In a recent meeting with a wealthy client, we were discussing his wishes, hopes, and dreams.  As we talked, I asked him about the car he was currently driving.

“I don’t need a new car”, he replied. 

Knowing this gentleman as I do, I inquired further.  “So what kind of car are you driving right now?” 

“Several years ago, I gave my daughter a Jeep.  Last month, I bought her a used car and now I’m driving the Jeep.  It has 198,000 miles on it,” he explains. 

I am intrigued.  “So you are driving a car that has 198,000 miles on it, and you don’t need a new one?” 

He replies, “A car isn’t a good investment.  This one will do just fine.”

Most of us think a car with 198,000 miles is long past due for a trade-in.  And the truth is, a car is no more of an investment than is a computer or a toaster. 

This wise and wealthy man’s final reply sums up the difference in perspective between most of the wealthy and the not-so-wealthy people I have known.  The wealthy and wise look at their cash flow, and consider how they can use it for the accumulation of more assets, which in turn seeds more cash flow.  The not-so-wealthy often look at their cash flow to determine how many more monthly payments they can squeeze into their paycheck.  Consequently, they are forever on the treadmill called “work.”

What are the components of this subtle, yet powerful difference?

1.  The power of choice

The wealthy know that if they take care of their investments, their investments will take care of them.  They choose to forgo immediate gratification for a future of freedom and security.  They know that each cash outlay is either an expense or an investment, and they are conscious of the choice they are making.  A car is an expense, not an investment, so the reasonable choice is to economize.  A used car is a much better value than a new car.

2.  The willingness to sacrifice in the short term

The wealthy buy what they can afford.  They aren’t caught up in the “looking good’ model of having to have the latest and greatest of everything.  They know that if they save and invest now, the payoff down the road is significant.  They know that even small choices make a big difference.

3.  Honoring the source of money

The wealthy know that initially, money originates from labor, either theirs or someone who came before them.  They honor that labor by treating money with respect.  They look at the money in their lives as a treasure to manage.  The wealthy know that they are responsible for their financial lives, and they spend time understanding and planning for their resources.

They the source by giving.   They appreciate their success and look for ways to pay it forward.  According to American Demographics, the average American household gives away about 2% of their income compared to 6% for those with investments of $500,000 or more.

4.  Borrow with intention

The wealthy are only slightly less likely to owe money than average folks, according to the Fed, but how they borrow money is quite different. The richest 10% of Americans are half as likely to have credit card debts (22.4% vs. 44.4% overall), although for those who carry balances, the median is about the same for both groups (around $2,000). The wealthier folks are also much less likely to have installment debt, such as auto loans (25.6%, compared to 45.2% overall).

What the wealthy often do have is mortgages. More than half -- 55.5% -- have a primary mortgage, compared to 44.6% of households overall. Another 15% carry loans on other real estate, compared to 4.7% of the general population.

What we know

Being and/or becoming wealthy is a mindset, a way of being, a paradigm of thinking.   If you are attracted to the idea, start by paying attention to your thoughts.  How do you think of your cash flow?  Is your focus on maximizing your investments or your borrowing capacity?  Do you honor the flow of money into your life with gratitude?   Do you think of ways to make the next paycheck last to a bigger and brighter future?

Here are some simple steps to move toward wealth, and to a life of freedom and security:

1.   Pay attention to your thoughts and attitudes around money.  Replace your negative limiting beliefs with affirmations of your abundance.

2.   Take inventory.  Find out where your money comes from and where it goes.

3.   Make a new choice.  Begin to see money flow into your life as a responsibility to be managed with honor. 

4.   Be willing to make some short term sacrifice to reach your ultimate goals.  Invest often and wisely.

5.  Practice being in the flow of gratitude by giving away your money with clear intention – knowing that you are abundant and choosing to honor others with your abundance.

Reprinted for the Sunday Challenger, December 13, 2005.  By: Mackey McNeill