Why We Need A Wealthy Mindset?

Master the language of money to increase our wealth through active investing instead of saving.

Master Investor
May 13, 2024

Summary:

To become wealthy, we need to have a money mindset and financial knowledge.
Wealthy people have undergone a mental transformation to change the way they view money.
The secret to being wealthy is to recognize the distinction between knowledge and information.

Knowledge is wealth, and wealth is derived from knowledge rather than possessions. Moreover, knowledge cannot be only information, we must act on that information in our lives in order to gain the power and wealth that comes from true knowledge.

Has anyone ever expressed a desire to have a million dollars? So they would be wealthy, right? What if someone wanted to win the lottery? So they would be settled?

There are, of course, plenty of people in the world who have won the lotto or made a million dollars just to lose it all. They are no longer wealthy. For what reason is that the case?

Essentially, it's because they don't grasp what money actually is and what makes someone affluent in the first place.

The fantastic news of a cool million

10% of retirees have funds of $1 million or more, according to Yahoo! Finance.

A million dollars can be saved, even though for many people that seems like a lofty goal. This is especially true if we start saving early.

According to the Bureau of Labor Statistics' median income data, if we begin saving 13% of our pay at age 20 and estimate a 7% annual return until age 63, we will be able to bank that million dollars.

Is this feasible?

However, that is a significant amount of assumption at a significant cost.

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

As per a Bankrate-commissioned poll of over 1,000 households conducted in March 2017, 46% of Americans save less than 5% of their earnings. Just 25% of poll participants stated they save at least 11% of their yearly income, while 19% indicated they save none at all.

Is it feasible for the typical individual to truly achieve the savings targets required to become a millionaire? Think about the expenses of a thrifty 20-year-old who needs to set aside 13.35% of his monthly median income of $2,288.

The 20-year-old's monthly housing expense would be $632 if they lived in one of the ten least expensive U.S. cities and paid the median rent.

They would be paying $1,960 a month on basics alone if you factor in about $300 in federal taxes, an average student loan payment of $242, a cheap grocery bill of $206, an average Internet and electricity bill of $364, and an average cost of $216 for transportation.

Our twenty-year-old would have only $22 left over after we set aside $305 for savings. And that doesn't account for the cost of entertainment, clothes, or a telephone.

Essentially, this means that, starting at age twenty, you should be able to live as inexpensively as possible in one of the top ten most affordable American cities, exhibit greater discipline than 99.9% of our age group, and not have any additional financial obligations such as medical bills or auto repairs.

After 43 years of laboring, we might reach the point when we have finally saved up enough money to become a billionaire.

It doesn't really warrant a congrats, does it?

Unfavorable news regarding a cool million

There's another reason some might cry reading this essay, aside from the fact that the above scenarios become more and more like fiction as people start saving for their million dollars later in life which usually inflation will beat them later on in life.

That $1 million nest fund will last little over ten years in some places of the United States. The following graphic comes from a CNBC article from 2022.

The person that thinks small and does not have the wealthy mindset will need to reside in a state like Mississippi, Oklahoma, Kansas, or Alabama if they want that million dollars to last until we statistically might eventually pass away.

While there's nothing wrong with those locations, they do not include a significant portion of the nation, and most people don't want to leave the places where they have established their life in order to live well in retirement.

All of this demonstrates the universal reality that wealth is not acquired via wealth. It's mindset that matters.

Another thing about choosing the right place to live for our dream life. Where we are does matter because that is where we will be tomorrow.

The poor's mentality

Traditional assets no longer make you wealthy or comfortable in your finances. Just ask all those "investors" whose homes and 401(k)s were completely destroyed during the previous Great Recession.

Today, investing in real estate, business, stocks, bonds, and commodities can result in financial loss. Any asset class could collapse at any time. Take a look at what has transpired throughout the COVID-19 era.

It wasn't always like this. The traditional rules of money were reliable for older generations. The dollar was generally stable, so saving made sense, the value of houses increased slightly annually, and businesses provided for employees’ retirement. To put it simply, money was money and they could always rely on it.

That is no longer the case. We are going to suffer financially if we put our trust in those things that are fake assets, which only withdraws money from us and do not put cash flow back into our pockets today. The poverty mindset is based on faith in the antiquated laws of money.

The wealthy have this money mindset

The wealthy have a distinct perspective on money. We realize that the traditional rules of money have changed and are no longer applicable.

Thus, while the poor believe that having money through savings makes one rich, the wealthy have a wealthy mindset which is the opposite form the poor mindset, understanding that savers are losers and that the amount of wealth one possesses is based on how quickly our money grows through actively investing it.

While the impoverished view their home as a valuable asset, the wealthy understand that a house is not an asset unless it is putting positive cash flow on our pocket and the mortgage is being pay with the revenue of the house. But if we have to pay for it with our money then it is not an asset, it has to put money in our pockets now in the form of passive income in order for it to be a valid asset.

While the poor believe that a strong education is necessary to become wealthy, the wealthy understand that financial education holds far greater significance.

The functioning of the mind

Let us offer a useful framework for understanding how the mind functions. It features the catchy acronym B.E.A.R.

B: Beliefs, are the core ideas that guide all we do. They are essentially entirely subconscious. Our beliefs serve as the foundation for our thoughts and behaviors. However, our beliefs are just our ideas about what we think to be true; they are not reality. Our actions are heavily influenced by these opinions.
E: Excuses', or the things we say out loud that are based on our convictions, like "I don't have enough time." As we put it, "We rely on our built-in excuses (based on our beliefs) to keep us rooted in the same bad habits. Excuses create a cycle that return us back to our beliefs, no matter how flawed or inaccurate they are."
A: Actions, the choices we make in response to our justifications and beliefs. Excuses eventually result in poor decisions, which are then our actions (yep, inaction is equivalent to action).
R: Results, the ineluctable result of our denials, justifications, and deeds. The rightful deserts.

