While our more popular posts have detailed analytical explanations on how to increase income… this post is going to take on the qualitative side of the equation. It will be similar to our post on finding your type of intelligence. If applied correctly? Your income should increase *materially*. There are many hurdles that you will face as your income rises. Primarily when you push up on barriers:
For ~85% of the population this is the ~$100K/yr barrier, ~10% stuck at the ~$200-350K/yr level, ~4% at ~$351K-750K/yr level and then… those that break the $1M level.
While our percentages may be off it does splice the USA into distinct groups.
The First Group ($100K): Most get rich scams targeted at the masses tout “$100K” per year. Why? It is “unfathomable” and a dream income for average people. According to income statistics, roughly 85% of households cannot break $100K (our blog does not cater to this group)!
The Second Group (Career Plateau): This group gets capped at the $200-300K range. Either 1) they didn’t start a business on the side or 2) they tried to “play by the rules” to get ahead. At some point you have to start a venture on your own *or* take advantage of your standing within the firm and politely ask for more responsibility. The best way to gain hand is by generating revenue of course. We recommend doing both if possible.
The Third Group (Risk Aversion): At the mid-six figure level practically everyone is comfortable. They are more concerned with keeping their income stable than generating more money. In reality? They can break their plateau.
The Fourth Group (Wealthy): This group is simply eccentric. If someone is making 7 figures, they could be battling sex/drug addictions or they could pretend to be poor. You never know. The one thing they did do? They continued to build a *recurring* revenue stream. Everything is about creating a *recurring* revenue stream. If you sell one $1,000 product but you can get just $10 a month for life (see all software companies/many internet products/any re-bill) then you are building a massive stream of cash flow.
With the high-level section out of the way here’s the overview:
1) Mainstream Ways to See Psychological Differences
2) Personal Psychological Mistakes to Avoid
3) Actionable Ways to Change Your Thoughts
4) What to Do When the Money Flows In
5) Continuing to Improve
MAINSTREAM WAYS TO SEE PSYCHOLOGICAL DIFFERENCES
Money is an emotional topic. Highly so. Knowing this, we can look at our everyday lives and see clear psychological differences amongst those that make a large amount and those that never seem to get anywhere.
In short? Wealthier people are practically “emotionless” when it comes to money.
Game Show Example: While we don’t recommend watching Television (it is the definition of “when you’re not working, someone else is”; you’re watching someone work while you do nothing) you can learn the basics by comparing audiences.
Jeopardy and Who Wants to Be a Millionaire: Just take a glance at the winners here. You’ll find that they do not jump up and down screaming when they win a large sum of money. In fact? They come off as arrogant and emotionless. While you don’t *need* to be arrogant, the emotionless piece is critical. Why are these people emotionless? Simple. They believe they deserved it. They strategically chose questions, strategically answered questions and made gambles when they had to. Now lets move onto “the masses”.
Family Feud, the Price is Right, Wheel of Fortune: There are always “exceptions”. But. You’ll find that the winners here get *hyped up* immediately if they win. They literally jump up and down, clap and have a huge ear to ear smile. Why? The show is much more luck based than skills based. Even if they win a small sum of money $25K (~$17K after tax) they will become emotionally high immediately.
In Short: A game show can quickly tell you how wealthier people act relative to poor people when they receive money. Wealthier people are emotionless as they realize they primarily earned what they received.
The Past or the Future: You can use this to determine if someone has faith in themselves. You won’t need to go anywhere. Simply look at your contact list and ask yourself if your friend lives in the past or in the future.
“Don’t deal with people who live in the past. You don’t look back if your future looks brighter.” – Wall Street Playboys
The Future: If you live in the present and future, the implied message is that you believe in your future worth. You are progressing. People like this are typically very hard to get a hold of. They are constantly doing things and don’t ignore you simply to “play mind games”… They actually are too busy. These are the people you want to emulate. Our readership is primarily full of people who focus on the present and future (we ban people who dwell on about the past).
The Past: An obvious sign a person is going nowhere. Constantly talking about their previous accomplishments (or complaining about their past failures). The only time you do this is if your previous accomplishments will never be trumped. In addition? They will also dwell on how much better it was “before” (this is never the case). Every year the world gets better… So you know that anyone who believes his past was better… simply stopped improving.
In Short: Ignore everyone who lives in the past or talks about the past. Their best days are behind them. While you may lose a large sum of money at some point ($100-200K+) or you may have a serious physical injury, there is nothing you can do about the past. It is dead and doesn’t exist. Similar to people who live in the past, forget about any negative events in your past as well. It is irrelevant compared to today and tomorrow.
