How Rich People Think

by Ryan Law

How Rich People ThinkI recently picked up a copy of the book How Rich People Think[i] by Steve Siebold. In the book Siebold shares 100 lessons he learned over a period of 26 years as he interviewed some of the wealthiest people in the world. The book reminds me of a few of my other favorite finance books, including The Millionaire Next Door and Think and Grow Rich. These books don’t focus on money per se, but how rich people think and act.

In today’s post I will share several of Siebold’s lessons.

#13 Middle class believes money is earned through labor…World class believes money is earned through thought

“The average person believes the harder they work the more money they’ll make. Their linear thinking equates labor and effort with financial success. This is why most people aren’t rich. They’re following an outdated model of success…The rich know that creative thinking is the highest paid skill in the world.”

This idea of creative thinking is a theme throughout the book. Siebold mentions numerous times that the best thing you can do is work on training your mind to find solutions to difficult problems. “The rich get richer,” Siebold says, “because they know the world is overflowing with wealth disguised as problems that need to be solved.” One way he recommends you train your mind is by investing at least one hour per day studying subjects that will help you move toward your vision.

#20 Middle class earns money doing things they don’t like to do…World class gets rich doing what they love

Surely you have heard the philosophy that you should “do what you love and the money will follow.” Do you believe that is true? On the last day of my class each semester I ask the question “How many of you truly believe you can do something you love and get paid well for it?” Most students raise their hands, but the reality is that most people don’t like what they do. Forbes reported on a study that showed that only 19% are satisfied with the work they do, 16% are somewhat satisfied and almost 2/3 of all people are dissatisfied, or unhappy in the work they do.[ii]

There is a great video narrated by Alan Watts called “What is Money Was No Object?” that discusses this theme. Here is a link to the video: http://www.youtube.com/watch?v=C_sbcSRMsOc

Siebold says that “…passion is the real secret of getting rich…The rich go to work every day feeling passion for what they do, and their passion fuels their efforts.”

#50 Middle class dreams of having enough money to retire…World class dreams of having enough money to impact the world

What is your major money goal? Siebold says “…the masses major goal with money is to retire at 65 and hopefully have enough money to survive until they die. The world class, while often no more ambitious, set their sights on impacting the world with their wealth.”

Most people want to make a positive impact on the world. Think about some specific things you could do to make a difference for other people if you had the money to do it.

#58 Middle class have loosely defined goals with flexible deadlines…World class have highly defined goals with do or die deadlines

Jim Rohn, a famous speaker, author and consultant tells a story of meeting with his mentor, Earl Shoaff, for the first time. Shoaff said, “Let’s start with reviewing your goals.” Rohn said he didn’t have them with him so Shoaff said “Are they in your car? Why don’t you go get them so we can review them.” Rohn said they weren’t in his car and in fact he didn’t have any written goals. Shoaff then drilled into Rohn’s head the importance of having goals, and Rohn went on to equate this one principle with the majority of his success.

Siebold says only 3% of people have goals specific enough to generate the level of mental energy required for success, while “World-class thinkers focus on the single most important goal they desire and set a deadline for its achievement…Their do or die commitment to building a financial empire virtually guarantees their success.”

Here are a few of Siebold’s other lessons. World class…

  • Believes building wealth is a team effort
  • Focusses on money making activities
  • Has an action mentality
  • Takes calculated risks
  • Believes money is about freedom
  • Believes in self-reliance
  • Is internally motivated to make money
  • Believes starting a business is the fastest road to wealth

I encourage you to read books like this that challenge your thinking. You may not agree with everything Siebold or other authors like him say, but I believe it is a healthy thing to read things like this and seek for ways to improve your thinking.

 

[i] ISBN 978-0-9755003-4-7 Published by London House Press

[ii] http://www.forbes.com/sites/susanadams/2012/05/18/new-survey-majority-of-employees-dissatisfied/

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Finding Financial Wellbeing

wellbeingA while back I was given a copy of the book Wellbeing – The Five Essential Elements by Tom Rath and Jim Harter. In this book Rath and Harter look at the five essential elements that shape our lives: Career Wellbeing, Financial Wellbeing, Physical Wellbeing, Social Wellbeing and Community Wellbeing.

In the introduction to the book the authors say “Wellbeing is about the combination of our love for what we do each day, the quality of our relationships, the security of our finances, the vibrancy of our physical health, and the pride we take in what we have contributed to our communities.”

For today’s post I am going to go into more detail about Financial Wellbeing.

Financial Wellbeing is about effectively managing your economic life. The authors note that it is difficult to be happy in any area of life if you cannot meet your basic needs (remember Maslow’s Hierarchy of Needs?), but that the amount of money we have, beyond a certain point, has less of an impact on our overall wellbeing than the concepts of “financial security” and effectively managing our finances.

