Worried you will be working forever? Would you rather have early retirement as an option? I know I do. Join me at TheSavingBrain.com, where I document my progress and share everything I learn while aiming to achieve FIRE (financial independence retire early).
Welcome to week one of The Saving Brain. If you read my first article you may recall I mentioned watching a YouTube video series entitled “Millennial Money”. The video series was done by Robert Kiyosaki, a long-time financial independence guru.
Seeing as this video series jump-started my brain into considering my financial future, I felt it appropriate to read Robert’s book, “Rich Dad, Poor Dad,” first.
Despite some mixed reviews I received about Robert and his book, most people suggested reading it anyway for the lessons throughout.
There were a few major takeaways I got from Rich Dad, Poor Dad. One of my favorites was an explanation of the differences between the poor mindset, middle class mindset, and wealthy mindset.
Keep reading or skip to week one’s goal.
The Poor Spend Everything They Have
It is important to note here that when we are saying “poor” it does not mean someone without any money. We are talking about the mindset that leads to having nothing, regardless of how much money you have now.
The poor mindset is to spend everything you earn. You have a job, but instead of saving any money, you value appearances and ‘things’.
Someone in this mindset will be the person who buys a new iPhone every year but has never put a dollar in their savings. This person likely can’t afford a car outright, but will definitely buy a very expensive lease. This person is living the life of luxury on his or her last dime every week.
This mentality leads someone to think that if they have $1000 in their checking account, that is $1000 they can spend. There are so many frivolous things to buy that saving money becomes impossible.
The Middle Class Buy Liabilities
Let’s take a step back for a second and talk about what a liability is. A liability is something that is costing you money over time. A prime example would be a car.
In the last blog post I wrote, I mentioned how I purchased a Mercedes. I acquired a loan with interest from the bank to purchase the car and thus created a liability.
Owning a car does not generate money for me. Owning a car costs me money by having expenses such as gas, maintenance, and car insurance. Additionally, the value of the car declines every time I get in and drive it.
The middle class are obsessed with liabilities and generally have the extra income the poor don’t to finance them. Cars, houses, and credit card debt are among the top three offenders and allow the middle class to live way outside of their means.
How easy is it to open up a store credit card with 0% interest for 2 years and go on a spending spree? $2400 spread over 24 months is, after all, only $100 a month! A small price to pay for instant gratification.
All-in-all, saving and spending money wisely is done as an afterthought. I think I speak for people in a similar situation to mine when I say —
We have the money to buy things, but we don’t have enough to afford them.
The Rich Buy Assets
Think of an asset as the opposite of a liability. An asset is making you money, rather than costing you money. An asset would be like buying a car that you rent out every weekend. It is something that produces income for you. More importantly, it is passive income, or, money that you don’t need to actively work for.
This is why wealthy people tend to own a lot of real estate.
Real estate acts as a steady source of passive income and at the end you own a house that someone else paid for! Over time they acquire multiple income producing properties, never need to work again, and prepare for early retirement.
Robert mentions that Ray Kroc, the founder of McDonald’s, was not in the business of selling hamburgers, but rather real estate. By opening profitable businesses at prime real estate locations, Ray was able to purchase the land the buildings sat on.
Say Goodbye To Early Retirement
Chances are if you’re reading this blog it’s because you fall into one of the former two categories — I know I do. At our current rate, we will never be able to save enough money to realize an early retirement, or a comfortable one.
We are spenders; we love buying things. Always needing the newest and best, and can do so by the way of credit cards and debt. We end up putting ourselves so deep into debt we spend the rest of our lives paying it off.
Our society has been designed to extract as much cash from our pockets as possible. It’s the devil named consumerism and marketing.
For a long time now, marketers have been preying on human emotions and our lack of self-confidence to generate sales. Have you ever seen a coupon for a store that mentioned you should “Act Fast!” because “supplies are limited”?
Who here isn’t guilty of buying something they didn’t need just because they had the opportunity to or felt compelled to?
It’s the same reason they put the candy bars at the at the checkout line in supermarkets. Everything is calculated to make you more likely to spend your money.
The Saving Brain Goal
Here is our goal starting this week:
While this may seem like an inconsequential step, I believe we must first break this cycle of spending to begin our road to becoming wealthy. Because if we don’t, we will assuredly be working forever.
So how do we do that? We can start by…
Paying Ourselves First
This was another one of my takeaways from the book, Rich Dad, Poor Dad.
Robert always advocated for “paying yourself first“.
“Okay, but what does that mean?”, you may be thinkin. It’s quite straightforward, actually. Rather than doing what 99% of people do — spend what you want, then save any money leftover — Robert advocates saving first and then spending the leftovers.
When you deposit your paycheck into your bank account, set aside an amount to your savings first rather than last — or worse — never.
This is actually something that I started to do a few weeks ago. Every time I’d get paid, I put a little over 50% of my check into savings. This helped me immensely. I went from the mindset of, “Wow, I have all this money available to spend!” to “I only have this much to spend for the next two weeks.”
The money I left myself with was meant to cover all my recurring costs as well. I didn’t pay my bills first, then leave myself with a large spending allowance. I said, “Ok, here’s how much you can spend this month, make it work.”
The Little Things Add Up
To help alleviate my now tighter finances, I started cooking my own meals for the work week, or ‘meal prepping’. Spending $15 on 5 meals rather than $10-12 each buying lunch every day was a small step in the right direction.
I also stopped buying as much craft beer as I used to. Anyone in that scene knows that a good beer can easily be $10 for a single can. I hate to say it, but craft beer is somewhat of a luxury item. I used to spend almost $100 every time I went on a run to my local distributor for what seemed like one night of beers with my friends.
Setting limits on my spending immediately reminded me of the importance of good spending habits. It lessened the ‘want’ factor since I knew I didn’t have the money to buy everything I desired. It has also been nice to see my savings account actually growing now.
Thanks for reading this weeks post, and as always…
I hope you will learn with me.