Poor vs Rich Mindset
Although some of the wealthiest people in the world did not have to lift a finger, because they inherited their wealth, a whopping 80% of millionaires started from the ground-up, according to Dr. Tom Stanley’s book “The Millionaire Next Door.”
This statistic begs the question: What differentiates a millionaire mindset from the typical, poor mindset?
As you may know, my husband and I are in the pursuit of millionaire status.
We’re not there just quite yet – but we certainly are on our rightful way.
They don’t make excuses. They set goals. And they get back up from failures, always with their goal in mind: Attaining millionaire status.
If you find yourself in a similar position as my husband and I – looking to attain millionaire status – then I think it’s time to explore some key pointers as to the mindset difference between the poor vs rich.
Now, if you are in the pre-millionaire stage, it’s time to understand what made people go that extra 1% to dig themselves out of the pre-millionaire trenches and into the millionaire level.
1. The Rich Understand Basic Financial Literacy
A major reason that separates the poor vs rich is a basic understanding of financial literacy.
However, if you feel like you don’t have a total grasp on the basic financial concepts – then you certainly are not alone.
In fact, per an S&P 500 Global Financial Literacy Survey conducted in the 2014 calendar year, only 33% of people are financially literate – worldwide.
There is one clear trend: Financial literacy increases as your income increases.
I do want to point out 2 themes:
- 60% of the richest households have a 31% financial literacy rate
- 40% of the poorest households have a 23% financial literacy rate
What does this mean?
In reality, there is a lot of room for improvement as it relates to financial literacy for the wealthy as well.
There is a clear correlation between education and financial literacy:
- The more educated, the higher that person’s financial literacy rate
Improved financial literacy can open so many doors for so many people.
Benefits of being financially literate:
- Increases self-sufficiency
- Fosters financial stability
- Improved chances for early retirement
- Increased peace of mind
In fact, improved financial literacy can reduce financial stress.
Increased peace of mind comes from you feeling more comfortable handling money – and chances are, you’ll likely take control of your current financial situation and steer it toward long-term success.
Did you know that a whopping 78% of people live paycheck to paycheck?
With improved financial literacy, that percentage will virtually be guaranteed to drop to a lower number.
The simple answer?
Read more from The Millennial Money Woman blog to become more comfortable with financial topics and take control of your financial situation!
Below is a world map of the percentage of adults who are financially literate.
The darker the color, the more financially literate the country.
I’ll go into further depth below, listing the top 10 most financially literate countries in the world.
(Note: America is not one of these countries).
Ironically, America is essentially as financially literate as Botswana, a small country in Africa – located just above South Africa.
What’s wrong with this picture?
America is ranked as the No. 1 GDP in the world, while Botswana is ranked as No. 114th – and that gap clearly illustrates a problem.
Below I’ve listed a new chart, indicating the 10 most financially literate countries in the world.
|Country||Financial Literacy Rate|
And here are my 2 cents: If you feel uncomfortable with financial literacy concepts – you are 100% not alone.
I think that’s because so many of us are not taught about financial literacy concepts while in school – or college for that matter.
That’s where you have to realize there is a deficiency and start taking control of your own financial destiny by reading up and becoming more familiar with financial concepts.
It’s the only way to improve.
2. The Rich have Mentors
Can you think back to when you had your first mentor?
I can tell you that I was lucky enough to find my first mentor when I was merely 12 years old.
My first mentor was 70 years old, a serial entrepreneur and had made 100’s of millions of dollars throughout his many private ventures.
He was a true inspiration – and still is.
What were the first things I learned from my mentor?
- The unspoken language of the professionals
- The importance of eye contact
- The importance of a first impression
He taught me many things – but not via lecture.
Instead, my mentor simply gave me the chance to shadow him during his business endeavors.
I absorbed everything. I took notes on everything. I was like a sponge during those first few years when I realized it was my chance to learn from one of the industry’s best.
There are countless benefits that will help you in your present and future by finding a mentor and learning from them.
Benefits of Having a Mentor:
- Mentors are empowering
- Mentors guide you toward career goals
- Mentors improve your EQ (emotional intelligence)
- Mentors navigate you through difficult times
- Mentors can help prevent you from making fatal career mistakes
Your mentor can be anyone. It does not have to be a CEO – or even someone involved in a business.
That was just the way my story unfolded.
A mentor can be anyone who has life experience and is willing to give back and help navigate you through the obstacles that life may present to you.
Who is qualified to be a mentor?
- Trusted friend
- Career coach
- Teacher or professor
- Young professional
- Parent or family member
As you can see, you can find a mentor in virtually anyone.
You just have to go out there and look.
3. The Rich Eat Healthy
Fast food is a no-no in my agenda.
For me (and my husband), fast food simply drains the energy out of me – and I feel so unhappy after eating fast food because I knew I had other, healthier – and cheaper – options.
Fun fact: The last time I’ve eaten fast food was probably over 5 years ago.
As I started digging into the behavioral patterns and mindset of the poor vs rich I also noticed a significant difference in the diet of the poor vs rich.
The contrary is also true.
Sure, the healthy food will cost you a few dollars more – but your body and your health will thank you for it later.
