In life, you are typically on the consumer side or the investor side. There is not an in-between: you are either one, or the other. Consumer VS Investor Mindset. This episode breaks down the questions you need to ask yourself to see which one you are.
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In the last two episodes, we discussed what you need to say yes to and what you need to say no to in order to succeed in this industry and make your money work for you. In this one, I want to discuss the difference between someone who has the mindset of a consumer and someone who has the mindset of an investor.
Consumer: A person that only consumes and buys
Investor: A person who likes to be an owner and puts capital to work
I want you to ask yourself in certain situations where do you fall: on the consumer side or the investor side? If you still have a consumers mindset, you will not be able to comprehend the decisions that need to be made on the investor’s side.
1. Consumers ask: “How much does it cost?”
Consumers are extremely concerned with the cost of something, especially if it is a course or some form of education that will help them get started. BUT if it something material – something that will make themselves look good in front of their friends – they will typically not care how much it is. For example, a new car, a new purse… etc. They normally will go into debt in order to get those things. But anything to get them started in real estate, or the stock market, etc… they care a lot about how much it costs.
Investors ask: “What’s the rate of return, or return on investment (ROI)?”
When you look at each side of the coin, you see one person concerned about how much it will cost them and the other person is asking what the return is.
For example: If there is an investment opportunity that costs $1,000 – is that good or bad? It doesn’t matter because you do not have enough information. The REAL question is: how much am I going to get back on this? If you will get $3,000, which is a 200% return, then it is definitely worth it. When you know those numbers, you do not care how much it costs. The only thing you will be concerned about is HOW MANY you can get to make that 200% return.
2. Consumers ask: “Can I afford to invest?”
Typically this question comes from a place of fear. They want to know what happens if it doesn’t work out, or if they lose their money. The are concerned about holding onto the little that they have.
“[Broke] people fight so hard to hold onto so little” – Greg Prevezano, ACN
If an opportunity costs $500, they think “This is all I have, I am not going to spend it on this.”
Investors say: “I can’t afford NOT to invest”
They figure if this doesn’t work, they will continue to keep doing what they are doing. They are already living failure, and they will just keep going to work.
An investor mindset will look at that same opportunity and say “Yes, it is 500 bucks but it could put me into a position where this isn’t all I have.”
3. Consumers ask, “What if it doesn’t work?”
Sometimes I will get emails of people asking me, “Can you GUARANTEE that I will make $___?” If I could guarantee that you would make anything, I would be a billionaire just guaranteeing people they would make money. But here is the thing: There are no guarantees in this world, especially in the stock market. But the consumer mindset wants a guarantee! They let that fear paralyze them from moving forward.
Investors ask, “How can I make it work for me?”
They aren’t thinking about the negative outcomes that could happen. They understand that that is a factor that is baked into life: people get married and get divorced. They go into it hoping it works and they plan to stay together.
Investors think about how they will make it work for them and how to reduce risk. They make a decision to move forward, with the understanding that there is no 100% guarantee, as well as put elements in place to reduce risk so if things don’t turn out the way that they thought it would, they will still not lose everything.
4. Consumers say, “I work hard – I deserve it”
Anytime I hear that phrase, I run from that person. That is a recipe for making a bad decision in the cookbook of life. They typically operate from a position of emotion, and this saying pretty much indicates “I know I am about to make a bad decision, I know I am going to do something that I shouldn’t do, but I am going to tell myself that I work hard and I deserve it so it is justified.”
The debate isn’t if you work hard, but only you know for sure if you really deserve it. That is subjective. But there is a different mindset between that and “Does that mean you should really move forward with that decision?”
Investors say, “My money works for me, and I’ll pay for it with the profits from my investments”
I remember when I used to look at nice cars like Mercedes, the Bentley, etc… I used to say, “Once I get a good job, I am going to pay for that.” Then when I got a good job, I had a realization. I work 40-60 hours a week and I am going to devote that hard-earned money to a machine that depreciates? Something that will need new tires and to be fixed? I did not want to pay a lot of money for a new car. My mindset changed to, “how can I have my INVESTMENTS pay for this?”
If you take on debt, you should make sure that someone else is paying for it.
It’s okay to drive a luxury car and live in the big house, but I want to make sure that something else is paying for me. And a great way to do that is to make your money work for you.
Anytime someone tells you, “I would never pay that much for that house/car” you can say, “Me, either! That’s why I am not paying for it”.
And I am not knocking working hard at all – some people work hard and they get the nice things. I am challenging you to think about it differently – how can you work hard in a different capacity where your money works for you? You are working hard at something – like learning the sock market – but are you working hard and SMART in an industry that even when you can’t work hard, the money keeps working for you?
5. Consumers say, “I’ll buy it when I get my tax refund”
So many people wait for one season to get money, and the moment they get it, they spend it. They treat it like money they never had – I can blow it because I am already paying my bills. Free money! I would encourage you to look at it a different way, this is the time when you can buy a course or stock or start investing. It doesn’t matter if you “lose” the money – don’t approach trading as if you are gambling, but this would be the time to put this money to work because you can calculate the risk better when you have money you do not need for bills.
Sometimes people need that tax refund money to pay off credit card bills – and I would encourage you not to get into debt because then you do not need to allocate that money for credit cards.
Investors say, “I’ll invest my tax refund, and my profits will buy it”
Once you spend money, it’s gone. Sometimes people get $2K or $3K back from their refund, and if you use that money to trade options, you could probably gain $250-500 a month confidently. Of course you would need to learn how to trade options and how that works. If you want to actively manage it, you could probably earn that trading options. If you take $3K at $500 a month – that’s $6K in one year profit! That is a total of $9K. On the low end, at $250, you would get $3K, which is still doubling what you started with.
6. Consumers say, “I was approved for it! And the payments are small”
“It’s ONLY this much a month” “I HAD to get it – it was 0% financing for 2 years!” They want it now, and they will figure out how to pay for it later. Which is totally backwards. They want to spend and have instant gratification – and they think because they were approved for it they must be able to afford it. They do not think about they long-term affects that this decision will have. They just care about being happy TODAY.
Investors say, “I was approved for it, but it’s not apart of the plan”
The decisions they make delay gratification. While your friends may be influencing you to spend money and to go out, investors understand that for a time they will have to limit their spending. You are saying “no” now because you KNOW very soon in the future, there will be a gap between you and that friend. You will not be stressed about spending money. It would having nothing to do with your current income – it is from your investments!
7. Consumers say, “I could afford one of those, too, if I really wanted one”
I had a Lexus, and I remember one day I pulled up to a location and a person told me, “Yeah those are nice. I could get one, too, if I really wanted a Lexus”. I’m thinking… “Yeah, right. You don’t have one because you don’t know how to get it without physically working for it.”
Investors say, “What do you do to get that?”
They typically humble themselves and put themselves into a learning mode. If I see someone with a nice car, I do not think to myself “Oh yeah I have a good car, too, I run an education company, etc…” I think “WOW you figured it out, too, awesome”. Investors keep an ear out and want to know how others got there. The mindset is different! The investor doesn’t have anything to prove anything to anyone, they just want to learn.
Ask yourself, “Which side do I identify with?”
Do my actions, my feelings, my mindset resonate with the consumer or the investor side? If you resonate with the consumer mindset then you can start to ask a new question: How can I start to make some new decisions and migrate to the investors side? And if you are already on the investors side, you can 1. recognize the consumers in your life (friends, family, etc) because sometimes we seek investment advice from consumers when we shouldn’t and 2. try to seek out other investors and push each other in the right direction.
Let me know: comment below with which side you resonate with and what you are doing to become a better investor.