I think that it goes without saying, that when all else is equal, you would much rather be wealthy than be poor. With wealth comes comfort, confidence and self-discovery, knowing that your basic living essentials are taken care of. Psychologist Abraham Maslow recognized that humans have a basic “hierarchy of needs” and before our higher needs (like self-actualization) can be realized, we need to at least satisfy the very basics and then work our way up to the top.
As has become painfully obvious to many of us, “becoming wealthy” isn’t as simple as pushing a magic button. Many times we catch ourselves caught on the hamster wheel or stuck in the golden handcuffs, and true wealth can feel as if it’s beyond our ability to obtain. However, although building wealth is something that takes time and effort (unless you hit the lottery or inherit a large sum from a Nigerian prince), it is attainable for those of us that can stay focused and invest wisely.
When you study the people who have become wealthy on their own, there are a few basic patterns that become apparent. More than having any particular skillset or working in any particular industry, what is perhaps the most important commonality among these individuals is their mindset.
The willingness to work hard is step one, but it will only get you so far, and there is only so much time in a day. Rather than simply working harder, or for longer, it is of the utmost importance to understand that truly wealthy people think differently than those in the middle class or below. They think differently about money, about wealth, about people, and about themselves. One specific way the wealthy mind thinks differently is avoidance of the scarcity mindset.
Please take note that I have intentionally used the word “wealthy” rather than “rich.” In a separate article, I’ll discuss the difference in detail, but for now, just know that “rich” people make a lot of money, but they also spend a lot of money. They might be the people you see buying a new 5 Series every two years (or it’s probably on lease). They keep buying a bigger house to keep up with the Jones’. They are probably your neighbors. They are probably you. On the other hand, “wealthy” people accumulate assets, create multiple income streams, make money in their sleep, buy back their time, and are financially free, such that they are not living paycheck to paycheck, and the money they make is not directly tied to the money they make.
The “Scarcity Mindset”
Wealthy people do not have a “scarcity mindset.” Poor people do.
When resources are scarce, we tend to make irrational, short-term decisions. In fact, as Andrew Yang points out in his influential book The War on Normal People, when an individual is exposed to conditions of scarcity, this individual—the very same individual—will make decisions as if their IQ is several points lower.
The scarcity mindset is one in which we fear we do not have enough to make it very far. It’s a mindset in which we sacrifice long-term growth for short-term security. When we are living with a scarcity mindset, we make decisions for today without thinking about tomorrow.
The scarcity mindset causes us to eschew long-term, beneficial opportunities. When we are in this mindset, we avoid risk, commitment, discomfort and anything unfamiliar. We are trapped in traditional thinking, trapped by the media and trapped by that little voice in our head telling us “danger” and “no.”
Of course, I am not suggesting that you should always take risks or the dangerous path, actually quite the opposite. What I am suggesting is that you need to open up your mind to abundance. Open up your mind to wealth and to being financially free. Then figure out how to get there. It will take some risk, but nothing risker than what you’re already doing. Are you working 9 to 5 until you’re 65 with a single income stream that can be taken away on a whim? Now that’s risk.
Playing to Win Versus Playing Not to Lose
Wealthy people play to win. Poor people play not to lose.
The book Rich Dad, Poor Dad is a must-read for anyone interested in personal finance. Among the many topics the book’s author, Robert Kiyosaki, discusses is the difference between having a “rich” mindset and having a “poor” mindset. Conclusively, the most striking difference between these mindsets is that while the wealthy are actively playing to win, the poor are playing not to lose.
In essence, the mindset of the poor is to manage finances defensively, continually doing whatever is necessary to pay the bills. You work to pay the bills. You put in more time, and you get more money. Then you get more bills, and the golden handcuffs take hold. On the other hand, the mindset of the wealthy has the capacity to look beyond the bills and to develop a more comprehensive and offensive approach to finances. In other words, making your money work for you, rather than the other way around.
Overcoming financial scarcity and attacking the money game to win is without a doubt quite challenging. In order to win, you have to be mindful and diligent. For instance, one common way to lose the money game is when your income does increase, they do not commit to intelligent investments that will appreciate over time and spin off cash flow, but instead succumb to lifestyle inflation, otherwise known as the golden handcuffs. They “invest” in liabilities like shiny new cars and big personal residences. Sure, they look great and makes you look rich, but do they produce cash flow?
A person with a wealthy mindset will, instead, invest the increased income into something that produces more money through cash flow and appreciation. Maybe they won’t have the new 5-Series sitting in their rich neighbors’ driveway, which will make them appear less wealthy on the surface. But the wealthy mind will be able to take time off (or not work at all), go on long vacations, spend time with their families, come and go as they please and live their lives free from the shackles of the office.
Sustaining the Mindset
Overcoming the scarcity mindset is far from easy. Creating financial freedom is typically not easy. These things require change and there are many changing things—our job prospects, the economy, emergencies—that remain beyond our ability to control.
But what does remain within our ability to control is our mindset. With a wealthy mindset, each dollar that we earn can be multiplied into many more. Instead of earning one dollar, having the government take 30 cents, and spending the other 70 cents, a wealthy mind figures out a way to earn that same dollar, but pay the government less and invest the rest into intelligent investments that will create additional income, multiply wealth, and buy back time. Financial progress becomes immediately possible because everything we earn can help move us in a positive direction.
Wealth is not something that can be immediately created, but it is something we can diligently work towards. If we can change our mindset and our approach to personal finance, each seemingly small step we take can have a bigger and bigger impact. Simply by living smarter, meaning with a wealthy mindset, we can make wealth not only possible, but certain, and not only attainable, but achieved. I am truly looking forward to helping you on your personal journey to wealth.
Seth Bradley is real estate entrepreneur and an expert at creating passive income while still working as a highly paid professional. He’s closed billions of dollars in real estate transactions as a real estate attorney, investor and broker. He’s the managing partner of Law Capital Partners, a private equity firm focused on multifamily and opportunistic acquisitions. He’s a former big law attorney and is now the managing partner of his own firm, Bradley Law Limited, helping his clients with their real estate and asset protection needs. He’s also the host of the Passive Income Attorney Podcast, educating attorneys and other professionals on how to stop trading their time for money so that they can practice when they want to, not because they have to.
Get started building a future full of freedom at passiveincomeattorney.com.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.