From my office window, I see a yellow apartment building in consturction.
A poor person would think, “I could never own one of those apartments…”
A rich person would think, “How much money would this building bring?”
Poor people focus too much on their hardship, the obstacles they face everyday, on the perceived injustice in the world – how rich people have everything while they, the poor, have nothing. And it’s all the rich guys’ fault!
So the only thing I’d listen to from poor people was how to save money, because they are pretty good at that. They have to – saving is pretty much their only option, their only strategy for financial management.
But recently I started to listen closer to what poor people had to say. I found that poor people think a lot about costs – what would a new pair of shoes cost them, and how long would they have to save for it? How long until they pay back the car loan? They talked about retirement plans. They talked about how low and unfair their wages were. They talked a lot about what they will never have, and why.
These were the wrong kind of thoughts to have. (If they were the right type of thoughts to have, these people would be rich and not poor.) But why? After all, what’s wrong about making a plan to pay back a loan? What’s wrong about being clear on what something would cost you and how much you’d have to work for it?
Well, nothing. It’s okay to think about these things. But when you think TOO MUCH about them, YOU OVERDOSE.
Poor people focus on costs. Rich people focus on gains, opportunites, and rivers of gold.
Let’s get back to the apartment building in construction. When a poor guy sees it, he thinks “How much money would this TAKE OUT OF MY POCKET.” When a rich guy sees it, he thinks “How much money would this PUT INTO MY POCKET.”
The poor guy makes his buying decision based on whether he has enough money to take out of his pocket to pay for it. The rich guy makes his buying decision based on whether this thing would be bringing in enough money in his pocket.
The rich guy focuses on the gain – how much money would this put into his pocket – and thinks about the cost later, while the poor guy focuses on the cost and never ever thinks about a gain.
It is, however, possible to change your way of thinking. The funny thing is that the easiest way for this positive change to happen is if you start not just THINKING differently, but ACTING differently. Fake it till you make it.
Here’s an example.
One day I saw a hand-written advertisement for a house for sale in a nearby village. Now, I had no intention to buy whatsoever; but I thought, a rich person would at least go check it out. Get some details. See how things are.
So I called and found out the price, and the next they mom and I drove out of town to see the house. We only saw it from outside, but the house wasn’t really a bargain.
We turned the car around. As we drove through the village, we saw another house for sale. It was a nice, big house, and the owners were in a hurry to sell, as they had indicated on the sign.
I told mom to stop and ask about the house as if we were going to buy. I was curious about the price, the house itself (we only saw it from outside), and why exactly were they in a hurry to sell it.
(We were not looking to buy. But I thought it would be a good excersise in gathering information, keeping an eye on the market, and maybe practicing some negotiation skills. I had always admired people who always had a pretty accurate idea of what something costs on the market – be it a house, a car, or a sewing machine. I had wondered how they did it until I noticed these people spent a lot of time talking to EVERYONE. They listened to gossip, paid attention, and were always interested in getting as many details as possible, even though they were rarely looking to buy.)
The price of the house was low. Very low. The owners had debts to settle and they were looking to relocate into the town where they could earn more money. The initial price was low enough, but when my mom didn’t express any particular interest in buying, the owner woman said she could lower the price even further.
On our ride back to the town, I was thinking intensely. This was a very curious occasion for me. So when you show no particular interest in buying, the seller jumps to offer a lower price? I knew it in theory but had never seen it put to work. Also, apparently debt could make you sell a great house at a very bad price. Hm. And these people were moving in town? Would they be interested in a rental perhaps?
Going through all this new information in my head, I had almost forgotten about the house itself.
Mom said: “Were you looking to buy?”
Me: “What?! No! I don’t have that kind of money!”
Mom: “We could easily get a mortgage. The price is really good.”
Yes, we could. “But what for, mom?”
Mom: “We could sell it in a couple of years. It will be worth at least three times the current price.”
I considered this for a moment. “Yes, but what if it doesn’t? What if we discover a hidden fault with the house? And what if the market doesn’t rise back in a couple of years – what if it takes ten years? Besides, I don’t like the idea of taking a loan now over some vague promise of profit after an unknown number of years. In the mean time, I’ll be stuck with loan payments for what – five years? No, thanks.”
To be honest, if I had the money to pay cash for the house, I might have bought it. But taking out a loan this big didn’t seem wise.
Anyway, I was glad we stopped and asked. When we saw the first house, we thought it was reasonably priced; but compared to this second, big house, the first one seemed expensive.
Even though we were never looking to buy in the first place, I really loved the trip and all the new thinking it stirred in me. It turned out that it’s not so hard (or scary!) to just call people and ask them about prices on what they were selling. Especially when you’re not at all interested to buy! You get so much discounts! :) I had called one guy who was selling parquet, I got the price and told him “Thanks, I’ll call you back if I decide to buy.” A day later he called me back and offered to lower the price. Wow, wow! :)
Okay, back to the main point: rich people focus on what they could gain from the things they buy; they think about whether this thing is going to pay them back or not.
With the village houses, for me it was more about gathering experience and information rather than buying. But even if it was about buying, I couldn’t see the gain clearly enough to move forward with the buying. And besides, buying a house, even for investment purposes, was too big a project for us at the time. The risk of paying a loan for several years + the risk of not knowing whether the house will sell was too much for me.
But at least I had moved in the right direction. I didn’t just think “I can’t afford it” (because I could – with a loan), and I didn’t just think “How much would this cost me” (well I did, but that wasn’t the main question); the main thing was how much money would this house bring to us if we bought it, and when?
A friend of mine has a business of delivering leaflets in people’s mailboxes. He once said to me, “Rya, it’s funny how your focus changes and becomes automatic with time. I’ve been in the mail business for a while now, and when I pass a street or an apartment building, I calculate the rough number of post boxes. It’s a completely automatic habit for me now! My thinking has changed.”
And that’s how rich people think all the time. Not just for one business or one thing, but for everything, all the time.
I have a friend who sells tires. She always keeps an eye on both gossip and roumors, because usually they don’t get started for nothing. You never know where your next golden piece of information will come. Or your next business idea. What’s more, when she does get an idea for her business, she always thinks first about what she could GET from it as profit and only then does she think how to make it possible. Whereas my friends who are poor think about the costs first.
For example, I shared with a poor friend about a deposit I had. They asked – which bank is that? What papers do I need? Is there a minimum amount I have to deposit? They didn’t ask about the interest rate – the most important thing – until the end of the conversation.
When I shared the same thing with a rich friend, the first thing they asked was the interest rate. Then they just said “I’ll get one of these deposits” – no IF’s, no BUT’s, no HOW’s.
A while ago mom was thinking of buying some land. She called her sister to ask for advice, and her sister said: “How much does it cost? THAT MUCH? Are you crazy?! That’s so much money!” Then mom called a couple of friends, both of which own businesses, and asked their advice. One said “buy” and the other said “don’t buy,” but what struck me was that they both asked first about what kind of money she thinks she could get from this land as rent or upon selling it in the future; and only then did they ask about the current price.
If you tell a poor person that you’re buying a car, their first question will be “How much does it cost?” If you tell a rich person that you’re buying a car, their first question would be “What are you going to do with it?”
I’m not saying that rich people don’t care about costs and prices. They do. But they care FIRST ABOUT PROFITS. First about gains. First about money coming in.
Yes, it’s important to think about whether you can afford a purchase. Making a purchase with loaned money is very risky and impatient. Just keep in mind that, what’s even more important than costs and availability is the possible profit and gains. There’s no point in buying stuff just because you can afford it if it’s not making you money.