Simply thinking about becoming wealthy isn’t likely to get you very far, but thinking like the rich is critical if you want to build wealth, says Steve Siebold, who wrote the book How Rich People Think.
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Here he shares five key ways the wealthy think differently about money and credit.
1. Leverage Creates Wealth
“On one side of the spectrum is labor, and at the other (end) is leverage,” he says. “The rich employ money to make money. Labor doesn’t pay very well but leverage pays extremely well. We’re never taught to use leverage. Who teaches you that?”
The concept of leverage refers to using other people’s money to make money, he explains. And while that may sound good in theory, it’s a difficult concept to grasp if you don’t have a lot of money to begin with.
So go where the money is, he says. “The rich are always looking for alternative investments,” Seibold says. “They may be more risky but they can afford to take the risk. All you need is a good idea to start a business; there is so much money out there.” In other words, don’t just look to traditional sources to borrow money, look for private sources as well.
2. Forget the Lottery
“Sixty-six percent of people have gambled in the past year in one way or another,” Siebold says. What’s more alarming, he says, is that “half of those surveyed say they plan to retire someday on their winnings.”
Instead of dreaming about how you’d spend your lottery winnings, dream about a business you can start. “When the rich need money, they don’t wonder if it’s possible, they simply begin creating new ideas to solve problems,” he writes in his book. In fact, he says that the rich are always looking to solve problems in order to make money. “If you solve a bigger problem you make more money. There is an endless amount of problems that can be solved.”
3. Worrying About Money Is a Waste of Time
“Most of us have a fear-based mentality of money,” he says. He explains in his book that this worry about money is “a waste of time, not to mention the negative, destructive psychological impact it has on their minds and the physiological havoc it wreaks with their bodies.” Again, this is where a different mentality comes into play. He says that rich people think about problems and the ways they can solve them in order to make more money. “Every product or service that has made our lives better has come from creative thought. So when I say the ‘world class’ thinks about how to make more money, what they’re actually thinking about is creative problem-solving, not money itself,” he writes.
4. Think Investing, Not Spending
While the middle class are often scolded for living beyond their means, “most of them earn so little they have to spend it all in order to live a decent existence,” he writes. Rather than focus on pinching every single penny, he recommends focusing on increasing income, which will allow you to invest. “The more you have to invest, the more your money goes to work for you, even as you sleep,” he writes.
5. Credit Is a Tool
“The wealthy use credit as a tool, not a crutch,” he says. That means you don’t want to use your credit card to buy something you don’t need and really can’t afford. If you can use credit as leverage in a business where it makes you more money, then it makes sense. “The wealthy use credit strategically,” he insists.
Want to use credit to your advantage? One of the first places to start is to build a strong credit score, which will allow you to borrow strategically at lower interest rate. You can get your credit score along with a personal action plan for your credit for free at Credit.com.
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Gerri Detweiler is Credit.com's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.com. More by Gerri Detweiler