Should you think like a wealthy person?

I’ve heard multiple authors talk about the “scarcety mindset” and the “wealthy mindset”, advocating that we should all think like rich people – as if becoming wealthy is something we can just will into reality.

At some level this makes sense. Clearly, some people who struggle financially do so because of poor choices. Likewise, many who have achieved financial freedom have gotten so far because they made the right choices.

If you think “I’m never going to be free… I may as well go play pachinko some more…”, then yes, you probably never will be finacially free.

If you think “I am going to save 30% of my pay check for the next 10 years, even if it means giving up some things”, and you stick to it, then you will probably be well on your way to having a nice nest egg.

The problem is that life is much more complicated than that. Some people are poor, or in debt because of circumstances beyond their control. Other people are born into wealthy families and have everything that money can buy from a young age.

At the very least, I think that “normal” people should look to the wealthy people who weren’t always that way for direction.

Example: Warren Buffet serves as a better example than the Cornelius Vanderbilt, and Ronald Read and Robert Morin serve as a better examples still.

We also need to look for people who have maintained and grown their wealth, and who have reproducible strategies for doing so.

Bill Gates and Larry Page may not have always been as wealthy as they are today, but they both hit upon successful strategies in the technology market when the timing was perfect. Luck also played a big part in their success. This isn’t something the rest of us can easily reproduce.

Likewise, most can’t copy the success of professional sports players, famous actors, or lottery winners. Many people in those categories end up poor (or worse, in debt!) once their income dried up.

In particular, I think the people we shouldn’t copy are the upper middle class. In both Japan and overseas, this group of people has the potential to become truely wealthy – but it often goes untapped. People who have a moderate amount of money often want to look rich – so they spend money on cars, fancy hand bags, designer clothes, and more.

In the book “The Millionaire Next Door“, the authors find that people living in “affluent or white-collar communities” are less likely to be millionaires than those living in blue collor or lower middle class communities.

The main reason attributed to this is purchases of luxury goods by the affluent communities. In other words, they were trying to “keep up with the Joneses” instead of living below their means.

I’ve seen the same thing in Japan in the 1980s. Everyone could suddenly afford more or everything back then, and so a lot of people did. They mistakenly assumed the magic stream of wealth would continue forever, and spent money like it was water.

People who could take the subway bought fancy cars just to keep in their driveways, you saw everything from Gucci sandals to young teenagers with Lois Vuitton handbags. Once it started, everyone around would try to keep up. It was oppulant, decedant, and ultimately grotesque. This kind of extreme “Conspicuous Consumption” has died down for the most part in Japan, but I see it in China now.

Of course, economies can’t grow at that rate forever, and when reality caught up, there were a lot of people who were caught off guard.

Getting back to the point, most of us can only earn so much money, so the real question is how we can make that money work for us. To do that we need to invest it, and to invest it we simply need to not spend it.

Warren Buffet, Ronald Read, and Robert Morin understood this, but their examples might be a bit extreme. Saving every penny you make forever might make you very rich – but it may not make you happy if you end up with money and nothing else.

On the other hand, it’s clear that spending money on luxury goods can quickly make one poor. This doesn’t just relate to the obvious suspects like overpriced handbags and watches, but also things like exspensive appliances, new cars, clothes, and more.

If you buy more stuff in general, and more expensive stuff, then you are just “investing” in things that rapidly lose value.

At the end of the day, most people you see who look wealthy, aren’t. If you have limited income, you can either spend it on looking wealthy, or invest it in being wealthy. The vast majority of people simply can’t afford to do both.

So should you think like a wealthy person? Sure. Think like the Millionaire next door.