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There are five key ways that rich people think about money that set them apart from the majority. Once you understand these concepts, you’ll be able to change the way you use your money and start thinking like the wealthy. Here’s a breakdown:
1. Money Is Meant to Be Grown, Not Just Earned
The average person focuses on earning money, but the wealthy concentrate on growing their money. Rich people use their income to create wealth, not just to buy more things. Here’s what this means:
- The wealthy view money as a seed that can be planted and nurtured to grow more wealth. They invest in assets that generate income, such as stocks, real estate, or businesses.
- A prime example is Warren Buffett, who earned over $700 million in dividends from Coca-Cola in 2021 just by owning shares, whereas the CEO of Coca-Cola, despite working hard, earned $25 million that same year.
Lesson: Don’t just work to earn money; work to grow it. Start investing, even if it’s as little as $5 or $10 a month. Let your money work for you 24/7.
2. Shield Your Money
Wealthy people understand that they need to protect their money from those who might want to take it, whether it’s through taxes, legal claims, or unnecessary spending.
- Know the Tax System: The tax code treats income differently based on how you earn it. The IRS categorizes income into three types: ordinary income, portfolio income, and passive income. Investment income (portfolio and passive) typically gets taxed at lower rates or offers more deductions.
- Avoid Financing Liabilities: Wealthy people avoid taking on debt for liabilities (things that take money out of your pocket). Instead, they save up and buy them in cash.
Lesson: Invest in assets that protect and grow your wealth, and avoid falling into the trap of financing things that don’t make you money.
3. Money Is a Tool, Not the Destination
Rich people understand that money is just a tool to achieve their goals, not the ultimate end.
- Money amplifies who you are. If you’re a good person, more money will allow you to do more good. If you’re a bad person, more money will amplify that negativity.
- To live a happy and fulfilled life, you must focus on being physically, mentally, spiritually, and financially fit.
Lesson: Understand that money can help you achieve financial freedom, but it won’t make you happy on its own. Use it as a tool to improve your life and the lives of those around you.
4. There’s No Limit to How Much You Can Earn
The wealthy understand that there’s no cap on how much money they can make. They don’t just settle for incremental raises; they think big.
- For example, instead of just aiming for a 10% raise, a wealthy mindset involves thinking about how to turn $50,000 a year into $5 million a year by exploring opportunities, taking risks, and building new income streams.
- They take bold steps, learn from failures, and continuously strive to grow their wealth exponentially.
Lesson: Stop limiting yourself with small goals. Think bigger and work towards higher financial targets by diversifying your income streams and embracing risk.
5. Scared Money Doesn’t Make Money
If you want to grow your wealth, you need to be willing to take calculated risks. Wealthy people understand that keeping their money in a savings account or certificate of deposit (CD) offers very little return and won’t lead to significant wealth growth.
- As you take on more risk by investing in stocks, real estate, or your own business, the potential returns increase.
- However, more risk means there’s a chance of loss. The wealthy embrace this, understanding that they could fail but that their chances of success increase over time.
Lesson: If you want to build wealth, be willing to take risks. Invest in opportunities that offer higher returns, rather than settling for low-risk, low-reward savings accounts.
Final Thoughts
The key to thinking like the rich is shifting your mindset. Start focusing on growing your money, protecting it, using it as a tool, thinking beyond limits, and taking calculated risks. By doing so, you’ll be well on your way to building the wealth and financial freedom you desire.
