5 Ways Rich People Think Differently


rich peopleThis post originally appeared on DailyFinance.

After three decades of interviewing self-made rich people, Steve Siebold, author of
How Rich People Think,” has come to the conclusion that well-to-do people have
views about money that are “polar opposite” to those that middle-class people hold.

“Rich people see money as freedom and opportunity instead of as the root of all evil,” says Siebold. “We’re taught that money is the root of all evil, so why would we want to acquire something that we have a general disdain for?”

Siebold’s book reveals 100 differences between middle-class people and self-made millionaires. We asked him to share some ways that rich people think differently than those of us with less money in the bank.

Here are five examples:

1. The Middle Class Focuses On Saving. The Wealthy Focus On Earning.

“We’re taught to save, but we end up without enough money,” says Siebold. “The
average income per person in 2012 was $38,000. If you save 10 percent, you’ll
have $3,800 at the end of the year. That’s not a model for wealth-building, and
you’ll never get rich that way.”

Siebold says that rich people save money, too, but first they focus on boosting their earnings so that the percentage they save will be more meaningful.

2. The Middle Class Sees Starting Your Own Business As Risky. The Wealthy See Starting A Business As The Road To Wealth.

“Most of us are taught to think about money in linear terms, such as ‘If I make X dollars per hour, then I either have to work more hours or get a raise to have more money,’” says Siebold. “Even well-educated business people think they should just get an MBA to earn more money. Rich people look for ideas that can solve problems for other people and they make money from those ideas.”

By the way, rather than chasing one crazy idea after another, the people Siebold interviewed took calculated, well-researched risks when they started their businesses.

3. The Middle Class Sees Money Through The Eyes Of Emotion. The Wealthy See Money Through The Eyes Of Logic.

Siebold says that negative ideas about rich people and about money cloud the thought processes of many people when it comes to their finances.

In his book he writes, “An ordinarily smart, well educated and otherwise successful person can be instantly transformed into a fear-based, scarcity driven thinker…”

Rich people, on the other hand, do not make financial decisions from a place of fear. Money is not something to fear losing, but instead a tool that presents greater options and opportunities.

4. The Middle Class Has Loosely Defined Goals With Flexible Deadlines. The Wealthy Have Firm Goals With “Do Or Die” Deadlines.

“Middle-class people throw mud against the wall and hope something sticks,” says Siebold. “Rich people focus on their money and their business. They know that, whatever their business is, it solves a problem. At the same time, they acknowledge that their goal is to make money and they don’t apologize for it.”

Siebold says that wealthy people also focus wholeheartedly on one goal at a time rather than taking a scattershot approach to making money.

5. The Middle Class Lives Beyond Their Means. The Wealthy Live Below Their Means.

While Donald Trump and Richard Branson are known for flying around the world in their private jets, average wealthy people live more modestly and own “normal” cars and “normal” houses, says Siebold. They just happen to have $5 million in the bank.

“Rich people get quietly richer every day,” he says. “I met Naomi Judd last year at a TV taping and she told me that the reason she’s rich today is that she has never spent her money. She doesn’t own designer clothes or expensive jewelry. That’s typical of most wealthy people. They aren’t flashy.”

Siebold says that the most consistent statement he has heard from the wealthy people he has interviewed over the past 30 years is that they want to be free.

“If you’re rich you can be completely free and not be a slave to someone else,” he says. “The desire for economic freedom is the main catalyst for success. It’s what drives people to build their own wealth.”

Think Like A Prosperous Person

Siebold says that if you’re failing financially, you should challenge your core beliefs about money, and about rich people.

“Beliefs are the catalyst for action, and action is the way to build wealth,” he says. “You need to have the right mindset to take advantage of opportunities and to solve problems, which will in turn make money.”

More From DailyFinance:

Why Your Financial Planner Isn’t Giving You the Advice You Want
Study: Middle Class Suffers While Rich Get Richer
What Wealthy Women Want … From Their Financial Advisers

  • OldProf

    The article’s intention is fine, but the message seems to say, ‘take more risk.’  Unfortunately, that’s easier said than done when one isn’t wealthy, and here’s why.  (Don’t worry – there is a solution that will help)

    Utility Theory (think of this as a curve that gradually flattens – the X-axis is wealth and the Y-axis is happiness) states that individuals value a gain of a certain amount less than they fear the loss of the same amount.  Further, the difference between gain and loss diminishes as wealth grows. 

    For example, taking a risk that decreases wealth from $30,000 to $10,000 (a $20,000 loss) is nearly 2X more painful than the pleasure derived from moving from $30,000 to $50,000.  On the other hand, someone with $1,000,000 will feel significantly less ‘pain’ from that $20,000 loss – or even from a $200,000 loss – than the person with only $30,000.

    This is the reason that risk preference is often much greater for the wealthy than it is for the middle class.  Perhaps one simply follows the other. 

