How the Rich Spend Their Money
The Asset Oriented Mindset Overview
Have you ever wondered how the rich spend their money? How do they spend so lavishly and yet still get richer? In this blog series, The Asset Oriented Mindset, we are to diving into this question so we can extract and explain just how the rich and wealthy spend and invest their money. We want to learn how they got wealthy so we can learn the principles and put them to use for ourselves.
This is the second of six articles in The Asset Oriented Mindset series. Here we are going to discuss their mindset for acquiring assets through the use of their energy, time, colleagues, available resources, and how they simultaneously control their consumption. By putting these two efforts together they are able to magnify and grow their wealth.
The Asset Oriented Mindset Playbook
This is where it all starts. This infographic illustrates the overall view of the rich, wealth and powerful mindset. We will step through it point by point to better understand it. Because from a theoretical point of view – the poor mindset looks very similar! The difference lies on where they place their focus.
Stepping Through the Asset Oriented Mindset
1. Pay Yourself First
When the wealthy receive income from any source, be it from a paycheck, dividend/interest payment or rent payment, they always pay themselves first. Right off the bat they are building up their asset base. If you’re not doing this already – START; this is incredibly simple to do and very powerful. I personally use the WealthSimple investing service to accomplish this for myself. Low cost, no commission, passive investing across a broad diversified set of index funds automatically invested for me from my bank account each pay period.
2. Plan a Budget
The wealthy carefully plan every expenditure and know where that money is going. This is the least sexy of all the steps on the mindset map, but it is nonetheless extremely important. If you have no plan you cannot monitor and control your expenses. Once you get into a rhythm this will become habit and a simple Copy + Paste + Adjust each month is all that’s needed. MS Excel, Google Docs, or any online spread is all that’s needed here.
A great resource for tips on how to budget effectively can be found over at RinkyDoo Finance with their article on How to Organize Your Finances: 10 Simple Tips.
3. Controlled Consumption
This is where we execute the budget and try to ensure we do not over spend and if at all possible we carve out a savings and come under budget. We should really try to create a bargain and generate a surplus. Read our article on doing just this and just how powerful this habit can be: Wealth Habit: Invest The Bargain
4. Surplus is for Investing
Once we’ve controlled our expenses and we have a little left over we want to invest it! We are focused on building that asset base. So shuttle that money over to the asset column and invest it there.
5. Accumulating Assets with Assets
This is where our focus lies: The Asset Column. This is where the freedom, wealth and promise is found. In later articles we will discuss how we should be dividing up these assets and what things to watch out for. However as you can see there are three arrows coming in with no arrows leaving it. We want it go grow and grow.
The Rich Focus
This what separates the Rich and Wealthy from everybody else: their relentless focus on asset building. Let’s walk through it again and highlight the points of focus.
- Focus on assets and how to continually build them
- Plan expenses and spend with purpose
- Control and reduce expenses where possible
- Invest and save surplus savings generated executing the budget
- TIME — repeat over decades
In its very essence, and to simplify this as best we can, its the intense long term focus on building assets. Its this focus that drives them to plan a budget, control their expenses, and get as much out of those expenses as possible. It’s this intense focus on assets that makes them grab that surplus and put it right into the asset mix.
When it comes to creating wealth, wealth is a mindset. It’s all about how you think.
~David Schirmer
Okay, But What About the Super Wealthy?
What makes someone like Bill Gates, Warren Buffett, Jeff Bezos or Elon Musk so wealthy so quickly?
It’s their laser-intense focus on building one asset that generated their massive wealth.
I’ll say it again: What made these billionaires so wealthy was their intense laser like focus on building one single asset (business) to the exclusion of all else that allowed them to achieve such success.
All four of these business magnates are or were at one time so deeply and intensely focused on building their business that they sometimes forgot to sleep, shower or eat! Forget about spending money on anything else; they were so focused on their work everything else was a distraction.
The Poor Focus
Where do the Poor focus their efforts? Or better yet, where does someone look when they have no focus on building wealth and an asset base? They focus on what is right in front of them which is often dictated by the Joneses or the media. Once they have told you what it is you should want and desire, then you trade a portion of your income or wage for that good or service. Worse, sometimes you’ll need to finance that purchase and you end up paying for it again and again.
Where the Poor Look and Focus
The poor and middle class look at their monthly expenses as the way by which they spend their income each month. They have no budget, just a general idea of their monthly expenses like what their mortgage or car payment is. They lack the finer details that come from a well tuned budget. Ask them how much they spend on food and clothing. “Something like $500 a month,” will be the common answer; more if they have kids.
Investments are an after thought and saved with the money that is left over after all the fun has been had. They often invest in low risk cash bearing instruments such as savings accounts or insured deposits, maybe a balanced mutual fund because its what their advisor told them; nothing too risky. Returns from investments can be used immediately to fund a nice vacation or purchase an ATV or boat. Having fun and appearing like you’ve made it are high on the priority list. This is their focus; building assets and financial security are secondary.
Rich people buy luxuries last. While the poor and middle class buy luxuries first.~Robert Kiyosaki
Lavish Spending
Closing Thoughts
This is the way I look at it: the poor and middle class are on the demand side of the economy. They are the consumers that give the wealthy their money. The rich and wealthy are on the supply side of the economy or the owners of production. They produce and supply that which is demanded by the poor and middle class. Owning assets that produce and meet consumer demand is how you get out. This is what happens when you work hard and focus on building assets or investing in assets over long periods of time.
Success comes from within, not from without.
~Ralph Waldo Emerson
Our next article in the Asset Oriented Mindset series will be looking at the new and exciting asset class called Cryptocurrency. This asset has potential to deliver outstanding returns but also carries some incredible risks. We need to look it over and determine if we need to be allocating room for it.
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