20-Year-Old Backpack

Yes, I’ve had this backpack since high school. Why? Because it still does the job I need it to do, and honestly, I don’t think that buying a new one is the best use of my money. My wife says that I’m being cheap, but I just think that I view things through a different lens. I view items in terms of assets or liabilities. I normally only buy things that add actual value to my life. And right now, a new backpack doesn’t add any additional value.

So, what’s the point?

The point is that if you are going to be wealthy, your mindset has to change. You have to start thinking differently. You have to start looking at everything as either an asset or a liability. Now, you are probably thinking that my example of a $50 backpack may be ridiculous, but I would argue that if you aren’t thinking like the wealthy, you will never get there yourself…and it starts with the small stuff.

What is an ‘Asset’?

From Investopedia – An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. Assets are reported on a company’s balance sheet, and they are bought or created to increase the value of a firm or benefit the firm’s operations. An asset can be thought of as something that in the future can generate cash flow, reduce expenses, improve sales, regardless of whether it’s a company’s manufacturing equipment or a patent on a particular technology.

What is a ‘Liability’?

From Investopedia – A liability is a company’s financial debt or obligations that arise during the course of its business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses.

Assets create economic value (i.e. generate wealth). Liabilities take away economic value.

It absolutely kills me when I see a junior military service member come driving into work in their super expensive Range Rover, or BMW. Knowing full well how much they get paid, I can guarantee that their car payment takes up a significant amount of their monthly take home pay. Although they may feel wealthy by driving that expensive car, they will never become wealthy because their mindset is completely the opposite of what it should be.

The Middle-Class Mindset

“Go to school, get a good job, buy lots of stuff, and get into debt. Then go get a better job to pay off your debt. Then go buy more stuff.”

See the cycle? They call that The Rat Race.

The good news is that your mindset can change. You can be taught to start thinking differently. There is actually a formula.

JP Livingston, author of The Money Habit blog, who retired with a net worth of $2 million at age 28 by saving 70% of her income, says “If I were to get one point across, it’s that if you think of things as not just what you save that day, but having that money work for you and compound, it will totally change the way you spend money. Cutting out your daily latte isn’t just $5 saved in the moment — it’s $1,825 per year that could be garnering interest in an investment account. Keep that up for 10 years, add an 8% rate of return, and you have more than $33,000.

The Wealthy Mindset

“The rich don’t work for money. The rich learn how to make money work for them”. – Robert Kiyosaki

If you aren’t there yet, I suggest you start learning. See The 8 Steps to Financial Freedom.

And once you are there, start teaching others the same.

Written by Stuart Grazier