear and greed, and they factor this into all trades and trends they observe,” Siebold writes.

“This knowledge of human nature and its overlapping impact on trading give them strategic advantage in building greater wealth through leverage.”

12. Average people live beyond their means. Rich people live below theirs.  “Here’s how to live below your means and tap into the secret wealthy people have used for centuries: Get rich so you can afford to,” he writes.

“The rich live below their means, not because they’re so savvy, but because they make so much money that they can afford to live like royalty while still having a king’s ransom socked away for the future.”

13. Average people teach their children how to survive. Rich people teach their kids to get rich.  Rich parents teach their kids from an early age about the world of “haves” and “have-nots,” Siebold says. Even he admits many people have argued that he’s supporting the idea of elitism.

He disagrees.

“[People] say parents are teaching their kids to look down on the masses because they’re poor. This isn’t true,” he writes. “What they’re teaching their kids is to see the world through the eyes of objective reality––the way society really is.”

If children understand wealth early on, they’ll be more likely to strive for it later in life.

14. Average people let money stress them out. Rich people find peace of mind in wealth.  The reason wealthy people earn more wealth is that they’re not afraid to admit that money can solve most problems, Siebold says.

“[The middle class] sees money as a never-ending necessary evil that must be endured as part of life. The world class sees money as the great liberator, and with enough of it, they are able to purchase financial peace of mind.”

15. Average people would rather be entertained than educated. Rich people would rather be educated than entertained.  While the rich don’t put much stock in furthering wealth through formal education, they appreciate the power of learning long after college is over, Siebold says.

“Walk into a wealthy person’s home and one of the first things you’ll see is an extensive library of books they’ve used to educate themselves on how to become more successful,” he writes.

“The middle class reads novels, tabloids and entertainment magazines.”

16. Average people think rich people are snobs. Rich people just want to surround themselves with like-minded people.  The negative money mentality poisoning the middle class is what keeps the rich hanging out with the rich, he says.

“[Rich people] can’t afford the messages of doom and gloom,” he writes. “This is often misinterpreted by the masses as snobbery.  Labeling the world class as snobs is another way the middle class finds to feel better bout themselves and their chosen path of mediocrity.”

17. Average people focus on saving. Rich people focus on earning.  Siebold theorizes that the wealthy focus on what they’ll gain by taking risks, rather than how to save what they have.  “The masses are so focused on clipping coupons and living frugally they miss major opportunities,” he writes.

“Even in the midst of a cash flow crisis, the rich reject the nickle and dime thinking of the masses. They are the masters of focusing their mental energy where it belongs: on the big money.”

18. Average people play it safe with money. Rich people know when to take risks.  “Leverage is the watchword of the rich,” Siebold writes.

“Every investor loses money on occasion, but the world class knows no matter what happens, they will aways be able to earn more.”

19. Average people love to be comfortable. Rich people find comfort in uncertainty.  For the most part, it takes guts to take the risks necessary to make it as a millionaire––a challenge most middle class thinkers aren’t comfortable living with.  “Physical, psychological, and emotional comfort is the primary goal of the middle class mindset,” Siebold writes.

World class thinkers learn early on that becoming a millionaire isn’t easy and the need for comfort can be devastating. They learn to be comfortable while operating in a state of ongoing uncertainty.”

20. Average people never make the connection between money and health. Rich people know money can save your life.  While the middle class squabbles over the virtues of Obamacare and their company’s health plan, the super wealthy are enrolled in a super elite “boutique medical care” association, Siebold says.

“They pay a substantial yearly membership fee that guarantees them 24-hour access to a private physician who only serves a small group of members,” he writes.  “Some wealthy neighborhoods have implemented this strategy and even require the physician to live in the neighborhood.”

21. Average people believe they must choose between a great family and being rich. Rich people know you can have it all.  The idea the wealth must come at the expense of family time is nothing but a “cop-out”, Siebold says.

“The masses have been brainwashed to believe it’s an either/or equation,” he writes. “The rich know you can have anything you want if you approach the challenge with a mindset rooted in love and abundance.”

From Steve Siebold, author of “How Rich People Think.”

sourced at Yahoo Finance

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