The Art of Manliness - Rich Mind vs. Poor Mind — A Psychologist’s Guide to Building Wealth

00:00:00.000 Brett McKay here, and welcome to another edition of the Art of Manliness podcast.

00:00:11.380 Many people think becoming wealthy is all about having the right job,

00:00:15.000 inheritance, or just lucky breaks. And those things can certainly give you a leg up.

00:00:19.500 But according to my guest, the biggest key to building wealth is your mindset.

00:00:23.360 As research shows that even high earners can stay broke forever if they're trapped in poor

00:00:27.240 thinking patterns, while others can build lasting wealth on modest incomes by developing the right

00:00:31.560 mental approach. Brad Klontz is a financial psychologist, wealth manager, and professor,

00:00:36.600 and the co-author of Start Thinking Rich, 21 Harsh Truths to Take You from Broke to Financial Freedom.

00:00:43.000 Today on the show, Brad explains the critical difference between being broke and being poor,

00:00:47.600 how learned helplessness keeps people financially stuck, and practical ways to develop an eugenic

00:00:52.000 wealth-building mindset. We also tackle thorny issues like the role of home ownership in building wealth,

00:00:56.500 and how to handle relationships that might be holding back your financial future.

00:01:00.400 After the show's over, check out our show notes at awim.is slash thinkrich.

00:01:16.540 All right, Brad Klontz, welcome back to the show.

00:01:19.860 Excited to be here.

00:01:20.680 So you are a psychologist who specializes in helping people with their money issues. And we

00:01:26.560 had you on the podcast way back in 2019 to talk about this idea of money scripts. And that's

00:01:32.020 episode number 529 for those who want to check that out. You got a new book out called Start

00:01:36.980 Thinking Rich, 21 Harsh Truths to Take You from Broke to Financial Freedom. This is a book you co-authored.

00:01:42.920 And you start off the book in the introduction talking about the difference between being poor

00:01:49.600 and being broke. What's the difference between the two and why is it important?

00:01:54.740 So our chapter titles are very insulting to poor people. And we felt like it was important to make 1.00

00:02:00.980 a distinction here because I see it as two very different things. So broke is when you don't have

00:02:06.180 any money. I've been broke. A lot of us have been broke. Poor is a mindset. And the problem is

00:02:12.900 with a poor mindset, it'll keep you broke forever. And there's a lot of people who,

00:02:17.380 for example, are very high earners, but they're living paycheck to paycheck. It doesn't really

00:02:22.300 matter how much money you're bringing in. You're never really going to get ahead in terms of your

00:02:26.480 net worth and lowering your financial stress if you have that poor mindset. And so a lot of my work

00:02:32.140 has been trying to identify what is the mindset of wealth? What do the mindset that ultra wealthy

00:02:38.520 people, what do they have? And then what is the mindset of middle class and lower? And what can

00:02:42.760 I glean from the research on the ultra wealthy and how they got there to teach as many people

00:02:48.640 as possible? And really it started as a personal mission coming from a low income family myself,

00:02:53.540 trying to figure out why do all these hardworking, intelligent, God-fearing people that I'm around,

00:03:00.360 why are they, why we've been broke for generations?

00:03:03.240 Okay. So being broke is just not having money, but being poor, it's about a mindset. And it sounds

00:03:07.780 like you can be poor, even though you have a lot of cashflow, you can still be poor.

00:03:13.660 Absolutely. I think that many, many Americans are in that position right now.

00:03:17.500 And something I think we need to say from the start is that you and your coauthor aren't saying

00:03:23.000 that there aren't systemic problems that work to keep people poor and that there aren't injustices

00:03:29.860 that may need to be addressed. What this book is about is, okay, even if there's changes you like

00:03:36.320 to see, and even if those changes may come in the future, you've got to operate and figure out

00:03:42.940 how to get ahead in the current system. So like, what do you need to understand to do that?

00:03:49.740 Right. And so looking at it, like the system is, well, first of all, it's obviously unfair. I mean,

00:03:56.780 I hope that's obvious to everybody. Like if you grow up lower income, it's very unfair. You're,

00:04:01.980 you are not getting access to things that people who have higher income live in better neighborhoods,

00:04:06.340 better school districts are getting. It's just absolutely unfair. And certainly I applaud efforts

00:04:10.640 to, you know, improve the system, make it better, whatever. And that's really, really important.

00:04:15.020 See, I'm a clinical psychologist though. And so when people come into my office,

00:04:18.740 I am trying to help them succeed in a very unfair world. We even talk about capitalism in the book.

00:04:24.520 It's like, we're not, you know, economists in that sense. We're not out to change a system or

00:04:29.700 whatever. Is capitalism good? Is it bad? I mean, you can go ahead and decide that the bottom line is

00:04:34.340 it's a game and that's the game we're in. And if we lived actually in a communist country,

00:04:38.600 this book would be a survival guide for how to thrive in a communist country. That's essentially

00:04:42.820 what we'd be writing. So we're pragmatic about it. We're not taking a side here. It's really,

00:04:47.160 really powerful to look at it like it's a game. And so how are you feeling about the game you're

00:04:52.800 playing? So first of all, recognize that it's a game. We talk about multiple ways to approach,

00:04:57.860 you know, making money. You know, there's the entrepreneur game. There's the, you know,

00:05:01.980 corporate game. It's like, just recognize that it's a game. So if you're not happy with the

00:05:06.840 results you're getting, you have to ask yourself, am I playing the right game? Maybe you need to

00:05:10.260 shift up the games. And then also, do I know the rules? So if you want to grow your net worth,

00:05:16.840 since that's what we're talking about here, find out how people are doing it and then go ahead and do

00:05:21.320 what they're doing. And as you mentioned earlier, you're coming at this from the perspective of

