We continue our series of articles on handling personal finances with further education on how the rich thinks and they think differently from poor people. It’s a good distinction to make that those who are broke are not necessarily poor but if you’re constantly broke, you may suffer from the mindset of the poor. Here, we’ll try to change that and make you more conscious in your decisions to spend by introducing you to the mindset of the rich.
The first thing that the rich knows is how to differentiate assets from liabilities. A bigger house or a new car may be something you’d want to have; others may even call it an asset but the rich knows that unless it earns them income, those things are assets to other people. A car for example, is an asset to gas refilling stations because car owners have to purchase fuel from them. There actually are a lot of other costs that comes with owning a car; you’d have to consider getting insurance, maintenance, repairs to name some. If the vehicle you buy, however, is used for business, then it could be considered an asset. There is nothing wrong with buying things for luxury but do not buy them thinking that they are assets. If you follow the way of the rich, you’d buy assets and buy luxuries with the income you get from the assets you have.
There are different ways to earn income but generally they can be classified into two: active income and passive income. Active income is money you earn by working or rendering some service. Passive income, on the other hand is income you earn even when you do not work; this can be made possible by investments in businesses, real estate or portfolio assets. For those who are able to think ahead and plan for retirement, the goal should be to have enough passive income to sustain the lifestyle you want for yourself but starting out, you can work jobs while simultaneously investing in the stock market and building your business.
In a previous article, I mentioned that we will have an article that will discuss different investment options and I promise that it will be uploaded soon.
Yes, I’m a magician and I can tell you that there are many ways to deceive people with the use of cards. The tool magicians often use is playing cards but our illusions are nothing compared to the illusion of free money as presented by credit card companies.
People have this false notion that they can afford whatever is below their credit limit; this leads people to spend money they don’t have on things they don’t need. Credit cards also incur interests which makes it such a bad deal for the card holders. Fortunately, we can develop discipline in order to mitigate the risk. There are two forms of discipline, intrinsic and extrinsic. If you can regulate yourself with self-control, well and good; but if you can’t discipline yourself, cut your cards.
To help you develop the mindset of the rich, there are just two exercises we’ll have you do but if you constantly practice them
- List down your assets and liabilities. (Once you’ve done this, you’ll look at things to buy in a new way.)
- Consider options on how you can have another source of income. (This will help you become creative in solving problems.)
Earl Wong, a magician, educator, and entrepreneur. He has dedicated his time and effort to creating educational materials with a sprinkle of magic. He is also a financial advisor which allows him to personally spread financial literacy.