I realize that even wealthy people purchase fast food – but typically the wealthy eat fast food at a much more diminished and moderate rate compared to the poor.
Below I’ve constructed a chart to indicate some of the pros and cons of fast food.
Truth be told, some fast food options are also not an unhealthy choice for you – there are healthy options out there.
The rich would likely seek out the healthy options (which could cost a little more) while the poor would likely seek out the cheapest option (which typically also is an unhealthy option).
Something else I wanted to point out: Fast food is not necessarily cost-effective.
According to AOL Finance, an average fast food meal costs about:
- $5 to $7 per meal
That cost doesn’t include the fuel cost and the time spent waiting in line to order your fast food meal.
A home-cooked meal on average costs about $2 to $4 – and the cost of a home-cooked meal drops even further if you use leftovers the following day.
4. The Rich don’t Always Look for a Deal
This point brought me off guard at first – because I was thinking, “who doesn’t want a deal and save money?”
But as I started thinking about why looking for deals could be a key differentiator between the poor vs rich, things started making more sense to me:
- I realized that the rich believe you get what you pay for
In other words, let’s say you are considering hiring 2 financial planners – but only consider their fee as the deciding factor.
Looking for the best deal in this case is probably a big mistake.
As you can see, if you look for the cheapest deal between these 2 financial planners, you’re likely going to come off worse with the cheaper planner.
In the end, you may be paying a bonus up-front fee with the more expensive financial planner, but because of their background and education, they will very likely save you thousands of dollars at some point, down the road.
This is the point where you have to choose wisely – and don’t simply select someone based on the fee they charge.
Why finding the best deal may not always save you money in the long run:
- Large sales may drive you to buy things you don’t need
- You get what you pay for
- Sales is another word companies use to take your money
- Some “deals” still charge consumers the full price
Take these pointers with a grain of salt, but consider each carefully.
5. The Rich are Early Birds
You heard me right – one of the typical differences between the poor vs rich is how early (or late) they wake up.
The night owls are typically the ones who sleep in late – and in most cases, these are the individuals who tend to struggle financially.
In fact, according to a Business Insider article, close to 50% of millionaires wake up at least 3 hours before their actual workday begins.
That means if your work begins at 8, these millionaires are up at 5 am.
One of the most common reasons cited why these successful individuals tend to wake up so early is to improve productivity – and avoid the inevitable workday disruptions.
The early morning is a time when the world is waking up – and distractions are minimal, so successful people are more likely to strive toward their goals without delay and with energy.
Below, I’ve outlined some of the most prominent benefits of waking up early in the morning:
- Increased Productivity
- Excellent Sleep Quality
- Improved Mental Fitness
- Better Time Management
My husband and I typically wake up between 4:30 and 5 am.
However, we are also in bed by 9 pm.
I realize that this sleep pattern is likely quite rare for Millennials – but it has helped us improve our productivity 10-fold.
The night before we write up our goals (which typically involves writing a 2,000 or 3,000-word blog post for me) and in the morning we go ahead and accomplish those goals.
It’s the best way to start the day – crushing our goals in the morning and then carrying that positive momentum into the day!
6. The Rich Believe in Delayed Gratification
Have you ever heard of the Marshmallow Experiment?
It’s an experiment conducted back in the 1970’s by a Stanford researcher to determine how personality traits in young children could help determine their future success or lack thereof.
Specifically, the Marshmallow Experiment measured instant gratification versus delayed gratification.
Here’s an example of instant gratification, using the Marshmallow Experiment: The child had the choice of receiving 1 instant reward or receiving 2 rewards if they elected to wait a certain period of time.
Surprisingly enough, those children who elected to receive 1 immediate reward without waiting (instant gratification) later showed signs of:
- Lower SAT scores
- Poorer life choices
- Higher Body Mass Index
- Lower educational performance
Delayed gratification especially is a key as it relates to your financial picture, because your financial success depends on you striving toward your long term goals.
Chances are – unless you win the lottery tomorrow – you probably won’t become a millionaire any time soon.
It takes hard work, sacrifice and consistent effort.
In the end, it takes patience.
I wanted to outline some of the factors that go into instant gratification and delayed gratification, using this chart below:
|Instant Gratification||Delayed Gratification|
Rash (and often poor) decisions
Higher probability of living paycheck to paycheck
Lower likelihood of retiring successfully
Increased physical, mental and emotional health
Increased subjective enjoyment
And indeed, many studies have indicated that one of the key factors between the poor vs rich is that the rich often practice delayed gratification and are patient.
One of the best ways to practice delayed gratification is to invest today for a better tomorrow.
If you’re ready to level up and start investing, now is the time to check out M1 Finance.
M1 Finance is a solid mobile app that is one of my go-to’s when it comes to investing.
- Easy-to-use and cool graphics
- It costs $0 to open an account
- Opening an account is super easy
- No trading or asset management fees
- Minimum required to begin investing journey: $100
- Customized investment portfolio options tailored to you
7. The Rich Pay Themselves First
You may have heard the famous Warren Buffet say this many times before: “Pay yourself first.”
What does “pay yourself first” mean?
