7 Mental Blocks That Are Stopping You From Creating Wealth
Most of the wealthy people on this planet never went to Stanford or MIT. Many of them haven’t even finished school.
Money doesn’t care if you are well educated.
Ordinary Joes and Janes succeeded to get wealthy because they followed unique principles that attract money like a magnet. Award-winning author Morgan Housel shares these principles in his book The Psychology of Money — I’ve curated seven of his most crucial lessons below.
Read them, digest them, apply them. The wealth is closer than you think. Sometimes, you just need a little nudge to reach out and grab it.
1. Beware of Your Dreams
A professional investor will never buy a lottery ticket. It’s a bad investment.
Yet, the lottery player will disagree: “If I can’t afford a vacation, a nice car, and a fantastic home today — I will at least buy a dream of having it all tomorrow.”
Buying a dream traps lottery players into spending their hard-earned income year after year. They’re buying one-in-a-million chances to win. It’s crazy.
However, entrepreneurs and investors fall into the same trap.
The economists discovered that we are all victims of our fears and dreams when we invest our money. Some of us build tech startups because we loved tinkering in our dad’s garage when we were kids. But others never invest in tech — because it reminds them how their parents got wiped out during the dot-com bubble. None of this makes economic sense.
Money doesn’t care about your childhood memories, passions, and fears. Your bank account statement is just a number — it doesn’t have feelings.
Instead, money prefers investors and founders who cold-heartedly analyze their investments — by temporarily blocking their fears and personal history.
Ask yourself: Are you investing in a dream or solid business opportunity? The answer should be the latter.
2. Learn From Millionaires Instead of Billionaires
Success stories are inspiring and motivating.
Biographies of Steve Jobs, Ray Dalio, and Warren Buffet depict how they created astronomical wealth: billions and billions of dollars. Reading them sends chills up my spine and makes me want to work harder.
However, most of these stories are extreme scenarios: one-in-a-million lucky winners. They are outliers.
The more extreme the success story, the less likely you can apply its lessons to your life. Replicating Steve Job’s success story has a lower winning chance than a national lottery. Bill Gates once said: “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
Therefore, Morgan Housel recommends focusing on broad patterns instead of individual super-success stories. For example, learn from many millionaires instead of one billionaire. Their lessons are likely to be more useful and instructional.
How do they achieve discipline, persistence, and happiness? Uncover traits that many successful people share and find what works best for you.
3. Stop Chasing Highest Returns
Warren Buffet is the 5th richest billionaire today.
However, Warren Buffet earned 97% of his wealth after his 65th birthday — the age most of us retire. Sure, the oracle from Omaha is a formidable investor. But his most important secret is time.
Money grows like a snowball rolling down the hill. The bigger the snowball gets, the more snow sticks to it. Wealth is created by compounding: invest a few dollars today, and with some luck and hard work, it turns into a fortune in fifty years.
However, most of us don’t want to wait that long. We want to get rich fast.
From 2020 to 2021, the price of Bitcoin soared tenfold. Some investors got filthy rich in a single year. We assume this is how modern investing works: hefty rapid-fire returns.
Yet, tenfold returns are just lucky shots. It’s fantastic once you experience these, but they are unlikely most of the time. Nor can you typically repeat them. So chasing the highest returns in the shortest time is like playing in a casino.
Good investing is about getting steady returns for as long as you can. Then, let time and compounding do their work to cumulate your wealth.
4. Wealth Is Invisible
Researchers Thomas Stanley and William Danko discovered that most millionaires don’t look like millionaires.
They don’t splurge on expensive cars, clothes, and luxury.
Instead, they keep a low profile: they drive regular cars, live in average homes, and live normal lives. Your neighbor next door could be a millionaire — and you won’t even know it.
Wealthy people who remain wealthy don’t focus on the symbols of economic success. They don’t sacrifice their precious income to impress others. In 1996, an average American millionaire would only spend $140 on a pair of shoes, $235 on their wristwatch, and $400 on their suit. Most millionaires are tightwads.
To accumulate wealth, every wise financial advisor will tell you to invest your time and money in building assets. Robert Kiyosaki writes: “An asset is something that puts money in your pocket whether you work or not.”
