This is the fourth post 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 this post is going to handle one of the big ones. This scam says: In order to be rich, you have to live below your means.
On the surface, “Live below you means,” seems to make sense, but 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
My poor dad said, “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, “Live Below Your Means.”