Rich Versus Poor: Differences Between How People Think and the “Wealth Mindset”

Katie McBeth  | 

Many self-help leaders like to advise people to think and act rich in order to actually become rich, but are the lifestyles of the rich something that can be hacked? If you think and act rich, will it actually lead to riches?

There is some truth behind the idea that the rich and poor are different in one way: mindset. How do the rich think and act, and how is it different from low-income individuals? How do the rich budget and spend their money, and how is it different from the poor? How does luck and fairness affect the rich and poor, and what other aspects are at play?

The mindset of the wealthy is so different from the mindset of the poor for a very simple reason: the rich’s relationship with money is very different. They have more of it, and so they are less likely to worry about it. Money-related stresses are less likely to influence the financial decisions of the rich, and so they are more likely to spend precariously, randomly, or unwisely. However, some of their spending decisions are also based on the knowledge and reassurance of financial growth over time.

Further boiling down the mindset of the wealthy shows that there are some key difference between the rich and poor in how they think about money — and thus how they think about their life. Here are some of those key difference in mindset:

Budgeting and Spending: Rich vs Poor

Budgeting and limiting your spending is one of the easiest life choices you can make that may help out your financial situation. Besides investing, budgeting your money can help you save up significant amounts of money over an extended period of time. The trouble is, budgeting requires discipline, and depending on the person, it can be a difficult to build a lasting budget that works within your means.

It’s also important to note that living on a limited income often makes budgeting decisions extremely difficult. As Business Insider noted in 2017, although budgeting experts often suggest that people only spend 30% of their income on housing, low-income individuals often spend significantly more on housing (40%) than their rich counterparts (29%).

Much of this could be due to limited housing options, lack of access to public housing assistance programs, and a more limited income. Additionally, many living in the lowest-income bracket rent houses, which can cost more year-over-year than traditional mortgage payments, but they also may not have the high credit score or savings necessary to secure a mortgage and put down a downpayment on a house. With less money coming in, there is simply a larger portion of their paycheck that is saved just for housing costs. On the reverse, high-income families are more likely to spend money on pensions (IRA or retirement savings) and insurance costs (not including health insurance). With a larger cash flow, they can save more money for emergencies and retirement.

However, money only tells a portion of the story. There is also a difference in how the rich and poor approach budgeting and spending opportunities. Two key differences are:

  • The rich lack fear in spending, whereas low-income people often fear losing out on money. One of the biggest defining characteristics of the rich is their lack of fear. Because of their lack of stress around money, they also lack the fear associated with losing money or being late on bills. They are less likely to make decisions based on fear, and more likely to take big risks. Oftentimes, that can pay off for them — they’re able to make risky financial decisions (such as becoming an angel investor) and can reap the payoff when it works. On the other hand, the poor are often fearful of losing money — and for good reason. They are more risk-averse, less likely to spend their money unwisely unless they almost guaranteed it will reap greater rewards in the long run.
  • The rich can manage their money, whereas the poor either don’t know how to, or avoid the idea altogether. Unfortunately, the ability to learn about money management often requires money in the first place. In our society, education costs time, and time can cost money. The rich can have all the time in the world to really research their options, or even hire a financial advisor to give them professional advice. However, the poor rarely have the luxury of learning or gaining access to information on how to avoid financial missteps or how to invest. They may even avoid the topic altogether, saying they will start saving up once they’ve caught up with all their current bills. Getting caught up, however, is nearly impossible, and the impoverished will continue to flounder unless they do their best to start saving as early as possible.

Budgeting With a Rich Mindset

As is evident in the statistics provided by Business Insider, those that make high-incomes often are able to save more money for emergencies. However, they may also have more access to those savings opportunities.

Either way, savings — whether through retirement, insurance, investments, or simply an emergency fund — are a top priority for the rich. They are less likely to spend their money frivolously or on large items, despite having more overall money. They may still spend significant amounts of money on vacations, wine, or other extravagences, but the highest percentage of their income goes to savings.

Additionally, due to increased educational access and the ability to hire professional help, the rich may also be more likely to budget their income in order to track their spending and savings. Although the rich lifestyle is often visualized as being overly opulent, that’s not always the case. Making a lot of money can certainly help people rise out of poverty, but it’s the saving and frugal spending that will help people sustain a wealthy lifestyle.

