In the last week I had a back to the past moment – actually three. We had three full days without power, unheard of in the last ten years or so.
In classic case of turning lemons into lemonades a friend sent me this book, “The psychology of money” by Morgan Housel.
A long time ago I wondered, why don’t the rich tell the rest of us how to make money, some easy to use formula and we get on with it? Either they are hiding something or this making money thing is not for all of us. I wasn’t entirely wrong on both counts.
"Apart from thieves and flukers – lottery winners, the process of making money requires a certain kind of orientation of the mind....It is less productive for someone who has made money through honest effort, to try and bring others up to speed on the process. Besides they know that a lot of what they know, can not be taught but one has to experience it before they can appreciate let alone understand it.
It is not for everybody because not everybody can achieve the mental reorientation that many of these money makers have achieved in order to make money. Because, have no doubt, money making is not necessarily an inherent skill, it is a learnt skill that takes years of practice.
The book is worth its weight in gold with lessons flowing off every page. But the two that struck home for me were one, that making money and keeping money are different skills. Learning to make the money is easier than learning to keep it. Which explains why we have had so many people coming, flashing their money around and disappearing as quickly as they came.
At this point the author made his own distinction between being rich and being wealthy. That richness shows and often entails a high spending lifestyle demonstrated by the clothes, cars, houses and instagram documented holidays. Wealth on the other hand is quiet, can even be invisible to the undiscerning eye and is normally demonstrated in bank balances and accumulation of income earning assets.
"To use an analogy being rich is like coins which make a lot of commotion when they drop disproportionate to what they can buy, who has ever heard a sh50,000 note fall?...
The author also made the point that there are thousands of ways of making money but only one way of keeping it – exercising frugality and paranoia. So you have to respect the people who make money and continue to grow it but can also make the mental shift to keep most of what they made. That’s what leads to inter generational wealth.
I hear them already, what’s the point of making money if you can’t enjoy it, they ask shaking their heads. We need to get away from the subsistence mentality that we eat all we make, there is a place for ensuring that the basics are catered for generations to come. Its a hard thing to wrap our minds around for a pre-industrial society like ourselves but the sooner we get with the program the better for us and our progeny.
“It is ingrained in us that to have money to spend money that we don’t get to see the restraint it takes to actually be wealthy,” the author wrote.
The second idea I took away from the book is that a person, community’s or country’s chances of achieving wealth is strongly related to their rate of saving. He makes the point that there are low income earners who become wealthy but not all high income earners can do the same.
And even more interesting is that while it is easier to save towards a goal, we need to save for savings sake. The logic is simple. Saving allows you to accumulate capital for future investment. We wonder how the Asians thrive. We have worked out that they probably have cheaper pools of capital, we haven’t made the connection between their frugal living and this cheaper capital. Now imagine when a whole society saves diligently and pool their resources together, to supporting each others business?
Saving is practice in delayed gratification. This is important in helping in the second part of wealth creation which is keeping more of the money you make. If you can save you can restrain your baser instincts, which would otherwise prompt you into a life of high living and arrivalism....
And as a parting thought, “Saving money is the gap between our ego and your income, and wealth is what you don’t see.”
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