00:05:26.540 personal experience. Like you yourself grew up poor. Yeah. Grew up low income. My parents divorced

00:05:31.640 when I was two years old. And if you weren't sort of low income before that happens, you'll be

00:05:36.560 afterwards. And so my mom was a part-time teacher and I grew up not having much money. And this was

00:05:42.940 something that I faced all along my development and it really does suck. And your coauthor, he weaves 0.97

00:05:49.300 his story in as well. His parents were immigrants and they were millionaires by the time they

00:05:54.520 retired. And they weren't working like a Silicon Valley entrepreneur type thing. They were just doing

00:06:01.120 workaday stuff that most people do. Like his dad started washing cars at a car dealership and then

00:06:08.460 worked his way up to being the parts manager. Yeah. Adrian's is a fabulous story. His father

00:06:14.000 immigrated from Mexico had nothing, you know, had to steal food in Mexico to even eat. I mean, 0.99

00:06:19.940 experienced a level of poverty that I'll never experience. And Adrian certainly never experienced.

00:06:24.440 And what I find fascinating about his family story, and he really traces it to his grandma's

00:06:29.340 entrepreneurial nature and hustling and doing everything she could do to get her family in

00:06:33.860 America. I sort of compare his family who his dad first generation and he became a millionaire

00:06:39.060 and he was a radical saver, right? So Adrian talks about the story of his dad and all the family

00:06:44.320 pictures. His dad had a Toyota shirt on that was his work shirt. And in retrospect, he's asking his

00:06:48.900 dad, Hey, you know what, what's going on? Why are you always wearing that shirt? And he's like,

00:06:53.060 well, I didn't buy clothes for five years. That was his mindset. I'm going to save every penny I

00:06:57.240 possibly can. And I sort of compare his family to my family and no risk, no disrespect. I love my family.

00:07:03.940 Some branches of my family, we've been in the United States since the Mayflower and both sets

00:07:09.600 of my grandparents were living in trailer parks. And so they actually never were able to accumulate

00:07:14.060 any money. And it's just such a curious thing to examine. And we've really nailed it down to

00:07:20.860 the mindset they had around money. So let's talk about that mindset.

00:07:24.460 What are the big differences between a poor mindset and a rich mindset?

00:07:29.180 Fairly simple and logical, but I'll talk about the psychology behind it. So essentially,

00:07:33.480 how do you become rich? Well, first of all, it's really important to understand

00:07:36.920 that most wealthy people in the United States are self-made. And this is a very empowering

00:07:42.360 understanding. Like when I was growing up lower income, I thought the only way to get rich was

00:07:46.380 to be born rich or you had to go to private school. I mean, I had all these myths about

00:07:50.540 millionaires in the United States. And it's really, really empowering to know that no, no, no,

00:07:54.500 most of them are self-made, like upwards of 90% in between 80 to 90%. So just understanding that

00:08:00.140 they got it on their own. They didn't inherit it. And then you have to ask yourself, well,

00:08:05.420 what are they doing differently than people who aren't able to climb the socioeconomic ladder?

00:08:10.780 And there's a few psychological elements. The financial elements are living below your means,

00:08:15.960 saving a percentage of every dollar you make and investing it. Like this is probably the mindset

00:08:19.880 that's the most important. And if you have this mindset at an early age, you'll be a millionaire,

00:08:25.020 plain and simple. You can work in fast food your entire life. I've actually done the numbers

00:08:28.160 with a lot of young people over the years. The job actually doesn't matter nearly as much as having

00:08:33.440 this mindset. And so they're looking to buy assets. They're looking to invest. They're not racking up

00:08:39.240 credit card debt. They're not buying stuff to try to impress other people, which is, which is a real

00:08:43.960 constant draw in our culture, especially if you're on Instagram and social media, you're always feeling

00:08:48.800 less than, and they're looking to invest for the longterm. That's the rich mindset, the poor mindset.

00:08:53.320 But conversely, people, you know, they get money, they spend it. They're buying labels instead of

00:08:59.640 stocks. They're trying to impress other people. They're not investing at all. And so those are

00:09:04.460 the, like the behavioral patterns, but we've also found some really deep psychological beliefs that

00:09:10.100 have a profound impact. And, and the one I, that I think is the most important, and this is based on

00:09:15.560 all the research in psychology related to success and education, success in relationships, financial

00:09:19.880 success. And I have an 11 year old and a seven year old, and this is the number one mindset that

00:09:25.560 I'm trying to instill in them. And that is something called an internal locus of control.

00:09:30.980 And so this is really the location in which you attribute control of the outcomes you're getting

00:09:36.020 in life. This is a rich mindset that if you have it, you will become unstoppable. And I would imagine

00:09:43.140 you'd succeed in every area of your life.

00:09:45.180 Okay. So if you don't have an internal locus of control, you basically blame your external

00:09:50.820 circumstances for your situation.

00:09:52.960 That's exactly right. And so when something's going bad in your life, you know, easy examples,

00:09:58.000 like when I walk in the door and my wife's grouchy and she takes it out on me, it's so tempting to 0.96

00:10:02.900 just blame her for the fact that I'm not feeling understood. And does she really realize how hard I'm

00:10:07.460 working? And an internal locus of control would say, hmm, so I wonder if there's anything I can do to

00:10:13.040 improve my relationship with my wife. It's a powerful mindset shift because it's so tempting

00:10:18.880 to blame everybody else for your problems. And the problem with it is there's a lot of people out

00:10:23.400 there you can pin blame on. And a lot of these people are not very nice. And so it's a, you could

00:10:27.940 get stuck in this never ending cycle of every time something bad is happening in your life, financially,

00:10:32.880 you blame the stock market, you blame the, somebody at the bank loaned you money for a house you

00:10:37.320 couldn't afford. Why did they do that to me? And you can find people who are blameworthy, but that

00:10:43.660 isn't going to keep you stuck in a cycle of failure.

