The Psychology of Wealth
“Mo’ money mo problems.”- Notorious B.I.G.
The greatest misnomer in our country is the belief that money is the answer to our money problems. Whether it is the government wanting to raise your taxes to solve its problems, or you wanting a raise from your employer to solve your own. But what is often overlooked is the fact that even if you were given this money, or the government got its money, if you don’t change your habits you will return to the same problems. And when this occurs, you will need another raise, or the government will need more taxes.
But lets ignore the government, and focus on ourselves. If you have been reading this blog, you have heard before that it is not how much you make that matters, but rather how much you keep. When you hear these words, do you believe them? Do you apply it to yourself? Or do merely read over them?
What is Wealth?
How do you define wealth? If you make $200,000 a year, have two expensive cars a big house and lots of gadgets are you wealthy? What if this requires working 60 hour weeks and your expenses are $200,000 a year? Are you wealthy? Are you rich? Are you screwed if you miss just a single paycheck? Are you thinking to yourself that you wouldn’t have money problems if you were lucky enough to earn $200,000 a year? Unless you change your habits, money will never solve your money problems. This is what I like to call the “psychology of wealth”.
In 1996, Doctors Thomas Stanley and William Danko determined that “One of the reason that millionaires are successful is that they think differently.” But who are these guys, right? And what do they know? Well in 1996 the published a book titled: The Millionaire Next Door.
If you want to understand the psychology of wealth, I highly recommend this book. Why? Here is an excerpt from the introduction: “We have determined how ordinary people can become wealthy.”
Another one: “Many people who live in expensive homes and drive luxury cars are not actually have much wealth. Then, we discovered something odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.”
In all honesty, I could quote the entire book because it should be required reading in elementary school. Instead we see young athletes, rappers and lottery winners on TV growing up and think that is how to get rich, and once rich that THIS is what to do with it. Only later do we learn that they are rented houses and leased cars. Is that wealth, or is that waste?
The above book explains how many self made millionaires are people that never earned high salaries, they were just very smart with their finances. And by smart, I merely mean they didn’t by stupid things. They invested in safe assets and over time built wealth. What is a safe asset? For most of them it was real estate. Real estate over time has proven to be the greatest wealth builder in our country.
Investing For You
But these people didn’t refinance their homes to buy cars and boats, they instead paid off their mortgages. In fact, as you will discover if you read the book, many tie up more of their wealth in their investment real estate than their personal residence. What a concept!?
Like I have said before, there are different investments for different people. Maybe you aren’t ready to invest a portion of your money into real estate or stocks, but hopefully you are willing to invest in your education. This book is a good start.