If you have money to spend, there’s certainly no shortage of options. People have different mindsets around how, when, where, and why they should use their financial resources. By learning to think like an investor, you will set yourself up for long-term financial success.
Most people use their money for immediate satisfaction. Think about a bell curve. The bulky middle portion represents our consumers. They live off of new products, new services, and new subscriptions. Ads and commercials convince them that the latest and greatest will make them happy. Actually, it’s more that they need the latest and greatest to be happy. Some consumers don’t (or don’t want) to realize how much money they spend. Others simply don’t think there’s another option.
The skinner portions of the bell curve represent our investors. These are people who place more value on long-term wealth than on the things that will give them more transitory pleasure. Investor is a broad term. It’s not reserved for the 1% or for the people with the nicest things. The difference between consumers and investors doesn’t come down to net worth or income. What separates investors from the rest of the pack is their mindset. In fact, you can start thinking like an investor well before you have money to invest.
We’ve spent time in both sections of the bell curve. In our first year out of college, we never looked too far past the upcoming weekend and didn’t set long-term goals. We allocated the majority of our biweekly paychecks to things that didn’t matter in the long run. We assumed that saving and investing money were reserved for later in life, and that we’d get to it “eventually”. It wasn’t until we made a conscious decision to do things differently that we started seeing any sort of financial success. Because of this shift in mindset, we’ve been able to establish ourselves in our careers, use our savings to fuel our investment strategy, and pursue personal side passions like this blog.
Everything changed when we trained our brains to think like investors instead of consumers. Here are 5 mindset shifts that can help you do the same:
Think growth, not fixed.
If you have a fixed mindset, you believe you are and always will be stuck. It’s a fixation on past events and a lack of trust in yourself and what you’re capable of achieving. Consider what would happen if you started thinking that things happen for you, not to you. A growth mindset serves as a catalyst for constant evolution and upward mobility. You’ll focus more on your future than your past while still appreciating your present.
So how can you get there? Start by setting goals, both short and long-term in nature. Short-term, more narrow goals should serve as building blocks for your broader, more long-term goals. Our longest term goal is to be financially independent. We have shorter term goals around purchasing real estate, saving money, and starting businesses. Spend time thinking about where you want to be down the line. It shouldn’t just be a pipe dream. You really need to believe that you’ll get there. We know that achieving financial independence will be challenging, but we have no doubt that it will happen for us eventually.
Having a growth mindset also means getting comfortable with change. People with fixed mindsets stay the same because they believe that their qualities, strengths, and weaknesses are predetermined and limited. Actually, some will say that they don’t have any weaknesses and in turn, they never learn from their mistakes. But people with growth mindsets erase these limitations and instead believe that they are in control their outcomes. They know that time, learning, and effort will get them where they want to be.
Know what money is coming in and going out.
Thinking like an investor means being in control of your money. Whether you make $10 per hour or $1 million per year is irrelevant. Regardless of their income, people who care about building long-term wealth know how to budget. They know that they need to make money to save it and save money to invest it. Consumers make financial decisions differently. Easy come, easy go. They focus more on wants than needs and crave the immediate satisfaction they get from mindless purchases.
This explains why the people who make the most money are not necessarily the richest. Put simply, if you make $700,000 per year but spend $725,000 that same year, you’re in debt. To avoid this mistake, investors organize their finances in a way that gives them visibility into how they make and spend money, and they use this information to inform their investing decisions. They know that passing on some vacations, services, and material things now will grant them much more pleasure later in life. This behavior, which is known as delayed gratification, allows them to remain focused on their long and short-term goals.
Prioritize and protect your time.
Investors and consumers have the same 24 hours in a day, but choose to use those hours differently. Time spent on one thing leaves less time leftover for something else. Investors know that aside from their health, their time is the most valuable thing they have, and they use it to reach their financial goals. They spend time getting better at things that matter to them, which results in more financial success in the long run. Consumers are not as discerning with their time and choose to waste it on things that result more in temporary lust than lasting happiness.
Thinking like an investor also means seeing the connection between money and time very clearly. In other words, investors know what to spend money on that will save them time in the long run. So if purchasing a monthly subscription gives them more time to spend building up their side hustle, they’ll invest in the subscription. They invest in things, they don’t buy them.
Buy assets instead of liabilities.
Assets make money for you, while liabilities take money away from you. Consumers spend lots of money on liabilities like cars, vacations, and expensive material items that take money out of their pocket with no return. Instead, investors purchase assets like real estate, stocks, and bonds that make them more money than they spent initially. They place more value on ROI than upfront cost and understand that money spent does not have to be money wasted.
People who invest in assets understand that buying luxury is buying at a premium. Fancy cars are most expensive the second before they leave the lot. Dealers are able to charge top dollar because they know that enough demand exists to warrant the high price point, even though it’s an item that depreciates in value. The picture above is Roy’s car. It’s a 2004 green Buick Century with a white hood and his only real transportation expense is gas. Almost everyone we know asks him why he continues to drive this car. While this is an extreme example of investing only in valuable assets, you get the picture. It’s the right mindset if you want to think like an investor and allow your money to work for you.
Keep up with yourself, not with the Joneses.
Everyone cares what others think of them to some extent, but investors won’t sacrifice financial success to impress the outside world. Consumers who spend beyond their means just to look good end up paying for it later in life. Remember, people with the finest things don’t always have the biggest bank accounts.
To think like an investor, you want to find the right balance between buying nice things and spending frivolously. The best way to do this is to figure out what makes you happy. Investors only make a purchase for themselves if it’s something they truly want. They know that spending money just to show off will take them down a never-ending rabbit hole. Instead of trying to impress other people, focus on impressing yourself because ultimately, that’s the only opinion that matters anyway.
Originally published at https://www.kimandroy.com on May 10, 2020.
