21 Ways Rich People Think Differently Than Average People

[Rolf Latham]

This is the trap that many fall into; they buy more car because they have the lovely deductions associated with it.

The deductions come off the tax bill, but the repayments are there first and affect the cashflow on a weekly/monthly basis

You have to be realistic about those, and I reckon many aren't.

kaching! take it to the bank dude

Lord knows how many teachers think its a good idea to ss a 60 k volvo coz they have been sold the "save tax" puppy

Pre ss smoke and mirrors they would have been happy with a 6 year old Dunnydore wagon..

Work out the NPV of that difference 25 years out from retirement and Id guess its not far off 100 k ............

ta
rolf

 

[Rolf Latham]

it probably then rusted to dust

most boats in Oz are made from fibreglass or aluminium, neither of which rusts.

Even if the tub was a steel boat, it wouldnt rust to dust, it would form ferric oxide.

here endeth the science lesson.

MB do make great cars BTW, the 180 isnt one of them

ta
rolf

 

[BayView]

Just a thought......so I would agree with this...Basically I think it's not enough just to save, the savings need to be further invested.....

On of the very first things I learned when consciously starting down the investing path was the "pay yourself first" statement.

I heard it from both Rob Kiyosaki, John Burley and a few others..

A simple statement, but so many folk get it wrong; they think saving for a plasma tv is paying yourself.

It is paying someone else (for the tv).

Paying yourself first means saving a percentage of your income which is only ever to be spent on buying assets which will put money back into your pocket.

Once I got this simple shift, the rest became very easy.

The hard part is working out how much of your income do you allow for this?

A minimum of 10% of gross income is a good start.

 

[china]

If they have $1m net equity and earn $600k in their job, then they might be driving $100k cars, living in nice suburbs and go on European holidays.

$1m equity, put in to house. Borrow $2.5m debt. Living in $3.5m house.

At 5.5% interest rates, he pays around $140k interest per annum. His after tax salary is $around $350k. So he has $210k net income left to spend or $4k a week. Goes on a few $10k holidays and sends his kid to Sydney Grammar, still can save enough money every year to buy some $700k IP on 80% leverage.

Ok, I would consider this "rich" people behaviour / lifestyle.

I disagree that he would only pay 140k interest per annum. If he has 1m in equity and borrows 2.5m debt to live in 3.5m PPOR, he needs to pay interest on the whole 3.5m. At 5.5%, thats close to 200k per year, leaving 150k net income to spend.

In practice, I doubt that anyone who buys a 3.5m PPOR would fund the deposit using 1m equity, more likely, cash. And often, the 3.5m PPOR owner would not borrow 2.5m - they would purchase it from cash or a cash bonus, as is often given annually in big investment banks. The rich think differently as the topic of this thread says.

He had better hope that his 600k per year income continues or he will be joining the middle class.

 

[BayView]

He had better hope that his 600k per year income continues or he will be joining the middle class.

Maybe even the Centrelink queue!

 

[china]

Maybe even the Centrelink queue!

Thats the poor lower class, if we can admit that such a class exists in this egalitarian, wealthy country. I think "rich" means more than 250k passive income per year which really means a net worth greater than 5 mil. This group does act and think differently because their wealth allows them opportunities that the middle class do not have.

 

[nhg]

Thats the poor lower class, if we can admit that such a class exists in this egalitarian, wealthy country. I think "rich" means more than 250k passive income per year which really means a net worth greater than 5 mil. This group does act and think differently because their wealth allows them opportunities that the middle class do not have.

I would imagine if you are investing $5M, you would seek returns greater than 5% ROI.

As mentioned on other threads, the people on this forum are not your average folk, and can greatly skew what the 'average' australian's level of ambition.

Most people in my social group have 'european' holidays every year, and some drive nice cars and live in nice suburbs. I highly doubt they have a networth of $500k let alone $5M. Flights abroad are quite cheap these days

Also following the logic of $5M+ being wealthy. There's a lot of things you can't do if you have $5M, and chances are you own a $4M house and still have to go to work everyday.

 

[Mr. Fabulous]

I would imagine if you are investing $5M, you would seek returns greater than 5% ROI.

nhg, if you read china's post, you will see that he said 500K per annum income, not total return. A 5% income return is about average or maybe a little high at the moment, depending what you are invested in.

Also following the logic of $5M+ being wealthy. There's a lot of things you can't do if you have $5M, and chances are you own a $4M house and still have to go to work everyday.

Again, he said $5M in net assets, not total assets. If you have $5M in net assets and you still 'have' to work everyday, then I would argue there is scope for reviewing (and reducing) your expenses.

 

[nhg]

nhg, if you read china's post, you will see that he said 500K per annum income, not total return. A 5% income return is about average or maybe a little high at the moment, depending what you are invested in.

I see.

Again, he said $5M in net assets, not total assets. If you have $5M in net assets and you still 'have' to work everyday, then I would argue there is scope for reviewing (and reducing) your expenses.

