This post Rich Dad Scams #4 and #5: “Live Below Your Means and Save Money” appeared first on Daily Reckoning.
This is the fourth issue in a series I’m doing on what I call Rich Dad Scams, scams that we’ve identified that the rich perpetrate on the poor and middle class to keep them poor.
One of the most challenging things about these scams is how ingrained they are.
If you weren’t lucky enough to have a rich dad to teach you about them like I did, these scams probably make up your ideas and attitudes toward money. They feel built in.
Most people believe they must be true because they’ve heard them all their life.
So it can be difficult to remember that the Rich Dad Scams we’ve identified are lies, but it’s vital to know that they are. And today’s issue is going to handle two big ones–they go hand in hand.
With that in mind, let’s dive in…
Rich Dad Scam #4: “To be rich, you have to live below your means.”
On the surface, “Live below you means,” seems to make sense.
But really, the only people who live below their means are poor people.
The rich don’t live below their means. Rather, they make better means.
A Poor Mindset
When it comes to money, what’s your financial focus?
My poor dad — my natural father who spent his life working in the public school system — spent much of his energy working for others and saving as much money as he could.
He was addicted to “safe” decisions with his money.
“If you want to be rich,” my poor dad said, “Go to school, get a good job, and save your money.”
The only problem is that my poor dad never became rich. He worked long hours, struggled financially and was never happy.
If he wanted something nice, he denied himself.
If we wanted to go on a trip, he’d say, “We can’t afford it.” At the end of his life, my poor dad was penniless.
The costs of old age eroded his savings and he had no investments to fall back on. If it weren’t for his pension and Social Security, he’d have been in real trouble–and people don’t have those options now.
His financial decisions weren’t “safe,” in the end.
Again, my poor dad would always say, “We can’t afford that.”
My rich dad said, “Rather than live below my means, I make more money to get what I want. Rather than say, ‘I can’t afford that,’ I ask, ‘How can I afford that?’”
“Live below your means,” is a poor mindset because it teaches you to think too narrowly.
Rather than teach you to be creative in making more money, it teaches you to be merciless in what you spend your money on.
You balance the dollars you bring in from your job against your needs and wants. And no one likes finding things you can live without so you can afford something else. It’s awful.
When my wife and I want to splurge on something, we don’t look at where to cut costs to afford it, we acquire an asset to offset the cost of what we want. So, instead of always looking for what we can cut to afford something, we’re always looking to expand our wealth to cover the cost of what we want.
It’s a completely different mindset, and it’s the way my rich dad taught me to think.
For instance, some years ago I wanted to get a new Bentley. I could have easily paid cash for the car, but I didn’t want to do that for a liability.
Instead, I invested in assets that would provide enough cash flow to cover my new toy. I took a little longer, but six months later my investments were creating enough cash flow to pay for my car—and some. In the process, I got my fun car and also built my wealth.
This is the core of thinking like rich dad instead of poor dad. Think like an investor or an entrepreneur. Identify what you want and work out a plan to get there in a smart way through assets.
If you live within your means, you can never add assets, so you’ll never break the chain of cutting costs and budgeting to afford something.
Change Your Thinking
If you want to think like rich dad instead of poor dad, begin asking, “How can I afford that?” rather than saying, “I can’t afford that.”
In the process you’ll go from a poor mindset to a rich one—and you’ll also break out of the pattern set by Rich Dad Scam #4, which tells you to live below your means if you want to be happy. It just isn’t true.
The Rich Dad Scams we’ve identified are, very simply, the things you are taught about money that are wrong. They keep you from becoming rich. They are the ideas the rich have built into society to keep you poor and them rich.
Next, I’m going to cover…
Rich Dad Scam #5, “Save Money.”
Time and Money Changes
“If you save money, you will have money.”
“Save money for a rainy day.”
“A dollar saved is a dollar earned.”
These are common lessons parents teach their kids about money.
Unfortunately, there’s one big problem with them: they’re lies.
The big problem with “Save Money” is that it used to be true.
A generation or two ago, saving money paid off. You could set aside a certain amount of money and retire on it.
Your parents or your grandparents might have done just that, and it worked. But what worked for them cannot work for you in today’s economy. To understand this, you must understand the history of money.
In 1971, Richard Nixon took the United States off the gold standard, the system where every dollar in the US economy was based on a dollar’s worth of gold that the country owned.
When Nixon did this, it destabilized the economy and kick-started inflation and a number of other factors that affect the …read more
From:: Daily Reckoning