Why do most people die broke?
It’s an interesting phenomenon.
If we live out our life expectancy, most of us have 84 years to amass a comfortable fortune.
Not to mention, most of us spend the majority of our adult lives working for money.
Yet most of us die broke, without assets to hand down, and living on a pension.
Even today, one of the biggest worries of retirees is that superannuation will run out, and they’ll need to survive with no money.
How does this happen?
After all, money isn’t hard to attain.
Money is literally everywhere.
Especially in New Zealand, where the minimum wage is $22 an hour, and you can fill out a form and get government cheques for almost anything, whether it’s a student loan, Working For Families, unemployment, illness or disability and about 100 other allowances.
On top of that, schooling is free, the library is free, and there are literally thousands of books on personal finance and wealth for you to read, showing you exactly how saving and investing a small portion of your money each money will get you a comfortable retirement.
Not only that – how to do it isn’t a secret.
We all know that we should save more.
Even when I was five years old, we had “banking day” at school every Tuesday, where you would put $1 into your little ASB envelope and it would get sent to the bank to be put into your savings account.
The habit of saving money is literally drilled into us from primary school.
So if money is all around us, and we’re taught from the age of five to save more money, and there are endless free books and resources on how and why to save money, and we can earn $22 an hour from literally doing any job in the country, why does almost everyone have money problems for their entire lives?
The reason is money is not a mathematical or knowledge problem.
If it were, we would all be rich without even trying.
Maths (especially money maths) is not hard to master.
It’s literally one of the easiest concepts in the world.
Everybody understands that if you put $10 into a savings account earning interest, it will grow to more than $10 later on.
Everybody understands that if you do this every week, in twenty years you will probably have a lot of money saved up.
Everybody understands that if you invest $1,000 now, you will probably have more than $1,000 in the future.
So why don’t we do it?
Well – that’s literally the million-dollar question of our entire existence.
We all know we should exercise every day, but we don’t.
We all know we should eat healthier food, but we don’t.
We all know we should save money, but we don’t.
Why do we humans constantly refuse to do the exact things we know we should do?
It’s our psychology.
What does that mean?
It means our beliefs and behaviours and habits about these things are all wrong.
You haven’t been taught how to think about money and eating right and exercising in a healthy and useful way.
But that’s not true for everything.
Think about brushing your teeth.
Every single morning and night, you squirt paste on your brush and clean your teeth for two minutes.
It’s not because you think your teeth will rot tomorrow if you don’t brush.
You know brushing your teeth for one day won’t stop your teeth from rotting.
The reason you take two minutes every single day to brush your teeth, and don’t just pop a breathmint each morning, is because you perfectly understand that each time you brush your teeth, the cleaning compounds to the point that in twenty or thirty years’ time, you will still have a healthy mouth full of teeth!
When it comes to brushing teeth, your psychology is excellent. You perfectly understand the power of compounding and consistency and good habits. Everyone does.
But if everyone understands the compounding benefits of brushing teeth, and everyone understands the compounding effects of money, why does everybody take two minutes a day to brush their teeth, but nobody takes two minutes a month to invest some of their paycheck?
Your psychology for one is great, but your psychology for the other is terrible.
There are many reasons for this.
Often, it’s from childhood.
I read a great paragraph in a book once (I forgot which one) where they let a group of children play in a room with toys.
There was a toy car, a toy rocket ship, a toy robot, and a bunch of others.
Before they let the kids in the room, they put the toy robot up on a high shelf and told the kids they can play with any toy in the room, except that one.
The kids played with the other toys, but were constantly staring up at the toy robot asking to play with it.
Then after a recess, they let the kids back in the room, but this time the toy robot was also on the floor for them to play.
The kids immediately ran and screamed and fought to play with the robot as soon as they entered the room.
The next day, they repeated this experiment with a new bunch of kids, only this time, the robot was with all the other toys from the beginning.
And guess what? None of the kids treated the robot like it was special. It was just another toy.
How does this translate to money?
When you are told you can’t have something, you want it even more.
Even if there’s nothing that special about it.
