Most of us grow up with a sense of happiness about our surroundings. We don’t understand how rich or poor our family is, nor do we care.
We enjoy playing with our friends, eating with our family, and not having many responsibilities—we call this childhood.
We can live like this for 10-12 years until we enter middle and high school. During these pivotal years, we learn how much money our parents truly have.
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Why do we become cheap? Money is nothing more than a piece of paper; however, having money is a central theme in our lives.
Therefore life becomes a challenge of how to get money, keep money, save money, and spend money. During high school, we decide whether we are spenders or savers.
If we realize our parents didn’t have money, we may aim to obtain cash at all costs. We could also decide that spending money is our top priority.
On the other end of the spectrum are the savers. Their parents may have lived through the great depression or another calamity.
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If you are a saver, you have a high chance of becoming wealthy one day. However, saving money and being cheap are two very different mindsets.
Wealthy vs. Rich. Wealth is having excess income versus expenses. Wealthy people have a large margin between the money they bring in and the money they spend.
We call the difference between money-in and money-out cash flow, which is the heart of a wealthy household. Thus, the goal of wealthy people is to make more and spend less while investing the difference.
Being rich is different from being wealthy. Rich people aim for a massive stockpile of money with the intent to liquidate it at some point.
Think of someone who wins $5 million in the lottery. They are rich for a time; however, their pile of money slowly dissipates into the air.
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A wealthy person would invest the $5 million into real estate, stocks, or business to generate additional income. They would then spend the income from investments while leaving the initial $5 million untouched.
Cheap people aim to be rich. This is where cheap people enter the picture. Most cheap people believe by being tight with their money, it will grow and expand.
They try to build a massive nest egg of money (say $1 million) by saving a few dollars at every transaction. For some people, it becomes their entire way of life.
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The long-term problem of being cheap. Let’s say a super-cheap person manages to save $1 million by age 60—what’s next?
Do they go and start traveling the world and staying at nice hotels? Will they ensure they spend money on their grandchildren or donate to a local charity?
Most cheap people remain cheap their entire lives. They live in fear of losing the pile of money they saved so hard to build.
Being cheap focuses on one side of the wealthy equation—lowering expenses. Remember that wealthy people focus on increasing income and reducing expenses WHILE investing the difference.
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Cheap people have trouble investing. It’s challenging for cheap people to invest their money in various markets. You become wealthy when you focus on adding value to others.
In real estate, it’s hard for cheap people to be landlords. They focus on saving every penny at the expense of their tenants. The tenants then have an adverse reaction and either leave or cause damage to the property.
In the stock market, it is tough for cheap people to watch their money go up and down. They invest $1,000 and pull out their money when it decreases to $900 instead of buying more stocks.
In business, they try to save money at the customers’ expense. They nickel and dime every transaction to ensure they always end up on top. However, they lead to poor execution and bad word of mouth.
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When creating content, they cannot give the necessary 2-4 years to build an audience. They see it as a waste of time because they are not making much money within 3-6 months.
Being cheap can destroy relationships. Over a long lifetime, being cheap will ruin more relationships than it keeps together.
Everything in life costs money, and you will have to give to receive. “The gods cannot place their gifts into a closed fist. First, your hand must be emptied; then the gift may be received.” -John Speed.
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To have healthy, long-lasting relationships, you must travel, support, and sponsor other people. It’s not about buying love; it’s about ensuring a solid foundation of love (through spending some money).
Aim to be wealthy. Instead of saving every penny, focus on turning one penny into two pennies. If you can have your money create more money, you will conquer the game of life.
We all have different risk tolerances and perceptions about money, but we must learn to invest. Some ways to earn money passively are high-yield savings accounts, certificates of deposit, Series “I” bonds, 30-year bonds, index funds, dividends stocks, and income investing.
I learned how to invest while living below my means, having roommates, and increasing my money from my job.
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Now, I can take my mom and my family to Ruby Tuesdays and comfortably spend $200. This is what being wealthy is about for me—over-providing for my family.
Conclusion. I discussed the difference between being wealthy and rich for a reason—to help you choose your path.
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If you aim to build a massive pile of money, you may never learn how to leverage it effectively. You will protect this money at all costs, including losing your relationships.
I have seen many cheap people decide to live alone in misery to protect their cash horde. It’s not a pretty sight, but you will recognize it when it happens close to you.
Instead, focus on both sides of the wealth equation (increasing income, decreasing expenses). This will ensure you have the cash flow to save, invest, and spend.
Wouldn’t it be amazing to receive $500 in book royalties and spend that on a family trip? That’s the true power of being wealthy. Aim to be a good steward of your money, and you can have it all. Good Luck!
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