Money is a tool.
Like any tool, you can wield it with great skill, or you can use it crudely. The self-made wealthy know not only how to wield it, but also how to use it in ways that don’t occur to most people. They think differently about money, and it shows in the results they can achieve with it.
Here are 15 ways the wealthy think differently about personal finances, money management, and investing than the average person — and how you can adopt these mindsets to reach your financial goals and improve your life.
Money Mindsets Wealthy People Adopt for Financial Success
1. Money Should Work for You, Not Vice Versa
This idea was popularized by Robert Kiyosaki’s classic book “Rich Dad, Poor Dad,” and it has many implications.
Money is a tool with many uses, yet average people only use it for buying things. A bigger house, a bigger car, a bigger wardrobe, a better hotel when traveling – buy, buy, buy.
Wealthy people know that money can also create more money. Money can reproduce like rabbits if given the chance.
Every dollar you invest, rather than spend, can go out into the world and generate more income for you. There are many ways to take a dollar and turn it into five. You can invest in stocks or bonds or other paper assets, invest in fine art through Masterworks, start a business, invest in real estate through Roofstock or DiversyFund, or lend money. The possibilities are endless, but they all have the same simple premise: investing money instead of spending it.
Look no further than how America’s billionaires earn their money. Every few years, the IRS releases a breakdown of income sources for the 400 wealthiest Americans. In the 2014 breakdown, only 4.47% of their income came from wages and salaries. Here’s how the rest of their income sources broke down*:
- Interest: 4.24%
- Dividends: 10.89%
- Partnerships and Corporations: 16.24%
- Capital Gains: 65.16%
*Due to IRS adjustments, the report’s percentages do not total 100% exactly.
All of this income arose from investing money in something, and the overwhelming majority of it came from starting and growing a business. In other words, your job won’t make you rich, but your investments and businesses might.
2. Building Wealth Doesn’t Have to Mean Sacrificing Happiness
Wealthier people are happier.
A study published by the National Academy of Sciences demonstrated a strong correlation between income and life satisfaction, as well as income and “emotional well-being,” up to around $75,000 in annual income. After that, it leveled off.
Yet several 2018 studies by the National Institutes of Health found that even among millionaires, more wealth did lead to more happiness. Interestingly, they found that the source of the wealth also mattered; self-made millionaires were happier than vapid heiresses and lottery winners.
Average people are quick to say, “Well, I’d rather be happy than rich.” Wealthy people wonder why anyone questions that you can be both.
And while wealth can’t “buy happiness” per se, it can buy you more time with your family and friends – which, presumably, would make you happier. You can use wealth to switch to a single-income household or to help you and your partner retire young and raise children full-time. For that matter, you can use it to reclaim more of your time to do anything you want.
3. Time Is More Valuable Than Money
Wealthy people know that they can always earn more money, but there’s only so much time each of us has on this earth. With that in mind, they look for ways to leverage other people’s time to regain more of their own, which they can then spend with their family and friends or pursuing passions and hobbies (perhaps even hobbies that earn them more money).
Consider this thought experiment. How much would it be worth to you to work only four days per week instead of five? Come up with an actual dollar figure. Now, imagine you earn $25 an hour, and you can hire someone to take on eight hours of your work every week for $20 an hour. You get paid $200 for that fifth day of work, but you could get that day back for $160.
Of course, you could probably outsource eight hours’ worth of your lower-skill work to someone for less than your current hourly rate. For example, you can probably hire a virtual assistant for $5 to $10 an hour. That would mean paying $40 to $80 to buy a three-day weekend, every single week.
You may say, “But I can’t just show up for work only four days a week.” There are two ways to address that. First, a 2018 study reported by CNBC found that 70% of professionals worldwide now work from home at least one day per week. In the wake of the COVID-19 pandemic of 2020, a majority of all workers now telecommute at least some days, according to Gallup.
You owe 40 productive hours a week to your employer. Work 32 and outsource the other eight.
Second, this is why people start businesses – to take more control of their work and time. Wealthy people ask how they can delegate work to leverage other people’s time. In return, they have more control over their time, which they can spend as they wish. That could mean spending more time with friends and family, volunteering, managing their investments, or working on a side hustle or other business to build wealth even faster.