“People with high Financial Wellbeing manage their personal finances well and spend their money wisely. They buy experiences instead of just material possessions, and they give to others instead of always spending on themselves. At a basic level, they are satisfied with their overall standard of living.” (Rath & Harter, 2010, p 154).

There are several important concepts in that statement. People with high Financial Wellbeing:

  • Manage their personal finances well
  • Spend their money wisely
  • Buy experiences instead of just material possessions
  • Give to others
  • Are satisfied with their overall standard of living

Let’s discuss a few of those concepts.

Give to Others

The authors cite three studies that show that spending money on yourself may temporarily make you feel good, but after time that good feeling fades. While spending money on yourself does not boost wellbeing, spending money on others does. When we help others out we feel good, even if it is just a little bit of money. For more detail on this subject, see “Why Giving Matters” (http://blog.ryanhlaw.com/why-giving-matters/).

Buy Experiences

While spending on material goods doesn’t increase wellbeing long-term, spending on experiences does.  Think about some of the material items you purchased over the past year, and then think about some of the experiences you purchased in the last year. Experiences can include trips or something as simple as going out to a nice dinner or going to a movie. Do the material items or experiences give you the most happiness? Most people would agree that experiences give them the most happiness. Things that come to mind for me are date nights with my wife, going to a movie as a family, and taking a trip over Spring Break. With experiences we get to look forward to the event, enjoy the event and have fond memories of it. It is interesting to note that for those that earn less than $25,000 per year experiences and material purchases show similar gains in wellbeing, but after $25,000 experiences provide two to three times the levels of wellbeing when compared to material purchases.

Manage Personal Finances Well

This concept brings us back to many of the things I have covered in this blog; budgeting, protecting yourself from identity theft, having a basic estate plan in place, saving for emergencies, investing for the future, etc. The authors also suggest you establish default systems, such as direct deposit, automatic deduction for investments and enrolling in your 401(k) at work so savings is automatic.

 

It is important to remember that all areas of Wellbeing (career, financial, physical, social, and community) work together. You can’t just focus on one area and ignore the others.

I recommend you read the book to see how you can improve your life in all five areas. http://www.amazon.com/Wellbeing-The-Five-Essential-Elements/dp/1595620400

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Basics of Renters Insurance

apartment fireIf you live in an apartment and a candle tips over and starts a fire, who is responsible for the damage? What if a thief breaks in and steals your TV and other electronics? Is your landlord responsible to replace those items?

In both scenarios YOU, as the renter, are responsible for the damage or loss.

In the last two posts I have covered auto and homeowners insurance. These week I will conclude this series with a post about renters insurance.

Renters insurance typically covers theft, vandalism and fire (or smoke) damage. Some policies also cover water damage. Pipers bursting, sewage backup, earthquakes, floods and other “Acts of God” are typically not covered.

The three main parts to a renter’s policy are:

  • Contents
  • Loss of use
  • Liability

Contents

You may not think you have much of value, but the average renter has about $30,000 worth of “stuff”, from furniture to clothes to electronics.

Renters insurance will replace items stolen or damaged by a covered event.

You can get Replacement Cost coverage or Actual Cash Value coverage.

Actual cash value takes into account depreciation. For example, let’s say you own a $5,000 TV that typically lasts for 10 years. If that TV is stolen after 5 years you will get $2,500 for it from the insurance company.

With Replacement Cost coverage you will typically get a check for the actual cash value (in our example above you would get $2,500), then when you submit a receipt you will get a check for the remainder, up to a set dollar amount.

You should always get Replacement Cost coverage if it is available.

Most policies cover your items while you are travelling and some will cover items in your vehicle as well.

Before the insurance company will pay anything you have to pay your deducible. The higher your deductible, the lower the premiums will be. Be sure you have a deductible you can afford, though.

To prove what you own you should have pictures or a video of your contents. You may also want to have a list of what you own and how much you paid for it.

Contents coverage will typically only cover a limited dollar amount, so if you have an expensive or valuable item make sure your insurance agent knows about it and you can get additional coverage for it.

Loss of Use

If you have water, fire or smoke damage your apartment will typically be uninhabitable for some period of time while it is being repaired.

Loss of use will cover your rent in a similar apartment or hotel for a limited period of time.

Liability

Liability coverage will typically cover legal costs, bodily injury and property damage caused by your actions or negligence. It will also often pay a set amount for medical payments for your guests who are injured.

Cost

You will pay a monthly or annual premium for your coverage. Average policies cost between $15 – $30 per month.

For those that live in Utah, get in touch and I would be happy to get you a quote for renters, auto or homeowners insurance.

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