If you own an unencumbered $5M property. (net asset), you still have to work to maintain it.

We could always argue they need to reduce their expenses, yet it comes back to China's original point of what classifies as a 'rich' person.

It is all semantics. What is rich for one is not for another. To say AVERAGE is $1-5M however is a bit... rich.

 

[Mr. Fabulous]

If you own an unencumbered $5M property. (net asset), you still have to work to maintain it.

How many Australians own a PPOR worth $5M? A fraction of 1%? Of course you are right that if one owns a PPOR worth $5M and nothing else, they need to keep working to maintain it. But in the context of his post, I would suggest that china meant $5M net in investable assets, which return 5% income.

 

[nhg]

A friend an I compared weekly expenses on our camping trip last weekend.
Including, holidays abroad, rent, car, etc.

Worked out MY expenses are ~$1k/week. His are ~$350/week. We both manage to save the same amount of money at the end of each month (not including invested money).

Life's are similar, both live by the beach, enjoy quality food, and have an active lifestyle (surfying, rock climbing, holidaying).

We follow different philosophies to an extent. He practices the art of making a dollar stretch out, I practice the art of making another dollar.

The difference I find is there is only so far he can make a dollar stetch, whilst I am finding more ways to make more dollars.

Truthfully, I feel the balance lies somewhere in the middle. (p.s. am working on the savings now).

 

[VYBerlinaV8]

I argue that wealth is more related to invested assets than personal assets. I wouldn't class a person with a $3M PPOR who has a job and no other assets as wealthy. I would, however, class a person with $3M invested assets making $180k per year wealthy.

If someone has $5M or more in invested assets, then I'd say they were rich. So would 99.9% of the citizens of the world.

 

[nhg]

How many Australians own a PPOR worth $5M? A fraction of 1%? Of course you are right that if one owns a PPOR worth $5M and nothing else, they need to keep working to maintain it. But in the context of his post, I would suggest that china meant $5M net in investable assets, which return 5% income.

I went by his previous statement "All of the above permutations I would not consider rich in Australia, and hence, middle class."

The example I provided was just a 'permutation'.

I am playing devils advocate on China's example. I just feel the term 'rich' is a very fluid concept. Being in a position where you don't have to worry if you get ill or loose your job is what I personally define as 'materially' rich. That could by my 'limiting' belief. Perhaps I should think more like China.

 

[nhg]

I argue that wealth is more related to invested assets than personal assets. I wouldn't class a person with a $3M PPOR who has a job and no other assets as wealthy. I would, however, class a person with $3M invested assets making $180k per year wealthy.

If someone has $5M or more in invested assets, then I'd say they were rich. So would 99.9% of the citizens of the world.

That I agree with.

'Rich' people understand the importance of making money work for you.

 

[china]

I see.


It is all semantics. What is rich for one is not for another. To say AVERAGE is $1-5M however is a bit... rich.

I did not say average, I said middle class. Clearly, middle class encompasses a fairly wide range of net worth but my personal feeling is that net worth less than 5M does not make one genuinely rich, meaning freedom from all financial worries. This freedom is what defines rich.

 

[equitymate]

A High Net worth individual is universally regarded as someone with 1 million dollars in investable assets.
http://en.wikipedia.org/wiki/High-net-worth_individual
You say thats lower end of middle class me say thats rich...

 

[nhg]

I did not say average, I said middle class. Clearly, middle class encompasses a fairly wide range of net worth but my personal feeling is that net worth less than 5M does not make one genuinely rich, meaning freedom from all financial worries. This freedom is what defines rich.

http://www.quora.com/Wealthy-People...a-billionaire-better-than-being-a-millionaire

read this article.

it was posted here a long time ago, kinda humorous look at what is really rich.

 

[china]

http://www.quora.com/Wealthy-People...a-billionaire-better-than-being-a-millionaire

read this article.

it was posted here a long time ago, kinda humorous look at what is really rich.

I agree with the article. There is a huge difference between someone with 1-5m versus 10-20m versus 50m plus. All I am saying is that the 1-5m group is probably the upper boundaries of middle class Australia.

 

[cimbom]

These kinds of numbers are pretty irrelevant at it is all relative on 1) geography and 2) cost of living.

In terms of international averages, a person on the dole in Australia, would be in the richest 12% of the world. However, averaged out, the cost of living in Australia is comparitively very high so being in the top 8th becomes irrelevant. Considering day-to-day Australian costs, the same person is not very well off at all. The same comparison can be made using many other variables.

 

[nhg]

These kinds of numbers are pretty irrelevant at it is all relative on 1) geography and 2) cost of living.

In terms of international averages, a person on the dole in Australia, would be in the richest 12% of the world. However, averaged out, the cost of living in Australia is comparitively very high so being in the top 8th becomes irrelevant. Considering day-to-day Australian costs, the same person is not very well off at all. The same comparison can be made using many other variables.

Agreed.

That's the point I was trying to get at in a really long winded way.

It's all relative.