This Is How Rich People Think Differently Than Poor People

I came across Mark Shead’s 10 Signs You Will Be Poor post today and realized how true it is. Often times it is the small things that can derail your financial future. Much of the population doesn’t realize or plan properly anymore. With mortgage companies lending money how they have the past few years, and the general mindset of America to spend, people haven’t been doing the right things when it comes to retirement.

Just touching on a couple big ones I’d put at the top of of the lists:

You leave money on the table. Not participating in an employer matched retirement plan is one way people leave money on the table. Health savings plans and other tax savings setups are other opportunities you shouldn’t overlook. If you regularly skip over opportunities to get free money you are unlikely to do well financially.”

A 401k is FREE money if your company is matching. If you’re paying in 3% and your company matches what you deposit, that is IMMEDIATE 100% RETURN on your investment! Tell me another investment that is that good of a return for needing absolutely NO investment savvy, you just need to tell your HR folks to take the $, and give you the %.

You look forward to getting a large tax refund. A large tax refund usually means you didn’t plan ahead correctly. Any extra money you gave the government is basically an interest free loan. If you plan correctly your refund should be very small or you should have to pay a small amount. ”

The whole point of a w-4 is to set you up to use your money properly throughout the year. A large refund means that you’re giving ol’ Uncle Sam a NO INTEREST FREE LOAN for the year. Yes, he’s just borrowing the money and putting it to work for him. Why let him have it? Use it yourself, and take what you can, every cent!

Your wheels cost more than your car. It doesn’t just have to be the wheels on your car. Any time your financial priorities are out of balance it is a pretty sure sign you aren’t going to acquire any wealth. Other examples include: Your video game collection is the largest portion of your net worth. You don’t have any money to repair your car, but you a new plasma television.”

Is it any wonder that aside from sports athletes and musicians, the only people that have big pimpin rims on their car, usually drive it home to an apartment or shared housing? Yea, they’re slick looking, but there is a reason most business folks DON’T have them. They know how to manage their money, and that is NOT a good way to manage it; especially when you put them on a car that costs less than the tires.

The further drive the whole point home, a New York Times article says:

“…the most recent year for which comprehensive figures are available, the Federal Reserve’s survey of consumer finances found that the median savings in a 55-to-64-year-old American’s 401(k) or individual retirement account added up to $42,000, less than one-eighth the amount needed at 62 to achieve the retirement income…”

My 401k is almost hitting that mark at age 30 and I’ve still got 30 more to go. The staggering part is that that is the MEDIAN savings of these baby boomers. That means that if the 64 year old people were to retire in the next year, they’d have 42k to spend through retirement. You’ve GOT to be kidding me. Even at 8 times that amount as it says, that’s still only 320k.

Depending on what you “can” live on, that may not cut the cheese for the next 20ish years in retirement, especially when the average age of life expectancy is increasing more each year, pushing your retirement nest egg to the cracking point…

Filed Under: 401KadviceEmergency fundfinancial educationFrugalInvestingMutual FundsNet WorthPortfolioRetirementROTH IRATaxes

  • A depressing list – depressing because you see it in so many people. One of the best ways to become financially responsible is to experience relative deprivation and financial uncertainty while growing up. Sometimes I think that is the main reason why developing countries often have much higher savings rates than the developed world.

  • Hank,

    Great article! And thanks for the link!

    I also realized that I haven’t complimented your theme yet. Slick!!

  • @traineeInvestor – no kidding. I grew up in a small town mentality without a lot of $$$ and I think it MOST CERTAINLY plays a role on where you grow up –

    @Andrew – thanks for stopping by!

  • i have to agree.. nice article!

  • hgh

    I think it is true that the poor and the rich think differently. That is because the rich plan ahead and pick the best options. The poor on the other hand is more concerned about solving the needs of the present.

    When I was working for a car finance company, I notice that often the rich would be concerned about how much they have to ultimately pay whereas the poor are more concerned about the down payment and installment. They almost never sit down and count the exact amount they have to pay in the long run.

  • How true, hgh. I pay high interest for my loans. I should instead try to plan but I don't. Always waiting for a break, then I will do my financial planning.

  • Minnie

    “A 401k is FREE money
    if your company is matching. If you’re paying in 3% and your company
    matches what you deposit, that is IMMEDIATE 100% RETURN on your
    investment! Tell me another investment that is that good of a return for
    needing absolutely NO investment savvy, you just need to tell your HR
    folks to take the $, and give you the %.”

    Does 401(k) matching even exist anymore? My last *3* employers didn’t match 401(k) contributions at all, and a fourth went from a defined match to a discretionary match, which was 0%.