Think Like An Investor, Not like A Consumer
Think Like An Investor, Not like A Consumer
When we work with new investors, one of our big challenges is to get them to think like investors, not consumers. If they have not yet built any investment capital, it’s usually because they’ve spent virtually all their income on consumer items and very little on investment items. In the old days, we would call that being broke. Nowadays, with the overabundance of consumer credit, being broke is just a marker on a long slippery slope. You can zoom by broke these days and still have plenty of money to spend.
Let’s take a look at an ordinary family. They’ve been married for 20 years and make around $50,000 a year. They’ve got 2 kids, a barking dog, and a nice house. They’re filling out a financial statement at a bank, perhaps because they need to borrow money for a college loan for their youngest son. They start out listing their assets, which might include a home, a car, a life insurance policy, furniture, and electronic items such as television, appliances, and computers. Wanting to put the best possible light on things, they would list the home at the price the one down the street is listed at and would put a value on the furniture and appliances that is close to what they paid for them. This side of the financial statement looks pretty good. Perhaps they have $200,000 or more in assets.
Then comes the depressing side — the liabilities. They refinanced the home a couple of times, so there isn’t much equity there, and they haven’t even figured out what it would cost to sell the home if they had to. By the time they fixed up the home for sale and paid the real estate broker, there may be no equity at all. They owe more on the car than it’s worth, and they have credit card debt that totals $50,000. They come to the reluctant conclusion that they have no net worth.
And how could that be? They’re good people. They worked hard. In the past 20 years, they have earned over $1 million but have nothing to show for it. What went wrong? What went wrong was that they spent the last 20 years thinking and acting like consumers and not investors.
Investors think, “How I can make money from the money that I spend?” Consumers think, “Can I afford the payment to pay for what I want?” (unfortunately, many of them don’t even give that much thought!)
Investors think, “How can I make money from what I have just learned?”. Consumers think, “What’s that going to cost me?”.
Here’s an example: Both the investor and consumer read in the local newspaper that the city council is discussing building a bridge from the island that will hook up to the freeway. The investor thinks, “How can I make money from this? What’s going to happen to property values on each side of the bridge if this happens?”. The consumer thinks, “There goes our taxes again. How much is this going to cost us?” or worse yet, “Who’s getting money under the table on this one?”
Here’s another story: If a ‘consumer’ is digging a ditch and he sees a man driving by in a top-of-the-range BMW, he’s likely to say, “I wonder who he’s stealing from? If an ‘investor’ is digging a ditch and he sees a man driving by in a top-of-the-range Mercedes, he says, “I ‘m going to get one of those myself one day.”
The challenge here is to get ourselves to stop thinking like a consumer. This will involve 3 Field Trips:
Field Trip 1
Drive down to your local department store and spend an hour looking carefully at all the merchandise piled up in there. Keep repeating to yourself, “My goodness, look at all the stuff in here that I don’t need, “If at the end of the hour you are able to walk out of the store without buying something and still thinking, “There’s nothing in there that I need”, you can then move to Field Trip 2.
Field Trip 2
Spend an hour at a Home Depot or Home Improvement Store. Imagine that you are given a $500 gift certificate that expires today. If you can spend an hour in the store and still come out thinking, “There is nothing in there that I need to have,” you can move to Field Trip 3.
Field Trip 3
Make sure not to try this until you've graduated from the first two field trips because it could be disastrous. Think of your dream car, perhaps a bright red BMW or a gleaming white top-of-the-range Lexus. Go take it for a long test drive. If you can walk away from the showroom thinking, “Wow, I would love to have that car, but not now. I am an investor, I have a Millionaire mindset, and I only spend money on things that will show me a return. I will own this car one day, but not until I can pay for it from my investment earnings rather than from the sweat of my job.” Now, my friend, you are an investor!
From this moment on, you are to think of yourself only as an investor.
Every penny you think of spending, you say to yourself, “Will this show me a return on my investment?” If it won’t, figure out a way to avoid spending that penny unless it will show you a return.
Another thing that differentiates between investor and consumer: Consumer thinks, and wonders what it cost. Investors don’t worry about this. They are only concerned with the return on investment. A consumer might say, “I‘m not going to pay $300,000 for that rental house. I remember when I could have bought it for only $80,000. An investor doesn’t think like that. To an investor, it doesn’t matter what it costs. Again, what matters is: What will the return on investment be?
It doesn’t matter to an investor if IBM stock is selling for $100 or $200. An investor’s only thought is, “What is my return on investment going to be?” How quickly can I get back from this investment and how many times over will I get it back?
That’s all for now my friends. See you all in my next article.
Think of how quickly you can get back your investment and how many times over your investment.
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