It’s part of the reason wealthy people look for ways to build passive income, so they can bring in money without having to work for it.
4. Wealth & Health Are Intertwined
While you can’t buy more time (other than delegating work to others), there is a caveat: Wealthy people tend to live longer lives. A 2017 study published in The Lancet found that the wealthiest Americans live up to 15 years longer than the poorest Americans. In that sense, they do buy more time, not just on a week-to-week basis, but also on a lifespan basis.
The links between health and wealth start with a healthier lifestyle. A 2017 Gallup survey found that people who self-report as having “enough money to do everything they want to do” also have healthier eating habits. Data from the Centers for Disease Control and Prevention, analyzed by The Washington Post, showed that the greatest predictor of physical exercise, on the state level, was money.
Fortunately, you don’t need to be rich to live a healthier lifestyle. Start with these free home workout routines and these strategies to eat healthy on a budget. While you’re at it, re-evaluate your health insurance to make sure it will protect you in a true health crisis.
5. Leverage Other People’s Money
Saving more of your money is a key ingredient for building wealth. But your savings can only take you so far. Wealthy people know that they can use other people’s money to build their own portfolio of assets. A classic example is rental properties. Sure, you could save up $100,000 and buy a property with cash. Or you could borrow 80% of the purchase price and only put down 20% with your own cash.
This is what financial experts mean when they talk about “good debt.” If each rental property earns you $500 per month in cash flow, even after your mortgage and other expenses, then that debt makes you richer every month, not poorer. The faster you can accumulate assets like this, the faster you grow your income and your wealth.
Good debt isn’t limited to rental properties. You can also leverage other people’s money to start or grow a small business. You can borrow money from a broker to buy more stocks on margin – although it can be risky, given stocks’ volatility.
If you have a well-researched plan to grow your income and assets, don’t be afraid to enlist other people’s money to reach your dream faster.
6. Emotions Lead to Bad Financial Decisions
The wealthy know better than to make financial decisions emotionally. They don’t do “retail therapy” and spend money just because they’re in a foul mood. They don’t make business or investing decisions reflexively. In fact, a 2018 study by the British Journal of Psychology found that millionaires are, in fact, more emotionally stable than the average person. They weren’t born with some “rich person’s gene” that makes them more emotionally stable; they simply delay financial decisions if they’re too emotional in the moment.
If you’re feeling down, you could go on a shopping spree, and it might make you feel better for a few hours. Then the credit card bill comes, and you have all the more reason to feel depressed. More constructive responses to feeling down include calling a friend, doing a favorite hobby or activity, exercising, or spending time with your family. None of these have to cost money.
7. Money Isn’t Relative; It’s Personal
It’s human nature to compare ourselves to others. And it’s completely counterproductive when it comes to money and financial goals.
Your financial goals are unique to you. Your priority may be to retire by 45, while your neighbor’s priority may be to look and feel glamorous. Yet you assume that because your neighbor drives a Maserati, she earns more money than you do. You instinctively compare your Toyota to her Maserati and feel inadequate, poorer, and lesser-than.
But you don’t know the first thing about your neighbor’s income, net worth, or financial goals. In all likelihood, she took out an enormous auto loan to buy that Maserati. What sacrifices is she making in order to look glamorous and rich? What impact does her spending have on her actual net worth? You don’t know. She may be suffering under six figures of debt. Or she may not, but it doesn’t matter in the slightest because her woes and wealth are her concern and have nothing to do with yours.
The wealthy know their financial goals, and they budget to meet these financial goals. They create vision boards to stay focused, set career goals, and make sacrifices – all to help them achieve their own unique financial goals.
Forget about the Joneses. Focus on your own goals.
8. Diversify Income Streams
The average person earns money from one source: their job. When they lose that job, they lose all of their income, creating a true crisis.
In Tom Corley’s five-year study of self-made millionaires, he found that 65% of them have three or more income sources, as he explained to CNBC. Nearly half (45%) have four or more income sources, and nearly a third (29%) have five or more income sources. Money flows in from businesses, dividends, rental properties, bonds, private notes, and capital gains from selling assets.