Sociological Excuses: Finally, the end-all-be-all of excuses between the winners and losers in life. “You can’t have it all mentality”. Having money and good social skills is practically a curse. You should hide it as much as possible. Why? Less than 1% of people will be happy for you because you break their belief system. If you have money, mediocre people will assume you have “weak social skills”. In addition? If you have solid social skills many will then assume you are broke! Naturally, you know what to do. Use your social skills to appear harmless and use your money to push across the finish line (many of our readers are nodding and laughing as they understand that sentence all too well!).
You Can Have It All: The sub heading says it all. If you’re extremely *efficient* with how you manage your life you can have it all. This is going to mean something different for everyone. But. At the end of the day? You can have anything you want if you understand the dynamics behind managing money and freeing up time.
You Have to Compromise: These people make up the masses. They assume that you have to compromise to get something instead of taking on the harder task of finding a *solution*.
“Pessimist = Complain about the rain. Optimist = hope the sun comes out. Winner = invents the umbrella, goes outside (and makes millions!)“ – Wall Street Playboys
In Short: Instead of taking a compromising attitude, you should take on a solutions attitude. Any problem you are facing is being faced my millions of other people. If you can find the solution, you’ll fix your problem and get rich! If you complain about the problem? Nothing happens. Someone else is going to solve the pain point. This. Again. Is why life continues to get incrementally better every year.
PERSONAL PSYCHOLOGICAL MISTAKES TO AVOID
The vast majority of our readership is likely nodding in agreement to the first section. Lets move onto the uglier section. We have made every single psychological mistake mentioned here at least once. Assuming you have the general framework down you’re going to catch yourself making mistakes and we’re going to try and avoid each one here.
Do It Once: The classic phrase is “measure twice cut once”. It is true. If you are going to do something you should do all of your research up front and set it up appropriately. After that, you don’t have to worry about it and know that the sky is the limit once the infrastructure is in place.
Business: If you plan on starting a company (you should) then you need to do it correctly from the start. One of our readers asked if he should take a short cut “for now” and switch over “later”. This is a massive psychological mistake. If you know that the way you are setting it up is to “test the waters” what you are mentally telling yourself is that you are not taking it seriously. This is only okay if it is a hobby. Otherwise you are better off doing all of the research up front so you can scale up seamlessly. It is mentally taxing to know that your business is not set up to scale efficiently from day one. Not worth the mental barrier. If you plan on succeeding, do every single thing you can to set up the infrastructure once. Otherwise the backward work is going to take an immense amount of time. The idea that you make “small incremental improvements” is a *hobby* belief. This only work for hobbies and wage slaves who attempt to negotiate an increased salary from $40K to $45K.
Hobbies: Now you see the line. If you intend on making real money, you never go in blind swinging from day one. This only works for hobbies (sports, meeting girls, this blog, etc.). When you’re not working on creating a recurring revenue stream (business) or improving your career you should have a much more relaxed view when it comes to making mistakes. If you have to un-learn specific bad habits, just consider it part of the learning process. It’s not a big deal since you’re not in it for the money.
In Short: Separate your tasks between fun (hobbies) and money. If you plan on making a specific project a revenue generating item you should set it up once and only once. By doing anything else “for now” you’re setting a mental ceiling that you cannot exceed X income level. Do not do this.
Thinking in Small Chunks: This is the biggest and most common way to back track. It happens over and over again and is quite similar to the piece above. Stop thinking in incremental steps. This is not how making large amounts of money works. The most common example is believing that you need to get “one dollar from a million people” instead of simply shooting to get $1,000,000 dollars from a single *event*.
Event: We have talked about *events* many times. But. This is critical to understanding when you’re in the middle of an event. Lets say you are selling items online and you realize that when you spend $10K on advertising spend it is leading to $20K in income. For some reason you are scared to spend *more*. This is foolish. Just because your income went from $1K in a month to $10K in a day… does not mean it is suddenly going to die! You somehow hit the right niche and you need to KEEP SPENDING. Spend every single penny you’ve got until it is no longer profitable. For those of you making online income we will go ahead and bet that many of you have made this mistake before! When an event occurs, the money floods in and you should take advantage of it!
Small Chunks: This creates a massive separation between the rich and the poor. When you are targeting the masses (fools) you should sell them on the idea that they will “get rich” by negotiating a *salary increase* ($5K salary raise from their current $50K salary). This is pure poverty mindset but this is exactly how the masses think. They think that the 10% move is “reasonable and obtainable” and you can sell them this “dream” and easily take a $500 commission. No joke. This is how all head hunters work as well! Knowing that the masses think in terms of small incremental gains you know what to do… Do the opposite. Think in one time events. You have to be odd to be number 1.
In Short: Stop thinking in small incremental gains. Small incremental gains are for maintaining your assets and for hobbies. It is not for *increasing* your net worth. If you think small, your gains will also be small.
