The Fundamental Difference Between Being Rich and Being Poor

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Even at a young age, people understand the difference between “poor” and “rich”.

Rich people have money. Poor people do not.

And while that difference can be pretty significant, there’s another difference between the poor and the rich that has nothing to do with how much money you have in the bank.

It’s about your mindset.

What do we mean by this?

Your mindset on money influences all of your habits pertaining to money; how you earn it, how you spend it, if you save it or just blow it all.

This difference in mindset plays a crucial role in determining if you become wealthy or not.

While there are always going to be factors outside of your control, e.g. where you were born, your parent’s financial wellness and education, etc., we all have the ability to change our mindset from one that makes us poor to one that brings us riches.

So what difference in mindset are we talking about?

It’s the mindset of believing our money should work for us, rather than us working for our money.

Put another way, it’s the understanding that putting our money to work for us is a better use of our money than buying stuff we think will make us happy.

It’s the Mindset

The fundamental difference between poor people and rich people is that people with less money are caught in the trap of trading their time for money – they’re on a financial treadmill that leads nowhere fast.  

Conversely, the wealthy are busy building assets they then leverage time and time again in order to generate passive income that isn’t contingent on them directly swapping their time for money.  

Further to this, the wealthy have a long term mindset and focus on delayed gratification; if they were to have a job and get a pay raise they wouldn’t necessarily spend money upgrading their home to an executive condo; they are more likely to invest their money in buying a dilapidated property and fixing it up.

Rich people believe that money, when invested in stocks, bonds, or other wealth builders, can create happiness by securing our financial future.

Poor people believe that money can be used to buy stuff to make you happy right now.

That’s the fundamental difference: it’s not how many zeros they have in their bank account; it’s how they approach making an income and where they invest (or spend) their resources.

How People Make Money

The book Rich Dad Poor Dad presents four categories in how people make an income.

Interestingly, most people will fall into the first two categories that are related to a direct trade of swapping time for money.

That’s okay, but if you want to become rich you need to step into the other two camps whilst currently being employed or self-employed, in order to step off the financial treadmill known as the rat race and start walking the path to financial freedom.

  1. Employee
  2. Small Business Owner
  3. Big Business Owner
  4. Investor

Employee

To be an employee is the most common, yet often the most ineffective way to go about making money, because ultimately, as an employee you are trading time for money – and someone else is pulling the strings.

Working for a corporation at the higher level does have its perks however, such as the fancy cars, business class travel, and decent remuneration… but being an employee is a little like renting rather than owning a house; you’re not building something that will become an asset (other than a pension) – you are simply trading time for money – and when you stop trading time, you stop making money.

Small Business Owner

Many people today are taking the entrepreneurial leap to run their own small business, but often find themselves trading the comfort, stability, and reassurance of having a regular income where they simply turn up to work do their tasks and get paid with a whole heap of stress and uncertainty.  

As a small business owner, at least in the first year, they are likely to have doubled the amount of time they are working and halved their salary!

The financial rewards of having a small business can be substantial, but for most people they are simply trading a job for a job they own.

Big Business Owner

Small business owners, in this context, relate to people that ‘own their job’ such as a massage therapist or personal trainer; where they are still trading their time for money.  The limitation being that you can be a great massage therapist, charging $100 an hour, yet there are only so many hours in each day that you can realistically work.

Big businesses, however, leverages systems and other people to create their income.  Let’s take an ice cream van. The small business owner mentality runs an ice cream van generating $200 profit from selling ice creams.  

The big business owner, however, goes out and buys five ice cream trucks and employs five people to serve ice cream. He now has leverage.  He has created a system and a network that is scalable. This is how the wealthy become wealthy – they build systems.

Investor

The investor has true leverage; rather than work for his or her money, in the conventional sense of swapping time for money – they put their money to work for them.  

Think of it this way, if you have $500,000 in a savings account that is earning interest of 10% each year – then, by doing nothing, that savings account is generating $50,000 a year.  Now, the challenge is getting that initial $500k in the first place, but the concept remains – investors create assets that generate income automatically in perpetuity.

Five Principles for Living a Life of Wealth and Abundance

I look to live my life with an abundance mindset – there’s so much money in the world and we just need to get a little piece of it. We have a grasp of the four ways of making money; let’s look at five general principles to help you create a life of financial wealth and abundance.

Dream Big

You want to dream big.  Why? Because today, you can have and do anything you want – you just have walk the path that leads there.

Envision a Prosperous Future

Many highly successful people talk about the importance of having a vision board, where you connect with your hearts desires and spend time visualizing a future life that fulfills you – just like how athletes use positive visualization techniques to picture themselves winning the race, you want to set yourself up for success, you want to expect success and lean into the experiences you want.

Learn More

wake up an overnight successThere’s a popular saying that states the “more you earn the more you learn”.  

This is a sound concept, however, when looking at education from a money making perspective, it should be noted that there are many people that drop out of college and financially surpass their well educated white collar friends by simply selling things on eBay.  

With this in mind, it should be noted that learning is not limited to academic education; indeed, if you were to learn how to invest in property these skills are likely to get you much further in life, on a financial basis, than having a generic degree.

There are some academic courses that are required to enter a particular profession, and these should be considered, but bear in mind, that oftentimes, you’ll find highly educated white collar workers attending weekend seminars on topics such as real estate investing, Amazon trading, and digital marketing that are being led by people that didn’t go to college – they just got out there and did it.  

The one thing to bear in mind, when it comes to learning, is to ensure the time and money you put into the course provides a decent return on investment.

“Your level of success rarely exceeds your level of personal development, because success is something you attract by the person you become.” – Hal Elrod

Start a Business

Today, you can easily start a business for under $500.  Indeed, it can be for under $100 if you’re setting up an online business, such as a blog or online shop.  

The key thing to remember is that it’s VERY hard to become wealthy by being an employee – you need to run your own business and focus more on making a profit rather than making a salary.

You can learn more about starting a business here: Start a Business.

Start Investing

Even if you have just $100 in your bank account, start investing, get into a good practice and build the habit of creating assets. That’s the main difference between the “rich and the poor” – the poor tend to spend money in order to derive pleasure or gain comfort (e.g. a fancy car, nice meal, or expensive outfit) whereas the wealthy invest their money in order to derive long-term financial stability (e.g. houses, savings accounts, stock portfolios).

You can learn more about investing here: Learn to Invest.

Conclusion

Hopefully this article has opened your mind into looking at the different ways people make money and the fundamental difference between the rich and the poor.  

Making money isn’t usually the thing that makes people most happy, but it is a great facilitator, and one of the most important things it facilitates is peace of mind, security, and the freedom to live life on your own terms.  

That’s what being rich is about.  

It has nothing to do with how many zeros are printed on the end of your paycheck; it’s all about facilitating a great lifestyle for yourself and your family.

Money is a tool, and it’s like jet fuel – it can transport you from where you are to where you want to be!