4 Money Mindsets on How to Build Wealth
There are 4 money mindsets on how to build wealth. All are a great, proven way to become rich. They are all achievable and several can be applied at once to multiply your ability to build wealth quickly. If you can adapt your thinking and learn to use these mindsets, you too can be rich.
Becoming rich is super easy and can be achieved by anyone. It is irreverent of your family background, education, or financial situation. It just requires knowledge, a decision to act, then action on your decision.
Lastly, wealth building requires time. There are no quick “Get Rich” schemes out there that are proven to work and any book that teaches them are simply garbage. They are just stealing your money and filling your head with dreams.
You can build wealth with just one of these mindsets but these are designed to work together. The more mindsets you embrace, the faster your wealth will grow!
Earning Money Mindset
The first step in any drive to build wealth is to earn money. Without some type of cash flow into your life you will find it very hard to pay for life’s necessaries like food and shelter.
This area covers both Active and Passive income. Active income is where you exchange time for money (like most employees who work for a company). Passive income is when you do the work up front and then that investment (in time or money) produces income. This is typically authors, real estate investors, and returns on investments.
This mindset generally covers all cash flow in and out of your life. The more you make, the more you can spend. If you want to spend more, you need to make more. Simple.
If you want to build wealth, the idea is just as simple. All you need to do is spend less then you make. The faster you want to build wealth, the more you need to earn. The greater the difference between what you earn and what you spend will develop your wealth.
So the key take away in how to earn more money can be summarized in one word. Value.
No matter how you earn active or passive income, the best way to earn more money is to increase the value you bring to your employer or customers. If you increase your value, you increase your worth, and that will attract more money.
Think about this. If you can do something better then someone else, it stands to reason you will be worth more than someone else. If you can market your skills to companies or consumers, you will easily make more.
In order to improve your ability to make money, you must improve your knowledge. The best and easiest way to improve your knowledge is by reading. I recommend the following books if you want to improve your ability to earn more money in the earning mindset.
There are 2 great books I can recommend on how to increase your income.
By Timothy Ferriss
The 4 Hour Workweek talks about how you should use your time wiser and focus on making money. This is a very interesting book but do not be fooled by the catchy title. His ideas are core for any entrepreneur and his get going approach is admirable. If the title is taken literately, then it would seem to be just a scam. If read for its interesting ideas on business and life, then it is totally worth the read. Core ideas I will take away are:
- Starting a business doesn’t need to be hard, just take the first step.
- Living your life is critical in your life purpose. Find balance and commit to it.
- Apply the 80/20 rule where you can so you can apply your time where it matters.
- Be effective, not efficient, not busy.
- “Doing something unimportant well does not make it important”
- Charge a premium, have fewer clients, apply the 80/20 rule here.
- Validate a business idea before jumping in with time and money.
- It’s easier to achieve something great than something that’s just “good”.
It seems to me that Mr. Kiyosaki appears to teach people to be rather greedy and push the limits of the law. I am not a fan of this approach and prefer the “do what is best for the community and everyone does better”. To use a habit from the 7 Habits of Highly Effective People, Win-Win is key to your success. My takeaway form the book are:
- You will do much better in life if you work for yourself and not for someone else.
- Reduce your taxes and fees, and you will automatically increase your returns.
- Pay for great advice if you want to do great things.
- Be fearless in your approach to building wealth. Sometimes you will win, sometimes you will lose, but always keep trying.
- The profit is in the purchase of property, not in its sale. This simple means you should only buy an asset at a really great price or not at all.
Take the key lessons from the book but leave the dishonest stuff behind. Remember he is a sales person looking to sell you on his seminars and books. Some ideas are great but you need to wash away the dirt to see them.
Saving Money Mindset
We all know there are 2 types of people in the world, spenders and savers. Spenders buy and savers save. For some people, saving has become an addiction because money represents financial security.
You cannot depend on income to provide security, so the best way to provide it is with a large savings account.
This is 100% true and without a saving mentality, none of the other wealth building plans work. As the old saying goes, you need money to make money.
There is tons of research of people who inherit fortunes or win the lottery and lose it all within a few years. The simple fact is those people never learned how to save money and it is key to all wealth building strategies.
This mindset is OK with low risk investments but needs the principle protected at all costs. If additional savings plus interest is greater than the rate of inflation, then the money will grow over time.
Remember safety is key to this mindset.
There are 2 great books I can recommend on how to best save your money.
By George S. Clason
I loved this book and highly recommend the audio version. The narrator does an excellent job of making the story very entertaining and fun. The lessons are core to anyone looking to build wealth and are truly timeless. If you can remember just one lesson from this book, it should be “A part of all you earn is yours to keep”.
