Affluence is a Mindset
How do you think about money?
“Money is the root of all evil.”
“Wanting more money feels greedy.”
“Negotiating a higher salary is selfish and scary.”
“Saving money is hard.”
These are excuses you probably hear too often. Most people spend money on dumb things, which then forces them to live a life they don’t want. My best friend from the Army, Jay Tiegs, and I see too many people spending money to show off and not living out their own financial vision. To combat this madness, we are writing a book about how to live intentionally and avoid excuses like the ones above that hold you back. One of the biggest challenges we see is overcoming the social programming that makes us Americans addicted to debt. Gary Vaynerchuck did a great job summing up our society as a whole in this heavily censored quote from a conference, “The amount of people in here that have a job they hate and buy things they don’t care about, to impress people they don’t care about, scares me.” Sometimes you just have to call out what no one else will.
Affluence is a topic that is taboo for the poor and middle class because rich people talk about it, and it is something they envy. Instead people let financial problems fester without confronting them. Capital One released a survey that found finances are the number-one cause of stress for adults. Finances were more stressful than politics, work, and even family problems. Do not let this be your biggest problem when there is a simple recipe for affluence: working hard and saving money.
Hopefully, one of your goals is to use your affluence as a positive means to influence others and have some semblance of personal freedom. The hard part is that gaining financial freedom requires overcoming negative societal beliefs about affluence and maintaining healthy money habits. The truth is that the decisions you make are predominantly determined by your wealth, which is highly correlated with the wealth of those closest to you. People with similar levels of wealth and income tend to live in the same types of places and associate with nearly identical people. Your affluence even affects how you plan your career, vacations, and when to retire.
If you live in the United States, you likely have an above-average income and wealth compared to the rest of the world. Once you open your mind to a larger worldview on finance, it changes your perspective on how much money or material wealth you need to be happy. I have lived overseas in affluent communities and also in places with rampant poverty, or at least what Americans consider to be below the poverty line. Surprisingly, what I noticed in very resource-poor areas was that people usually seem quite happy. Much of the world’s “poor” are living in areas that do not have advanced banking systems with the ability to use credit and take on debt. So the infrastructure around them is not developed, yet the locals seem unconcerned. The “poor” in other countries are often living quite rich lives in terms of doing the things that they want to do and enjoying a lot of time with their family.
A big problem in America is that you hear a lot about work-life balance, but people rarely talk about how to achieve a healthy saving-spending balance. We talk even less about how credit and debt should be used. You’ve heard the phrase that money is the root of all evil, right? Well, I believe it's debt that's the real problem when it comes to financial stress. When you have wealth and live free of high-interest debt, your options are nearly limitless on what you can do. As you lose wealth and take on debt, you lose your freedom.
Debt can also compound and stretch out to the future, limiting your time and ability to take risks. Especially if you have a family to support, your ability to do HARD things will feel even more limited with the added weight of a mortgage or car payment. This is for good reason, if your family depends on your income to pay off debt plus the usual bills, then you don't have the full breadth of opportunities to leave your comfort zone. High-interest debt will keep you in a scarcity mindset, playing on defense, and hold you back from new opportunities.
There are three mindsets when it comes to money and debt: poor, middle class, and rich. These mindsets view personal finance very differently. Beliefs from each of these strongly affect your emotions. Your emotions affect your actions and habits in how you manage your money, which then affect your wealth long term. The three mindsets move from a state of scarcity to abundance, with the rich mindset seeing a world of opportunities to help others and grow one’s wealth. Let’s take a look at each of these mindsets.
Being rich is not just about how much you have but also how you perceive money. Poor people think money is for paying bills. The middle class think the purpose of money is to maintain a good credit score so they can buy things they can’t afford. You will likely not become rich if you think like the poor or middle class. Rich people believe the primary purpose of money is turning it into more money.
There is also an important difference between being broke and poor. Broke means not having money for a period of time. Whereas poor is a deep-seated state of mind that there isn’t enough and there will never be enough. The poor learn to love material possessions and titles. People love these because they are driven and motivated to flex what they have so that others can see. Poor people have the belief that has been narrated by social media and Hollywood that those who are wealthy are flashy and flaunt what they have. The poor criticize the rich for making so much money. “He has billions of dollars, it must be nice.” But they don’t see the hard work that person put in over the past 20 years and the risks that were taken. Successful business owners are often the last to get paid. If the business fails and declares bankruptcy, guess what can’t be written off, the salary owed to the employees. The workers don’t have the same type of risk.
While employees may not face the same financial risks as business owners, those with a poor mindset often engage in risky financial behaviors. They might even play the lottery, believing that a sudden windfall will transform their lives and bring happiness. However, studies have shown that around half of people who win the lottery go bankrupt. There are countless horror stories of people who won the lottery and had terrible results afterwards. Lottery winners have relationship issues, winner’s guilt, and people in their lives who also have a scarcity mindset who rob them. Many lottery winners even commit suicide due to the stress associated with having such a huge influx of wealth. This cliche story of quick riches to rags is because of people’s inability to effectively manage their money and their poor mindset. Money by itself will not eliminate a poor mentality.
The middle class mindset is defined by the love of income. How much money you make defines where you fall and even your social status. The lower middle class tend to have fewer skills and smaller salaries, whereas the upper middle class often have white collar careers that pay better. The middle class view their homes as an investment, and they believe that home ownership is the path to wealth. What most do not know is that wealthy people buy a nice home after they get rich. The poor and middle class buy their home, hoping to get rich. They fall into lifestyle traps like buying homes they cannot afford, designer brands they do not need, other luxury goods, cars with expensive insurance, and many other toys such as boats, motorcycles, and RVs.
So what about rich people? The rich generally don’t want income from W-2 jobs. Why? They know that they are going to get raked over the coals in taxes. Instead, the rich want freedom for themselves and their family. Instead of climbing the corporate ladder, the rich aspire to own the corporate ladder. They often sign up to take on more risk so they can help others. The richest own their businesses and their home is only a fraction of their wealth. The real rich are usually less flashy with luxury goods than most people think. They are secure enough with their wealth that they don’t need to flaunt it to everyone. How do the rich get there?
How do you bridge the gap from the poor or middle class to the rich mindset? You have to get through tough times where you don’t have much money. You have to focus on making and saving money, not spending it. The trap people fall into (and I certainly have) is that as you make more money, you spend more money. However, wealth accumulates when you save more than you spend. The poor and middle class mindsets crave to increase quality of life each time they gain more income. This cycle is called the hedonic treadmill, and it is a fool’s errand to stay on this hamster wheel. It will keep you from achieving financial freedom. To not fall into this trap, you have to check your ego and not get stuck keeping up with the Joneses. Simply, this just requires saving instead of spending.
If you’d like to take a deeper look at how mindset affects affluence, I highly recommend reading The Psychology of Money by Morgan Housel. Dr. Thomas Stanley also did some impressive research on what the affluent lifestyle is really like and published several successful books including The Millionaire Next Door and The Millionaire Mind. Stanley’s books document the mindset and tactics millionaires actually use to maintain financial independence and accumulate even more wealth. It all boils down to being content with living below your means, working hard, and having the courage to take risks.