Not Keeping the Customer: By avoiding customer retention you are hitting singles consistently. While there is value in basic one time sales, it should be a springboard for *recurring* income. It does not matter which business you are in (fitness, finance, content, etc.). The goal is to create a recurring customer through either 1) the business model or 2) psychological loyalty. People are all the same. People sit in the same seats and go to the same stores for a reason. They are interested in being comfortable. By the same token, there is a reason why you receive free goodies when buying larger gift cards at coffee shops and other similar venues. They want to create a *habit* (see recurring customer) and are willing to invest a few dollars through a discount to make that happen.
Recurring: Many people will make this mistake. They will create a business that sells a product at a $100 average selling price and they won’t keep the customer. They simply sell them an item and they run away. Huge mistake. By doing this you are increasing your costs and decreasing your revenue. Think about it like this. The cost of the first sale (acquiring the customer) is always the same.
Revenue – cost of acquiring customer = profit
Therefore… If you do not find a way to set up recurring income from the customer, your revenue number is flat while your cost is also flat. If you find a way to add value that creates a re-bill (even $5) your revenue line is up while your cost is flat. Enormous difference over the long-run.
One Time: This goes back to the small chunks idea. Trying to get one dollar from a bunch of people. It is similar to the homeless person sitting on the corner begging for just a “quarter” from every passer by. It simply doesn’t work! Never has and never will. Your only shot at the one time sale being a great idea is a one time large event as outlined in section above. If you sell a $10M house? Sure. Getting $10 from 10 customers isn’t going anywhere.
In Short: At all times, think of a way to keep the customer coming back. If you put in all of the work to obtain the customer, the last thing you want to do is give them no reason to return! It simply won’t make you rich. You did all of the leg work up front, so you may as well find a way to retain them.
ACTIONABLE WAYS TO CHANGE YOUR THOUGHTS
If you’ve made mistakes in the section above, don’t worry about it (it’s part of your irrelevant past). We’ll flip to a list to condense all of the ways to “un-learn” psychological traps and expand upon improving your beliefs.
1) You Deserve Money: Step one is realizing money doesn’t care what you look like. It does not care if you are poor or if you were born rich. In fact, many people get rich by being utter failures. There are hundreds of CEOs who run their stock prices dead into the ground (50% declines) yet they still make eight figures. If these people can get rich, don’t feel bad for one split second that you’re making $X.
2) Stop Thinking In Incremental Gains: Again and again, this is how poor people think. “If I can increase my income from $200K to $220K I’ll be thrilled! It just doesn’t work that way. This is a great way to think if it is a hobby (weight lifting is the best example). Why? It is literally impossible to see a 100% gain in your bench press in two days. But look at real estate, in a bull market, you can put down 20%, and every 10% increase you are 50% richer.
3) There is No Limit: People have made billions of dollars. Remember that there is literally no limit to how much money you can generate. If you can make $10,000 a day there is no reason why you cannot make $1,000,000 a day. It is simply an issue of scale and demand. (Reminder the biggest market is the masses)
4) Generate and Own Only: These are the only two ways to make real money. Generate money or become an owner of an entity that generates money. Everything else is a time for money exchange and will never work. Anyone who encourages increasing your time for money exchange (negotiating salary increases) is teaching you to be poor.
5) Become Emotionless to Money: If you think about money and then envision yourself jumping up and down or telling people off… you’ve already lost. When you’re ready to make money you should be emotionally flat. If a $10K wire hits your bank or a $100K wire, you shouldn’t change one bit (just numbers on a screen). Most people think about money and become “hyped up” in their heads. They imagine all the people they like and dislike (partying and yelling at people they dislike). Pure poverty belief. These people never make anything. If they do? They typically lose it all very quickly. Become emotionless with regards to money.
6) Search for Hyped Events: Any major event for the masses will be full of emotion. Sports, parties, holidays etc. This is where *companies* make a killing (hence seasonality in their P&L) while the masses tend to lose money in these periods of time. Any time there is an event that is widely hyped up you should think of ways to monetize it. The money is circulating aggressively.
7) Honesty Creates Recurring Revenue: Broke people think honesty doesn’t work and you have to “screw people” to make money. This is false. If people are going to buy alcohol and caffeine pills there is nothing wrong with selling these unhealthy items to them. There is something wrong if the products aren’t what they asked for though. Huge difference. The market is going to charge what the market will charge. You cannot change reality. So simply sell what you can as long as you are giving the customer the product they want. If you give them what they want (regardless of your interest in the product) they will come back for more. Perfect set up for recurring revenue.
8) Your Current Income Is Irrelevant: Many wealthy people go from millions per year. To zero. To millions. To bankrupt. To millions again. Why? They continue to focus on generating and owning. If your income is $100K a year today, it is 100% unrelated to your income next year.
