At a young age, you most likely understood the difference between “poor” and “rich”.
Rich people have money. Poor people do not.
The financial difference between a poor person and a rich person can be pretty significant.
However, there’s another difference between the poor and the rich which has nothing to do with how much money is in the bank. The difference between being rich and poor is mindset.
Some of the wealthiest people I know aren’t rich financially, but they understand how to use their money for happiness.
Through saving and investing, you can use your money to live the life you want and deserve. You can become rich over time, and do what matters to you.
Your mindset towards money influences all of your habits pertaining to money:
- how you earn money
- how you spend money
- where you save your money
- how you use your money over time
While there are always going to be factors outside of your control (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.
What do I mean by the mindset of the rich?
A rich mindset is the belief money is a tool, and you can use money to create a life you love. A rich mindset is also having the understanding that money should work for us, rather than us working for our money.
The rich know a dollar saved and invested today is better than a dollar spent today.
Put another way, it’s the understanding that putting our money to work is a better use of our money than buying stuff we think will make us happy.
Let’s dive more into detail about how you can cultivate a rich mindset.
The Mindset for Building Wealth to Fund Your Dream Life
Whatever your dream life is, you can fund it through understanding the mindset of the rich.
People without the mindset of the rich are often caught in the trap of trading their time for money – they’re on a financial treadmill leading them to nowhere fast.
Conversely, people with a rich mindset are busy building assets. These assets leverage the power of time to generate passive income – passive income which isn’t dependent on them directly swapping their time for money.
We all have limited time on this Earth, and if you are spending a lot of your time trying to make money to make ends meet, you probably aren’t living your best life.
Spending money on things that don’t bring you happiness, and doing things which don’t align with your purpose and passions will lead a less than a truly fulfilling life.
People with a rich mindset have a long term mindset and are able to delay gratification. If they have a job and get a pay raise, they don’t look to spend money upgrading their home to an executive condo.
The rich are more likely to invest their money in buying a run-down property and fixing it up.
Rich minded individuals believe money, when invested in stocks, bonds, or other assets, can lead to a secure financial future.
People with a rich mindset understand compounding and the time value of money. People with a poor mindset believe that money can be used to buy stuff to make you happy right now.
Understanding the time value of money is very important.
Having a wealthy mindset, or a poor mindset, is not how many zeros you have in their bank account.
Instead, it’s how you approach making an income and where they invest (or spend) their resources.
How People Make Money
One of the best books about building wealth is Rich Dad Poor Dad. In Rich Dad Poor Dad, the author presents four categories in how people make money.
Most people will fall into the first two categories that are related to a direct trade of swapping time for money.
Jobs are a perfectly okay way to make money.
However, if you want to become financially rich, you need to consider the last two categories while currently being employed or self-employed, This way, you can step off the financial treadmill known as the rat race and start walking the path to financial freedom.
The four ways a person can make money are through the following roles:
- Small Business Owner
- Big Business Owner
Let’s discuss each of these roles in detail.
Working as an Employee to Make Money
Being an employee is a very common way to make money. Being an employee is probably the most common, but yet, the most ineffective way to go about making money.
While it can be stable and provide security, as an employee you are trading time for money – and someone else is pulling the strings.
Working for a corporation at the higher level can certainly have its perks.
You can drive fancy cars, travel business class, and earn a great income.
However, being an employee is a similar to renting rather than owning a house. You’re not building something that will become an asset.
You are simply trading time for money, and when you stop trading time, you stop making money.
Being a Small Business Owner to Earn Income
The second way people make money is through owning their own small business.
Many people take the entrepreneurial leap to run their own small business.
Small business owners often find themselves trading the comfort, stability, and regular income with a stress, instability and a volatile income. While many small business owners are able to do what they love and make their own hours, it is very tough to make it.
As a small business owner, at least in the first year, you will most likely have doubled the amount of time you spend working, and make a lot less money than before starting the business.
The financial rewards of having a small business can be substantial, but for most people they are simply trading a job they don’t own for a job they own.
Becoming a Big Business Owner to Build Wealth
The third way people make money is through big business ownership.
Small business owners, in this context, relate to people who ‘own their job’. For example, small business owners might be massage therapists or personal trainers – they are still trading their time for money.
These small business owners are limited by time. They could be a great massage therapist, charging $100 an hour, yet there are only so many hours in each day to realistically work.
Big business leverages systems and other people to create their income.
