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Saving Money and Cutting Expenses Doesn’t Make You Wealthy - But These Counterintuitive Things Do

by | Jun 12, 2023 | Money, Personal Finance

Your money mindset is everything.

It’s cliche as hell but if you think with a scarcity mindset, instead of one that comes from a place of abundance, it’s hard to ever get wealthy.

Society programs us to focus on saving and cutting expenses — and it keeps us poor. Don’t fall for it. Do these counterintuitive things instead.

“Millionaires are millionaires because they made millions of dollars”

(Lawrence King)

Financial gurus like Dave Ramsay and books like “The Latte Factor” program us to be cheap.

As if being cheap will one day make us rich. It doesn’t work like that. Millionaires aren’t great at cutting costs or saving. They’re great at making money. The solution to money problems is to make more money.

There’s only so much you cut back expenses and save before you become a desperate excuse for a human who can’t stop thinking about what everything costs.

I can promise you, your favorite millionaire or successful person didn’t become that way because they drank a few less lattes.

Takeaway: Learn how to make money. Make it your #1 skill. That’ll probably involve starting a side hustle or business.

A sad story that’ll help make you truly wealthy

A man named Bernie created one of the biggest businesses on Wall Street over many decades. The business had two sides: one legit and one shady.

The shady part of the business took money from investors and gave them a 15% annual return. They were told their money was used to buy assets such as stocks. It turned out the money wasn’t used to buy anything.

This is known as a Ponzi scheme, where people put money into an investment fund and get paid dividends with money that new investors put in. No value is created.

If new investors don’t keep flocking in, then the fund can no longer afford to pay out the existing investors what they’re owed.

Many cryptocurrencies today still operate on this same mode. It’s amazing how it keeps fooling new generations of investors.

Bernie Madoff kept this scam going for years, but came close to getting caught multiple times.

The fund grew into the billions and Bernie at one point became the chairperson of the Nasdaq stock exchange. He was called in to be part of major government committees and seen as an icon.

As technology was adopted over the years, Bernie kept sending out paper statements from an old IBM printer.

If he moved his business online then people could see the real-time returns & realize it was a fraud. To cover up his crime he refused to let anyone invest if they asked questions.

“I’m giving you an amazing 15% return that’s been consistent for decades and never gone down, even in a recession.”

His investors were so passionate that they refused to take their money back when he offered it to them on several occasions, because they didn’t want to give up their 15% annual return.

The problem with a Ponzi scheme occurs when too many try to withdraw money at the same time. In 2008 a financial crisis hit the world. Investors panicked and all tried to take their money out.

Bernie had billions in withdrawal slips … but only $300M in the bank.

He finally came clean and told his two sons what he’d done. They reported him to the FBI and never spoke to him again. The losses were $64.8B and it became the largest financial crime in history.

Bernie got 150 years in jail and died in 2021.

One of his sons was so ashamed that he committed suicide. The other son got cancer for the second time and wished he could die fast. He passed away in 2014.

The primary broker of many of the deals that put money into Bernie’s fund cut his wrists and bled out into a trash can so as not to make a mess for the cleaners. The main employee of Bernie’s who enabled the fraud to happen day to day, Frank DiPascali, died of lung cancer before he had to go to jail.

Bernie’s wife Ruth ended up bankrupt and had to live out of her car. The other employees involved in the crime also faced penalties.

The irony of the whole thing was the last name “Madoff” as in made off with your money.

The lesson here is you don’t get wealthy by investing without doing due diligence. And if the returns sound too good to be true they probably are.

Cost versus value

Society trains us to focus on the cost of everything.

“Wow, that’s expensive!”

Entrepreneur Alex Hormozi has a great explanation of cost versus expense. If you earn $50,000 a year, as an example, and you’d like to be earning a million dollars a year, then what would the gap in skills cost?

$950,000.

Every year you don’t have those skills it costs you $950,000. So when you hear the price tag of coaching, masterminds or courses it’s not about the sticker price. The focus needs to be on your skill gap.

Wealthy people see value. Everyone else sees expenses.

Become an investor instead of a spreadsheet monkey tracking expenses.

This is how we eat each other alive due to money

Two insidious ideas are responsible for a lot of our financial pain.

  1. Your net worth is due to luck
  2. Privilege exists. How dare they.

When these two ideas are allowed to spread through the community what we end up with are financial wars online. That’s why the hatred around billionaires and entrepreneurs is so high right now.

Now you can see how society eats itself alive. There will always be a difference in how much money everyone makes. See it as a skill gap and problem you can solve, and you’ll do well.

Blame anonymous people/organizations for the problem and your financial life will rot like a dead carcass.

I have never understood why it is “greed” to want to keep the money you have earned but not greed to want to take somebody else’s money — Thomas Sowell

A simple experiment to remove the financial leech people

Rapper Fat Joe became the king of hip hop.

He had a massive entourage. Being the rich guy meant he paid for everything, from hotels to private jets to 5-star restaurants.

One evening he got all his friends together and told them he was bankrupt but still wanted to remain friends. Within a day he only had 6 friends left.

Fat Joe wasn’t broke at all, he was just sick and tired of leeches taking all his money. The experiment helped him realize who his real friends were so he could spend generously on them.

I feel like many of us can learn from his example.

Bad friends are one expense you should definitely cut. For everything else, change your mindset from scarcity to growth, and watch your net worth grow. Then use it to own your time and be free.

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