00:10:47.560 Yeah. So having an internal or a strong sense of an internal locus of control, it's all about

00:10:52.060 developing your sense of agency that you're able to act on the world and you're not just acted upon.

00:10:56.960 Right. And that's ultimately where this strength comes from. It's not about belittling you or shaming

00:11:01.980 you. It's about actually getting quite excited that what's happening in your life. You have an

00:11:07.000 impact. You helped create it consciously or unconsciously. And if you can recognize that,

00:11:12.680 that's when you can make these shifts that are really, really important in terms of becoming

00:11:16.580 wealthy. So related to this concept of an internal locus of control, it's like the opposite of it. It's

00:11:23.180 something called learned helplessness. How does learned helplessness play into all this?

00:11:28.260 Yeah. So learned helplessness really does help explain why so many people are stuck in a poor

00:11:35.660 mindset and can be there for generations and pass this poor mindset down to their kids. And it really

00:11:40.520 dates back to some horrific studies that psychologists did on dogs. And so what they would

00:11:45.880 do is they would stick a dog in a cage and they would electrify the bottom of the cage and see what

00:11:50.440 would happen. Well, you could probably imagine, what would you do in that situation? The dogs try to

00:11:55.180 escape. They're yelping, they're barking, they're jumping up and down. And eventually they realize

00:11:59.000 escape is impossible. And so they sort of shut down. And this is also an adaptive response and

00:12:05.220 they just lay down and they whimper. Okay. So they have learned that I cannot escape from this and

00:12:10.140 it's entirely accurate. Now the scary part about this, and I'll say this too, if you grow up in poverty,

00:12:15.780 if you grow up in an abusive home, like this is a mindset you will learn. It's like, I can't fight back.

00:12:20.920 I can't escape. I'm going to try to survive. And so I'm going to get real small. I'm going to stay

00:12:24.740 in the corner. Escape is impossible. I have learned that I'm helpless. Now this is the challenge.

00:12:29.800 What they did with those dogs in the next experiment, they put them in a cage that had a

00:12:35.020 barrier in the middle. Half the cage would get electrocuted. The other half, no electrocution.

00:12:40.700 And then what they would notice is that they'd stick a dog in there who hadn't been in the previous

00:12:45.900 trial where they got traumatized and the dog would jump around and then find that, oh, I jumped to the

00:12:50.780 other side there. I'm safe. No more shock. But the dogs that were in that first condition who

00:12:55.880 learned that escape is impossible, they wouldn't even try. So literally all they had to do is hop

00:13:01.260 over this barrier. No more pain. There's escape, you know, and you think about it metaphorically

00:13:06.260 for us. There's abundance. There's the financial goals you want. There's the happiness. It's right

00:13:10.480 there. And as a psychologist working with people who are stuck in this learned helplessness,

00:13:15.020 it's so obvious to me that all they have to do is this it's right there. They don't believe it.

00:13:19.640 They don't believe that it's possible because they've been so beaten down earlier on in life

00:13:23.740 where escape was indeed impossible. They developed this learned helplessness attitude. And so it's

00:13:30.040 so crippling. It's so sad to see, but it makes sense how people end up there. And you'll find that

00:13:34.900 they will tell you all the reasons why they can't get it, why it's impossible for them. And it's based

00:13:40.320 in a real experience. Like these experiences they had were very, very real. What's so fascinating and so

00:13:46.320 should be inspiring is that there's escape right there. They could do it. And if you have that

00:13:51.380 learned helplessness mindset, you'll hear things like, oh, nine out of 10 millionaires are self-made

00:13:55.720 in the United States. And you'll start to discount that. You'll look for evidence to suggest that's

00:14:00.720 not true. And I get this on social media all the time. Self-made, you know, somebody changed your

00:14:04.800 diaper. So they'll essentially redefine what the word self-made means to try to prove themselves right. 0.99

00:14:09.740 And so that's one of those instances of a poor mindset that just keeps people down.

00:14:15.320 Well, so how do you increase the size of your locus of control and overcome learned helplessness?

00:14:20.800 I think this is like the base issue as a clinical psychologist that you're dealing with. It's like,

00:14:24.940 what are the research-backed and then also experience-backed tactics that people can do to start

00:14:30.500 increasing their sense of agency and decreasing the amount of learned helplessness?

00:14:34.240 Well, first of all, you have to be somewhat open-minded. So you have to want something better

00:14:37.900 and you have to believe it's possible to a degree, even if it's like 1%. Do you have 1% agency over

00:14:44.520 your life? I can work with that. We just need to get you to the 1%. I think you probably have like

00:14:49.800 99% because there are certain things that are going to happen that are outside of your control.

00:14:53.100 But I'd love to talk to you about that because maybe we can find some areas in which you do have

00:14:56.480 control. But it's just like opening the crack a little bit. And I think one of the things that helps

00:15:01.260 the most, and it's one of the reasons why in this book, I'm telling a lot about my personal story

00:15:06.240 and Adrian's telling a lot about his and he has such a incredible story. He's most famous on social

00:15:11.480 media for making $1.7 million in one year while living in a van, becoming a multimillionaire in

00:15:16.320 his early thirties. What we're trying to do there is tell stories because what we want you to do

00:15:20.660 is find an example of somebody who came from a similar situation that you are in right now,

00:15:27.020 or that you came from and was able to find that success. Because I think that all you need to do is

00:15:32.580 see somebody who is like you comes from an area you came from that you can relate to. And then all

00:15:37.500 of a sudden the light bulb can switch on for you and be like, Oh, Oh, you mean maybe I can do it.

00:15:42.740 Okay. So it sounds like you got to have a little bit of hope, a little bit of faith

00:15:45.380 in order to overcome these things.

