Money Making Mindset

I recently read a blog post on a non-trading related subject. The gist was that people lack wealth because they are primarily consumers and not investors. Most people earn a paycheck only to spend it in its entirety. If they get a bigger paycheck they buy more, or more expensive things, that still eat up their entire earnings. As a result, most people who have a significant income also have a BMW and an Audi and a big house in a nice neighborhood and lots of other expenses. They earn a lot but only appear wealthy.

While there is nothing wrong with spending money, even a lot of money if you have it, the problem is these people are not really building a future. These people are definitely not free in any way. Every day they have to trade their time for the paycheck, and the stress that goes with it.

On the other end of the spectrum are the relatively few people who invest first and spend later. These people, regardless of their income, set money aside to invest, then spend the rest. This is why a janitor making a fraction of what a computer programmer makes can wind up with an $8 million net worth.

If you really want to be free you have to spend less than you make and invest the difference. According to Charlie Munger, Warren Buffett’s right-hand man and a multibillionaire in his own right, this is the way to be successful monetarily.

Now here’s the kicker … how do you do that? The answer, I believe, depends are where you are in life.

If you are young and just starting out think long and hard about how much your formal education will cost. I have multiple degrees so I am a proponent of education. However, the cost of college today is – well – insane. It probably makes economic sense to attend Harvard if you can get in. But does it also make sense to attend a small, private, liberal arts college that costs almost as much as Harvard. The reality is probably not. The opportunities for a Harvard grad are just far greater than most other private schools. Figure out how to get the best education for the least amount of money. When you graduate without huge student loan debts you will have money that can be used to invest.

Then of course, you have to determine what you really want in life. If what you really want is an expensive car, you will spend on the car first and probably not have anything left to invest.

If you want freedom, you need to invest first, spend second. Invest in yourself by reading, learning and developing skills and knowledge that will actually let you do something, like trading and investing, that will help you reach your goal. Set money aside so you can open a brokerage account and actually trade and invest. Then, after you’ve made money, you can use some of it to buy those nice things you’ve always wanted while still working toward true freedom in your life.

That’s nice advice for a 20 something you say, but what happens when you are older and already have debt and kids and “a life”? This is where things get tougher. You have to either make more money or cut back on spending, or both. Now you can only cut back so much, so making more money may be the only thing you can do. Trading and investing may be the side hustle for you even if you don’t have a lot of extra money lying around. Keep in mind that some of the most successful traders started out with relatively small amounts of money. While there is no guarantee you (or anyone) will do the same, Richard Dennis turned $400 into over $200 million during his trading career. Dan Zanger built swimming pools for 20 years before he turned roughly $10,000 into $42 million in the late 1990s bull market. And, Nicholas Darvas turned a few thousand dollars into $2 million all while working as a professional dancer. It doesn’t take a lot of money, but it does take effort and a lot of discipline. If you’re ready, get started!