Especially if there’s nothing special about it.
Maybe you grew up without much.
Your parents didn’t have a lot of money, and you lived a very simple childhood.
Any time you wanted something, like a new pair of sneakers, or a video game, your parents would say the same thing:
“We can’t afford that. Money doesn’t grow on trees.”
If kids go crazy over a toy robot after they’ve been told they can’t play with it once, imagine what it’s like to get told “We can’t afford that” every single day for ten or twenty years?
When you finally get your first paycheck, it’s obvious what you will do.
You will immediately rush to the toy robot just like all those other kids, and buy all the things you weren’t allowed when you were younger.
Even though your rent is due, you don’t care. Your first paycheck gets blown on a Playstation. Then $200 Jordans. A computer. iPhone. Vacation. It’s everything you ever wanted.
You see the car you want, and it’s more than you can afford, but the dealer offers it to you on finance at 14% interest over 5 years. He says – it might sound like a lot, but it will only work out to $400 per month.
That’s easy! You make $2,500 per month! Gimme the keys! That toy robot is finally mine!
When you see people who are dead broke, living check-to-check, but still buying expensive watches and clothes and shoes, you can often trace it back to something like this.
Of course, this is only one of many reasons your psychology can be skewed. Perhaps you had a father or uncle who lost a lot of money on the stock market once (money is too risky). Perhaps your family was once screwed over by some rich lawyers (money is evil). Perhaps your family was torn apart by constant fights and lawsuits and uncles and aunts fighting about money (money is dangerous).
The good news is, whatever the reason your psychology of money is holding you back, you can fix it.
You can unlearn and relearn how to think about money. Just like you learned to brush your teeth every day. You can learn to see money as a useful tool. You can learn to see it as something that can help you and your family, help others, achieve your goals and build the life you want.
This is the secret of the super rich.
They have learned to see it as something that is fun and challenging.
The reason they have so much money is they enjoy making money.
Even when they have more than they could ever need in five lifetimes, they keep making more, learning more skills and challenging themselves and getting bigger and better. They are constantly trying to get better, because that’s the game, and your net worth is just a scoreboard.
When Kobe plays in the championship game, do you think he only wants to win by 2 points?
Of course not! Even though 2 points is enough, and will him the trophy, he wants to win by 50.
No different to the guy with $100 million trying to get to $200 million.
Before writing this article, I spent the whole night looking at blinking rows of numbers on the options market, making $40 from covered puts, and was having the time of my life! Of course – I don’t need the $40. I’m not doing it because I need to make more money. This stuff to me is just so much fun.
When your psychology about money changes from fear, doubt and guilt, to curiosity and motivation and wanting to get better every day, you will be on the way to becoming richer than you ever thought possible.
How To Change Your Psychology
Surround yourself with people who have the right psychology.
Learn from them. Read their books. Listen to their interviews.
If you have a friend or family member who is great with money, offer to buy them dinner. Ask if they’ll spend two hours teaching you everything they can. Buy them a few drinks and keep them there longer. Ask if they’ll do it every week or every month.
If you can’t find that person, and even if you can, remember you live in the information age. It’s the most incredible time to be a learner.
Even 20 years ago, getting access to a billionaire was impossible.
They didn’t write books. They didn’t do interviews.
Nowadays, you can listen to them talk for 3 hours on a podcast, for free! Answering questions about all their successes and failures and favourite books and films and all the important lessons they’ve learned.
Countless billionaires have written 300-page books on how they made their fortunes.
There are entire channels on Youtube from self-made millionaires detailing exactly what they did to make their first million, first 10 million, first 100 million and so on.
I won’t list a whole bunch of links – because you shouldn’t need me to. They are so easy to find if you search for 2 minutes.
I’ll just leave you with one book that I think is perfect to see inside the mind and psychology of someone who loves playing with money – The Making Of An American Capitalist: The Autobiography of Warren Buffett.
It will show you, in a very entertaining story, what is possible with wise, consistent action from someone who is a master of money.
And as always – my Start page has a wealth of resources to get you started on your wealth journey.