Seven Cures for a Lean Purse
- A Part of all you Earn is Yours to Keep: Pay yourself first. Save at least 10% of what you earn – no matter what. Work hard at your current job and only spend 90% of what you earn.
- Control Thy Expenditures: Saving more means spending less – and it won’t hurt as much as you think.
- Make Thy Gold Multiply: Invest your savings. Once you start to build up some savings, invest that money so that it will make more money for you.
- Guard Thy Treasure From Loss: invest wisely and manage your risk.
- Make Of Thy Dwelling A Profitable Investment: Own your home, but purchase wisely.
- Insure a Future Income: Make sure you save enough for retirement and to care for your family when your life comes to an end.
- Increase Thy Ability To Earn: Improve your knowledge and skills consistently to increase your earning power. Work hard, look for opportunities, and educate yourself.
- Seek Advice Wisely: Only seek advice from those that are wise and knowledgeable on the subject.
- Be open for opportunities: Luck and fortune is found in opportunities. Don’t let opportunities pass you by but always remember the 4th cure.
The Five Laws of Gold
- Gold comes easy and in greater quantities to the man who safes the tenth part of his income for his future and family.
- Gold works with speed and diligence for the wise owner that finds for it a productive use.
- Coins of Gold maintains itself under the protection of prudent persons who invests with the counsels of wise people.
- Gold escapes from people who invest without a purpose in places that are not familiar.
- Gold runs away from people who force gold to impossible profits and follows the seductive counsels of impostors.
by David Bach
The Automatic Millionaire starts with the powerful story of an average American couple–he’s a low-level manager, she’s a beautician–whose joint income never exceeds $55,000 a year, yet who somehow manage to own two homes debt-free, put two kids through college, and retire at 55 with more than $1 million in savings. Through their story you’ll learn the surprising fact that you cannot get rich with a budget! You have to have a plan to pay yourself first that is totally automatic, a plan that will automatically secure your future and pay for your present.
This approach here is very simple. Pay yourself first, make it automatic, and forget about it and let compounding interest work for you in the background. Pick your investments well at the start, make minor adjustments along the way, and let it grow.
Eliminating Debt Mindset
Debt is the opposite of wealth. It means you have negative wealth and need to pay it off as soon as possible because interest will drive your deeper in debt making it impossible to build wealth.
Our culture seems to be built entirely on getting into debt and how best to manage it. There are different types of debt but the most common are consumer, education, and real estate.
Most good financial teachers tell us it is considered acceptable to go into real estate debt (only for your primary residence) and limited education debt. All other debt or credit is considered bad. Even if you have mortgage or educational debt, you need to pay it off quickly.
This mindset is focused on removing debt fast and never going into it again. It is critical to remove debt in order to build wealth.
There are lots of books and philosophies that recommend investing with borrowed money if the investment (ROI) is greater than the interest paid on the loans.
This is a very risky way to live but extremely common in society today. Some people focus only on cash flow and not as much around asset and liabilities. They build corporations and take on risky investments. When the risks fail, declare bankruptcy and walk away. This is not a method I recommend but is taught in the “Rich Dad, Poor Dad” book.
The key in the limiting debt mindset is simply to remove debt and focus on investment assets. Stay away from high debt cash flow strategies and stick to basic financial principles.
Some books I can recommend that are based around getting out of debt are:
by Dave Ramsey
Dave Ramsey is a businessman and entrepreneur who accumulated a $4 million real estate portfolio, only to lose it all – and nearly everything else he owned – by making the same mistake millions of Americans make every day: he got too far into debt to get out. Dave Ramsey is also a Christian family man who, through the turmoil of his financial nightmare, discovered a new way of life. He shared the lessons he learned by writing Financial Peace, a simple but powerful guide that offers practical lessons on how to get out of debt – and stay out.
I love Dave Ramsey and his very simple approach for managing finances. This was one of the first books I’ve read on personal finance and has completely reshaped my approach to spending money. This book accomplishes the same goals as “Rich Dad, Poor Dad, but does it in a very different way. I much prefer Dave’s approach to building wealth. Less risk but requires hard work and personal sacrifice. My takeaways are:
- Follow the Baby steps
1. $1,000 to start an Emergency Fund
2. Pay off all debt using the Debt Snowball
3. 3 to 6 months of expenses in savings
4. Invest 15% of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give!
- Be 200% focused on getting and staying out of dept
- Apply an old fashion, common sense approach to finances because it works.
I also recommend his other books (The Total Money Makeover) but they are teaching the same lesson but using different words. Save a little money and just buy one, I recommend his first book (Financial Peace) over all the others. If you love reading and need to get out of debt, then buy both. The motivation and information will be very helpful.
by Thomas J. Stanley Ph.D.
This book looks at the seven common traits that continue to show up among people who have accumulated wealth. Most people picture wealthy people as living lavish lives, but a lot of truly wealthy people live right down the street, due to living well below their means and investing wisely.