- Start with your paycheck
- Before you pay any bills or spend any money, you take a portion of your paycheck and save and / or invest that portion to help you grow financially
- A good rule of thumb is to save and / or invest about 30% to 50% of your income
- The money left over from saving / investing can now be spent or used to pay bills
Most people do the opposite: Most people receive their paycheck, then pay their bills and spend money on things they want and only THEN save and / or invest.
In their minds, they OWE it to themselves.
Why you need to pay yourself first:
- Financial stability
- Decreased spending
- Build a solid emergency fund
- Saving & investing cash for you
- Increased growth in retirement and investing accounts
CIT Bank offers:
- No monthly service fees
- Competitive interest rates
- FDIC Insurance – up to the legal limits
- Fast and easy access to your bank funds
Don’t be another statistic – break free of the cycle and start paying yourself first.
You owe it to yourself.
8. The Rich Minimize Excuses
Excuses are so easy to make.
They are like little white lies that simply roll off of your tongue.
And chances are, the people you make your excuses to, will likely believe the excuses too.
But, there is a time where making excuses doesn’t cut it anymore.
You have to own up to the things that caused you a failure or possibly a delay in a project.
It’s OK – because we are all only human.
If you are seen as a “perfect” leader by your employees or co-workers – you’ll likely have more difficulty connecting with your peer group and you won’t earn as much trust.
If people see you are human too, you’ll earn their trust so much faster.
Disadvantages of excuses:
- Loss of credibility
If you consistently make excuses to your peer group, you’ll likely not be taken seriously in the future and your reputation could be tarnished.
It will take a long time to regain your reputation’s previous status.
Rest assured: There is a proven way to stop making excuses, which I’ve outlined below.
How to Stop Making Excuses:
- Embrace fear & failure
- Stop comparing yourself
- Set realistic goals
- Don’t change habits from 0 to 100
- Remind yourself of the long term goal
Keep in mind that you won’t see a change in your excuse-making habit overnight (this relates back to delayed gratification – good things take time).
Consistently stick with your goals and actively try to catch yourself while making excuses.
Over time, you’ll see (and your peers will see) that you have improved substantially and own up to your mistakes!
9. The Rich Avoid Carrying “Bad Debt”
One of the absolute worst mistakes you can do for your financial situation is use debt to buy things you don’t need.
Let me share a personal example with you: I was engaged in a mentoring relationship with a young woman, likely aged 45.
Here’s her situation:
- She and her husband were spending more than they earned
- They had no mortgage payments
- She was unhappy with the kitchen and wanted a remodel
- They decided to take a $100,000 home equity line of credit so they could do a $40,000 kitchen remodel
- This remodel – based on an appraisal after the fact – increased the home’s value by $25,000
- They continued their expensive lifestyle, living above their means
- They did not plan to sell their house for another 10 years
It’s likely not a good idea to take out a $100,000 home equity loan, tapping into the equity of your house for something that does not bring you a great return on your investment.
In fact, the interest rate on their home equity line of credit (also known as a HELOC) was 5%.
Although their HELOC terms had them paying just their interest payments back during the next 10 years, did they absolutely need the $40,000 kitchen?
The credit card interest rates are extremely high – sometimes north of 25%.
However, sadly the poor vs rich mentality does seem to have the poor spending more on credit cards (and not paying off their credit card balances).
Maintaining a credit card balance is a sure way to reduce your wealth and stray off your path toward becoming a millionaire.
What are the disadvantages of debt financing?
- Lower credit score
- Decreased chance of obtaining future loans
- Negative impact on monthly cash flow (interest payments)
- Increased stress
To avoid debt financing, you will need self-control – and you need to understand your relationship with money.
If you find yourself to be an aggressive and impulsive spender (which are both characteristics of instant gratification), perhaps it’s time to lock away the credit cards for a while or only use the credit cards for necessary purchases.
If you’re suffocating from credit card and don’t know how to start paying off that debt – try using the new app Tally.
If you’re worried about:
- Paying late fees
- High interest rates
- Not paying your credit cards on time
- How much to pay toward each credit card
…Then Tally might be the right mobile app for you. Tally:
- Helps lower high interest rates
- Avoids you from paying late fees
- Helps you pay off credit card debt faster
- Organizes multiple credit cards in 1 convenient location
Remember – you won’t become wealthy if you rack up debt.
In summary – if you believe you are in the pre-millionaire stage, it’s time to figure out how the pre-millionaires before your time managed to pull themselves into the millionaire stage.
In the end, one of the largest differences between the poor vs rich is the mindset.
The rich have cultivated several qualities that the poor just don’t seem to possess:
- Pay themselves first
- Delayed gratification
- Superior self-control
- Excellent financial literacy
My husband and I have likely read Dr. Stanley’s “The Millionaire Next Door” 2 or 3 times within the last 8 months, and that book is like gold to us.
If you have not yet read this book – then I highly recommend you read it.
It’s full of valuable information and insight.
This blog post went over my top 9 differences comparing the poor vs rich.
Today is the best day to start your journey toward financial freedom.
Your bank accounts will thank me later!
What is 1 difference between the poor vs rich mindset that you have noticed?