Why having a money mindset is key?

High Quality Financial Education Made Simple

Master Investor
May 25, 2023

Money is knowledge, and knowledge, not possessions, is what makes us rich, according to the first new money rule. Why having a money mindset is key?

Have we ever heard someone express the desire to possess a million dollars? Then, wouldn't they be wealthy? Imagine someone hoping to win the lotto. They would then be set, right? Money and possesions alone does not make a person wealthy. It comes down to a the mindset that determines the person's wealth.

There are many of people in the world who have made a million dollars or won the lottery just to lose it all, of course. They are no longer wealthy. How come?

Fundamentally, it's because they don't comprehend how to become wealthy in the first place and what money actually is.

Summary:

To become wealthy, we need to have both financial acumen and a money-minded attitude.
Those who are wealthy have undergone a mental transformation to change their perspective on money.
The secret to wealth is knowing the difference between information and knowledge.

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A saved million

According to Yahoo! Finance, 10% of retirees have funds of $1 million or more. And even while for some people that seems like a lofty objective, the truth is that saving up a million dollars isn't actually all that difficult to do—especially if they start saving early.

If a person starts saving 13% of their income at age 20 and estimate a 7% return annually over the course of their lifetime until age 63, according to the median incomes supplied by the Bureau of Labor Statistics, they will be able to bank that million dollars.

Remember that today god debtors are winners, and saver are losers. Why? Because after August 15, 1971, money is created with debt. That is why debt is tax free, legally. Today money is debt. We must use debt (money) to leverage ourselves to wealth. We encourage our partners to invest using debt and become comfortable being in good debt. The more good debt we have the more wealth we control.

Is this possible?

That's a lot of assuming, though, and it comes with a price.

One reason is that savings rates are historically low and much below the 7% required to meet these savings targets. Additionally, the employed income/expense models are wholly unrealistic.

A case study

According to a Bankrate-commissioned poll of more than 1,000 households conducted in March 2017, 46% of Americans really save less than 5% of their income. Only 25% of survey participants reported saving 11% or more of their annual income, while 19% stated they save no money at all.

But can the typical person genuinely achieve the savings targets required to become a millionaire? Think about how a 20-year-old who is a saver might spend the $2,288 median monthly salary that they need to save 13.35% of.

That 20-year-old's monthly housing expense would be $632 if they paid the median rent in one of the ten most affordable U.S. cities. They would need to spend $1,960 per month on basics alone after factoring in their typical electricity and Internet bills of $364, $300 in monthly federal taxes, $242 in average student loan payments, $206 in low-cost groceries, and $216 in average commuting expenditures.

If they set aside $305 for savings, our 20-year-old would only have $22 available for discretionary expenditure. And that excludes costs for a telephone, clothing, or entertainment.

It basically comes down to this: if, starting at age 20, a person live as cheaply as he/she can in one of the ten most affordable cities in America, are more financially responsible than 99% of their age group, and don't have any unexpected expenses like health problems or car repairs, a person might eventually reach the point, after 43 years of toil, where they will have saved enough to be a millionaire.

It doesn't really merit congratulatory remarks, does it?

The unfavorable report on a saved million

If they set aside $305 for savings, our 20-year-old would only have $22 available for discretionary expenditure. And that excludes costs for a telephone, clothing, or entertainment.

It doesn't really merit congratulatory remarks, does it?

They must reside in a state like Mississippi, Oklahoma, Kansas, or Alabama if we want that million dollars to last till they statistically might finally pass away.

While there is nothing wrong with those locations, a significant portion of the country is left out, and the majority of people don't want to leave the communities in which they have established a life in order to have a comfortable retirement.

All of this serves to demonstrate a universal truth: wealth is not the result of money. It is mindset.

Instead of saving of money, we invest good debt, positive cash flow, and saved money to create more wealth.

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The poor's mentality

Traditional assets no longer enable you to become wealthy or financially secure. Just ask all those uneducated "investors" whose homes and 401(k)s were destroyed during the previous Great Recession. Business, real estate, equities, bonds, and commodities are all risky investments today. Any asset class could collapse at any time. Just consider what has occurred in the COVID era. That is why we also talk about diversifying among different assets classes to hedge for inflation and protect our wealth of bad economies. We know that the economy goes up and down. We are not here to predict the market, we are here to prepare for any type of market.

It wasn't always like this. The conventional wisdom on money held true for earlier generations. The dollar was generally stable, making saving prudent. The value of homes increased gradually every year, and businesses provided for our retirement. We could depend on money because it was, in essence, money.

That is no longer the case. If we place our faith in such things, we will suffer greatly financially. The perspective of the poor is one of faith in the traditional financial laws.

The wealthy's mentality

The wealthy have a distinct perspective on money. They are aware that there are new financial regulations and that the previous ones are no longer valid.

The wealthy, on the other hand, have a money mindset and are aware that savers are losers and that the size of our wealth is correlated with the velocity of our money, contrary to what the poor believe.

Whereas the wealthy are aware that our main home is not an asset, the poor believe that their main home is one.