00:15:47.440 I think so. And it's one of the reasons why, you know, um, I'm passionate about

00:15:51.960 trying to spread that hope and healing around.

00:15:54.960 Yeah. And then also just start off small with small things. Like Stephen Covey talks about in that,

00:15:59.360 in his book, the seven habits of highly effective people. He talks about the locus of control and he

00:16:04.100 talks about just doing small things to increase your locus of control. So maybe you can't become

00:16:10.880 a millionaire in a year, but like, what can you do now within the range of possibilities that are in

00:16:16.600 front of you? What are you able to do? And then do those things. And as you do those things,

00:16:20.900 your sense of agency increases. So you can start doing bigger and bigger things.

00:16:25.480 I love it, Brad. And so one of the things we really encourage people to do

00:16:29.500 is save and invest a dollar today. And, you know, ideally I try, I shot for like 30%

00:16:37.120 of my income that I saved and invested. And by the way, I did it immediately when I started making

00:16:42.000 money. So I, I felt like I was rich, you know, I was making like 25,000 a year. I was like, Oh my gosh,

00:16:48.860 I'm making so much money. Well, luckily I had had this mindset by then I was, I was in school forever.

00:16:53.880 So I was in my late twenties and I had read books about it. I'm like, okay, so I'm going to, I got

00:16:57.940 to do this if I want to become wealthy. And so that's immediately what I did. And to tell people

00:17:02.520 like, Oh, you got to save 30% of your income. Like, and Adrian saved 95% of his income that

00:17:07.160 you're living in a van. That's like an impossible dream for most people. You know, if I catch it just

00:17:12.920 before you get your first job, it's very, very easy. But many of us have a life, you know, and we have

00:17:17.440 kids and we have a mortgage and we have car payments, whatever. So do 1%, like commit to

00:17:23.200 investing 1%. And we have chapters in the book too, that sort of challenged this notion that you

00:17:27.860 can't afford to invest. I hope you had a chuckle with some of those. They're very real examples with

00:17:32.520 good math behind them, but you can't afford to invest. Like I just want to sort of push back a

00:17:37.660 little bit on this, but just do 1% because what it takes for you to invest 1% of your income,

00:17:42.960 you got to go open an account. You got to look into, Oh, should it be a Roth IRA? You got to

00:17:47.300 figure out what I'm going to invest in it. By the time you do that groundwork, that that's essentially

00:17:52.080 most of the work it takes to become wealthy. So start with 1%. We're going to take a quick break

00:17:58.260 for your words from our sponsors. And now back to the show. I want to get into more specific tactics,

00:18:06.460 personal finance tactics. So you have a chapter about investing early and investing, even if it's just a

00:18:11.660 dollar or just a percent of your income. And there's some personal finance advice out there.

00:18:16.360 I'm sure you see a lot of it because you're like in that personal finance, TikTok, Instagram world,

00:18:21.060 where there's a whole bunch of talking heads giving out different bits of advice. And there's this idea

00:18:25.480 that, well, you shouldn't invest until you have paid off your debt, but you say, no, you don't need

00:18:30.940 to wait until you pay off your debt to start investing. Yeah. Like as a psychologist, I think it's a

00:18:36.660 terrible idea for several reasons. First of all, I get it on the math side. You know, if you've got like

00:18:41.360 a credit card, that's got 35% interest here, I am saying, well, you need to start investing.

00:18:45.560 And you're like, Whoa, you know, I'm going to be shooting for an eight or 10% return. And this,

00:18:49.660 yeah, I understand. I get it. I get it. I just want you to start investing right now.

00:18:53.380 Now let's say that you can put 10% of your income towards paying off debt, investing, whatever,

00:18:58.260 make it 1% and do the rent, the 9% over there. But, but the problem is for a lot of Americans is you're

00:19:03.880 never going to be out of debt ever. You know, what's going to happen is you're going to pay off

00:19:07.720 your credit card debt and then you're going to pay off your student loan. Now you've got a mortgage for 30 years.

00:19:11.360 Then there's another car payment, then your kids go to school. I mean, the idea that once I pay off

00:19:15.680 my debt, then I'll start investing, you are going to lose the most important thing in the wealth

00:19:20.080 formula. And that is time. Time is the most important thing. You want to have money invested

00:19:25.660 for as long as possible, because that's where that magic of compound interest really starts to

00:19:30.780 snowball. And that's where these small amounts you're putting in each month become worth millions.

00:19:36.700 It's that time factor. So invest as young, as early as you can. And if you're not doing it now,

00:19:42.920 start as soon as you can.

00:19:44.920 Okay. So for someone who's listening to this and they're, they're feeling overwhelmed because they

00:19:47.640 got student loans. I mean, they got a mortgage, they got a car loan and they're like, I just don't,

00:19:52.020 I don't have room for investing. So what would that look like? I know it's going to vary from

00:19:55.540 person to person, but broad strokes, how do you balance paying off debt and doing investing at the

00:19:59.740 same time?

00:20:00.620 Yeah. I say, don't make it too complicated. I love the idea of identifying like three financial

00:20:06.280 goals, getting really excited about them. We did a study on this where we had people visualize those

00:20:11.240 goals, you know, and we saw a 73% increase in savings after just doing that for an hour. So people

00:20:16.640 went from about 10% to over 17% because they were so excited about it. So whatever that is, whatever

00:20:21.800 that goal is for you, maybe it's financial freedom at a certain age, maybe it's a house someday,

00:20:26.620 like get a real exciting, clear vision of it. And then just decide how much you can right now.

00:20:33.700 Like maybe you have a goal, you want to save 10% of your income towards this goal or whatever.

