It’s obvious that millionaires have become wealthy because they have thought differently from the middle class and the poor. A great deal has been written about it, from the most mystical and spiritual angles to the most logical reasoning. Here we’re going to look at what we consider the 4 main logical (and probably psychological) differences that separate the rich from the poor: the difference between building wealth and building something that isn’t wealth.
How the rich think, unlike the poor and middle class
1. Money habits: the middle class focuses on spending or saving; the rich focus on generating and earning
Steve Siebold, author of How Rich People Think, said that the middle class is taught to put money aside (to save), but the problem is that we save a very small amount because our income is too small. And this is one of the biggest differences between how the rich and the poor think.
If you earn €1,000 a month and save 20% of it, you’re saving €200 a month. If you earned €10,000 a month and saved only 10%, you’d be saving €1,000. And that’s among the luckiest, because in reality most poor people can’t afford to save practically anything.
That’s why the rich don’t focus so much on saving but on increasing the income they receive, which in turn lets them increase the money they put aside.
Regardless of how much you save relative to your income, you will hardly become wealthy, barring the odd exception. In financial education, the word “saving” is a synonym for “devaluation”. In other words, if all you do is keep your money, it loses value over time because of inflation.
That’s why I always insist that today there isn’t a single fortune of more than 1 billion in the world that hasn’t gone through equities. The money we earn has to be invested, and to invest we have to understand investing. The problem is that the poor and middle class don’t want to spend much time on finance.
(Read: Why the poor keep getting poorer and the rich keep getting richer)
2. There are only 3 ways to become wealthy, and the poor and middle class tend to be apathetic toward them
The only ways to become wealthy are:
- Your own business.
- Investments.
- Both (the option millionaires choose).
The poor and middle class look to work for big companies, while the rich know that the only road to wealth is to build a great company.
(Read: 5 steps to getting rich, by Charlie Munger, Warren Buffett’s right-hand man)
That’s why many millionaires devote a large part of their time to learning about business and investing, constantly looking for ideas that solve a problem for others or that can bring more income into their personal finances. They know that business carries risks, but they also know that a strong reward for their effort lies hidden there. Even so, they tend to work with controlled, well-studied risks.
Remember: there’s nothing wrong with taking risks. What’s wrong is not controlling them.
(Read: The secret of millionaires, told by millionaires)
3. The rich already know that money doesn’t buy happiness, but you don’t know that your happiness depends on money
Perhaps the consolation of the poor is to think that money doesn’t buy happiness. But deep down, I think anyone who says that knows they’re talking complete nonsense, because a lack of money messes up your health, in some countries keeps you from accessing healthcare, and stops you from enjoying warm moments with your family.
Money is very important to the poor, but not to those who are already rich: going from 1 billion to 60 billion doesn’t change your happiness. In your case, going from €2,000 a month to €600 a month makes a world of difference.
That’s why money becomes something emotional for the poor, and those emotions carry over into everyday habits. When the middle class gets extra income, they think about how to spend it on treats that will make them happy, while millionaires lived with a constant feeling of happiness, aware that they were building something and enjoying the process along the way.
4. Planning
While the middle class apparently lives with day-to-day planning (at 8:00 I go to work and at 22:00 I go to bed), the rich have a different kind of planning, with short-term objectives and long-term goals.
The biggest builder of poverty is depending on a single income: while we receive that income we adapt to it, and when it stops coming, we’re lost and our problems grow.
See also: Inflation, money and wealth: financial education
The rich focus above all on diversifying their sources of income. It’s what has always been called building assets that generate passive income, although without a doubt there’s no better passive income than creating one great, highly profitable company, or hundreds of companies, as in the case of Richard Branson.
But I really believe the biggest difference between the rich and the poor is that the poor set out already defeated, on a road whose outcome is bound to fail because they assume they won’t be capable, while the rich know they’re capable of anything.
This feeling of defeat in advance is what keeps the poor from spending a single minute trying to learn what the rich once learned. Little by little they lose their ambition, until all that’s left is the struggle to survive.
Basically, these would be the 4 pillars of thinking that need to change, and then it’s a matter of preparing for that hard road that many will start and only a few will finish. (Read: 8 habits millionaires have)
Further reading
Featured image: Dietmar Rabich, CC BY-SA 4.0, via Wikimedia Commons.
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