The wealthy are aware that financial education is actually much more crucial than what the poor believe—that we need a decent education in order to be wealthy.

How the mind functions

There are powerful stories that will transform our financial life by learning top reasons some rich people go broke.

Use this framework for understanding how the mind functions. B.E.A.R., a memorable acronym, stands for it.

B - Beliefs, the underlying ideas that guide all we do. Nearly all of these are unconscious. Our beliefs serve as the foundation for how we think and behave. However, our beliefs are merely our judgments of what we hold to be true; they are not facts. Our behavior is heavily influenced by these opinions.

E - Excuses, the statements we make that are based on our convictions, like "I don't have enough time." No matter how incorrect or inaccurate the ideas are, excuses create a cycle that return us to them, and we rely on our built-in excuses (based on our beliefs) to keep us rooted in the same bad habits.

A: Actions, the choices we make depending on our justifications and beliefs. With enough time, justifications result in poor judgments, which we then act upon (yes, inaction counts as action).

R - Results, the logical conclusion of our activities, justifications, and beliefs. The proper punishment.

If we want to improve our results, we must change our beliefs because doing so alters our justifications and leads to better actions.

This is a mental change. And if we want to be wealthy, we must undergo a money mind-shift that gives us a wealthy mindset.

Behind every significant historical event and every notable personal accomplishment is a profound mental transformation, a paradigm shift that alters the path of history—public or private—forever.

The four human mind-shifts

The four economic periods of humanity have been discussed on one of another article. Economic ages are really worldwide mindshifts that have been sparked by changes in technology, human cognition, and what is now conceivable as a result of that technology.

The four biggest mental changes in human history are:

The Hunter-Gatherer mindshift: The move to a hunter-gatherer mindset occurred during the Hunter-Gatherer Age, when people relied on nature to supply for their needs. They traveled wherever there was good hunting and abundant foliage since they were nomads. To survive, we had to know how to hunt and gather. Hunter-gatherers' equivalent of social security was their group. Economically speaking, everyone was on par. They were all indigent.
The Agrarian Mindshift: During this time, various social classes arose. The invention of technology to grow and cultivate the land transformed those who possessed it into monarchs and those who labored on it into peasants. The peasants walked while the royals rode horses. There were two socioeconomic groups: the rich and the poor.
The Industrial Mindshift: While many would say that the Industrial Age began in the 1800s with the growth of factories, some could counter that it actually began in 1492 with the arrival of Christopher Columbus. Columbus set off for the New World in search of fresh sources of important materials including rubber, copper, tin, and oil. Real estate's importance changed during this time from supporting agriculture to supporting resources. The value of the land increased as a result. The wealthy, middle-class, and poor were the three classes that eventually evolved.
The information paradigm shift: We are currently living in the era of information, in which technology and accessible resources like silicon are used to harness information and create riches. This implies that riches has become more affordable.

For the first time in history, almost everyone may access wealth. The poor, middle class, wealthy, and extremely wealthy are the four main socioeconomic classes in modern society.

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The distinction between knowledge and information

The Internet is widely accessible in classrooms all across the world, and for the majority of children, technology is second nature. No matter one's socioeconomic status, access to knowledge is generally easy and cheap. People can now access knowledge and learn anything, regardless of their wealth, for the first time in history.

Although all of this information is valuable, knowledge is more valuable. Knowing how to identify the crucial information allows us to weed out the irrelevant information. We have the ability to take action based on knowledge. Not information but knowledge is what makes us wealthy.

Knowledge-based mind-shift

Oil is valuable. Having a lot of oil would be a dream for many people. However, having a lot of oil won't make us wealthy. Changing our mindset to realize how oil can make us wealthy is what creates money. For instance, unrefined crude oil has minimal value. That is a difficult procedure that calls for tools and science. Making fuel from refined oil requires expertise. Fuel is expensive, and it will make us wealthy. But we need oil to make fuel.

It still holds true in the Information Age. Even if we had all the knowledge in the world, a person would still be poor if his or her mindset didn't change to one of knowledge. Mark Zuckerberg, for example, is successful because he understands how to harness information and create technology that can be used to leverage information.

Mark Zuckerberg was able to create Facebook thanks to his understanding of internet technology. In order to grow and improve Facebook, he also knows how to put together a team and locate people who are smarter than he is. He is aware that information is useful for selling, and that is his final point. Facebook is excellent at gathering our data, analyzing it, and selling it to marketers who will use it to target their advertising and profit from us.

Will we adopt a new financial mindset?

Mark Zuckerberg's wealth isn't a result of his information, but it is the ability to process and leverage that information, that is knowledge, knowledge is something that is acquired through financial education.

Wealth is plentiful and available to everyone in our day and age, including us. But in order to absorb and utilize it, we must be financially literate.

Nowadays, ignorance makes us poor and knowledge makes us wealthy. Our knowledge is the new currency in this brave new world.

Increase our financial IQ by learning more about money, and then connect with one of our mindset coaches to start developing our money attitude. After that, we will be able to locate the crucial facts and possess the knowledge necessary to take appropriate action.

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