What does the wealthy 10% understand that the other 90% are missing? originally appeared on Quora, the knowledge-sharing network where compelling questions are answered by people with unique insights.
- That big money is served in small increments. Whether that's ROI on investments, profits, margins on products you're selling, whatever. People who don't understand this are always trying to double or quintuple their money in as few transactions as possible, while the largest and most successful companies and people in the world win by making "small money" over and over again.
- That wages and income are about what the job is worth, not the individual. As a person, as a human being, your value is immeasurable. If you went missing in the woods our society would easily spend five or six figures trying to find and rescue you, without hesitation. But dude, putting a sticker on a box is still only worth $5. If that. Your income potential isn't about what you need or what the employer can afford, it's about the value of what you do. Those who are in the upper income brackets have understood and embraced this reality and have worked to bring something of value to the market or their company.
- That personal debt is not a "tool," it's shackles--delayed gratification is more gratifying than instant gratification. If you can't pay cash, you can't afford it. That guy you know making $70,000 per year driving an $80,000 BMW and carrying $15,000 in credit card debt looks like he's well off, but he's an idiot. His entire paycheck is gone by the end of the month, and none of that stuff is his. He's basically just renting it from the bank. He's paying more annually in interest than he's earning in his IRA. One hiccup in his income and the bank takes it all back, making all the money he's paid thus far for nothing. But the guy who saved up and paid cash? His savings account grows every month and no one will ever show up and take his stuff.
- The value of the dollars you have vs. unearned future dollars. Those people who got a "great deal" on Ikea furniture or faux leather couches will be buying another one sooner than the person who bought quality goods. And the thing is, the people who cheap out know that when they buy it. They rationalize it by saying "If I get three years out of it, that's fine, I can buy a better one later when I can afford it." When you do this, you're basically deciding to throw away the money you have and committing future dollars you haven't even earned yet. A smarter decision: Save a little longer and spring for quality goods that don't need to be replaced so quickly.
- Math. The broke girl really wanted a particular dress, but it was over $100 and she didn't have it. When the dress went on sale for 20 pecent off, she rushed to one of those payday advance places and borrowed the money to get it. The interest on those type of loans of course negated the savings. But she didn't care, and justified it by thinking "Oh well, it's the same money anyway." She didn't realize that the problem wasn't how she bought the dress.
- The importance of life insurance. I won't get into the personal responsibility argument about leaving your loved ones to fend for themselves. The point is that life insurance is hands-down the easiest and lowest-impact way to pass wealth on to the next generation. For a few measly dollars a month, your kids can be millionaires (or at least hundred thousand-aires). Even someone who will never make enough money in their lifetime to buy a home and dies broke and penniless could leave enough to get all of their grandkids through medical school. It's a total no-brainer, and you can afford it. If you're retired, your adult children should be paying the bill for you. Stop making excuses.
- That lotteries are just another tax on the poor. You do realize the government keeps half of it, right? That's before the winner is taxed. Yep, that $7 million jackpot really represents $14 million in actual lottery ticket sales, so you're basically just voluntarily paying more taxes. You won't see the 10 percent standing in line buying lottery tickets. Even during the big jackpots. Your odds of winning are 1 in 292 million--that's 0.0000003425 percent--and yet there are people who drop $20 per week, every week for 40 years or more hoping one day it will be their turn. That same money invested from ages 20 to 60 would be worth $300,000 on their 60th birthday, even with the most conservative market estimates. Or another way to look at it: you could turn $40,000 into $300,000 simply by not playing the lottery. It's dumb. Stop doing it.
Above all, if you can commit to living within your means, your means will increase over time. Feeling broke today? Look at your paycheck. Now imagine you didn't have to spend all of that on car payments and a house that's bigger than what you need, and the credit card payments on all the stuff you bought to fill it. Just imagine that whole paycheck staying in your bank account and not going out the door to those payments.
You aren't so bad off anymore, are you?
Now imagine what your savings account would look like in just one year if you threw it all there and forgot about it. Because that's where you could be, if you thought about money differently.
Successful people know it's not about how much you make, it's about how you spend it.
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