For example, let’s take an ice cream van. The small business owner mentality runs an ice cream van generating $200 profit from selling ice cream.
The big business owner, however, goes out and buys five ice cream trucks and employs five people to serve ice cream. The big business owner now has leverage. A system has been created, and there exists a network which is able to scale.
Construction of this system is how the wealthy become wealthy.
Using Investing to Become Rich
Finally, the last way a person can make money is through investing.
An 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 earning 2% in interest each year, then, by doing nothing, you have a savings account is generating $10,000 a year.
The challenge is getting that initial $500,000 in the first place. However, the concept remains, investors create assets that generate income automatically in perpetuity.
Now that we have gone over the four ways you can make money, and discussed how through creating systems and investing, you can create passive income, now let’s talk about the principles for living a life of wealth and abundance.
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 bit of it.
From the last section, we have a grasp of the four ways of making money.
Now, let’s look at five general principles to help you create a life of financial wealth and abundance.
These five principles are:
- Dream Big
- Envision a Prosperous Future
- Learn More
- Start a Business or Start Investing
- Do What Matters and Live a Life You Love
Below, let’s get into each of these five rich mindset principles in more detail.
Step One for Living a Life of Abundance: Dream Big
Dreaming big is step one to living a life of abundance.
Why is dreaming big important?
You are capable of everything and anything you put your mind to. You can have and build towards your dream life – you just have to set a goal and start working towards it.
While this may not happen overnight, over time you can get there.
What do you want your life to look like? What’s keeping you from living it today? What steps do you need to take to get there?
Dreaming is the first step to living the life you want and deserve.
Envision a Prosperous Future
Many highly successful people talk about the importance of having a vision board. A vision board is used to help you connect what your hearts desires with what your future life looks like to you.
Similar to how athletes use positive visualization techniques to picture themselves winning that big race, you can do the same for your dream life.
Through visualization and affirmations, you can set yourself up for success and lean into the experiences you want.
Dreams are just that, dreams. However, by visualizing and planning, you can start to make it real.
Now, it’s time to take action and make those dreams and visualizations a true reality.
Invest in Yourself, Learn and Become Better
Your level of success is rarely exceeded by your level of personal development, because success is something you attract by the person you become.
Education and investing in yourself can have an amazing return on investment, if done correctly.
Learning, growing, and gaining experience in the field of your interest will help you grow the necessary skills for success.
Investing and building systems are complicated endeavors which require some understanding of different industries and companies to be successful.
To learn, you can go the traditional route with academic courses, or look to learn through experience.
Some academic courses are required to enter a particular profession, and these should be considered. However you can find highly educated white collar workers attending weekend seminars on topics such as real estate investing, Amazon selling, and digital marketing which are led by people who didn’t go to college.
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 or Start Investing to Earn Passive Income
Running a business is difficult, but the experience and knowledge gained through this endeavor will be very beneficial.
The last four years of my entrepreneurial adventures have been incredibly beneficial for my development.
While I haven’t had amazing financial returns, my mindset and skills have grown and I’m confident I can become successful through business in the future.
Again, it’s very hard to become super wealthy by being an employee.
By learning how business and systems work, you can increase your skills and value, and start to tap into passive income sources to make more money.
If starting a business doesn’t make sense for you, you can putting your money to work with investing.
By investing in the right assets, you can earn passive income. Passive income allows you to make money without work.
Even if you have just $100 in your bank account, start investing, you should still get into the habit of saving to build your asset pile over time.
The main difference in mindset between the rich and the poor is 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).
Live the Life You Want and Deserve
The final step for living a life of abundance is realizing you are enough and you have enough – regardless of the number which appears on your financial statements.
While having more money is great, being happy, helping others, and doing what matters to you with your time is the true meaning of life.
Money is a tool which you can use to live the life you want and deserve.
Living with a rich mindset will allow you to create your dream life and live the life you want.
Become Rich Through Learning, Investing, and Action
Hopefully this article has opened your mind into looking at the different ways people make money, and the fundamental difference between mindsets of the rich and the poor.
Making money will not make you happy, but you can use money to live a great life. Money can bring peace of mind, security, and the freedom to live life on your own terms.
That’s what being rich is about.
Being rich has nothing to do with how many zeros are printed on the end of your paycheck.
Being rich is all about living your best life, and being happy with how you spend your time.
Money is a tool, and it’s like jet fuel – it can transport you from where you are to where you want to be!
Change your mindset, and over time, you will become rich.