I’ve adopted the mental model of Charlie Munger when it comes to living a good life. It’s useful to gain insights into the thought process of certain rich people.
Munger was trained as a lawyer, got briefly into real estate development, and built his fortune together with Warren Buffett in Berkshire Hathaway. Munger says:
“My system in life is to figure out what’s really stupid and then avoid it. It doesn’t make me popular, but it prevents a lot of trouble.”
It’s attractive to talk about all the things rich people do and how you can build wealth. A large part of my work focuses on the right actions we should undertake to get wealthy.
But what I don’t always share is how I figured out the right actions. Most of the time it’s a matter of looking at the wrong options and doing the opposite. In this article, I’m sharing 7 things that you want to avoid if you want to get rich.
These things might sound obvious, but avoiding these types of pitfalls will set you up for success. They should never be overlooked.
1. Using credit card debt
Using credit cards as a payment method is fine. When the full amount is taken out of your checking out every month, you don’t pay interest.
I read somewhere that 77% of U.S. households have some amount of credit card debt.1Source: Zippia To be honest, I was shocked and find it hard to believe. That number just sounds too high to me. Either way, using credit card debt is dumb.
With interest rates that high, you’re only paying off interest, and your debt will just remain. This is how people get into debt and never get out of it. My parents still have credit card debt from 20 years ago. I’ve paid some of it off, but they don’t want to accept me paying off everything. I always tell them that’s stupid.
These crooks don’t deserve your interest payments. There are many other good things you can do with that money.
2. Thinking they know everything
I have a family member who’s a doctor, lawyer, neuroscientist, politician, engineer, musician, artist, creative, and every other profession in the world.
Every time you talk to him, he pretends he literally knows everything about everything in the world.
When you mention you have a stomach ache, he instantly gives you a diagnosis. He annoys me. He has no training in anything, no degrees, and no experience. Yet, he supposedly knows everything. He’s also jobless for years now.
This is the predicament of many people. They are never rich, despite all their “knowledge.”
3. Hunting for bargains
I get the appeal of bargain hunting. It feels good to get something for less than the full price. You feel like you’ve accomplished something.
But the only thing you truly accomplish by being a full-time bargain hunter is wasting your time.
In The Netherlands, we have a platitude, “Goedkoop is duurkoop.” Which means that being a cheap person is actually expensive.
Cheap people pay for their goods with their time. If it’s not that, they keep buying cheap stuff over and over again, while they would save their money if they just bought the good quality stuff.
Quality is often expensive for a reason. It’s either good. Or it’s not worth your time to go bargain hunting.
4. Undervaluing their time
Your time is precious, and this is not only related to buying stuff. When you waste 5 hours a day on your smartphone, go to every party you’re invited to, and burn your days at a job you hate, you’re undervaluing your time.
Rich people who started from zero usually become wealthy because they are excellent time allocators. They are not necessarily the smartest or most creative people in the world. They simply know that their time is limited and get the most out of it.
They work with people who are equally serious. They don’t waste their time. They do what they say.
And the main reason for everything is that they are constantly thinking about how they are spending their time. They put a high value on it.
5. Overly relying on others
Life is a team game. I’ve never met a successful or rich person who got there totally alone.
But there’s a difference between teamwork and expecting others to help you. When you’re always looking to others for the answers or for help, you can’t build anything on your own.
The truth is that, outside of your inner circle, no one is going to help you to succeed. Not the government, bosses, co-workers, coaches, consultants, social media people, and so forth.
This is not because others don’t care. It’s because we’re wired to help ourselves and our offspring. Respecting that fact makes you take ownership of your own life.
You truly are the master of your destiny.
6. Being content with average
The other day I ran into someone who interned at my family company. I asked how it was going with their degree.
“Almost done! My thesis wasn’t approved the first time around,” they replied. “But as long as I get a 5.5, I’m happy.”
In the Netherlands, a 5.5 equals a D in America. You barely pass here with a D.
This used to be my mindset too. It was the product of my environment. People around me didn’t care about doing their best. Just put in the minimum and get it over with.
And they stayed average. To be rich, you can’t be average.
7. Being afraid of losing money
Life is risk. Driving is risky. Running is risky. Investing is risky. Switching careers is risky.
We take risks all the time. Most of us are okay with the common risks related to driving or playing sports. But when it comes to money, it’s a different game.
A friend of mine wants to invest in the stock market as long as I know him (about 10 years). He hasn’t invested just yet. The last time we met, I asked, “What’s standing in the way?”
“I just don’t want to lose money,” he said. And I replied, “I’ve been there too. Until you don’t overcome that fear, I wouldn’t invest because you wouldn’t last long.”
It’s important to conquer our fear of losing money. Step one is to accept that money is a resource that comes and goes. You never really own it. You simply use it while you’re alive.
Money is something you use
Shift your perspective on money, and you will change your life.
Money is not something you own. It’s something you use.
I agree that we must be responsible and aim to protect our money. But like most things in life, when you do too much, it backfires. Too much money protection turns into fear, which robs you of the magic of compounding.
I firmly believe that every person who lives in the free world can become rich in time. There are passive income ideas that we can all apply. But these require time, patience, dedication, and work. If you’re lucky, it might happen faster.
But what I love about the Charlie Munger system is that luck doesn’t have to be a factor. By doing the right things, we can all get pretty rich. To me, that’s good enough.