00:20:37.280 You can only do 1%. You just commit to doing it and learning what it takes to do because it's

00:20:43.140 really not all that complicated. And then you, you also recommend when people do start investing,

00:20:48.740 don't complicate your investments. You don't have to do the whole penny stock, Robin hood,

00:20:53.960 you know, AMC stuff, like just get an index fund and pile your money in that. So you don't have

00:20:59.820 to think about it. That's exactly right. And I, as I mentioned, grew up low income and that was a

00:21:05.040 huge mistake I made when I had a hundred thousand dollars in student loan debt. And I saw a buddy

00:21:10.100 of mine make a hundred thousand dollars in one year trading stock. And he was trading stocks on margin.

00:21:14.840 This guy knew nothing about what he was doing. Cause I even asked him, I said, why are you buying

00:21:18.020 that stock? He's like, I have no idea. Click. And I was like, it's really that easy. And,

00:21:22.120 and I got appalled. The reason I make Tik TOK videos is because I got appalled because a few

00:21:27.040 years ago, I'm like, Oh my gosh, day trading's back. I saw it on Tik TOK. And so now I'm a

00:21:33.060 psychologist, but I also own an asset management company. So I actually manage money like close to

00:21:37.620 a billion dollars for ultra wealthy people. So I actually know what wealthy people do because I do

00:21:42.900 it for them. And what they don't do is any of the stuff that you're seeing people sell you on get

00:21:48.780 rich quick ideas, whether it's, you know, I'm going to, I'm going to be a trading crypto.

00:21:52.560 I'm going to be trading stocks, you know, this new NFT to me, I put it in the same bucket as,

00:21:57.180 as lottery and it's a get rich quick scheme. I fell for it coming from a lower income environment.

00:22:04.040 You'll hear stories about people who made it so big on this coin or that coin. It's so seductive.

00:22:10.060 It's a poor mindset. It's a poor mindset. Even, even on the like day trading, like 97% of day

00:22:15.240 traders lose money, 3% make money, but only one of those people make more than minimum wage.

00:22:20.180 Their studies show that the longer you do it, the worse you do. Even the pros on wall street

00:22:25.160 can't consistently beat the market. And so what makes you think you can do it?

00:22:29.320 Some of that's random error. It's just not how people get rich, but it is how people stay poor

00:22:34.200 because they have this idea. I'm going to make it quick. And I get why I get why you have it,

00:22:39.260 man. I had it, you know, it's like being poor sucks. And so you don't know how people become wealthy. 0.99

00:22:44.300 So that's what you're very tempted to do. And so to your point, and I can't give financial advice

00:22:48.580 because I don't know what, what everyone's circumstances, but I'll tell you that a lot

00:22:52.700 of personal financial experts suggest as, as starting out, look at a Roth IRA. So just

00:22:58.100 investigate that. And then when it comes to investing research, something called a target

00:23:03.060 date fund. And what you'll notice is that has a few key factors in there that are really

00:23:07.840 important. It's diversified. So instead of like buying one stock, you own thousands of stocks

00:23:12.280 instead of buying one size of stock, like a small company, a large company, you got all

00:23:17.000 of them across the world. It's very diversified. It adjusts as you get older. So it'll become

00:23:23.200 more conservative as you get older. The point is you open that up and then you forget about

00:23:26.840 it. And then you focus on what wealthy people focus on. Self-made wealthy people don't focus 0.96

00:23:31.820 on trading stocks. They don't do that. They outsource it to these fund companies or a financial

00:23:36.900 advisor, as we're describing right now. And what they do is they focus on making more

00:23:41.680 money so that they can invest more money. And that's how they get there faster.

00:23:46.500 Okay. So it sounds like becoming wealthy is pretty boring.

00:23:49.780 It's pretty boring. And I know it sounds terrible. And I know that many people aren't believing

00:23:53.580 me right now. And I just, a big part of our book too is we don't want you to make the same

00:23:58.200 mistake. Save yourself some time. The poor mindset towards investing too is like, I'm going

00:24:02.280 to take this thousand bucks and I'm going to turn it into 20,000 bucks this year. There are

00:24:06.060 so many sharks out there waiting for you to do that. And they're just going to make money

00:24:09.640 off you. Nobody does that. Who's wealthy? Nobody. And people who do that don't become

00:24:14.800 wealthy.

00:24:16.000 So you got a chapter with another provocative title, get rid of your poor friends. If you 0.94

00:24:21.880 want to get rich. When I read that, I was like, man, this is harsh. What do you mean by

00:24:25.540 that?

00:24:26.140 It is harsh. And I wish I could blame Adrian. I wish he was here. I like to blame the most

00:24:29.960 offensive chapters on him. But if you've read any self-development books, you have probably

00:24:35.600 heard something like, you know, you're the average of your five closest friends. Like this

00:24:39.760 is very common knowledge. And in, in psychology, it makes sense. So we have spent 99% of our time

00:24:47.560 on earth in hunter gatherer tribes of about a hundred to 150 people. And we're very closely

00:24:53.160 connected. You know, we ate what they ate. We wore what they wore. We were, we did what they did.

00:24:59.060 Okay. And so that's the way we're wired. And so if you are hanging around a bunch of people

00:25:05.320 who have a poor mindset, now, remember, we're talking about a poor mindset. We're not talking

00:25:09.400 about being broke because I know a lot of broke people and I spend five minutes with them. And

00:25:14.800 I'm like, Oh, Oh, this kid's going to be a multimillionaire, like slam dunk. Like I could

00:25:18.260 just tell they have a rich mindset. I also know people who make, you know, six figure incomes,

00:25:23.020 multiple six figure incomes. And I'm like, Oh, they're going to be broke forever because

00:25:27.340 they have a poor mindset. They just spend the money as soon as they get it.

