Once Microsoft Billionaire Bill Gates mentioned "If you are born poor it's not your mistake, but if you die poor it's your mistake", this quote has been strikingly clear that you cannot blame anybody for the way things are and where you are at in your life. The fundamental difference in mindset between the rich and the poor is, the rich have understood a very simple principle: money makes money, and the money that money makes, makes money. Rich people see money as an opportunity, poor people see it as something to be earned. This is the significant different mindset that differentiates rich and poor.

Who Are The Rich?

Conventionally, rich people are associated with money, assets and a higher quality of life. These assets include and are not limited to real estate, bonds and stocks. Rich people do not necessarily need to appear rich.

Who Are The Poor?

Poor People are those who live beyond their means. At best, they do not have money and no assets. Real poverty however is having a negative net worth because of accumulated toxic debt - credit cards, payday loans, etc. Poor people are associated with low levels of money and a lower quality of life. They tend to have significantly fewer or sometimes zero assets and are in debt.

What Is Mindset?

A mindset is a person’s collection of preconceived notions that are built based on influences around them i.e. family, personal experience, media, education. In other words, it is a set of beliefs a person has that forms his or her state of mind.

1. Eighth of Wonder (Compounding Interest)

Rich people are said to make money work for them. Instead of just working and relying on income, a rich person would take a proportion of their income and invest it. Compounded interest works in favor of the rich. This is because it will eventually turn $1000 into $10,000. Ultimately, a rich person can choose not to work and live off revenue generated through investing. However, most of the time the rich work because they like what they do, not because they need money.

However, poor people are said to work for money. A poor person sees $1000 as just $1000. A poor person works paycheque to paycheque for the rest of their life. Poor people, at best, spend everything they earn by buying stuff from the rich, whether they need it or not. They have nothing left at the end of the month. But real poverty is when people spend money they don’t have, accumulating credit card debt. Compounded interest rate plays against the poor as it will eventually turn $1000 debt into $10,000.

2. Expenditure

Rich people spend on necessities and what is needed (Essential Expenditure), not what is desired. For example, a rich person who has run out of milk will walk into Sainsbury’s to buy a carton of milk, nothing more. A rich person with a perfectly functioning phone would not need to spend money on a new one. A truly rich person does not care about trends, they care about net worth.

Poor people spend on both necessities and desires (Impulse Expenditure). For example, a poor person who has run out of milk will walk out of Sainsbury’s with more than just a carton of milk. A poor person spends beyond their means. They care about the latest trends, not about net worth. Poor people care about image.

3. Risk

A rich person is more likely to take calculated risks. They can afford to take risks because they have diversified assets.
For example, when given an opportunity to invest in a startup, rich people are more likely to calculate the risk of this investment. If the estimate is satisfactory, rich people see this as a chance to increase their wealth.

A poor person is more likely to be risk-averse. For example, when given an opportunity to invest in a startup, poor people are more likely to immediately turn this down. They do not see this as a chance to increase wealth. They see this as a reduction of their disposable income.

The first step is recognizing where you stand and how you would like to move forward. What type of mindset do you possess? Do you want to make money work for you or do you want to work for money? It is in your hands. At the end of the day, no one cares about your finances the way you do.