Budgeting With a Poor Mindset

Unfortunately for those living with a low-income, budgeting and saving money is either not an option or is not a top priority. Instead, they may invest more money into meeting their daily needs, such as housing expenses, food, and transportation costs. However, saving money month-over-month is still possible to achieve, but it may require a mindset adjustment.

Unlike the rich, who are eager to save any and all money for retirement purposes or emergencies, the poor often see a sudden influx of money as a opportunity to spend while they can. They may get excited at the opportunity to purchase something that they’ve been putting off, or may inflate their spending to match their recently-inflated income.

However, this is not a sustainable model for long-term financial stability or growth, and the mindset should be adjusted to include more opportunities for saving than spending. Instead of seeing an increase in income as a chance to buy more, see it as a chance to save more for your future. Budgets, also, should be adjusted as your needs and income change, and although occasional cheat days are reasonable, you should be sure to try to avoid them as best as you can.

Again, savings and frugal spending are more likely to help you sustain a wealthy lifestyle, and even the most financially blessed individuals can struggle with poor mindsets; just look at all the celebrities that have squandered their wealth on expensive items, opulent parties, and unpaid debts.

Risk Tolerance: Rich vs Poor

Risk tolerance is a financial term referring to the degree of variability that a financial investor or individual is willing to withstand, often in relation to stocks, bonds, and growing investments. As explained in our glossary: “A higher risk tolerance means being able to invest large amounts of funds with a high chance that it might not pay out, but if it does pay out, it will be a significant profit. A low risk tolerance means investing money is safer options, but often with smaller returns.”

Fear, confidence, regret, and hope are all influential factors that may determine a person’s tolerance to risky financial behaviors. As mentioned earlier, low-income individuals are more likely to fear large financial risks — they have less money to be risky with, and so they’re more fearful of situations that may put their money at risk. On the other hand, the rich often have more money to risk, and are more hopeful of a potentially larger reward.

However, oftentimes the most rewarding outcomes come from risky situations, and although it’s understandable to be safe with your money, there are also times when risks can pay off. The topic of risk tolerance is often in relation to typical investments, but some investments are not just tied to the stock market — they can also be investments in your education, job growth, property, or other assets. Adjusting your mindset can often prepare you for when those risky investment opportunities arise.

Approaching Risk With a Rich Mindset

Not every rich person is going to have a high risk tolerance, but the rich mindset does indicate that high risks often have the greatest rewards — even if those rewards are not very apparent when you first decide to invest. Not everything is going to have a clear path to riches or success, and sometimes a little bit of confidence and faith is needed in order to reap the greatest rewards.

Again, this mindset goes beyond investments in the stock market and into other types of investments like education, job growth, and personal assets. Sometimes taking a leap of faith and applying to a new job in a new town or a new field can seem risky, but the rewards may far outweigh the risks associated with that change.

Additionally, investing in your education can seem like an extremely risky investment when you first start — college is unfortunately expensive, and student debt can be a major setback for many young Americans — but the rewards associated with earning a college degree far outweigh the potential for debt. Without a college education, some doors may never be opened for you. Although it can be scary to take certain risks, often times the rewards will be greater when you do. Just make sure you do your research before you take the plunge, but don’t let fear get in the way of you finding financial success.

Approaching Risk With a Poor Mindset

It is common for people living on a low-income to have a low risk tolerance. As stated above, they have less money to be risky with and often base their decisions on fear and lack of confidence in either themselves, the market, or both.

Unfortunately, this can cause some people to miss out on many rewarding opportunities. For example, you may have an opportunity for a new job, but low risk tolerance makes it hard for you to quit the job you’re at now out of fear that you’ll be setting yourself up for failure. However, quitting your job could be the ticket you need to getting more opportunities for job growth, income growth, investment opportunities, or better benefits from your employer.

Instead of letting your fear get in the way of your decisions, just be diligent about researching your options and educating yourself. Look into the best ways to invest in your future, change your career trajectory, or negotiate your salary. Even if the market looks bad and you have extra reason to be fearful, researching your options can help dissuade your fears and prepare you to take that leap of faith.