00:25:31.100 And so what we're talking about here is if you want to climb the socioeconomic ladder,

00:25:36.740 you're going to have to distance yourself from people who have a poor mindset because they're 0.78

00:25:40.760 going to suck you right into it. They're going to suck you into the spending. They're going to

00:25:43.420 suck you into the competition around, you know, who can have the fanciest watch, who can have the

00:25:49.300 most expensive car. And that mindset does keep you broke. It'll keep you broke forever. And so what 0.96

00:25:54.500 you want to do is find people, first of all, if you don't want to lose all your friends

00:25:57.660 immediately, try to convince them to come with you on this journey. Let's start there.

00:26:02.460 And you'll find a lot of them sort of refusing. What you want to do is be looking for people who

00:26:07.180 have this rich mindset, who are bragging about it. It's so, it's so cool too. I've met some

00:26:11.880 communities. There's this whole thing called the FIRE community, which is stands for financial

00:26:16.360 independence, retire early. And I just went to one of the meetups over here in Colorado,

00:26:19.920 these, these people, and they're crazy. They're having conversations that are very different.

00:26:24.200 They're like bragging about what percentage of their income they're investing. They're

00:26:28.180 having competitions on who's paying the least amount for the best coverage for their auto

00:26:33.400 insurance. If you, if you rolled up with a Tesla or an expensive car at one of these

00:26:37.800 things, they would look at you like you're an idiot. I mean, they would, they would just 1.00

00:26:41.540 like look down on you. Um, because that is a tribe that is focused on getting financial

00:26:47.220 independence. And so they're using all the tools, even to the degree, which I don't connect

00:26:51.340 with. Right. But cause it's so extreme, but they want it so bad. They're willing to do

00:26:55.500 that. So the general idea here is if there's a goal you want to achieve, you should surround

00:27:01.440 yourself with people who are moving in that direction or who are even a step or two ahead

00:27:06.060 of you, because you are going to subconsciously, you're going to drift towards what your closest

00:27:12.720 friends are doing.

00:27:13.400 Yeah. And you're, you talk about your friends with a poor mindset. It can often be like crabs

00:27:18.880 in a bucket, right? You're trying to get, trying to improve yourself, but then like,

00:27:21.900 I don't like that. And they're going to try to bring you back down. Did you experience that

00:27:24.740 when you're trying to, you know, work your way up in the world?

00:27:27.840 I did. I did. And it's, it's easy to look at those crabs as being nefarious. You know,

00:27:33.220 they're not, they love you. This is really what it comes down to. It's, it's that tribal

00:27:38.660 mindset. It's like all of a sudden they see you and you're packing up your stuff and you're

00:27:43.180 about to leave the tribe and they love you and they don't want to lose you. And so they

00:27:47.460 will try to sabotage you. They'll try to keep you back in the tribe because they're, they're

00:27:52.280 afraid you're going to drift away and you're not going to be a part of their life. And

00:27:54.780 so that's the way I look at it. It's not like they're trying to tear you down because they're

00:27:58.320 trying to be mean. They don't want to lose you. And so I would hear things like, oh, it

00:28:03.260 must be nice, you know? And that could be like, must be nice that you have this car, must

00:28:07.700 be nice that you have some retirement savings, must be nice that you, you're able to take

00:28:11.900 a vacation or you're able to work less. And I've spent a lot of time to trying to teach

00:28:16.640 the people closest to me how to make more money. And one of the things I love about collaborating

00:28:20.620 with Adrian is that's his deal. Like he teaches people how to make money online. And, and

00:28:24.720 just, just as an example, too, I got an 11 year old who's making five grand this month

00:28:29.040 by doing one of these side hustles that Adrian talks about in his book. That that's true

00:28:33.200 too. I'll show you the receipts. So I tried, and I will continue to try to support and

00:28:37.940 model, but the bottom line is there's pressure and you feel guilty. And what I've noticed

00:28:42.580 over time, not just in my life, but many other people's lives, there tends to be a bit of

00:28:46.140 a drift because people start to feel bad around each other. And if you think about it as an

00:28:50.460 example, let's say that all of a sudden you've got 50 times the net worth of your best friend.

00:28:54.680 It's like, when is it going to start to be awkward? You know, is it like you pay for their

00:28:58.660 dinner every time you'll say, of course I do. Well, what about your trips? You're going to

00:29:01.820 pay for the first class ticket or like in that movie bridesmaids, you're going to make

00:29:05.880 them go and, you know, and coach while you're up in first class. It creates all these awkward

00:29:09.380 situations and people don't really want to talk about it. They don't know how to deal

00:29:12.180 with it. And then they sort of drift apart. And so I think people know that on a visceral

00:29:17.380 level. And so I see people come into money and then blow it all because they actually

00:29:23.060 don't want to leave their tribe because of all that deep emotional connection and stress

00:29:28.540 that ensues as you start to leave your tribe. And so that's why I think it's really important

00:29:32.780 to make connections in this, you know, tribe that you want to join someday, whatever tribe

00:29:37.940 that is, whatever your, your goal is in life.

00:29:40.680 And you, you also talk about, you don't have to cut off your friends completely or even

00:29:44.240 family members. Like you just have to learn, like it's an issue as you try to make yourself

00:29:47.900 better and try to make a better life for your family or your immediate family for yourself.

00:29:52.020 There's going to be that awkwardness. You just have to learn how to deal with it. And

00:29:54.980 you might have to just learn how to live with that tension and be okay with it without

00:29:58.720 having to resolve it.

00:30:00.240 Yeah. And maybe you don't talk to them about some of the things you're doing.

