How you think about money can make you wealthy or forever chasing another paycheque. However, money beliefs are tricky things to navigate and have a tremendous impact on our finances.Our brain relies on heuristics and mental schemas to help us quickly process information and move through the world. Without them we would get bogged down by copious amounts of information.

Unfortunately, this can rapidly break down our ability to seek, attain and appropriately apply relevant information.This applies to money and how you think about money. It can also often be the separating line between wealthy people and everyone else. There is one change in particular that can move or keep you on either side of this line.

Money Memes Drive Our Money Behaviour

Meme’; a unit of cultural information spread by imitation. Within a culture, memes can take a variety of forms, such as an idea, a skill, a behavior, a phrase, or a particular fashion.”

Ideas, thoughts, and beliefs are culturally transmitted from person to person. You will know just how quickly modern-day internet memes spread, which is part of the reason the internet hijacked the concept from its original source: The Selfish Gene(which I would recommend).

This is exactly how thoughts and feelings about money spread too.We learn from imitating others and acquire the basic schemes and language from the people around us; even if those structures are faulty. This applies to even high-net-worth individuals and families.Up to 90% of wealthy families squander the family fortune by the third generation because they don’t understand money. This is wealth disintegration is driven by a lack of communication, trust, preparation for how to handle the money.

Our society is driven by consumerism and from birth, we are programmed to want to buy everything that money can buy, which drives people into debt. Even in circles of the incredibly rich, this process only scales up.The ideas around how we should manage our wealth are now not only transmitted for those closest to us, but by advertising and online social comparisons (e.g. influencers).

Why Your Perception Of Money Might Be Flawed

We learn about money from a very young age. Your parents and relatives will be the first people to teach you about money. This is because you will observe how they behave with money and the language they use. On extreme scales, people can develop resentful, fearful, or lustful emotions towards money. Often, it’s more subtle money thoughts that have a lasting and detrimental impact on people’s wealth.

Have you ever heard or said the phrase, “I am saving up to buy ‘X’ ”? This might seem like an innocent and harmless saying, but its impact is deep-rooted and subtly erodes a person’s wealth.This is because, underpinning this saying is the idea that you earn money, save this money, and then spend down to £0.

You can be great at earning and saving money; facilitating a rich lifestyle or the feeling of being rich. However, there is a massive difference between feeling rich and being wealthy. Being rich is largely based on income and is short-term. Once you spend your money you no longer have it.

Wealth is based on the principle of being independently wealthy regardless of any active income. You can both maintain and spend your wealth. You can outwardly give the appearance of being rich, by driving a £100,000 car but all this means is that you have £100,000 before you purchased a Lamborghini.Wealth is often more subtle and drives a Toyota.

The Destructive Cycle Of Money

The cycle of saving and drawing down to zero is the most common and most destructive cycle for most people. You may earn and save a good amount of money but until it’s managed wisely you are eroding your finances and future prosperity.

It’s a common financial myth that you cannot have your cake and eat it when it comes to money. This belief is what drives most people to believe you only save or spend money.However, wealthy people get their money working for them, so they sustain their wealth and enjoy passive income at the same time.You can have your cake and eat it.

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money cycle diagram

The People At The Top Don’t Want You To Know

Most people do not know how to do this, because they have never been told. This lack of education is how society and government keep you poor. The people at the top want you to spend all of your money so that you need to earn more income (taxed), to buy things you don’t need (also taxed).Often, you will be buying their products and earning them more money.

How The Wealthy Think About Money

Let’s imagine you are given £10,000 to spend or invest. Let’s also assume that If I invest this money it will return an extra 10% each year it’s invested. This leaves you with a number of options that vary on the money sustainability scale:

  1. Spend £10,000.
  2. Invest and spend the £11,000 when it’s returned in a year.
  3. Invest it and spend the interest in a years time (£1,000).

Most people will pick the option ‘A’, without much hesistation.Option ‘B and ‘C’ are usually not considered, especially within the context of low amounts of £10 or even £100 at low interest rates.

Compounding Interest

Let’s now add an option ‘d’; invest it and allow it to compound over 5 years. We’ll use a £10,000 example and assume it’s invested for 5 years, at an 10% interest. Assuming you choose option D. the future value of that money is:

compound interest calculations

Now, you again i’ll give you another three options. You can:

  1. Withdraw All £16,105 of this money and spend it.
  2. Spend only the £6,105 earned on the principle
  3. Withdraw at a rate of 4% adjusted for inflation each year.

*4% is the optimal rate for portfolio survival and increased growth over time.

Now that you understand the power of compound interest, which one do you pick now?

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how to build wealth

Buy Assets To Buy Things

You can see from the above examples, that you can both have your cake and eat it when it comes to money. You might not have realised this because you were taught to go from point A: having money, to point C; spending money.

You may not have been told that you can implement an intermediary step; investing in assets. As a result you can A; have money, B; Buy assets and C; spend the income from these assets. Understanding this process is the difference between the permanently wealthy and the temporary rich.

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Long-Lasting Meaningful Change

Often, we think that the difference between wealthy people and everyone else is that they work harder or earn more. You might even feel that it’s your ability to save that is the dividing factor. However, where the difference truly lies is the method by which a wealthy person generates their income in the long-term.

Where most people are actively working to replenish the money spent from maintaining their lifestyle, a wealthy person is building or using income-producing assets to design the lifestyle they want. Not necessarily the one they want right now, but the one they want to passively maintain further down the line. Allowing them to focus on other pursuits that don’t necessarily require an active income or immediate reward from their time.

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