In order to attain a reasonable level of wealth you must avoid the seductive trap of a poverty mindset.
Today’s Guest Post is from Henry (last name protected at Henry’s request).
I encourage you to read this September 21, 2017 article in which Henry outlined the steps he and his better 50% are taking on their journey to financial freedom.
We live in an affluent country, yet so many people fall into the seductive trap of a poverty mindset which leads them to be physically and financially trapped in poverty. Many may live in beautiful homes, drive nice vehicles, eat at fancy restaurants, and have all the trappings of affluence. A close examination of their personal financial situation, however, reveals that appearances can be deceiving. Some people may look wealthy but they are living on the edge of financial calamity.
In his best-selling book The Millionaire Mind, Thomas Stanley, PhD. discusses how having a ‘good’ job or a fat paycheque does not necessarily translate into wealth. Stanley followed up that best-seller with Stop Acting Rich…And Start Living Like a Real Millionaire. In this book he reveals how we spend ourselves into living paycheque to paycheque.
Have a Wealthy Mindset
In many cases, the difference between being wealthy and looking wealthy comes down to the way we think.
There are far too many people who find it to be far easier to think negatively (poverty mindset) and to be reactive than it is to think positively (wealthy mindset) and to be proactive.
In order to attain a reasonable level of wealth it is imperative you think positively and that you be proactive. Expecting to achieve wealth is extremely difficult if you think otherwise and if you fail to do the most basic of personal financial planning....setting and following a realistic budget.
So many people have the best of intentions but fail dismally when it comes to creating wealth. In many cases this is not because people plan to fail but rather because they simply fail to plan. Essentially, failing to plan is planning to fail. Anything worth having (health, sound finances, successful relationships, etc.) requires proper planning prior to execution.
Why the Poverty Mindset is a Seductive Trap
Beat the poverty mindset. Living paycheque to paycheque is essentially living a subsistence lifestyle. It is easy to fall into a subsistence lifestyle regardless of your income.
Allow me to share with you what I have witnessed firsthand with two work colleagues.
Frank and Fred both retired shortly after their respective 80th birthday. They had been friends for close to six decades and had worked for the same 3 employers during their truck driving careers.
Both men are ‘salt of the earth’ kind of guys. They earned similar income throughout their ~60 year career. The difference is that one retired to a life of leisure while the other retired to a life of trying to make ends meet.
Fred was Mr. Frugal. He was a ‘suspenders king of guy’. Frank, on the other hand, was a free spender who had no problems spending money on his wardrobe and other ‘things’.
Fred continued to work until age 82 because he truly enjoyed his job as a truck driver. Our employer appreciated his work ethic and accommodated Fred by scheduling him for a 3 day work week.
Frank, on the other hand, was AFRAID to retire. He often spoke about having no idea how he would be able to survive once he retired. Everyone at work knew about Frank’s personal financial circumstances! You see, Frank had failed to save much for his retirement and Social Security was going to be his primary source of income.
While Fred was a multi-millionaire after six decades as a truck driver, Frank had little to show after his lengthy career.
Shortly after Fred retired he bought his wife a brand new Cadillac. As for Frank…no Cadillac for him or his wife.
How Do You Think About Money?
Do you view money as a tool to acquire ‘things’ or do you view it as a tool with which to create financial freedom?
We can train our brain to imagine what is possible. Failure to do this will, in all likelihood, result in focusing on what is not possible.
Until I consistently surrounded myself with very average blue collar millionaires I just never envisioned myself becoming one. My brain just was not wired to think about becoming financially free. Over time I realized I had to make a paradigm shift. I started thinking that if that if these co-workers could become wealthy doing exactly the same job as me then what was preventing me from achieving the same level of financial freedom.
Nobody else can change your mindset for you. This is entirely your responsibility. In my Fred and Frank example, Fred did not become a multi-millionaire by accident. Neither did Frank retire into poverty because of bad luck.
When growing up my father repeatedly told me to learn from others’ life experiences because it would help me avoid making the same mistakes they made. Wow! Frank's future after retirement scared me. Trust me, now the fear of poverty motivates me to be frugal and inspires me to invest for my/my wife’s future.
Adopt a Wealthy Mindset
After having adopted a wealthy mindset several years ago I now do the following.
- always invest 10% of my pre-tax income. I set up an automatic payroll deduction for my 401k;
- always set aside money for investment purposes before setting aside money for expenditures (the ‘pay yourself first’ principle);
- remember that the quality of life is not determined by how much I spend. Warren Buffett says it best when he says a $70 steak dinner is not more nutritious than a $10 steak dinner, an $80,000 luxury car will not get me to work faster than a $20,000 car, and a $200 pair of jeans does not make me look slimmer than a $20 pair of jeans;
- try to improve myself continually. This applies to every area of my life. I no longer set New Year’s resolutions I will just end up breaking before the end of January;
- spend more time (not money) building the relationships that matter in my life;
- surround myself with people with a wealthy mindset. I don't waste time arguing with people who say becoming wealthy is impossible. I surround myself with people who ‘walk the talk’ and ignore the naysayers;
- read 10 books a year like George S. Clason's The Richest Man In Babylon that will help me improve my knowledge or skills;
- act like a real millionaire. I don’t show off or try to impress others. I have made a personal commitment to work hard, to invest wisely, and to live a simple more meaningful life. I do my best to focus on improving myself and others in need;
- ask myself how will a particular activity impact my/my wife’s life down the road and what relationships am I investing in that will matter well into the future;
- allocate what money I can to radically alter the life of those less fortunate (eg. an orphan in Mumbai, Lagos, or Port-au-Prince or people who rely on a local food bank).
On a final note, I leave you with the following questions.
How much have you earned over the course of your career and what do have to show for all the income you have generated over this time frame?
If you are not yet at the state where you have accumulated sufficient investments where you can truly consider yourself to be financially free then how long will it take you to reach that level?
If you are not yet financially free then what is your game plan to achieve this state?
If you’re happy with your answers to these questions then congratulations! If you’re not happy with your answers and the root cause is that you view your income solely for the purpose of being able to provide ‘life’s pleasures’ you will continue to miss out on the opportunity to create financial freedom.
Thank you for reading.
Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to firstname.lastname@example.org
Disclaimer: Henry and I have no knowledge of your individual circumstances and are not providing individualized advice or recommendations. We encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.
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