The rich and the poor treat money very differently. For the rich, money works for them, while for the poor, they work for the money. This attitude towards money spills over into everything, including investing.
- Are you still investing like you are broke?
- You are thinking to yourself, “How can you invest if you are broke?”
- Ask yourself this question, “How can you play the lottery if you are broke?”
The answer is, investing in the stock market is just as easy as buying a lottery ticket. There is no difference between investing in the stock market and playing the lottery – they’re both gambling to many people.
I should have made myself clearer when I asked if you invest like you are broke? The better question is, do you invest like a broke person? If you know why broke people are always broke, investing like a broke person will make sense.
Here are some common habits of a broke person:
- Spends Too Much on Discretionary Purchases
- Doesn’t Plan for Emergencies
- Lacks a Clear Financial Plan
- Does Not Set Financial Goals
- Spends Money as Soon as They Get It
A broken person’s money habits can be boiled down to one all-encompassing flaw:
Broke People Don’t Think Long-Term
This short-sightedness carries over into their investment habits. They invest by playing the stock market like a casino – jumping in and out of stocks looking to hit the next home run.
Unfortunately, broke-ness (I know it’s not a real word) is hereditary. Typically, we repeat our families’ patterns and even our peer groups – the people we hang around. This spills over into money matters and investing. While most broke people usually raise broke kids, the cycle can be broken.
Did you know that even high-income earners like doctors, lawyers, and CEO’s can invest like broke people?
I have friends who came from low-income families but are now thriving, high-income earners. They often ask me about my investments and why I’m not saving and not investing in stocks. I usually respond with a question of my own. “What are you saving for, and why do you invest in stocks?” The typical reply is, “That’s what I’m supposed to do.”
Doing what you’re supposed to do, doing what you were taught, and doing what everyone else is doing is investing like a broke person.
You Are Not Thinking Long-Term
Investing in the stock market is for people with no long-term plan or goals. I don’t blame a lot of these people.
As humans, we’re hardwired to think that investing in the stock market is the only way to invest. It’s all we hear, see and read about and it takes too much energy to go against the flow.
In psychology, these types of human behavior have names: The Inconsistency Avoidance Tendency and the Availability Bias. The former is basically an Anti-Change Bias.
We don’t like change. The latter is a Lazy Bias.
We believe what’s ever hitting our screens and airwaves at the moment. We’re too lazy to do our research.
You don’t want to invest like a broke person. You want to invest like a rich person, but you must understand the habits of rich people to do that.
Here are some of the habits of the rich:
- The rich believe in the law of income. The rich believe you can control your income and grow it through your decisions.
- The rich focus on opportunities, not obstacles. The rich don’t accept the status quo.
- The rich associate with positive, successful people. You can’t control the families you came from, but you can control who you choose to surround yourself with. The rich surround themselves with winners and learn from them.
- The rich grow bigger than their problems. The rich find solutions. The poor give up.
- The rich think BOTH, while the poor think EITHER-OR. Given $5 and a choice to buy two things that cost $5, the poor think “either-or.” They can only buy one of the two items. The rich take the $5 and grow it to $10 to buy both.
- The rich constantly learn and grow. The rich are never satisfied. They’re always open to other ideas and suggestions.
- The rich don’t mind taking the hard road. The rich have the patience and endurance to see a plan through.
- The rich focus on net worth, not working income. The rich get their money to work for them instead of the other way around.
Investing like the rich means not investing like a broke person. They don’t go with the crowds, and they’re willing to learn and accept alternative paths. They’re not content with trading time for money. They think long-term and invest to buy back their time.
You can keep investing like a broke person and invest in the stock market or invest like a rich person who thinks long-term and thinks about building wealth and not punching a time clock.
This is why the rich’ portfolios are heavily skewed in the direction of real estate and private equity – assets that can cash flow and grow over time. These assets are more in line with their habits than the more speculative nature of stocks favored by broke people.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.