    The question is, how does someone in the middle class overcome this ‘behavioral rule?’  Simple: financial literacy.  The wealthy assume that they can, and will, recover from a  ‘financial disaster,’ so they are willing to take greater risks.  But the readers of this forum are, for the most part, also able to recover from a relative financial disaster through the value of 1] time and 2] their own human capital (the ability to re-earn and grow those savings back).  This is why investing in the stock market is much more risky when thinking in 1-year horizons rather than a 30-year horizon. 

    Freedom, like fear, is psychological; and sometimes it takes a shift in perception on the real potential outcome (not simply today’s potential cost) to create freedom from fear. 

  • Lindsey Rieger

    I am a middle class person stuck in the rut this article describes. My question is, how do I get the money I need to take a financial risk in the first place? I have one source of income from a salaried job, and I’m trying to climb out of credit card debt.

    • CrankyFranky

      guess you could start your own business from home as an internet idea – cooking, baking, craft, gifts, whatever – test it out, see if it sells, if it becomes viral, you can employ people and grow – low cost startup – like google and many now-$billion corporations.

      I believe smart business people do not take unnecessary risks – just carefully considered ones with planned fallback options – like one billionaire – first consider the downside – if that’s acceptable, then consider the upside.

      So the association of wealth with unnecessary risk may be misleading – I believe total commitment tends to reduce the risk – ‘consider wisely and well, and when the opportunity presents, act with alacritude’

      Good luck.

    • Goldberry

      Take out a business loan.

  • Xja Hox

    To Lindsay:
    I would dig yourself out of any sort of debt before you start taking any financial risks.  Financial risks are risks that you are willing and able to take.  Since you already have credit card debt, it does not sound like you would be able to take on any more financial burdens if your risks do not pay off.

    To OldProf:
    I have to disagree with you that the main message of the article is to take more risks.  The message of the article is that the rich think differently.  Yes, someone who has million wouldn’t hurt as much from a $20k loss, but they would have already been prepared for that type of loss, and most definitely anticipate it.
    Why would a person who only had $30k risk 66% of their money without being prepared to take such a hit? While the millionaire only risked 2% of their money, someone in the middle class risked 66%.You just hit the nail on the head with that example- a rich person thinking versus a person stuck in the middle-class mentality about taking risks and making money.

    I do agree with you, however, most people need to invest more time in being financially literate.  I constantly read about personal finance, retirement, income, career, etc.  As a woman in my early 30′s, I’m much more financial savvy that many of my friends, and even my parents.  I am not by any means close to being a guru, but I look up things and ask questions when I do not understand.  All while others, including older generations, simply do not think to ask or to question.  Like, I always hear that having a mortage is good debt.  That’s such crap.  You wind up paying hundreds of thousands of dollars more each year to get what? a tax break on interest?  more often than not, you won’t even see any of money you give the bank back.  I would rather pay off the mortgage loan as fast as possible, save more, and give money to charity- that’s a straight tax break, and doing good for the society.  The people who say these things are the ones that benefit the most, the banks.  Smarten up people- read, and learn to get out of debt, save, and invest wisely.  There is an enormus wealth of free knowledge out there, and everyone should be taking the time to learn.  I am debt free, and have planned that I would like to have $3 million when I retire, and have a plan in place to get there, all while learning more and more on how to get to my goal.

    • CrankyFranky

      if you’re in your 30′s, and aiming for $3m in today’s dollars, that figure will change with inflation by the time you’re 65 – using my standard calculation of 5% inflation over 30 years (you could use 3% or whatever you think) so 1.05 to the power of 30 gives me 4.3x so $3m becomes $13m you’ll be aiming for – using 3% or 1.03 makes it 2.4x or $7.2m – you do the math …

      but no need to freak – if you are saving according to your plan – today’s dollars grow with inflation and investment and become those dollars in the future.

      my net worth has doubled in the last 9 years through largely passive investment – using my reverse calculation of growth rate per year – using the yroot (symbol looks like y root of x) function in this pc windows calculator (choose view scientific), entering 2 yroot 9 gives me 1.08; meaning doubling in 9 years is a growth rate of 8%pa.

      a quicker rule of thumb for doubling investments is growth rate pa by years = 72

      e.g. 7.2%pa would double your money in 10 years; 10%pa would double your money in 7.2 years; 8%pa doubles in about 9 years

      then there’s my favourite for real estate investments – for a typical return of 5.2% gross rent, the weekly rent (we use in Oz) should be the same number as the property price in $’000s, e.g. a $300k property should rent for $300pw (sorry if that doesn’t help you in monthly rent countries).

      good to see you’re taking responsibility for your life and have a plan – this will put you ahead of all those who think budgets are ‘boring’ and ‘can’t be bothered’ until they approach retirement and suddenly wake in fright (or in one case of a colleague, did retire and then told me a few months afterward ‘no matter how much you think you’ve got, it’s NOT ENOUGH !’ – clearly she had not done enough planning).

  • Chuck

    Ms. Lerner should do a little more research before she gives incorrect information. We’re not taught that money is the root of all evil, we’re taught that the love of money is the root of all evil. Totally different paradigm I’m afraid. Money is neither good nor bad–it is amoral. It is a tool for transactions that’s all….greed and the lust of mammon is a heart issue and totally different.

    • Giordano Bruno

      Are you rich?