{"id":86295,"date":"2019-11-10T05:00:23","date_gmt":"2019-11-10T12:00:23","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=86295"},"modified":"2024-02-24T12:49:07","modified_gmt":"2024-02-24T19:49:07","slug":"trick-yourself-to-wealth","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/trick-yourself-to-wealth","title":{"rendered":"8 Ways to Trick Yourself Into Becoming Wealthy"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC8124003221\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n<blockquote>\n<p><span style=\"font-weight: 400;\">&#8220;It\u2019s not how much you make, it\u2019s how much you keep.&#8221; \u2014<\/span><span style=\"font-weight: 400;\">Robert Kiyosaki, <em><a href=\"https:\/\/www.amazon.com\/gp\/product\/1612680011\/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=9325&amp;creativeASIN=1612680011&amp;linkCode=as2&amp;tag=biggerpocke0a-20&amp;linkId=504d2757c3b55c6f83044d412f879bdd\" target=\"_blank\" rel=\"noopener noreferrer\">Rich Dad Poor Dad<\/a><\/em><\/span><\/p>\n<\/blockquote>\n<p><span style=\"font-weight: 400;\">The balance in our investment account wasn\u2019t getting any bigger. I\u2019d studied the ways of wealth building and knew what to do. I had tattooed the \u201cpay yourself first\u201d principle on&nbsp;my brain. We had a budget, and right there at the top was a line item for setting aside 15 percent. Still, every month, there seemed to be something \u201cunexpected\u201d that would pop up and derail our efforts to set aside money for investing.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In <em><a href=\"https:\/\/www.amazon.com\/gp\/product\/B004N641I4\/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=9325&amp;creativeASIN=B004N641I4&amp;linkCode=as2&amp;tag=biggerpocke0a-20&amp;linkId=f4e9f678edb7576b3a17968601fd216a\" target=\"_blank\" rel=\"noopener noreferrer\">The Total Money Makeover<\/a><img loading=\"lazy\" decoding=\"async\" style=\"border: none !important; margin: 0px !important;\" src=\"\/\/ir-na.amazon-adsystem.com\/e\/ir?t=biggerpocke0a-20&amp;l=am2&amp;o=1&amp;a=B004N641I4\" alt=\"\" width=\"1\" height=\"1\" border=\"0\" title=\"\"><\/em>, author Dave Ramsey suggests that success with money is 20 percent head knowledge and 80 percent behavior. That seems about right. In my experience, most people at least have an idea of what they\u2019re supposed to do with money. Some of us even study it extensively. And I know for a fact that good money habits are not rocket science. But actually doing what needs to be done can seem very difficult\u2014at times, impossible.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Even with the best of intentions, it takes more than knowledge. Sometimes, we need to actually fool ourselves.<\/span><\/p>\n<h2>Artificial Scarcity<\/h2>\n<p><span style=\"font-weight: 400;\">When it comes to&nbsp;mindset for growing our wealth, we need to abandon the \u201cfixed pie\u201d or scarcity mentality: the belief that there is only so much money to go around. According to this&nbsp;worldview, if one person has more money, then it must have been taken from someone who now has less. Instead, we must&nbsp;replace this thinking with an abundance mentality: the belief that there is more than enough money in the world for each and every one of us to prosper and become wealthy. (There is.)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But while the abundance mentality is effective when thinking about how to earn money, it is exactly the wrong approach to managing the money that you have already earned. If you believe&nbsp;that money is easily replaced, then you will also&nbsp;spend more freely. Easy come, easy go.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A&nbsp;simple concept from the book <em><a href=\"https:\/\/www.amazon.com\/gp\/product\/1589795474\/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=9325&amp;creativeASIN=1589795474&amp;linkCode=as2&amp;tag=biggerpocke0a-20&amp;linkId=e84c1db2225c1893a8fd166991ba833d\" target=\"_blank\" rel=\"noopener noreferrer\">The Millionaire Next Door<\/a><img loading=\"lazy\" decoding=\"async\" style=\"border: none !important; margin: 0px !important;\" src=\"\/\/ir-na.amazon-adsystem.com\/e\/ir?t=biggerpocke0a-20&amp;l=am2&amp;o=1&amp;a=1589795474\" alt=\"\" width=\"1\" height=\"1\" border=\"0\" title=\"\"><\/em> by Thomas J. Stanley and William D. Danko has laid the foundation for our approach to managing our money. Stanley and Danko studied the very question of how the wealthy manage their finances:<\/span><\/p>\n<blockquote>\n<p><span style=\"font-weight: 400;\">\u201cHow did they become millionaires? How do they control spending? They create an artificial economic environment of scarcity for themselves and the other members of their household\u201d (Stanley 41).<\/span><\/p>\n<\/blockquote>\n<p><span style=\"font-weight: 400;\">When managing the money that they have already earned, the wealthy tend to adopt a scarcity mentality. In other words, we need to trick ourselves into believing that we earn less money than we actually do.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In this article, I\u2019ll explore a number of ways to do just that.