One main difference between the very wealthy and those struggling to earn a living is that poor people tend to shop around for deals, when it comes to spending money, whilst rich people spend money acquiring assets that will accumulate in value. Here is a simple example of what I mean. We all need to eat food don’t we? So it goes without saying that we all need to have a dining table and chairs in our home. Whilst many people will simply look for the best deal, those with the millionaire mindset might purchase an antique dining set.
The wealthy person will not only take pleasure from enjoying the presence of the antique in the home, but eventually when they decide they would like to have a new dining table and chairs they will get their money back or possibly even make a profit. Whilst the poor person must again go about looking for the best deal and would probably end up giving away his old dining set because it has no real second-hand value, the rich person’s dining set has increased in value because it is an antique and therefore an asset. The poor person is out of pocket whereas the rich person is able to make the desired change far more economically. This is a good example of the difference between the consumer and the millionaire mindset and you can extend this thinking into very many things that you buy.
Rich people may buy things that are costly, but they understand investment. When making a good investment, the actual amount of money invested is of secondary importance; of primary importance is the risk and the projected return. It is certainly true that wealthy people might also choose to squander money from time to time, but they know what they are doing with their wealth. They understand when they are making an investment and when they are not. Poor people always worry about how much things cost because the money they choose to spend is very rarely invested and so is ultimately wasted.
Learning how to recognise an investment that will yield a worthwhile return is a vital key to acquiring the ability to accumulate wealth. It can be quite an education to watch the group of millionaires demonstrating this ability on the TV show Dragon’s Den. Within the space of a remarkably short discussion – although the discussion is generally longer than the portion actually screened, it is nevertheless quite a short time – whilst evaluating some largely unfamiliar proposition, the skill of the investor is often very aptly demonstrated and it is that ability which is such an important part of the millionaire mindset.
As a fan of the program, some time ago, I read the books written by the UK Dragons, Theo Paphitis, Duncan Bannatyne, Peter Jones and James Caan. Just as a quick aside, they are all excellent in my opinion, with the notable exception of Peter Jones’ book which I personally found to be quite unimaginative and boring. In Duncan’s book, whilst describing the building of his ice cream business, he made a comment to the effect that he could not understand why anyone would not want to buy something that they knew would make them money. He was referring to an ice cream van at the time, but the comment is exactly the kind of thinking that makes a millionaire. He later exhibited the same thinking when he was continually building nursing homes and later still when he built his chain of leisure centres. In each of these cases the risk was very low, according to Duncan, and the projected returns were very high.
Actually, Duncan was not able to borrow money from the banks at one stage, despite the soundness of his business proposition, because the banks did not like the idea of so much capital being tied up in his enterprise. This was during the expansion of his nursing home business. They saw it as high risk. But Duncan insists it was really low risk because he had proved the concept and not only knew how to make it profitable, but actually learned how to improve his efficiency as he went along.
When you look at the careers of James Caan and Theio Paphitis, they each did essentially the same thing. James specialised in recruitment and, later in investments whilst Theo specialised in turning around failing businesses. However, they were able to identify something they were able to do, and then repeated the process in order to expand. On a smaller scale, I believe it is possible to emulate that same millionaire thinking. Indeed, that is what Duncan was doing originally in his ice cream business. He discovered that he could quite easily expand his empire by repeating what he already knew was working. At the same time, he was learning the skills he would later need in his subsequent operations. In each case he found something that works, and that was repeatable, and he then just kept turning the handle, so to speak.
So I hope you will be encouraged to think about these two aspects of the millionaire mindset: purchasing assets whereever possible, rather than liabilities, and finding or creating row-risk investment opportunities that are scalable. If you do this, who knows, perhaps we might one day get to see you on Dragons Den.