00:30:02.760 You know, maybe you're just not as open about your income. You know, I, I talk about Adrian

00:30:08.700 a lot cause we're buddies, but like when I call Adrian and I, I tell him about, you know,

00:30:12.400 my net worth went up this or I got this business. He's like, yeah, that's awesome. And, and

00:30:16.180 there are people I wouldn't call because I'd feel guilty and they'd be like, yeah, that's

00:30:19.360 great. You know, you're talking about this business deal that you just signed, you know,

00:30:23.100 that's three years of my income, you know? And so you just have to be careful because

00:30:27.760 that's a terrible feeling. And subconsciously you're actually going to probably try to

00:30:32.060 sabotage yourself subconsciously because you feel terrible about it.

00:30:37.160 Another observation you make and you write about this in the book is that poor people,

00:30:40.960 people with a poor mindset, they don't ask for help. How have you seen this manifest itself

00:30:46.580 in your work as a clinical psychologist?

00:30:48.000 Yeah. So this is something that, that came out in one of the studies I did on the ultra

00:30:52.920 wealthy comparing them to, it was actually upper middle class, the ultra wealthy were much more

00:30:57.520 likely to have professional help like financial advisors and CPAs and attorneys. And I've noticed

00:31:03.680 this as a self-inflicted glass ceiling that a lot of lower income middle-class people have.

00:31:10.440 I call it do-it-yourself-itis because I come from a family of do-it-yourself-itis. And by the way,

00:31:15.840 this is a survival technique when you don't have much money. So I had one of my aunts did everybody's 0.96

00:31:21.460 taxes in the entire family. Cause she had a semester of taxes and getting an associate's 0.96

00:31:27.260 degree and she did it all for us. My dad grew up on a farm, you know, something breaks, you fix it

00:31:31.760 yourself. You can't afford to pay for it. And so the challenge here, cause I get that the challenge is

00:31:37.520 that it can keep you stuck because for example, with your taxes, you know, you could pay some CPA

00:31:44.780 hundreds of dollars. And the first time I did this, by the way, I outsourced my taxes immediately.

00:31:50.240 I had a 10 X return. Like these people found some stuff I could write off and found some ways to do

00:31:54.660 this or that. And all of a sudden I'm like up a thousand dollars. So I paid them a couple hundred

00:31:57.880 and I'm, and then I just, I've seen this pattern repeatedly. So don't be afraid to ask for help

00:32:02.660 because the do-it-yourself-itis, that lower income middle-class mindset is going to sort of shame you

00:32:07.480 for doing it. And so the intervention there is only poor people are afraid to ask for help. That's a

00:32:11.540 poor mindset. Rich people are actually there. They're actually, it's easier for them to humble

00:32:16.200 themselves and saying, look, I don't know. I don't know how to do this investing stuff. That that's sort

00:32:20.200 of a tribe thing too. Like when you're, as you become wealthier, you're much more comfortable

00:32:25.860 outsourcing some of that. And part of it is your social circles. Cause you know, an accountant,

00:32:30.120 you know, you know, attorneys, like when I was growing up, I didn't know any of those people.

00:32:32.800 So for me, there were foreign outsiders and I, we didn't trust them at all. So it was really hard 1.00

00:32:36.980 to make that leap to asking for help. And so just to understand most rich people in the U S are self-made

00:32:42.980 and most of them have no problem asking for help. And so when I discovered that in my own research,

00:32:48.300 I'm like, Oh, I started to look around. Are there areas of my life I could ask for more help?

00:32:53.060 I mean, if that's the rich mindset, I want it.

00:32:56.540 So you have a chapter on building wealth about home ownership. Um, and this is, this is like in

00:33:04.140 the personal finance world. It's a very contentious topic. And you and your coauthor have divergent views

00:33:11.400 on homeownership when it comes to becoming wealthy. So what's your take on the role

00:33:16.120 homeownership can play in developing wealth? Yeah. So Adrian has a bunch of spreadsheets in

00:33:21.920 the appendix. If you want to nerd out on, if you paid rent and then you invested the difference,

00:33:28.760 how you would be better off 20, 25 years from now. And it's, his math is really compelling. It's like,

00:33:34.940 okay, fine. The thing that tripped me up though, is that nine out of 10 millionaires own their own

00:33:40.200 homes. And there's a large percentage of people's net worth is accounted for by home ownership.

00:33:46.460 And so when you look into it a little bit deeper, you realize, first of all, nobody's going to go

00:33:50.600 invest the difference in terms of how most people do it. And it, so it becomes a forced savings for

00:33:56.360 you. And so you're going to pay your mortgage, right? You're going to pay your mortgage before

00:34:00.800 you go blow it at fancy dinners or on a car you can't afford, you're going to pay your mortgage.

00:34:05.460 And so I think that's the association and there are other benefits to owning a home,

00:34:11.040 but I think that's the reason why you see that close correlation between wealth and home ownership.

00:34:15.700 It's because it's a forced savings that you're going to pay every day. It sort of forces you to

00:34:19.440 pay yourself first, which is one of the main concepts in becoming wealthy.

00:34:24.120 I'm curious, what would you say to someone who is listening to this podcast? I know a lot of our

00:34:29.420 audience that might be in their forties, fifties, and they feel like they're behind on their financial

00:34:35.440 goal timeline. Any advice for them? Like, they feel like, ah, it's just too late for me. And

00:34:40.280 maybe that's like a, you know, learned helplessness or a lack of locus of control. What would you say

00:34:46.060 to these guys who are in their forties, fifties, sixties, who just like, ah, it's too late for me?

00:34:50.300 Yeah, I get it. And first of all, it's not too late. I see this a lot too. Like people are like,

00:34:55.660 oh, you know, I'm in my seventies. I don't want to invest money because I'm afraid of losing it.

00:34:59.440 I'm like, dude, you're going to live 30 more years. Like we need to have some money invested.

00:35:03.860 That's going to grow. We'll put some in a more conservative, you know, area, but this isn't

00:35:08.140 an all or nothing thing. Like if you're 40, 50, or even 60, you know, you got 10, 15 more years to

00:35:13.040 make more money. You can dramatically increase the quality of life you're going to have in retirement.