<\/span><\/p>\n<h3>1. Siphon money at the source.<\/h3>\n<p><span style=\"font-weight: 400;\">Probably the most popular and widely adopted method of reducing income is to siphon it off at the source. With authorization, many companies will automatically make contributions to retirement accounts on behalf of employees. This means that the money has not only been set aside, but also invested, before ever reaching the employee\u2019s bank account.&nbsp;Let\u2019s face it, whatever money is in your bank account is at risk of being spent. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">This approach to saving and investing allows you to make a good logical decision for your future when you are being rational. Later, when emotions get involved (\u201cI deserve it\u201d) you simply don\u2019t have the money available to spend.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Some employers will actually allow you more options than just putting money in a retirement account. What if you want to save up a deposit for a rental property? Check with your HR department to find out whether you can siphon off additional funds into a savings account. Just be sure that you don\u2019t have easy access to this account or that there are penalties for withdrawing money frequently and unnecessarily. Otherwise, all you will have managed to do is create an additional spending account.<\/span><\/p>\n<h3>2. Scale up your savings with your pay.<\/h3>\n<p><span style=\"font-weight: 400;\">One of the advantages of siphoning off money at the source is that you can often set it up as a percentage of your pay. Whenever I\u2019ve done this, I\u2019ve had to fill out a form with HR\/payroll. On that form, I\u2019ve usually had the option to specify a dollar amount or a percentage. If you choose to set aside a percentage of your income, then, as your income grows, so will the amount that you set aside.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So, if you want to pay yourself first and set aside 15% of your pay, probably the easiest way to do this is to go into your HR department and fill out the form. The rest is automatic.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Because of just how easy and effective this approach is, I highly recommend it, especially if you\u2019re struggling to get started with any savings and investment. The reality is, if you\u2019re not controlling your budget, then you probably won\u2019t even notice that the money is no longer coming into your account. Ironically, people on a strict budget are more likely to notice the difference.<\/span><\/p>\n<p><\/p>\n<h3>3.&nbsp;Crush your mortgage.<\/h3>\n<p><span style=\"font-weight: 400;\">Perhaps you are setting aside money for an investment, but there aren\u2019t many good opportunities just now. Some big-time real estate investors will tell you that there are always opportunities. Maybe they\u2019re right. But in the few years that I\u2019ve been at it, I\u2019ve observed that the market operates in waves. When it crests, prices are high and it&#8217;s usually a terrible time to purchase&nbsp;a cash flowing property. When the market troughs, however, prices are low and it\u2019s time to buy. If you are in a crest, waiting for a trough, your money will&nbsp;be building up in your bank account. The problem with this is that you\u2019ll earn interest on this money and then owe&nbsp;tax on those earnings. This makes no sense if you also have a mortgage payment for which you\u2019re paying interest.&nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It might make sense to ride out a market crest by paying down your debt. This allows you to get yourself in a better financial position by converting cash into equity and reducing debt. It saves money in interest payments. You can always borrow money against your home later with a Home Equity Line of Credit (HELOC) when the time is right for buying.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But beware: Paying your mortgage is not the same as investing. Taking this approach might make sense for a while. But it could tie up your funds if the bank won\u2019t allow you to draw on your home equity when you\u2019re ready to invest.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Always keep in mind that investing is the higher priority\u2014you must plant seeds to grow a forest.<\/span><\/p>\n<h3>4. Set aside that phantom paycheck.<\/h3>\n<p><span style=\"font-weight: 400;\">Do you get paid every two weeks? If most of your bills go out monthly, then you are probably tempted to average out all 26 of your paychecks over the course of a year and then divide those across 12 monthly budget periods. This is technically correct.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, most months you will receive exactly two paychecks. Then, once every six months, it feels like you win the lottery when you receive an extra paycheck. If you\u2019ve been counting on this paycheck, then your financial situation will likely feel like a rubber band: Your finances stretch tighter and tighter&nbsp;until this extra paycheck finally appears and the tension is released.