As we put it, we have to change our beliefs in order to change our results. This alters our justifications and leads to better deeds.

It's a mental adjustment. Additionally, if we want to be wealthy, we must adopt a wealthy person's thinking through a money mindset change.

Every significant historical movement and every noteworthy personal accomplishment stems from a profound shift in perspective that alters the trajectory of history, whether it be public or private, indefinitely.

The four human mind-shifts thus far

The four economic ages of humankind are discussed by masterinvestor’s ebooks and content. Economic ages are really worldwide paradigm shifts driven by advancements in human cognition and technology, as well as what is made feasible by those developments.

In human history, there have been four significant shifts in thinking:

Hunter-gatherer mentality shift: During the Hunter-Gatherer Period, people relied on the natural world to produce riches. They moved to areas with abundant foliage and decent hunting since they were nomads. To survive, you needed to be able to hunt and gather. Social security was the tribe to the hunter-gatherer. Socially, there was parity among all of them. Every one of them was underprivileged.
Agrarian thought mentality shift: During the Agrarian Age, various social classes emerged. The advancement of technology in planting and cultivating land resulted in the emergence of monarchy among landowners and peasants among those who labored on it. The peasants walked, and the royals rode horses. There were two socioeconomic groups: the wealthy and the underprivileged.
The Industrial Revolution mentality shift: Some would contend that Columbus' discovery of America in 1492 marked the true start of the Industrial Age, while many others would date it to the growth of factories in the 1800s. The purpose of Columbus' voyage to the New World was to discover fresh supplies of precious materials including rubber, copper, tin, and oil. Growing crops was no longer as valuable as providing resources during this period. As a result, the land's value increased. The wealthy, the middle class, and the low class then separated into three groups.
The Information Age mentality shift: The shift in perspective brought about by information We live in the Information Age, when money is created by using information to power technology and low-cost resources like silicon. This indicates that becoming affluent is now more affordable. For the first time in recorded history, almost everyone can become wealthy. There are currently four classes if individuals in society: the ultra wealthy class, wealthy class, middles class and poor class. But in reality there are two main ones in today’s age: the wealthy class and poor class.

Nevertheless, while living in the Information Age, wealth is not achieved through information. However, it is the mental transition from information to knowledge that is required.

The distinction between knowledge and information

Most children are accustomed to using technology, and the Internet is easily accessible in classrooms all over the world. Ethnic or social background aside, information is widely available and free. Regardless of wealth or poverty, anyone may now access knowledge and learn about anything for the first time in history.

Though important, none of this information compares to knowledge. We can find the crucial information by sifting through the irrelevant material when we are knowledgeable. Being knowledgeable empowers us to take action based on facts. It's knowledge, not information, that makes one wealthy.

The adjustment in perspective brought about by knowledge

Oil is valuable. A large oil holding would be the envy of many. But amassing a large oil holding won't make us wealthy. Wealth is the result of changing our perspective to see how oil may make us wealthy. For example, unless refined, crude oil has no value. It's a science-based and equipment-dependent technique. Making fuel from refined oil requires knowledge. Fuel has great value and can make us wealthy. However, gasoline cannot exist without oil.

It's the same in the Information Age now. Even if we had all the information without applying it in the world, we would still be impoverished if we do not change our perspective.

For example, one of the reasons Mark Zuckerberg is so successful is that he understands how to use information and how to create technology that take advantage of it.

Because of his understanding of internet technology, Mark Zuckerberg was able to create Facebook. He is also skilled at assembling a group of intelligent people to work with him to grow Facebook. Lastly, he is aware that information might be sold for a profit. Facebook is really good at gathering, analyzing, and selling our information to marketers so they can target us with adverts and profit from us.

Will we make a money shift to the wealthy mindset’s context?

Mark Zuckerberg's wealth comes from his ability to analyze and use information, not from the information itself. Knowledge is acquired through constant education.

Wealth is plentiful and available to everyone in this day and age, including us. However, in order to understand and take use of it, we must be financially literate.

These days, having information makes one wealthy, while not having knowledge makes one poor. Our knowledge is the new currency in this brave new world.

Start by developing our financial mentality by learning more about money, and then get in touch with one of our mindset coaches to start planning for the future.

After that, we will know where to look for the crucial information and how to use it instantly.

Chose the right type of income to build freedom

Investing has two main types of income:

Capital gains income and,
Passive income (positive cash flow)

Rule umber one in our community here is that we work to build passive income and make money work hard through sound investing. By doing so we will also receive capital gains income. Not all asset classes and its assets make us cash flow, some will only bring us capital gains income. However, we put our focus on building passive income because that gives us true wealth.

Finally, wealth is build with passive income and capital gains income not with earned income like majority of people think they can achieve wealth by working hard for earned income. They are working against the current due to paying the highest in taxes. Even before they get their paycheck that they work hard for, the taxes will be taking out first (government gets pay first) and other mandatory expenses that comes attached with earned income, the income that comes from a job or a salary. The way we make our money will determine whether we have master the game of money or not, it is our choice. However, money is a game that we will be playing in real life for the rest of our lives. The recommendation is to master money and make it our slave. We tell money what to do, not the other way around. We do not chase the bag, instead we attract cash flow through sound investing and raising capital successfully. Passive income provides us total freedom, so master how to build it using the new rules of money.