00:35:18.120 Now you might have some social security coming in. You can have an extra thousand or 2000 a month,

00:35:23.300 even starting in your sixties and just think about what that would be like for you.

00:35:27.260 And so people underestimate the power of compound interest, even under shorter time periods, 10,

00:35:33.700 20, 30 years. We, we use 25 years as an example in our book on where people, if they cut down

00:35:39.260 expenditures, how they can have millions more 25 years from now. But when, when I've actually run

00:35:44.660 the numbers with people who are in those age categories, they're sort of blown away by looking 0.99

00:35:49.820 at how much they could have. And I would just encourage listeners, if you don't believe me,

00:35:53.260 just find online something called a compound interest calculator. Just Google it. There's

00:35:58.000 a bunch of them and start putting in the numbers. So what if I invested 10,000 a year? What if I

00:36:04.060 invested 1,000 a year? And you play around and you say like, well, I'll just give you this number

00:36:08.820 because this is the average return in the U S stock market for a hundred plus years. Just throwing

00:36:13.120 there like, what if it was an eight or 10% return a year? How much money would I have?

00:36:16.980 And that type of calculator, I think if you do it, you are going to instantly realize

00:36:23.240 that you could do a lot, even starting out later. Do you have any advice for dads who want to help

00:36:30.960 instill a rich mindset in their kids? Yes. So first of all, talk about money with them.

00:36:38.280 The biggest mistake parents make is they just don't talk about it and they don't talk about it

00:36:41.760 because they're stressed or they feel like they're not, they hadn't done exactly what they wanted to do.

00:36:45.400 Who am I to teach my kids? Your kids are learning. They're learning all the time. That's the first

00:36:49.900 thing. Second is I would encourage them if you're doing allowance or if you're helping them make

00:36:55.380 money, model it for them, but then also make them invest it. You know, one of the things I hear

00:37:01.100 parents complain about, Oh, I give my kid the money and they just blow it. It's like, well,

00:37:04.060 of course they just blow it. That's what everybody does. You got to train them. So my kids know

00:37:09.100 they get a dollar they're investing right off the top. So half of it isn't even theirs. Half of it

00:37:14.800 is their financial freedom, their future. And my kids are so into it. They asked me to show them

00:37:19.820 their balances every day. They're investing their every dollar they get. They want to invest it. I

00:37:24.040 mean, they're, they're fired up about it. And so funny, my 11 year old, my wife is like, well,

00:37:27.460 why don't you spend some of that, Ethan? And he's like, why you guys, I don't need anything. You guys

00:37:31.560 give me food. You give me clothes. He goes, I'm going to retire when I'm 40. That's my 11 year old. He's

00:37:35.600 fired up about it. So you have to model it for them and put strings on it. So whatever values you

00:37:40.920 want to teach, if you want to teach them that, Oh, it's important to be charitable. You know,

00:37:44.360 a 30 year allowance goes to spending. A third goes to investing. A third goes to charity and help them

00:37:49.080 sharing your values, help them decide what charity to contribute to, and maybe even go down and hand

00:37:54.880 the check over in person. So think about, you know, money is a huge reinforcer. It's a huge part of

00:38:00.160 their lives. And it always will be, what values are you wanting to pass down to them? And then

00:38:06.180 figure out how can I structure that to show it? Yeah. Starting a Roth IRA account. I did that for

00:38:12.140 my kids and it's amazing, like how fired up they get about it. Cause you try to explain to them

00:38:16.560 compound interest in the abstract and it's, they, you know, they might not get it cause they don't

00:38:21.300 like, wow, it doesn't make any sense. But then when they get that Vanguard statement every month,

00:38:25.940 they're like, Oh, wow, this is crazy. Like how much money I've made in the stock market for the

00:38:30.740 past, you know, three years. Absolutely. And it's the pictures, it's the emotion talking about why

00:38:36.860 this matters. You can have a profound impact on your kids and they're hungry. They want to be taught

00:38:41.460 by you. So make sure you do it around money. Well, Brad, this has been a great conversation.

00:38:45.920 Where can people go to learn more about the book and your work? Yeah. So the book is called

00:38:50.280 start thinking rich. And so go to start thinking rich.com slash art of manliness. And so for any

00:38:56.700 listeners of yours who go there, we'll have some special bonuses for them, but they'll, you'll see

00:39:00.460 the book and some other tools we have to help people really start thinking rich. Fantastic. Well,

00:39:06.160 Brad Klontz, thanks for your time. It's been a pleasure. Thanks for having me.

00:39:09.880 My guest name is Brad Klontz. He's the coauthor of the book, start thinking rich. It's available on

00:39:13.800 amazon.com and bookstores everywhere. You can find more information about his work at his website,

00:39:17.740 bradklontz.com. Also check out our show notes at aom.is slash think rich. We find links to

00:39:23.340 resources. We delve deeper into this topic. Well, that wraps up another edition of the AOM

00:39:35.080 podcast. Make sure to check out our website at artofmanliness.com where you find our podcast

00:39:38.560 archives, as well as thousands of articles that we've written over the years about pretty much

00:39:41.920 anything you think of. And if you haven't done so already, I'd appreciate it if you take one minute

00:39:45.480 to use reading up a podcast or Spotify. It helps out a lot. And if you've done that already,

00:39:48.600 thank you. Please consider sharing the show with a friend or family member if you think

00:39:51.800 we had something out of it. As always, thank you for the continued support. Until next time,

00:39:55.420 it's Brett McKay. Remind you how to listen to anyone podcast would put what you've heard into action.

The Art of Manliness - November 25, 2024

Rich Mind vs. Poor Mind — A Psychologist’s Guide to Building Wealth

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