Welcome to Wealth Psychology 101
According to the most recently published data available, 3.5% of American households have a net worth of $1,000,000 or more. Of these American millionaires, 95% of them have between $1 Million and $10 Million dollars. If you have ever wondered what sets them apart from the other 96.5%, one will want to understand wealth psychology.
It sort of seems like it’s not that many people when you think that only 5% of American millionaires have more than $10 Million in assets. That is, until you break away from percentages and look at the actual numbers they represent. As of 2020, there are well over 90,000 households in America with a net worth of $50 Million or more.
With millions of millionaires and nearly a hundred thousands ultra-high net worth individuals in the U.S., it seems like these wealthy individuals and their families know some secrets that haven’t been shared with the rest of us.
What are these people doing and what makes them different from the rest of us? Do they view the world differently than we do? Is there a wealth psychology? Actually, yes, there is. Wealthy people as a whole will generally share the same psychological aspects, as well as outlooks on the world and life.
1. “Starting a business is the fastest way to become wealthy.”
-All Rich People
Steve Siebold spent 26 years interviewing the wealthy and rich all over the world for his book “How Rich People Think” and one of his top findings was that wealthy people, on average, think that starting a business is the best (and fastest) way to become wealthy. Meanwhile, many lower and middle-class individuals feel like starting a business is going to be too risky.
Sure, starting a business can be risky, but working a regular job is risky as well (albeit not quite as much). Wealthy individuals understand the risks associated with starting a business but, to them at least, the risk is severely mitigated by the thought of living a life of financial mediocrity collecting paychecks and never having taken a chance on themselves for a better future.
Wealthy individuals and successful business owners understand that by running your own business, you have the ability to get out there and proactively seek out new clients, new business, and can work hard to seemingly grow your income at will.
2. Rich People Embrace Being Uncomfortable
Let’s look at a middle class family. They’re not wealthy, but they’ve got enough to pay the bills, enjoy some luxuries, maybe take a vacation here and there, the kids’ school is paid for, all of that good stuff. They’re comfortable. The average middle class family is comfortable and they take this comfort as a form of happiness or, to put it differently, they’re happy being comfortable.
Wealthy individuals do not want this type of comfort in their lives. They step out of their comfort zones and embrace being uncomfortable. One key thing that they have grown to learn is that the second they get comfortable, they will become complacent. Once they become complacent, then they will stall out and stop amassing wealth.
3. Savvy Vs. Smart – There’s A Huge Difference
The average ‘regular’ person thinks that wealthy people are smarter overall. Meanwhile, the wealthy people simply view themselves as being more savvy. If being smart was an easy shoe to become rich, every summa cum laude graduate and valedictorian should be a millionaire, right? Conversely, without naming specific names, I’m sure we can all think of at least a few ultra wealthy individuals that seem like they’re lacking a few brain cells.
Building your wealth has a lot less to do with how well you memorized answers and formulas for tests and exams in school, and more so to do with your ability to process information and solve real-world problems. Savvy individuals will actively seek out problem-solving solutions and will be proactive about mimicking what other wealthy individuals are doing right, while fixing what they’re doing wrong.
4. Wealthy People Often Live Below Their Means (especially in the early stages)
Meanwhile, the average middle-class American family will oftentimes live above their means. Remember how we said 95% of American millionaires have a net worth of between $1 million and $10 million? You’d be shocked to learn how many of them don’t drive cars that are worth 6 figures, or don’t live in these multi-million dollar estates.
Wealthy people understand that just because they can afford it, doesn’t mean they should buy it. They also have a firm grasp on the power of money. They will live below their means and, if they do splurge, it’s likely only going to be on assets that will appreciate over time.
Most Americans think that they can buy something because they have the money for it. Some people even think that because they can pay cash for an item and not charge it to a credit card that this suddenly means they can afford it.
If an individual makes $1,000,000 per year and they spend $1,000,000 per year then they aren’t wealthy, they’re broke! They might have a high income, but they’re broke.
5. Most People Think Making Money Is Complicated, The Rich Think It’s Simple
The average Joe assumes that getting rich is some super complicated process. In turn, this probably turns them off of ever trying to amass their own wealth. If they think that you need to be lucky, super smart, and have the ability to do some ridiculously complicated process, then they’re never going to give it a shot.
Meanwhile the rich think the process is simple (not always easy though) They understand that, for the most part, having ideas and solving problems is what brings in money. The bigger the problem you solve, the more money that you will make. That’s pretty much it. Simple, right? Which brings us to our next point:
6. Wealthy People Know Money Comes From Problem Solving & Thinking
But because the average person works an average hourly, salaried, or commissioned job, we feel that money can only come from hard work. Just about every lower or middle class worker you talk to about money will have one specific viewpoint: The only way to make more money is to work more hours.
And it’s that kind of thinking that will hold you back from ever becoming wealthy because it’s just not true. Critical thinking and problem-solving skills are two traits that just about every single self-made millionaire in the world possesses.
7. Wealthy Individuals Choose Their Friends Wisely
Many of us go out of our way to try and be friends with and please everyone. Studies show that surrounding yourself with like-minded individuals can bring about like-minded success (or the lack thereof). If you had a group of a few, selective friends that were business owners and wealthy individuals versus a group of dozens of everyday Americans as friends, which ones do you think would be able to offer you advice on starting a business, making a risky investment, or even properly managing your money?
Now, we’re not saying go out there and become friends with rich people to mooch advice off of them, nor are we saying to go out and be a jerk to anyone who makes less money than you. What we are saying is that wealthy individuals are pretty selective with who their friends are.
8. Many Of Us Think Money Is Controlling
Meanwhile, wealthy people think money is one of the most freeing and liberating aspects of life. They see money and wealth as a tool that has this amazing power to open the doors to many different opportunities and freedoms.
Average consumers feel that money is controlling. Almost as if it’s some sort of tool used to oppress the masses. But the truth is, if you’re drowning in debt or are living above your means then of course you’re going to feel like your money is controlling you.
9. The Rich See Money With Logic, Not Emotions
Another key aspect of wealth psychology that Siebold uncovered was how wealth is viewed exactly. Wealthy individuals are going to see wealth logically. A tool that can fix problems and unlock solutions. Normal people are usually going to see wealth as something that’s much more emotional.
If you’ve read some of our recent investing articles then you know how adamant we are about the fact that emotions can ruin your finances. Emotions will be the reason that you buy your stocks high (because everyone says its good) or that you sell your stocks low (better get out while I can before it gets worse). Emotions are going to be what causes you to make that shady business deal with your uncle whereas logic would have you see that the potential just isn’t there.
10. Leverage: The Best Tool Of The Wealthy
The average person understands the meaning of hard work. And just about anybody out there will respect someone who works hard. That sad reality is that hard work alone will rarely ever make you rich. That hard work must be combined with something special.
Leverage. If your time is more valuable acquiring clients or making business deals, then why are you trying to design the new website for your company? Outsource it. That is a very simplified example of leverage. To put it in better terms, if there are already resources out there to accomplish your tax, then utilize those resources. Don’t try and create your own. Wealthy people understand this.
Remember how we said the wealthy got rich with ideas and problem solving? They have time to solve problems and come up with ideas because they understand that the more leverage that can be incorporated, the more time they will have available to put into other key aspects of gaining wealth.