How Much Do You Remember From School?
Formal education has in later years been criticized for being too abstract – the syllabus exists for the sake of the syllabus. Of course, students need to prepare for specialized professions, a doctor without medical expertise would be straight out dangerous, but, when looking at the overall picture, one subject – used on a daily basis – is often ignored: financial education.
Once an individual starts earning money, they often aren’t prepared to handle this money. It’s mind boggling that more than 70% of people live paycheck to paycheck.
So what can the rich teach us about money?
Lesson 1: A Mindset-change
A significant difference between the rich and the middle-class is that the rich think differently about their salary. Building and maintaining a budget is an essential element of personal finance success. It is the roadmap for your finances. Most financial experts make budgeting all about balancing your income and your expenses, but that’s not the whole story. Regular people believe savings is what’s left after monthly expenses:
Savings = Salary – Monthly Expenses
The rich have a different view. They pay themself first, or in other words, they save first and then pay for their expenses:
Salary – Savings = Monthly Expenses
This subtle mindset-change drastically changes your financial situation. If you put aside parts of your paycheck first, you’ll restrict yourself to necessary expenses. This is one of the most impactful differences between the rich and the regular.
Lesson 2: Why Savers Are Losers
Yes, you read that correctly. Savers are losers. Not personally, but financially.
You’ll not achieve financial freedom by saving only. By investing your savings, you will make your money work for you. Invest in the right way and sit back and watch your wealth grow. Exponential compound growth is often quoted as the eighth wonder of the world, a sentence Warren Buffet built his fortune on. When looking at graphs this makes much more sense:
Investments use time in order to grow. This leads to an interesting scenario where early investment ten fold over a longer time-period. Because of this, it’s important to make investments a habit early in your life.
Lesson 3: Pursue Your Passion, Not Wealth
Rather than pursuing wealth, rich people pursue a passion. Bill Gates wanted to give the common man access to computers and Steve Jobs wanted to make computers easy to use. The thing with passion is that it drives people to move forward, to push on each day, to not give up when failure and toughness arises. Rich people fall in love with their work, their mission and their goals.
Normal people take jobs in order to get a salary which allows them to live comfortably – have a house, being able to provide for their family and so on. Regular people want to buy things as soon as their salary permits, because they have a desire or need to impress others with what they can afford to purchase. They do not save and invest, and rely instead on their retirement funds and social security to keep them comfortable in their old age. They keep chasing the next paycheck to fund an ever-increasing cost of life. This scenario often leads to the well known analogy of being caught in the ever-running capitalistic hamster-wheel.
The wealthy on the other hand begin with a passion and adapt their life in order to succeed. The transition from middle-class to wealth is often long, tough and compromised. The rich live well below their means, wear inexpensive clothing, and do not own new cars and the best home that their income may allow.
It’s difficult to invest the time and energy into a profession that has little meaning to you. Waking up everyday with a strong sense of passion is a formula for financial independence and life satisfaction.
In Summation:
- Pay yourself first: Save first and then spend.
- Make your money work for your: Invest your hard-earned money.
- Limit your expenses: Live under your means.
- Be passionate about what you’re doing.
These are a few lessons on how the rich think differently about money and financial wealth. I hope it might be helpful to some of you.
