How do you define wealth? Do you belong to the old school that defines wealth one way or to the new school that defines it another way?
One perception of wealth is espoused by those who possess it, and another is espoused by those who aspire to it. Both are very different, but only one road leads to true wealth. Which camp do you fall under? Look at the descriptions below and ask yourself which group you identify with most.
Priorities.
Camp 1: They spend to impress over meeting their obligations. For this group of people, wealth is defined by what the neighbors can see: the big house, fancy cars, toys, expensive clothes, suitcases in the driveway getting ready for the next exotic trip, etc. The #1 priority for this group is to accumulate “things,” not assets. Things devalue. Assets appreciate and add value. Because accumulating things is the priority of this group, these people will often ignore their obligations and accumulate debt to the detriment of their net worth.
Camp 2: They spend to invest after first meeting their obligations. This group is not interested in accumulating things that add no value. They are interested in investing in assets that will grow their net worth, not take from it. To that end, they will meet their obligations first not to accumulate debt that diminishes net worth from interest payments. After meeting their obligations, they would rather save to invest in productive assets that make them money in their sleep than spend it on toys and trips that do nothing for their portfolios.
Goals.
Camp 1: They have no idea how much they need to be financially independent. This group has no idea how much they need to retire. Their retirement plan is to hit it big with the next big investment, unlike winning the lottery. They’ll invest in speculative assets like high-risk stocks and crypto, but these investments are justified because Wall Street, cable news, influencers, and celebrities endorse them. These assets are just a form of institutionalized gambling, and any investment strategy incorporating this type of speculation is bound to fail.
Camp 2: They know the exact number that will allow them to walk away from their jobs. This group knows the exact amount of money they’ll need to retire and the exact amount of passive monthly income that will replace their work income that will allow them to walk away from their jobs. Beyond the raw numbers, these sophisticated investors also factor in fluctuations in expenses and macroeconomic factors like inflation to give themselves a buffer for achieving their targets.
Emotions.
Camp 1: They are driven by emotions. This group is driven by what’s buzzworthy, fads, and what’s attracting the most attention in the media, the internet, and social media. They’re driven by the need to fit in with everyone else and the fear of missing out. They will follow the herd to invest in assets to the detriment of their portfolios – case in point. Everyone was jumping on the crypto bandwagon last summer because it’s all their family members, coworkers, and neighbors talked about. Fast forward to today, and crypto has crashed and burned.
Camp 2: They take emotions out of the equation. Instead of following fads and letting their emotions rule their investment decisions, this group would rather follow the path of wealthy investors who came before them to achieve true wealth – even if that means investing in what everyone else considers yawn-inducing. When exploring the habits of successful and wealthy investors of the past, what this camp discovers is that the wealthiest individuals in history built their wealth from productive assets like commercial real estate or income-producing businesses with one thing in common – cash flow that could be reinvested and compounded to generate and maintain wealth. Boring? Yes. Reliable and sustainable? Also, a yes.
Beyond The Numbers.
Camp 1: All about the numbers. The end game for this group is money. It’s all about the bottom line and the balance in their bank accounts that they can show others. It’s all about impressing others.
Camp 2: Beyond the numbers. This group values something more than money for the sake of money. They pursue money to achieve higher goals. To them, time is more important, and money is just a means to the end of buying back their time – time to engage in pursuits for a more complete and round life. These pursuits can involve their physical well-being, mental health, relationships, serving their communities, and giving back to their favorite causes.
Losses.
Camp 1: Willing to take big losses. Go big or go home is the mantra for this group. So, they’re willing to risk big losses for the chance for a big win. Unfortunately, the house always wins, and big losses are more common than wins regarding speculative investments and assets.
Camp 2: Better to avoid losses. This group has a healthy relationship with risk. They would rather avoid losses than have to recover from them. That’s because the road back to ground zero requires a bigger gain than what was lost. For example, a 50% drop in a portfolio would require a 100% gain to get back to ground zero. The losses give you less to start from on the road back to your original spot. This group isn’t afraid to take risks. They understand there’s risk in everything we do and invest in, but they gravitate towards assets where risks can be mitigated through skilled management. That’s how they are able to minimize losses and avoid the long road to recovery that mainstream investors are constantly experiencing.
Camp 2 is composed of savvy ultra-wealthy investors who approach wealth differently than mainstream investors, and it all starts with their mindsets. They define wealth differently than everyone else. Wealth to them is freedom. Those addicted to money become slaves to it and never achieve the type of freedom they seek.
Smart investors have higher and loftier goals than just having money, and they pursue the assets that will offer them the best odds of accomplishing those goals. That’s why boring investments appeal to them and not the highly speculative assets everyone else is chasing. They ignore the noise, focus on what works, incorporate financial habits and conduct their daily lives to maximize their chances of achieving and maintaining wealth.
