3 Ways That Wealthy People Think About Money
The Amplified Impact Podcast
April 26th, 2023
In this podcast episode, I reveal not one, not two… but three mind-blowing mental models that will revolutionize the way you think about money.
Buckle up as I unpack the first model – the secret formula for wealth that will have you raking in the dough in no time!
The second model is a game-changer that will raise your financial thermostat to the max and show you how to skyrocket your income.
And the third model – the ultimate key to financial success that will teach you how to invest your time like a pro.
Are you ready to take your finances to the next level?
TWEETABLE QUOTE:
“The most successful entrepreneurs are not the ones that have the most resources. They have the most resourcefulness.” – Anthony Vicino
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Episode Transcript:
What’s up everybody? Welcome back to the podcast. As always, I’m super jazzed to have you here today we’re gonna talk about three ways of thinking about money that are gonna set you up to play the money game better and hopefully win it. These are simple heuristics or simple mental models as our boy, Charlie Munger would say that I think will serve you very well if you can adopt them, cuz they’ll will give you a different lens to look at this money game through.
And it’s one that maybe. Or all three of these are different lenses that I think a lot of people don’t consider. So number one is wealth is the ratio between what you make and what you keep. I first heard this put in these terms by Alex Formo. I think it’s a really brilliant way that wealth is the ratio between what you make and what you keep.
For instance, if you make $50,000 a year, But you only have $5,000 a a year of expenses. Then that means each year you’re putting $45,000 in the bank, which is equivalent to nine years worth of expenses. Right? So for every year you work, you’re creating or generating nine years of wealth. So you just, you know, you draw this out and you say, okay, well if I was to work for, you know, the next 10 years, I would have 90 years of wealth.
That means you could retire effectively for the next 90 years, right? And so there’s two ways then that you can increase your wealth. Number one is you increase your ex, your income. And I think that’s overall the best way because it’s infinite. You could, you could literally go out there and make a million dollars, you could make a billion dollars, but you can only cut your expenses so far.
Right? And in that example that it gave with the $50,000 and $5,000 of living expenses, that’s pretty unrealistic cuz like, how are you only gonna live off of $5,000? Like that’s probably not even enough to cover your food for the year. So that’s, you know, that’s an extreme example to, to, to make the point, to show the example.
But, um, I do believe focusing on increasing your income is generally the better way to increase, increase your overall wealth. But it is important that you maintain your expenses, that you keep an eye on that, because what I see happen a lot when people come into money is they experience lifestyle creep.
So you might start making a million dollars, but you start buying that nice car, that nice house, that nice jewelry, all these things. You go on these trips and you eat out, and next thing you know, your expenses have creeped up to the point where, yeah, you’re making a million dollars, but 900,000 of that is going out the door in expenses.
So each year you’re only saving a hundred thousand dollars, and that seems like a lot. But if your expenses are $900,000, then that means it’s gonna take you nine years. Nine years to save up one year’s worth of wealth. Think about that. And this is the reason why people who make really good money will, may often not be able to retire, is because they’re, they’re not actually wealthy.
They might be making a ton of money, but they’re not wealthy. And that’s the most important number if you want to achieve financial advi, uh, freedom is to increase your wealth and you do that. By increasing your income, decreasing your expenses, so that’s number one. Wealth is the ratio between what you make and what you spend.
Number two is, You need to, if you wanna make more money, you have to raise your baseline temperature. Now everybody has like this internal thermostat, this internal money thermostat where there’s a, an amount of, of money that feels normal, uh, in any amount, like over that number. It feels like a lot, feels unachievable, whereas any amount underneath that number is typically doable.
It’s, it’s a, it’s a. It’s a quantity of money that you feel comfortable spending. Let’s say for me, I used to think in thousand dollars increments where anything under a thousand dollars was okay, I, I could afford it, but as soon as it started getting over a thousand into two or 3000, I was like, that’s a lot of money.
A lot of people think this. A lot of people think that you need money to make money, and that like, oh, if only I’d been born with that silver spoon in my mouth. If I had the money, of course, then I could buy the real estate, or I could buy the business or the whatever. And sure, money is a resource and it’s helpful, but the truth is, if you’re given the resource, if you’re given the money for free, you’re not gonna cherish it.
You’re not even gonna understand how to use it effectively. So the money itself, the tool is not helpful because you haven’t really learned how to use it yet. And so in a lot of cases it can actually be an encumbrance. It can actually just be the thing that eventually leads to your downfall. Because you haven’t learned how to wield the the sword.
You end up lopping off your own leg. Now, instead of thinking it takes money to make money, you have to flip this on its head, and you have to ask yourself, what does it actually take to make money? And in my estimation, it requires three things. It requires creativity, financial literacy. In consistent right?
Action. So of these three, like money is not necessary in any of ’em to be creative, to see opportunities to, to take ideas and combine them in new, novel, functional ways. That’s creativity. Financial literacy is understanding the rules of money, how, how the game is played and consistent. Right? Action is saying, here’s the idea, here’s how I execute it, because a million dollar idea is worthless without a million dollars of execution.
So if you can do those three things, you can, you can make money. It’s actually quite easy, so don’t let that be a limiting belief that you adopt as, mm, it takes money to make money, and because I don’t have money, I’ll never make money, or I need to first save up before I can start doing this. No, you don’t.
Lack for resources, you lack for resourcefulness. It’s one of the most powerful quotes from Tony Robbins that I’ve ever heard. And it’s a hundred percent true. The most successful entrepreneurs are not the ones that have the most resources. They have the most resourcefulness. So try and cultivate that skill, that belief, it will serve you incredibly well.
So those are three money thoughts that I think will serve you very, very well, that you don’t need money to make money, that you need to raise your baseline temperature. And that wealth is a ratio between what you make and what you keep. You keep these three things in mind and you allow them to lead your actions, and I think you’re gonna be doing pretty all right in the money game.
So guys, this is gonna do it for me. I appreciate you as always. I’ll see you back here tomorrow, but until then, stay hyper focused my friend.
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