Sometimes one source falters; that’s life. The stock market crashes. Businesses have bad months or even bad years. But by diversifying their income, wealthy people reduce their risk and spread their nest eggs among many baskets.
Start with these passive income stream ideas as you start diversifying your own income. For active income, read this guide on earning money online using passive strategies like affiliate marketing or opening a Shopify store.
9. Risk Should Be Calculated, Not Avoided
As mentioned above, the stock market sometimes crashes. It’s a real risk, and one that the wealthy are willing to take, based on historical data.
Half of Americans own no stocks whatsoever. That includes pensions, 401(k) and IRA accounts, and college 529 plans. In fact, 84% of all U.S. stocks are owned by the wealthiest 10% of Americans, according to a study published by the National Bureau of Economic Research (NBER).
Some pundits claim it’s because the average American can’t afford to invest in stocks. But that argument falls apart in the face of the facts. It’s free and simple to open a brokerage account through someone like M1 Finance, and you can invest in an index fund with $50 if you like – commission-free, for that matter, if you invest in a Vanguard or Schwab fund and you bank with them.
The truth is that the average American feels uncomfortable with the risk posed by stocks, so they leave their cash to slowly degrade in bank accounts. Don’t take my word for it; the NBER study showcases an enormous divergence of mean and median wealth in the aftermath of the Great Recession as the middle classes fled stock ownership. The subsequent stock market recovery overwhelmingly favored the wealthy because they didn’t panic and sell off all their stocks like so many less-wealthy people did. Sadly, that shift away from stock ownership by the middle classes has had a lasting impact, increasing wealth inequality in the United States.
Investing involves calculated risk. Starting a business involves calculated risk. But these are the ways the wealthiest 400 Americans overwhelmingly earn their income. Remember, only about 4% of it came from wages and salaries, while the other 96% of it came from dividends, interest, capital gains, and business income.
10. Delay Gratification
Among the most famous psychological experiments of all time was the so-called “Marshmallow Test.” In it, children were offered one marshmallow now, or two marshmallows later if they were willing to wait a few minutes.
The lead psychologist, Walter Mischel, followed up with the children for several decades and found higher SAT scores, college graduation rates, and salaries among those who were willing to delay gratification. Recently, the results have come under criticism, as self-control and the ability to delay gratification seem increasingly tangled with a stable home environment and cognitive ability, as Business Insider reports. These factors, of course, are also correlated with higher wealth.
But a slew of more recent scientific studies has also linked the ability to delay gratification with wealth and income. For example, one sweeping 2018 study conducted by Temple University found that the ability to delay gratification was more predictive of incomes than ethnicity, race, age, or height.
That makes sense. The very notion of investing hinges on delayed gratification. You refrain from buying something you want today so you can invest your funds and enjoy more money later.
Learn to delay gratification. Embrace living with less today so that you can have more tomorrow. Start with these minimalism tips for your family to raise your kids to be happy regardless of this month’s spending.
11. A Home Is an Expense, Not an “Investment”
Unless you house hack, your housing is an expense, like groceries and water and electricity. And you need to minimize your expenses if you want to maximize your savings rate and grow your wealth faster.
Far too many Americans justify spending whatever a bank will lend them when they buy a house. They tell themselves, “Well, sure it’s a lot of money every month, but it’s real estate, and real estate is a long-term investment!” This is a fairy tale. There are many ways to invest in real estate, from rental properties to flipping houses to REITs to alternative real estate investments. But your primary residence is not one of them.
Reframe the question from “What’s the maximum I can afford to spend on housing?” to “What’s the least I can spend on housing and still be happy?” By spending less on housing, you can funnel more money into building wealth with true investments.
12. Never Stop Learning
The wealthy know that in an ever-changing world, the only way to stay ahead is to continuously learn and adapt. It’s why 85% of self-made millionaires read two or more books every month, as Corley’s study found. That includes both fiction and personal development books, printed books and audiobooks. I myself love listening to books while I work out; here are 10 of the most common themes I’ve found in personal development audiobooks.