This means one thing: Stay frugal and re-invest your dollars back into your business and in your training.
5. You Don’t Need an “A” to Get Rich
Back in college, I worked like a horse to graduate with flying colors.
I had to crack at least 9 out of 10 questions to earn an “A” in my exams. So I studied day and night, obsessing over my grades. College taught me that success was about perfection and being right all the time.
But this is not how wealth cumulation works.
The consistently profitable stock trader Andrew Aziz writes that he only wins in 70% of his trades. He loses money in the remaining 30%. The truth is: your investments don’t have to be successful every time. Instead, your goal is to make enough profitable investments that offset all your losses.
No one makes profitable decisions all the time. It’s impossible. Investing is based on probabilities. Therefore, learn to accept failure. Develop the opposite of college mentality.
I know, losing an investment sucks. But here is a tip from The Psychology of Money: think of your losses as a fee for playing the game — not as a punishment for making the wrong choices.
6. Money Chooses Survivors
Getting money is one thing — but keeping it is another.
Earning money requires taking risks, being optimistic, and doing the hard work. But preserving money requires the exact opposite: humility and paranoia.
Remember: some of your success is attributable to luck and may not be repeatable. So you need to be afraid to lose everything you’ve earned just as fast as you’ve gained it. Watch your account as carefully as scuba divers watch their oxygen tanks.
Money chooses survivors.
Protect yourself from being wiped out or being forced to give up. Investor Nassim Taleb talks about this in his bestseller Fooled by Randomness: To generate wealth, you need to make yourself independent of unforeseen disasters. Make yourself unbreakable.
One way to achieve this is using a stop-loss. It’s a line in the sand that tells you when to get out of an investment. Once your investment loses value and drops below your stop-loss, exit the investment.
Your loss will hurt, but a stop-loss avoids further losses that can wipe you out.
7. Be Smarter Than The Crowd
People panic when they read bad news.
It’s human nature: we react more emotionally to losses than rewards. It’s the reason why pessimistic stories sell better than optimistic stories. When something terrible happens, it seems to capture everyone’s attention.
Moreover, once we read negative news, we assume that it will only get worse and doom’s day is around the corner.
In 2008, environmentalist Lester Brown reported that the world could not catch up with the growing oil demand — we’d reached the limit of Earth’s oil reserves. By 2030, we’ll have run out of oil.
But this is not how markets work. The iron law in economics states that extremely bad scenarios rarely stay long.
People found ways to extract oil that was unreachable or uneconomic before. They invested in new fracking and horizontal drilling technologies and found further oil reserves.
Threats incentivize solutions. Markets, people, and technologies adapt. The world recovers from bad news as it did for the past millions of years.
Therefore, if everyone is panicking and the pessimistic forecasts are overwhelming the media — take a different glance. The global panic could be a fantastic opportunity to invest in new markets and technologies.
Final Advice to Put It All Together
Morgen Housel provides an unusual but powerful trick to help you become a better investor and entrepreneur.
Imagine a highly intelligent alien floating in her vessel over the Earth. The alien flies by your office window and looks at your business plan (or an investment portfolio). What would she see? Would she make the same investments?
If you tut over an image of an alien, feel free to imagine someone else — a reasonable but unemotional person looking over your investment choices.
Here is a list of things they will tell you:
- Don’t buy a dream. Passions and fears often stand in the way of profitable investments.
- Don’t obsess over single super-success stories. Instead, look for traits that many reasonably successful people share.
- Don’t get seduced into get-rich-quick schemes. Instead, hunt for steady and reliable investment opportunities that will compound into significant wealth over the years.
- Stay frugal. Reinvest your earnings back into your business so it can grow.
- Abstain from perfectionism. Don’t obsess over getting all your investments right. Instead, strive to make enough profitable investments that offset your losses.
- Protect your money at all costs. Set a limit for the maximum amount you are prepared to lose before your investment turns sour (stop-loss).
- Be smarter than a panicking crowd. Bad news come and go. Markets and technologies adapt. A global panic can be a fantastic opportunity to invest.
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All advice and financial opinions here are from my personal research and experience — they are intended as educational material. They don’t substitute financial advice from your attorney, accountant, and financial advisor.