The Wealthy State of Mind

One of my most important roles as an advisor is to be a teacher. Teaching has really become a passion of mine over the last few years and we now facilitate workshops or teach classes for the public on a regular basis. I honestly believe that teaching is one of the most difficult professions that anyone can pursue. Not only do you have to know the subject material but you also have to understand why and be able to explain it in approachable terms. In other words, you have to know why you know!

When I teach personal finance classes, I am often reminded about simple things that I learned through experiences which changed the lenses that I look through life with. Whenever possible I try to share those experiences with my students. One of my latest lessons is about understanding what it means to be wealthy.

Dr. Thomas Stanley is the author of many popular books such as The Millionaire Next Door, The Millionaire Mind, and Stop Acting Rich. Dr. Stanley has studied wealthy families for many years and greatly impacted my thinking of how I define wealth.

It is important to note the true wealth is not just about monetary assets or income. There are many factors that play into living a rich lifestyle such as relationships, career satisfaction, faith, and physical health. However, for this article I am simply addressing monetary wealth.

Dr. Stanley refers to two types of wealthy people: the income statement affluent, and the balance sheet affluent. The income statement affluent refers to those with large incomes but not many assets to show for it. We all know the type, that friend who has the big salary but also has the big spending habit. By any income definition he is rich but he does not retain much of his wealth.

The balance sheet affluent person may have a modest income or may have a large income. Either way, they are marked by being excellent accumulators of assets. Those assets could be retirement accounts, real estate, business ownership, or marketable securities. We all probably also know someone that fits this profile as well. We might describe them as “being good with money” or as someone who has “made good financial choices”.

These are fundamentally different people; their attitude toward money could not be more opposite. The balance sheet affluent person tends to see money as a tool that they use to achieve goals that align with their values. The income statement affluent person tends to see money as a reward and as such uses it to sustain a lifestyle that reflects winning. Income statements affluent tend to keep score with purchases and balance statement affluent tend to keep score with accumulation.

Clearly the balance sheet affluent are creators of wealth. I think the question that needs to be answered is how do we go about becoming a balance sheet-type person? I think it all beings with establishing values.

If you were to complete the simple task of examining and categorizing your last bank statement I think you would uncover some interesting information. I would challenge you to ask yourself a few questions.

1. If a random stranger were to look at your bank statement, what would they assume about your values based on your spending habits?

2. Does your bank statement reflect what you feel like you value?

3. Where should you make changes in your spending habits to more accurately reflect your values?

For more on this values idea, feel free to read the article on page one.

So what is the bottom line? Well in my opinion, if you want to become balance sheet affluent and a creator of wealth, you must value saving. Your attitude regarding the purpose of money has to shift toward viewing it as a tool. That tool is used to create rather than consume. So in turn you must also learn to keep score through accumulation rather than purchases!