Develop an appetite for new knowledge and a curiosity to learn and grow. Cultivate a reading or listening habit of at least a half-hour per day, and surpass your colleagues for the next raise and promotion. I recommend Audible to fuel your audiobook habit.
Books aren’t the only option. Explore Udemy for thousands of cheap or free courses on any subject matter.
13. Surround Yourself With High Achievers
There’s a saying in entrepreneurial circles that you are the average of the five people you spend the most time with. In other words, if you want more success, be more intentional about the people surrounding you. Average people don’t think much about how their friends and companions influence their thinking. Wealthy people choose the people they spend time with carefully and intentionally.
That doesn’t mean you should cut ties with all your poor friends. But it does mean you should choose to spend more time with people you want to model, to learn from, to rub off on you – and the people you spend time with do rub off on you, whether you notice it or not.
Consider one study published in Psychological Science, which found that even people who ranked poorly on self-control were able to resist temptation when they spent more time with strong-willed friends. It makes intuitive sense. If you want to spend less money on entertainment expenses, spend more time with friends who prefer cookouts and other ways to hang out on a budget. Spend less time with friends who always want to meet at pricey restaurants.
Get more intentional with your social life, including the colleagues you opt to spend time with at work. The people you associate with sculpt you in ways that aren’t always obvious, so choose people who align with your personal and financial goals.
14. Push Your Boundaries Strategically
You hear the mantra everywhere: Get out of your comfort zone!
It’s true that nothing great was ever achieved by doing the same old thing. After all, if you want different results, you need to start doing different things – better and harder behaviors that take you out of the audience and into the arena.
Of course, your comfort zone is small, and the behaviors outside of it are vast. So it’s not enough to do things that scare you or push your boundaries; you have to be strategic about it. In the course of your constant learning, as you take calculated risks, look out for the feeling: “I should really do X, but I’m afraid to.” When you find something that you know, deep down, will help you reach your goals faster, but it gives you the jitters, pay attention.
Note that “jitters” are not the same as “abject terror.” A little anxiety can help you learn if you frame your goals as a challenge rather than a threat, according to a study published in the Journal of Individual Differences. But too much anxiety stifles growth rather than helping it.
When you’ve decided to push your boundaries, get help with it. Enter what Russian developmental psychologist Lev Vygotsky called the Zone of Proximal Development and get help from a mentor, a more advanced peer, or both. It’s one more reason to surround yourself with high achievers.
15. Adopt an Abundance Mindset, Not a Scarcity Mindset
Why do people choose not to delay gratification? One obvious reason is impatience. But just as often, they fear not having enough, and it comforts them to have more in their possession right now. This scarcity mindset is why so many people don’t take calculated risks. It’s why they hoard, feel jealous, worry, and stress. It’s a constant background fear of being without.
It’s also why many people constantly compare themselves to others and why they see money as relative, rather than focusing on their own financial goals.
But other people’s wealth doesn’t diminish your own. There isn’t a finite amount of wealth in the world. The wealthy know that money is created, not siphoned away from someone else. An entrepreneur who builds a business from scratch creates something of real value where before, there was nothing. No one else has to lose for you to win. It’s not an either-or proposition.
When you invest money in the stock market, you aren’t stealing profits away from someone else. Quite the opposite; you’re infusing money into companies, helping them grow, create jobs, and create value.
When you buy an abandoned, dilapidated home and renovate it to offer for rent, you’re creating value. Where there was once a useless husk of a building, blighting the neighborhood, there is now something useful and valuable. You have created housing, and for your vision, you’re rewarded with passive income.
In many ways, a mindset of abundance is the culmination of all of the other mindset shifts on this list. It’s about believing in a brighter future and intentionally building it by creating value – for yourself and others. So start thinking in terms of creating and adding value, rather than worrying about not having enough.
The way the average person views the world is “normal.” But normal won’t cut it if you want to be wealthy.
Mindset shifts rarely take place instantaneously; more often, they must be cultivated. So start thinking with an investment-oriented mindset of creating value and wealth over time. Learn to delay gratification, to improve your long-term health and longevity, and to take calculated risks to create passive income streams. Surround yourself with smart, driven people and with a never-ending stream of new knowledge and skills.
The rich know the future holds great things, but only if they make it so.