Investing: Rich vs Poor

Budgeting, spending, and risk tolerance all relate to how people invest their money. For some, investing may not be a viable option that fits within their budget, or they may lack access to investment opportunities. For other, investing might be a top priority, simply because they know the benefits of compounding interest will help them sustain a wealthy lifestyle when they retire.

Unfortunately, investing can often be a privilege, but it’s one that everyone should try to take advantage of — even if you can only do it a few dollars at a time. When it comes to the mindset of investing, the rich and poor often differ in one very distinct way: The rich utilize and understand the benefits of investing — the poor often don’t have the knowledge or the privilege to invest properly.

Playing the stock market game is something almost strictly reserved for the wealthy, but this isn’t the only way in which people can utilize investments. Retirement income through IRAs often work off compound interest and other investments that are tied to income.

However, many people living below the poverty line may not have access to employee-sponsored IRAs (known as 401Ks), and they may not have any knowledge on how to start up an IRA in the first place. Additionally, they may be scraping by with utilizing every penny they get, which means investing is simply out of the question. The rich, on the other hand, have all the luxury to do just that, and they see every opportunity to invest as one to grow their wealth — both from investment accounts and from tangible objects like property and items that grow in wealth over time (antiques, wine, etc).

For the poor, it’s nearly impossible to get a leg up when you’re constant owing other people money due to debt — sometimes investing is simply not something that poor individuals have the ability to do. However, if you can manage to start saving soon, then turning that savings into investments can help you start to gain wealth, and you may find yourself able to eventually afford property or other luxuries that increase in wealth over time.

Luckily, there are ways to invest even when you’re poor, but it may require a mindset adjustment that is similar to the adjustments needed for risk tolerance and budgeting.

Investing With a Rich Mindset

Those with a rich mindset understand the power of compounding interest in investing: as you make money, you can put money into investment accounts (or an IRA) and your bank or financial firm will use that to purchase stocks for you. Over time, your investments make dividends, which are then invested back into the account. The portfolio continues to grow until you retire, or until you decide to pull out money from that account.

It can be hard to invest money when you’re living paycheck to paycheck, but if you have the option to invest in an employee-sponsored IRA or 401k, you should never pass up that opportunity. Sometime down the road, you will no longer be able to work, and you’ll need money to be able to support yourself. If you don’t have access to a 401k, then it could be worthwhile to either find a new job that has those benefits or seek out a personal IRA option that works for you. Every penny saved and invested now will have the chance to grow gradually over time.

Having a rich mindset knows that savings and interest on investments can help create long term financial success and increase your wealth overall.

Investing With a Poor Mindset

Those with a poor mindset either don’t know how to invest or think that it’s a luxury saved for the rich. Of course, this couldn’t be farther from the truth. Although it can be hard to invest when you’re making very little money, it’s still possible. If you have the ability to save any money — even anything as small as $10 — that money could grow if it was put into an investment account.

Many people understand the importance of saving money, and you may even have a savings account that is accumulating money for emergency purposes. That is important, but you can also grow money even more if it’s invested into an account that can accumulate compounding interest.

Saving and budgeting are helpful ways to control and track your finances, but if you’re not investing what you’ve saved then you’ll be missing out on the potential to truly grow your wealth.

Luck and Fairness: Rich vs Poor

What does luck and fairness have to do with financial health? When it comes to growing wealth, the rich and poor often have very different mindsets surrounding these two concepts. Either you’re born with luck and the world seems very fair in your eyes, or you’re born without luck and you’re not quite sure why the world is so stacked against you.

This belief is also closely tied to the mythos of the “American Dream”: either you work hard and you deserve what is given to you, or you’re entitled and get nothing. Of course, this fails to recognize some of the biggest determining factors of overall wealth inequality: mainly privilege and access. Even self-made millionaires or billionaires are often oblivious to or refuse to acknowledge their own personal privileges of being male and white.

Outside of this, generational circumstances can also play an important role, as wealth and poverty is often cyclical — whether happening repeatedly over generations or simply repeatedly over a lifetime, it can be extremely hard to break the cycle of poverty and move into a higher-earning income bracket. Wealthy people, on the other hand, are almost always born into a wealthy environment, having the help of parents to get them through school, help them open businesses or pursue dreams, and stay out of trouble. Even Jeff Bezos, the creator of Amazon, was able to get his trillion-dollar idea off the ground due to a $250,000 loan from his parents.