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A better tactic is to build your monthly budget based on what you bring home in two of your bi-weekly paychecks. If you can live on this amount, then every 6 months, you will receive an extra paycheck that can be set aside for investing. This would amount to 7.7% of your take home pay. This may not seem like too much, but if you also siphon off, say, about 7.5% of your income into a retirement fund before your take home pay then combined, you&#8217;d be setting aside more than 15% of your income. Using several of these incremental approaches in combination could really help you to get where you\u2019re wanting to go.<\/span><\/p>\n<h3>5. Invert the usual approach of investing only a percentage of your bonus.<\/h3>\n<p><span style=\"font-weight: 400;\">Throughout my career, my employers have tended to pay out a modest annual bonus. I am very grateful for it. Still, it has usually been roughly equivalent to a phantom paycheck. This means that it\u2019s also been pretty easy to just spend it.&nbsp;But when I consider what it could have amounted to had I invested the money, the only correct action is a face-palm.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">These days, if and when I get a bonus, I usually take my wife out for a nice dinner and bank the rest of it in our investment account. This way, I invert or flip&nbsp;the usual approach&nbsp;of investing a percentage off the top; I only take a small portion off the top for spending while leaving the rest for investment.<\/span><br \/><em><br \/><strong>Related:<\/strong> <a href=\"\/renewsblog\/face-your-debt\" target=\"_blank\">4 Steps to Finally Tackle Your Debt\u2014and Start Growing Real Wealth<\/a><\/em><\/p>\n<p><span style=\"font-weight: 400;\">Also, if you are siphoning money off at the source for a retirement fund or other investment savings, check with your employer to ensure that this applies to your bonus payments as well. This way, paying yourself first applies to all of your income, not just your standard paycheck.<\/span><\/p>\n<h3>6. Live on one income.<\/h3>\n<p><span style=\"font-weight: 400;\">Do you have a dual-income family? Try putting together a household budget based on only one of the&nbsp;two household incomes. Set aside the second income for investment.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This may seem like a real challenge, but there are times in life when you must adopt&nbsp;this approach anyway. When my wife went off work to have our children, we were forced to adjust our lifestyle to fit within my paycheck. To do so, we got ourselves&nbsp;on a relatively strict budget. As my wife started back to work part-time, we chose not to increase our lifestyle to absorb the additional income. Instead, we set it aside for investing. As our kids head off to school, my wife is starting to work more hours. Because we are set up this way, rather than just spend more, we are poised to supercharge our investing instead.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Even if you and your partner both have steady incomes, this can be a great strategy. It will obviously be easier to adjust your lifestyle initially to live on the higher of the two incomes. This is a great start! But if you want to challenge yourself further, consider whether you can budget your lifestyle to live on the lesser of the two incomes. If you can achieve this, then not only will you be setting aside a significant chunk of money for investment, but you will also create&nbsp;resilience to the temporary loss of either income.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In our case, my wife earns an&nbsp;hourly wage. If, for any reason, she works fewer hours in a given pay period, this reduces the amount that we bring in. In contrast, I earn a salary. This makes my pay more consistent and easier to budget around.<\/span><\/p>\n<p><\/p>\n<h3>7. Live on one semi-monthly paycheck.<\/h3>\n<p><span style=\"font-weight: 400;\">Want to really challenge yourself? Let\u2019s say you get paid twice monthly, on the 15th and last day of each month. Ask yourself a simple question: Could you live on just one of those two paychecks? <\/span><\/p>\n<p><span style=\"font-weight: 400;\">For some, this may seem impossible. But I wish I had asked myself this question when I was young and single. If I\u2019d tried, I\u2019m sure I could have figured out a way to answer \u201cyes.\u201d Instead, I spent it all when I could have been putting aside 50 percent of my income.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Imagine that.<\/span><\/p>\n<h3>8.&nbsp;Don&#8217;t grow into your new income.<\/h3>\n<p><span style=\"font-weight: 400;\">Do you find yourself in the situation of having a sudden and significant increase in income\u2014for example, a new job or a promotion that brings with it a significant jump in pay?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Ask yourself this question (or discuss with a partner): Can we be happy with our lifestyle exactly as it is&nbsp;today? Do we have any outstanding needs that must be fulfilled right now? For example, if you have children and are living in a dangerous neighborhood, maybe you should think about using your change of situation to provide a safer environment for you and your family.