As you know, one of the most important keys to creating wealth is the right attitude. That is why I decided to share with you in a series of articles the Attitudes of the Wealthy. This is the second article of that series.

Attitudes of the Wealthy #4: Know money terms like interest versus earnings and the cost of money.

There are so many terms the wealthy use when they talk about money, and the first thing to understand is that the wealthy do not think it is rude to talk about money. They will not hesitate to talk about the cost per square foot to build a new house, or the best interest rates on savings, or the appreciation they earned from a stock, or how their broker might have found an Initial Public Offering (IPO) for them.

Another point is that if you do not have an understanding of money terms, you cannot participate in the conversation. Here are just a very few things you should understand:

• Interest is what a borrower pays a lender for the use of money. If you deposit money in a bank, you are the lender and the bank is the borrower. In this environment, the bank will pay you about 1% to borrow money from you. (This is a typical savings account.) If you borrow money from the bank, they are the lender and may charge you 6-10% interest. The difference between the 1% they pay on savings and the 6% they charge on a loan is called the “spread,” and this is how they make a profit.

• The cost of money refers to borrowing money to invest, whether in other stocks, a business, real estate or whatever. The point is that more money should be earned than the amount of interest you pay. This is the cost of money, also called the cost of funds. If you borrow money at 4% and you’re able to invest it or loan it out at 10%, then you’re the one earning the spread, and your cost of funds is 4%. You do not have to put money in the bank to earn interest. This is available through peer-to-peer lending, trust deeds, tax liens and other financial instruments like bonds.

• The term “earnings” is often confused with interest by people who do not know money terms. If you own a stock or a mutual fund, it may pay a dividend and grow in value over time. If you receive a 1% dividend and it grows in value by 8% over a one year period, the total earnings would be 9%. This is not interest, but total earnings. 1% is income and 8% is appreciation. If you see that a mutual fund or stock returned 22% over a one year period that could all be appreciation, with no income and has nothing to do with interest.

There are so many more financial terms, I could write a whole booklet: Compound interest versus simple interest, debt coverage ratio, capitalization rates, amortization, depreciation, present versus future value, discounting, puts, calls, margin accounts, on and on. If you want to know more, just send an email.

Attitudes of the Wealthy #5 Statements vs Questions

As you are aware, one of the most important keys to creating wealth is the right attitude, and in this series today we will cover how the wealthy use questions instead of making statements when they hear familiar information.

The best example of statements versus questions is when I’m speaking to a large group of people and I ask, “How many of you have heard of the expression, pay yourself first?” Many people will raise their hands and acknowledge that they have heard of it, know it, or even used it.

Unfortunately, those with a poor mindset will make statements like, “I know that. I’ve heard that before. I’ve tried that. Or, that’s not new to me.” And just because this is familiar information they have no practice at hearing it like the person with a wealthy mindset.

The wealthy mindset person asks questions when they hear familiar information. And those questions start with when, where, what, who or how. (They do NOT start with the word why.)

Using my example above about paying yourself first, you could ask questions like:

• When will I start this again?
• Where does this apply to me?
• What would be an appropriate amount to start with?
• Who can help me set this up?
• How does this fit my situation?

The wealthy person will get answers that can put him or her into action.

Why questions can have any answer, but the answer will not lead to any action. Why questions block action. As an example, I could ask, “Why don’t I pay myself first?” And the answer could be because I don’t deserve it, or others should come first, or there is not enough money left over, or a pile of other reasons or excuses that will not lead to any action that will solve the issue.

Listen to your self-talk and see if you are making statements or asking questions that can lead to a transformation of your situation.

Attitudes of Wealthy #6: Big Picture versus Details

If you were looking to make an investment, like in real estate, and you found a house that could be a good candidate but noticed the carpet was in horrible shape, the paint on the walls was peeling, and the faucets were all dripping, you are looking at the details.

If those details keep you from buying this house you could be making a mistake. The big picture items need to be the location of the house and the price. If in the big picture the house is in a great neighborhood and it is priced under market because of the condition, this could be a great investment.

That is what the wealthy do: They look at the big picture first and the details second.

Several years ago my wife and I were searching for an apartment building to purchase. We found one on Loopnet that might be a good deal based on the location and price. We drove out to see it and it was absolutely in a great area, and it had a lot of deferred maintenance. We later found out it was very poorly managed.

This turned out to be one of our best purchases. We purchased it for $1,225,000 and a GRM of 13.75 based on $81,600 of income. Ten years after our remodeling, using the same GRM of 13.75, it has a value of $2,887,500 based on an income of $210,000. Just the increase in value alone is a 10% annual compounded rate of return, without even considering the income increase of $257%.

Listen to your self-talk and see if you are looking at the big picture first and the details second, it applies to more than real estate investing.

To your prosperity,

Rennie

Author's Bio: 

Often in the media, Rennie Gabriel supports individuals and business owners to create work as a choice, instead of a requirement, just as he did for himself. Rennie had gone broke twice (two divorces), but using the same concepts published in his book, Rennie created more wealth in each recovery than what he had prior.

As a highly rated instructor at the University of California in Los Angeles (UCLA), Rennie uses his award-winning, best-selling book, Wealth On Any Income, to teach effective money skills from both the emotional/psychological aspects as well as the practical components. His book has been translated into five languages. Rennie is a retired Chartered Life Underwriter (CLU) and Certified Financial Planner® (CFP®) and often adds BFD to his credentials.

His extensive knowledge on real estate and finance is useful not only to those who own or invest in real estate, but to anyone striving for a better life by trying to achieve financial freedom.

His clients range from financial professionals, like CPAs, stock brokers and financial planning firms, to entrepreneurs in the transformational space (coaches, authors and speakers). He also works with large organizations like the FBI, American National Insurance and Toyota Motors.

After 40 successful years in financial services, Rennie now works to donate 100% of the profits from his speaking fees, wealth programs, books and business coaching to charities, the primary one is www.ShelterToSoldier.org where dogs are rescued, trained and donated as service animals for soldiers with PTSD and TBI (Post Traumatic Stress Disorder and Traumatic Brain Injuries)