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The key to having money isn’t being Scrooge McDuck and never spending a dime so you can put it into a big pile and play in it. The key is how you think about and spend your money. This week I have been reading and rereading a lot of books that have influenced a shift in thinking in me that has had a significant impact on my net worth. I’m not saying I am Scrooge McDuck, I am just saying that I have come a long way from worrying about my checking account balance at the end of the month.
There were three books in particular that I read that really got me on a different path with my money and how to save it, use it, invest it and just generally make it work for me instead of the other way around.
Reading these books helped me understand that how I thought about money and how I spent it really mattered.
If you want to build wealth there are two basic mindsets that help you to achieve it:
- The Investor Mind
- The Business Owner Mind
Jaime Tardy, has some great interviews at her website, The Eventual Millionaire, where she talks to millionaires about how they have made their money. What she has found in interviewing over a hundred millionaires is that the vast majority of wealth is built through business ownership. She has also written a new book that distills down the differences in how they think vs. people who aren’t millionaires. But this is how I summarize the major differences:
The Employee Mind
Employees are used to thinking about things in terms of their paycheck. It comes on a regular basis in a consistent amount typically. So it is somewhat natural to think in terms of that consistent cash flow. So the new car you want easily translates into the monthly payment that will come out of that cash flow. Can I afford that from my cash flow? Employees also tend to think in terms of what that cash flow will buy to enhance their life. But this thinking can quickly create a cycle of ever increasing consumerism if not managed. Each new purchase leads to another. The new house leads to new furniture and new neighbors to keep up with. So all of that additional spending needs to be factored into the cash flow.
If you are serious about building net worth, you need to move beyond today’s cash-flow. You need to advance to the Investor Mind or the Business Owner Mind.
The Investor Mind
Investors tend to think of spending in terms of net worth. Will this purchase increase or decrease my net worth? Is it a stock investment or real estate investment or other investment that I expect to grow? If the answer is no, then the evaluation becomes, how much of my net worth will this consume and is it worth it to me in terms of quality of life to justify the purchase.
The key from an investors mind is to not have too much of your net worth being depleted by depreciating things.
The Business Mind
The business mind is a completely different take on things. The business owner will ask “how do I get my money back?” If you are a fan of Shark Tank, you have probably heard Kevin say this over and over again. Because the point of being in business is to make money. The business owner takes assets and time and turns them into more assets through the operation of their business. So the question then becomes, how will spending this money/time create more money. Sometimes it is an asset that can be used to produce something for sale. Sometimes it is a tool that will save time. The difference in thinking is the “how does this make me more money?” mindset. Spending on things that don’t make you money gets cut to the bone. The T-bone steak becomes a peanut butter sandwich so the rest can be invested in the business.
The differences in thinking in each of these mindsets creates different decisions on how you spend your money. If you are interested in owning your own business, it is important to understand how that mindset impacts your decisions. It isn’t necessarily about becoming a millionaire, but the way people who want to build net-worth thinks is completely different from the “cash-flow spender”.
So where are you in this spectrum? Where do you want to be? What changes do you need to make to move your mindset?
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