9) Never Under Sell: While you should always deliver more value than you charge… do not sell yourself short (literally). If you spent 20 hours working for someone, you are being paid *less* than you are worth by definition! Re-read number 8 to drive this point home.
10) What You Like is Irrelevant: This is paramount to changing your psychology. If you wouldn’t buy the product, it does not matter! This is why a hobby is for fun and business is for money. Follow emotions and you’ll find a way to create recurring income.
In Short: If you’re incredibly good at controlling your thoughts, you will never slip (extremely difficult to master, to this day, cannot do this 24/7/365). If you find yourself slipping into the wrong psychological thought process… Pause and take a break.
WHAT TO DO WHEN THE MONEY FLOWS IN
We’re getting more questions like this. Many people find that when the money comes in, their emotions get out of whack and they suddenly have more “friends”. This creates a lot of problems. The last thing you want to do is make promises to new friends when you’re extremely happy. This is similar to never speaking your mind when you’re extremely unhappy.
Lump Sums: Don’t make the same mistake we’ve made (in the past). When you make your first large sum of money, do not blow 20%+ of it on useless items. Most people end up buying material items and go on a big party/fun binge (vacations, alcohol, drugs etc.). While spending some of it is fine, do not let your dopamine levels get ahead of you. A decent guideline below assuming you are *not financially independent*:
$5,000-$20,000: Simply keep it. This is enough to help make a dent in your financial future but it is not enough for you to waste if you’re not independent.
$20,001-100,000: Spend ~5%. At this point you’ve likely made career/business progress and are in a situation where the lump sum is going to occur again (made a commission selling a home or otherwise).
$100,001-300,000: Spend 5-10%. We’re making a slight increase here since you’re already nearing *event* income where you won’t need to worry about working anymore. At this level simply spending a bit more is not a big deal since you’re probably close to financial independence in the first place.
$300,000-600,000: You’re practically at the event level. We’re drawing the line here as anything beyond around $600K and most people could live a basic life off of the passive income. You can spend anything that is *above* your financial independence marker.
*Event* Income: Anything above $600K is likely enough to set you up financially for life. In short the two best things to do are 1) not touch it for a year and 2) educate yourself on money management. When you push past the seven figure net worth area, many people will begin asking you for money. People will also volunteer to “take care” of your money. Do not listen to any of these groups, lock your money away for a year and start educating yourself.
Step 1 – Small Purchase: Your dopamine levels will be off the charts. You should make a single small purchase that is at maximum 1% of your event level lump sum. This will give you a one time jolt to reward yourself and if you can limit yourself to one percent you’ll be able to control your emotions going forward.
Step 2 – Lock it Away in Low Risk Items: Since we have no interest in opening a financial consulting business at this time, you should simply lock it away for ~12 months in low risk items (CDs, Investment Grade Bonds, etc.). While the majority of our posts focus on dollar cost averaging into index funds, once you clear a high net worth your job is to *first* protect the principal at your financial independence level and *secondly* focus on growing your worth with the remainder.
Step 3 – Financial Education: Everyone has a different risk tolerance once they clear the financial independence cliff (usually around early-to-mid 30s). We’ve looked for a few tools to use and have added a page to recommend Personal Capital as a way to learn the basics (for $100K+ net worth only).
In Short: Until large sums of money can set you free, you’re going to have to take the punches and spend a small amount of it to avoid running on the treadmill forever. You’re going to need to money to help advertise and increase your sales anyway (re-invest in yourself). Once you’re financially set, you’re doing yourself a dis-service by not educating yourself on how to manage your money. Learn the basics before letting anyone give you advice. Otherwise you’re going in blind with something you’ve worked extremely hard for.
CONTINUING TO IMPROVE
At this point we’ve covered a lot of psychological topics with regards to making money: 1) how we create mental barriers in our minds, 2) thinking small, 3) setting things up to lower the bar instead of raise the ceiling, 4) thinking in terms of recurring revenue instead of one time sales, 5) multiple ways to change your psychology and 6) how to deal with the dopamine impact when you receive a large sum of money.
At this point? Many people get bored. They lose interest in what they are doing and even make the mistake of selling their company below its value! Do not do this. Alternatively, some people become obsessed with making large amounts of money at the detriment of their personalities! Do not do this as well!
Instead you should begin striking a balance between heavy hobby interests and growing your business at a reasonable rate. You’ll find that without any work to do you go insane (many people develop drug issues).
The best way to track your progress is seeing improvement in both subsets: hobby interests and business growth. Assuming that you are getting better at your hobbies and your business is growing, you’re in the clear. If either one begins to stagnate it is time to focus more effort on the flat or declining piece (hobby or business).
Oh and to answer the question? This was a long way of saying… Yes. Making money is 100% psychological.
WEALTH BUILDING RECOMMENDATION
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Updated for 2017 and beyond.