There is a lot of data and common sense in this book that proves to have surprising results. It is also full of information about both the emotional baggage and the freedom that money provides.
Regardless of your age when you begin to read this book, you will certainly be able to recognize people from your own social circles in it. Additionally, you will recognize a vision of yourself. And if you are willing to do an honest assessment of your financial habits, you will be able to recognize some areas that could use improvement.
While some statistics in this book may be outdated (as it has been around for 15 years), the principles remain the same. If you are able to follow these principles and create a plan, you can be well on your way to financial success.
This book was an eye opener for me not realizing that regular people could be very rich and still live normal lives. This book clearly separated a person’s lifestyle from their bank account and became a corner stone for my financial planning.
The 7 rules from the book are:
- Always live well below their means.
- They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
- They believe that financial independence is more important than displaying high social status.
- Their parents did not provide economic outpatient care.
- Their adult children are economically self-sufficient.
- They are proficient in targeting market opportunities.
- They chose the right occupation.
Out of all the financial books, if you were to just read one, then make it this book!
By Ryan Nicodemus, Joshua Fields Millburn
I love this book and idea on how to live life. I REALLY love this lifestyle and can recommend a lot of books teaching how to live a simpler life. It might be a little hard to read and repetitive but it is probably the most important concept ever written in modern society.“We buy things we don't need with money we don't have to impress people we don't like.” ― Dave RamseyClick To Tweet
I don’t recall seeing this quote in the Minimalism book but it is a great summary for what the book is about. Everyone needs to realized how they are trapped in a cycle of consumerism trying to out buy your peers in an attempt to buy happiness.
Happiness cannot be bought at a Walmart or an Amazon and the sooner we all realize this, the better.
Embrace minimalism and see what a change it will make in your life.
Investing and Building Wealth Mindset
Once you have some money saved and steady income, you are ready to have your money work for you. Now it’s time to look into wealth building investments.
This could be considered having retirement accounts (Roth, IRA, 401K, etc) or investments earning money and creating cash flow today. I would also consider real estate or investing in a small business in this mindset.
This mindset is all about making your money work for you and is probably the biggest builder of wealth of all the other areas. Your money works for you 24 hours a day, 365 days a year. It never stops and you truly gain the benefits of compounding interest.
I usually always recommend professional help when it comes to money management and investing. You can never do as well as someone who’s full time job is to watch the markets and find the best investment opportunities available.
One huge thing to watch out for is fee’s. When you seek professional advice, it is usually paid for in account fee’s which will add up to a lot of money if you are not careful.
Always pay close attention to the fee’s you are paying and move your money to the lowest cost funds that earn the most interest. This is the best way to make huge gains in your investments.
There are several books I can recommend about how to invest.
By Tony Robbins
“MONEY,” by Tony Robbins is a superior, self-help book for learning how to earn, manage and master the money game. As a highly credible information source, Robbins is stunning.
In this book, Tony Robbins has gone beyond his usual high performance. His book offers great advice to anyone looking to improve their financial condition with money. The book is written from people that have already seen massive success in their field, lending their ideas for your success.
The most famous and successful people in the United States were used, to add power and substance to this book on money. Comprehensive and highly useful, Tony’s book adds a special point of view for you to learn about money. With 7 chapters and 688 pages, this book should be offered as a class on money in every college in the United States.
By Burton G. Malkiel
I really enjoyed this book. It is a great read for the beginner and intermediate investor alike.
- A complete history of the stock market. It seems silly, but it allows you to hopefully learn from past mistakes
- A really simple method to make money. This is not a get rich quick scheme, Malkiel suggests low fee mutual funds
- Some really good advice about personal finance issues that a lot of people don’t consider
That is it folks. He gives you the goods and explains why along every step of the way. He gives you the tools to be a smart investor and make money. If you are an old pro, this book probably isn’t for you. If you are new to investing and/or have an open mind, start here.
If you want to be wealthy, you need to embrace one or more of these mindsets (I recommend all of them to some degree). You need to earn money, save it, avoid debt, and invest.
You can easily build wealth following just one of these mindsets but great wealth will only come when you combine them.
Sorry to say, one thread that links all 4 money mindsets together is knowledge. You must learn how money works and most importantly, how to make money work for you.
This requires constant reading. If you are always on the go and have no time to read, then signup for Audible.com and have the books read to you. Before I signed up for Audible, I use to read about 1 book every 4 months. Now with Audible, I read about 4-6 books a month and my knowledge is growing dramatically.
We all know, knowledge is the key to success and I highly recommend reading all these books asap. If you are totally broke, then visit your library. My Library has Audio books, eBooks, and Physical ones that are always available so there are no excuses not to read.
Start building your 4 money mindsets today and watch your life change for the better.