Have you ever wondered how rich people think about money? If you're like most people you probably don't really think about it. However, when it comes to people who regard themselves as poor, those are the people that generally view rich people as people who can buy anything and do anything. The truth, however, isn't quite that simple.
Disclaimer: I want to say at this point that when talking about poor people in this post, I'm talking about people who don't live in true poverty, but people with a mindset that they cannot live with their low income. Low income not being an absolute value, rather an undisclosed subjective value.
Rich people tend to know what they can afford
Being rich never means that you can buy whatever you want. Say for example you wanted to buy a country, very very few people can do this and even then they can only manage to buy a "country", which by law is a country, but probably relies on another country to support it. Yeah, that is an extreme example and discussing the subject further will sidetrack the point. Now, can you be rich without being able to buy a country? Most people would say yes. Especially when most people regard a person with a million dollars as rich. Can he buy a country? No, he can't. If he had 10 million, could he buy a country? Probably, not. If he could, could he sustain it? No.
What does being able to buying a country have to do with the mindset of a rich person? Well it is simple really, even if they had the money, most rich people wouldn't spend their money on buying countries. This is the main point of the rich mindset. As simple as it is, rich people usually know what they can afford. And if they don't, they will likely have to con their way to more richness or they won't be rich for much longer.
A rich person generally knows that he needs passive income streams to maintain his financial state
The average person worries about his or her financial situation most of the time. Yet when it comes to doing something about it, they never act. Most people appreciate the fact that they have a certain amount of money per month and they will get more money each month, as long as they work. The amount of stress that is involved in this cycle depends on multiple factors, but mostly the amount of money one receives per month. The more money the average person gets, the more they spend. The stress of someone with a high income hits usually 10-15 years before retirement when they realize that when they retire their income will drop so much that they cannot maintain their quality of life.
How the mindset of a rich person differs is, that when they get money, they start to consider how much of that money needs to be set aside and put to grow. There probably isn't any specific amount or percentage that rich people set aside and make grow, but the fact that they do, is the real differentiator. A person with a poor person's mindset will take the money given to them and calculate how much they can buy with it. A person with a rich person's mindset will take the money given to them and calculate how much they need to use of it. Slight differences in behavior which result in huge differences in the long run.
The average rich person isn't a 30 year old tech entrepreneur or a lottery winner. The average rich person is some one who realized early on, that spending just wasn't gonna cut it. Therefore, they figured that saving money for 20-30 years and making it grow would result in multiple streams of money making them rich.
A rich person knows not to keep their money like this
The poor man's idea of rich is where they fall short of their dream lifestyle
A poor man will dream of swimming in money, driving luxury cars, buying things that cost a lot. A rich man might do the same, but usually won't unless they can afford it. In a recent documentary series on Netflix about Trump, someone said "Trump is THE poor man's idea of rich". Thanks to shady business men such as Trump, the idea of a rich person has gone astray. Without going into too much detail, Trump is basically a self-acclaimed rich person, who's total net-worth no one knows, but before he was president, he would continuously spend his money on things that he couldn't afford and make the government pay for them. This in my view isn't a fair play, but hey people voted him for president. Enough of that. Don't want to get mixed up in politics, nor do I want to blame anyone of poor handling of money without knowing how all of that actually played out. Maybe Trump was able to turn the things that looked like bad investments into investments, which by now have made him the richest man in the world. "HUUuge, gains" as he might say.
Anyway, most rich people don't go building the worlds most expensive casinos. That is only what the poor man believes they do. Most rich people don't spend money in the same ratio as the poor man does. What this means is, that a person acclaiming to be poor gets $1000 / month and spends $600 on rent( 0.6 ratio of the income spent on rent), a rich person making $20 000/ month doesn't spend $12 000 of that on rent, even if they could. They most likely won't even live on rent at that point. They have figured out at some point that buying their own house will be cheaper. Hell, buying 2-3 houses is cheaper than expensive rent.
I recently heard someone on another documentary say they make $1500 a month and $900 of that goes to rent, so how are they supposed to afford the other stuff. Now last I checked, you can buy a large ass house for $900/ month in many cities in the USA. This was shocking to me. I would never pay $900 for rent unless I was making $7000/month, even in Finland. And if I was making $7000/month, why would I live on rent? I'm not blaming anyone personally, even though this probably might come out as an attack on poor people. I think the problem is that people from poor backgrounds and disadvantaged backgrounds just don't understand the rules of the game.
Rules of the game
Making do with what you have is an idea often heard from people from disadvantaged backgrounds. For many people that probably is true, there are thousands of people in the world living in true poverty, making 100 dollars or less per year. For them, the game doesn't apply. I'm talking about the people who live in a society similar to mine, where your own choices shape your outcomes. Still, the same thing is heard "make do with what you have". This idea leads people to spending what they have. The idea of the game, however, is: spend less than what you have. Not what you have.
The idea is simple. Yet so many fail at it. People who get to play it have been taught the basics. 1+1=2 and 50-30=20 etc. In practice, however, people play it as if 1+1=3 and 50-20=-10. Makes no sense. This makes the rest look like geniuses. Those who can additionally do the third grade math: 200 x 1.1 = 220 and apply it to the real world.
Income = $1000
Rent = -$400
Food = -$250
Other things = -$100
$1000 - $400 - $250 - $100 = $250
Put $250 into an index fund:
1 year = x 1.08
1 year = $250 x 1.08 = $270
2 year = $270 x 1.08 = $291.6
3 year = $291.6 x 1.08 = $314.928
Wow, didn't that get challenging? The good thing is that they can even forget the last things. Putting their money in the index fund is enough. The money will keep growing without calculations.
So playing the game the way it is meant to be played is the simple secret to thinking like a rich person. Success in the game of course depends on your motivations and like any game, getting better at it will make you more. But playing it right will put you on top of those who play it wrong, unless they are lucky or playing with the rules to benefit themselves.