So how can a mindset adjustment on luck and fairness help you turn your financial situation around? Mostly, understanding how wealth grows can help some people better understand the importance of investing, saving, and paying off debts.

Richness is often gained over time and over multiple generations, whereas many people with a poor mindset hope for a miracle “get rich quick” solution to solve their financial problems. Whether an individual with a rich mindset was raised into money through an inheritance, or they earned it through working over a lifetime, the fact remains the same: time and financial growth are closely intertwined. Getting rich through the lottery or some other windfall miracle is simply not going to happen to the majority of people, so don’t count on it.

However, it’s still important to recognize how you got to today and how your past shapes your future. Sometimes the hardest working people in the world are never able to break out of their income barrier, and it’s not always a mindset that holds them back. There are greater inequalities at play that can influence the growing disparity between the rich and poor.

Opportunity Cost: Rich vs Poor

Opportunity cost is defined in microeconomics as the theory that choosing one opportunity over another forces you to lose on the opportunity that you missed. As Wikipedia explains: “A choice needs to be made between several mutually exclusive alternatives; assuming the best choice is made, [opportunity cost] is the ‘cost’ incurred by not enjoying the benefit that would have been had by taking the second best available choice.”

This theory is similar to that of risk-tolerance, as some people may miss out on higher costing opportunities simply because they have a low tolerance for risk. However, this is also related to spending habits, as those with a rich mindset might see an opportunity to purchase something now as a missed opportunity to invest that money in the future. Anything from a cup of coffee to a new car could be seen as a missed investment opportunity that ends up costing far more in opportunity cost.

Opportunity Cost in the Rich Mindset

Here is an example of how a rich mindset might look at opportunity cost:

At a clothing store, there is a nice blazer that costs $50. The person in question may look at this and think “I could use this blazer now, and would pay $50 for it.” However, they also understand that investing that $50 into something else — say an IRA with an 8% interest rate — could grow exponentially over time due to compounding interest. So although that $50 is only worth $50 now, in 30 years, it may be worth anywhere from $503 to $600.

A person with a rich mindset might then look at a blazer for $50 and think “I could use this blazer now, but will it be worth $503 in 30 years?”

They may still decide to buy the blazer — it could be that they need it for a job interview that they have next week, and that opportunity far outweighs the potential loss of $500 in the future. However, they may also be more picky with their purchases due to their penchant to weigh investment value over time.

It may seem silly to look at simple purchases with that much foresight, but that’s how the mindset of the rich tends to work. They understand the growth of money over time, and are willing to forgo immediate enjoyments in order to gain more valuable opportunities. Of course, they also have the educational background to make those decisions, which can help them be more financially responsible with their money.

Opportunity Cost in the Poor Mindset

Again, education is key here. Those with a poor mindset might not have the educational background to understand the finer points of microeconomics. However, they also may be more interested in immediate gratification, and may not have the patience for investing and seeing their money increase over time.

However, by understanding how opportunity cost works and why it’s important to weigh all purchasing decisions in this way, one can easily turn their poor mindset into a more rich mindset with discipline and education.

The mindset of the rich is often very different from the poor simply because they have the ability to not stress about money, and many of them may not even understand exactly what money stress is. Additionally, many of them have access to additional resources to help them better understand finances — either their own or that of the stock market and other investment opportunities.

Unless a rich person loses everything — either due to declining health, poor financial decisions, or bad luck — chances are they will never understand the mindset of low-income families. The poor, however, can emulate — in some ways — the mindsets and habits of the rich in order to improve their financial situation.


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Katie McBeth is a researcher and writer out of Boise, ID, with experience in marketing for small businesses and management. Her favorite subject of study is millennials, and she has been featured on Fortune Magazine and the Quiet Revolution. She researches SEO strategies during the day, and freelances at night. You can follow her writing adventures on Instagram or Twitter: @ktmcbeth

This post was updated November 20, 2018. It was originally published November 21, 2018.