Patrick Schwerdtfeger is a motivational speaker who can cover the different mindset between rich people and poor people at your next business event. Contact us to check availability. The full transcript of the above video is included below.
Full Video Transcript:
Hi and welcome to another edition of Strategic Business Insights. Today we’re going to talk about one of the biggest differences between the rich and the poor, and the difference is what they spend their money on. And I’m going to rely here on a distinction that’s been made in many different books and videos. It’s not an uncommon distinction. One of the most prominent places where you’ve heard about this is in the book called Rich Dad, Poor Dad. But it’s the distinction of what constitutes an asset and what constitutes a liability. What are the differences between those two, assets and liabilities? What’s the difference?
Most people think, for example, that your home is an asset. Now, look, it is an asset, but in terms of the message I’m trying to convey in this video, I want you to think about them differently. I want you to think about an asset as something that puts money in your pocket. If you own this, money gets put into your pocket; versus a liability, money is taken out of your pocket. In other words, assets pay you money and liabilities cost you money. In that definition, your home is not an asset because your home does not put money in your pocket.
Now, by contrast, a rental unit, if you owned a piece of real estate and you had people renting it, now there is money coming to you. So all of a sudden in our new definition of what constitutes an asset a rental property is an asset, but your primary residence, your home, is not an asset because it’s not putting money in your pocket. In fact, in a sense, it’s probably costing you money just to live there, to maintain it, and all the different things that come along with homeownership.
Well, rich people take the money that they have, whatever excess money that they have, they invest it in more assets, in more things that put money in their pocket. What can you purchase that puts money in your pocket? Well, by contrast, poor people or people who are not wealthy, what do they do when they have extra money? They spend the money on expensive dinners and they buy a fancy TV and they take a vacation, or maybe they buy a beautiful car like a Mercedes or a BMW. Well, inevitably, they’re nice to have, these are wonderful things, but they all cost you money. They’re not putting money in your pocket.
Whereas maybe a wealthy person or a person who has a real wealth mindset, which is what this video is about, it’s about having a wealth mindset, that type of person is going to say, “Okay, I’ve got a certain amount of money that I can put aside. What am I going to spend it on? I want to spend it on something that’s going to pay me more so that now I have my regular income, which maybe is my job, but then I also have these assets over here which are paying me as well. And as I get older and as I make more money at my primary job and invest it into these assets, a larger and larger percentage of my income is going to come from these assets and eventually I’m going to get to a point where I don’t need my primary income source anymore.” Like, let’s say, your job. So you have a job, you save some money and you invest it in assets, things that put money in your pocket.
So what sorts of things could those be? Well, like we said before, a rental unit, a piece of real estate that you rent out, is one example of an asset that you could purchase. But it’s expensive. That’s very expensive. It’s a high barrier to entry. Just to buy a rental unit, that’s sometimes a pretty big step for most people.
There are other things that you could purchase as well like dividend-paying stocks in the stock market. Or you could invest in your own business, like for example, I’m self-employed, so I can constantly am investing money in my own business because by investing in my own business, that’s an asset. It’s paying me money. My business pays me more money as I invest more things into it.
By contrast, there are a lot of people out there who are house-rich but cash-poor. What does that mean? It means they own a piece of real estate, they probably live in the real estate, and it’s beautiful and it’s worth a lot of money but at the end of the day they have no cash because there’s no cash coming in. In fact, they’re bound by a mortgage payment which might consume most of their job income or at least a sizeable portion of their job income, so they end up being cash-poor.
So this relates to the whole idea of capital gains and assets. Well, again, this is a very specific distinction that we’re making in this video, but a capital gain, you only realize it when you sell that asset, which might be one year, 10 years or 25 years down the road. So during that entire period of time, you could be cash-poor but in this case house-rich.
So again, I’m not saying those assets are bad to have, like having a primary residence and a great neighborhood or having stocks that have gone up in value over a period of time. Those are fantastic to have and I applaud those efforts, but in the short-term, in terms of next year and the year after that, think about taking some of your money and putting it into assets that pay you money one way or another. Maybe it’s certain types of investments like purchasing bonds, for example, where they’re paying you interest on those bonds, or dividend-paying stocks or rental properties or, indeed, investing in your own business. Those are things that inevitably increase your cash flow so there’s more cash, there’s more cash, there’s more liquidity in your life. That means there’s more money available where you can reinvest that money or you can use that money to pay for other expenses that come along.
This is a critical distinction between wealthy people and people who are not wealthy. People who are not wealthy are constantly…it’s almost like they’re trying to give their money away because as soon as they get some they trade it for a TV. “You can have the money, I want the TV.” “You can have the money, I want the vacation.” As soon as they get any money, they give it away in exchange for something that they can enjoy right in that moment. Whereas someone who’s from that wealth paradigm says, “Okay, I’ve got some money, I’m going to invest it in something that pays me in the future and increases my cash flow so I have more cash coming in, not less,” and the cycle accelerates over a period of time and over the course of your life. And that’s how a lot of these wealthy people become wealthy, is because they have that mindset throughout their entire lives. And maybe it’s something that you and I can do as well.
Thanks so much for watching this video. My name is Patrick, reminding you as always to think bigger about your business, think bigger about your life.
Patrick Schwerdtfeger is a keynote speaker who has spoken at business conferences in North America, South America, Europe, Africa, the Middle East and Asia.