When it comes to getting rich, so-called experts are full of advice on how to save your way there. There’s no shortage of articles about couples who saved their way to $1 million or “expert” tips on how to save more money.
And these articles are true. You can save more money following their advice. But you have to consider the cost. Because the saver mindset is a very different and dangerous mindset about money than how the rich think about money.
All you need is a million?
Take for instance the couple, Carl and Mindy, who saved $1 million on four years. Their instincts were right.
“I was having this horrific day at work,” 42-year-old computer programmer Carl told Farnoosh Torabi on an episode of her podcast. “I was 38 at the time, and I'm like, ‘There's no way I can do this until I'm 62 or 65 or whatever age people normally retire.”
Many people feel trapped in their jobs but do nothing about it. Congrats to them for taking action. But in the end, it is still the action of a poor-person mindset about money.
The couple started by analyzing their spending habits. “My wife and I wrote all of our expenses in a book,” Carl explains on their blog. “Every time we returned from shopping or paid a bill, we logged it.”
Based on their logs, they determined they could live on $24,000 a year. To be safe, they added a $6,000 cushion and bumped that estimate up to $30,000 a year.
To get there, they decided they needed $1 million saved up to retire by age 42. To achieve this, they did the standard saver playbook: they downsized and cut expenses, while working side jobs and investing in their personal residence and the stock market.
Not a future proof-retirement
While it is great for Carl and Mindy to retire today — and having $1 million in the bank is certainly better than most — their retirement plan is not future proof in my mind.
They use what is called the 4% rule, assuming if they take out 4% of their retirement money per year, they won’t run out.
Perhaps this makes sense for them now in their 40s while they are relatively young. But what will happen when they get older and require more medical attention? Or what if their property taxes go up significantly over the next twenty years? Or what if inflation continues to grow over the next forty to fifty years at 2% a year? Or what if they get tired of living so frugally after all?
Without significant income, they won’t be able to stay afloat. They may enjoy life at $30,000 a year right now, but it will not be sustainable for their entire retirement.
The conventional advice is all about saving
This is not Carl or Mindy’s fault. They were raised in a world that teaches them that saving is the best way to be rich.
Take for instance Mic’s “30 easy money hacks to get a little richer every single day this month”. They include things like:
- Shop generic
- Check for Health Savings Account eligibility
- Review your 401(k) fees
- Grow your own herbs
- Transfer $10 a week to an IRA
- Buy a slow cooker (on sale no less)
- Use cloth napkins
Of the entire list of 30 ideas to get rich, only one has to do with generating income. The rest are all ways to do exactly what Carl and Mindy did: downsize and cut expenses.
Your mindset about money counts
As a kid, my poor dad, my natural father, had this same mindset. Whenever we wanted something in life, he would say, “We can’t afford that.” Perhaps your parents said something similar like, “Money doesn’t grow on trees!”
My rich dad, my best friend’s father, asked a very different question. He would ask, “How can I afford that?”
The difference between my poor dad and my rich dad’s mindset about money was fundamentally one of saving versus earning.
My poor dad always looked to be saving money and cutting expenses. My rich dad always looked to be making money and investing in both his wealth and his quality of life.
Now, which person do you think lived a happier, fuller life? Unfortunately, it was my rich dad. I say unfortunately because it was very hard to watch my poor dad later in life when he had no money, struggled financially, and was very bitter. He worked hard his whole life, but his mindset about money did not serve him well in the end.
Savers are losers; spenders are winners
All of this goes to show that the mantra of “savers are losers” is a vital thing to understand if you want to be truly rich. After all, in world where Brexit can happen and global currency markets can wipe out $380,000 of a tennis star’s prize money in a day or two, or where the President can say the dollar is too strong and push it’s worth down half a percent in a day, putting your faith in how many greenbacks you have saved versus how many you can make… makes no sense.
In today’s financial world, spenders are winners and savers are still losers. Of course, by spenders, I mean those who use their money to build their business or invest in cash flowing assets. And to spend wisely this way, you need financial intelligence that goes beyond just downsizing and cutting expenses. You need to understand how to create wealth, and in your own way, actually make money grow on trees.