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But if you\u2019re living in an acceptable neighborhood and you\u2019re relatively happy, then maybe you can forego the extras. Sure, you\u2019d love to have a bigger, nicer house, and more luxuries like a new car, and a big TV. But you\u2019re actually doing fine.<\/span><\/p>\n<p><em><strong>Example<\/strong><\/em><\/p>\n<p><span style=\"font-weight: 400;\">Let\u2019s say you\u2019ve been earning $55,000 (a rough U.S. household median income using 2014 numbers), and you just got a 10% pay increase by switching to a new job. That\u2019s a gross increase of $5,500 before taxes. You will pay about 25% in taxes on the increase, leaving you with $4,125. If you are contributing to your retirement account at 10% of gross income then that contribution will increase by $550 annually. (See, you\u2019ve already scaled.) This leaves you with $3,575, or about $298 per month.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This is where you need to get tough on yourself. Instead of using that money to increase your lifestyle now, ask yourself if you can be happy living as you are and instead set that money aside each month for investment. Perhaps you want to build up a fund to save for a deposit on a rental property. It could take a few years, but this is your chance to get started. Start setting that money aside. If you are more keen on stocks, then you could use that money to start creating a stock portfolio.<\/span><\/p>\n<p><em><strong>Related:<\/strong> <a href=\"\/renewsblog\/2015\/04\/05\/case-frugalitypinching-pennies-path-wealth\/\" target=\"_blank\">A Case Against Frugality: Why Pinching Pennies is NOT the Best Path to Wealth<\/a><\/em><\/p>\n<p><span style=\"font-weight: 400;\">As an aside, always round up. That extra $298 per month available would prompt me to start setting aside $300 per month. It may not seem like much, but it forces you to shave $2 from somewhere else in your budget. This kind of trimming, done regularly, keeps you living a more lean lifestyle while you are building investments. <\/span><\/p>\n<h2>Conclusion<\/h2>\n<p><span style=\"font-weight: 400;\">Sometimes you really do need to use additional money for&nbsp;day-to-day living. When I received my most recent annual incremental increase, I wanted to funnel all of the money into either our investment account or put it against the mortgage to pay it down faster.&nbsp;<\/span><span style=\"font-weight: 400;\">But my wife told me we needed money for other things. Our small children are growing up and starting to eat more; we were starting to run short on our grocery budget regularly. And we\u2019re not exactly feasting like royalty. In addition, all of our insurance premiums went up, as they do every year. Pretty quickly, my incremental pay increase incrementally disappeared. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">But because we siphon some money off at the source and this scales with our incomes, we at least managed to reap some benefit from the pay increase. And since&nbsp;we&nbsp;combine several of these approaches already, we can accept it when life occasionally does get a little more expensive.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As always, if you have consumer debt\u2014anything other than your home mortgage\u2014then you should first use any extra money toward paying off those debts. Once you have eliminated consumer debt, you have the opportunity to start saving for investment.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Any strategy you can adopt to fool yourself into setting aside more money for investment is a huge step forward. Combining several strategies compounds the effect. C<\/span><span style=\"font-weight: 400;\">reating an environment of artificial scarcity is a great way to trick yourself into becoming wealthy.<\/span><\/p>\n<p><\/p>\n<p><i><span style=\"font-weight: 400;\">What method do you use to set aside more money?<\/span><\/i><\/p>\n<p><strong>Leave your comments below!<\/strong><\/p>","protected":false},"excerpt":{"rendered":"<p>Even with the best of intentions, it takes more than knowledge to successfully budget and build wealth. Sometimes, we need to actually fool ourselves.<\/p>\n","protected":false},"author":72500,"featured_media":118962,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7119,20],"tags":[],"class_list":["post-86295","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-biggerpockets-daily","category-personal-development"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/86295","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/72500"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=86295"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/86295\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/118962"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=86295"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=86295"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=86295"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}