Today I want to talk about money, and how I have come to view it. I believe I have adopted the view of money that the wealthy share and this fundamental shift of perspective is, in my opinion, the difference in what it takes to become successful in life or to remain trapped on an endless financial treadmill forever.
How Does the Average Person View Money?
The average person views money as an end goal. A product of hard work that can be spent however he or she sees fit. The problem with this methodology is it puts money on a pedestal. It glorifies money and the rewards it can be exchanged for but it connotes a belief that the cycle of money is to work hard, get your money and use it to make you happy. Then repeat.
You may be wondering, well what’s the problem with that then? Hard work is good right? People can reward themselves if they put in the time! Well, in some ways, yes that’s true. But, where does that cycle end? It doesn’t! You need to keep working harder and longer to make more money to spend more to make yourself happier which ultimately puts you on a path where you are always at the beck and call of money. It controls you.
This fundamental quote from Robert Kiyosaki completely changed how I, and many others viewed money.
“The poor and middle class work for money. The rich have money work for them.”
How Do Wealth People View Money?
The wealthy people have a different relationship with money. They respect money but they don’t put it on a pedestal. Money is simply a tool – a valuable tool – but a tool to be used nonetheless.
Rather than viewing money at face value, or rather what it could buy you, it is important to look at what income that money can generate for you. For example, let’s say you have $20,000. The average person might think that’s a decent amount of money – you could buy a nice used car or go on a very lavish holiday. A wealthy person however, would view $20,000 as $1,400 in additional income per year.
How? Well, if you consider investing that money, it is not uncommon to see long term average returns of around 10% on the stock market or in real estate, so when you deduct around 3% for inflation, you’re left with 7%. Meaning, for every $100 you invest, you could generate around $7 in income from that money on average, year in and year out indefinitely.
So before a wealthy person spends some of their money, they don’t just consider the face-value cost of the item but also the opportunity cost of the income they could have generated with that money. Next time you want to buy something, ask yourself if you’re OK with it costing you the purchase price as well as the lost return over the next 30+ years, because it will put in perspective how you spend your money and will help keep you motivated to spend less on liabilities and spend more on assets.
To that point, an asset is something you buy that has the potential to continually put money in your pocket, like shares or an investment property.
Whereas a liability is something that costs you money but does not work for you to continually benefit your finances. Common liabilities would include most cars, luxury clothes or other impulse purchases that the average person would view as signs of success. Most wealthy people however view these kinds of purchases as unnecessary and wasteful in most cases.
I hope this has broadened your view of money and I hope this mental shift proves you well as it has for me and countless others. Remember, money is simply a tool, and tools are used to help you!
DISCLAIMER: This is not financial advice. You, and only you, are responsible for the financial decisions you make.