Bad Influence

When you were in middle school I bet your parents started eyeing your friends more carefully. They asked about their parents and how they did in school and what kind of rules they had in their home.  If they saw a group of kids hanging at the mall or on the street corner goofing and smoking, they wanted to be sure none of them were your friends.

Your parents were worried about bad influences. They fretted about Johnny, who you might skip a class with, or Brenda, who might encourage you to drink that first beer – while they remained totally oblivious to the influencers that would torpedo your ability to accumulate wealth.

BMW, Lexus, Infiniti, Rolex, Prada, Dooney &Burke, Ralph Lauren, Sony and Apple are the influencers your parents should have warned you about. These influencers and others like them have helped way too many high earners become low accumulators of wealth.

Wealth is not how much you make and it is certainly not how much shiny, (and rapidly depreciating) stuff you have. Wealth is what you have managed to hold on to.

In The Millionaire Next Door, Stanley & Danko gave this little formula to gauge how you are doing at building wealth.

(Age x pre-tax Income)/10  Should Equal Net Worth

For pre-tax income include all sources, other than inheritance.

This formula is just a quick and dirty estimate of what your net worth should be. To be in the top 25% (where we all should want to be) your net worth needs to be twice the result of the calculation.

If you’re not in the top 25%, it has everything to do with your spending. Having been bombarded your whole life with slick ad campaigns about what purchases you need to make to be happy, you have fallen prey to professional influencers.

I have nothing against any of the companies mentioned. They all make great stuff, and if you are going to have stuff, at least have good stuff. I just want you to think. Just as your parents did when you were in middle school, I’m going to tell you to make your decisions based on what’s right for you and your future. Don’t do something just because everyone else is.

Did you eat your marshmallow?

Winning with money is more about behavior than knowledge.

Plenty of very smart high earners do a poor job of building wealth. I know, because I was one of them. They typically out-earn their “stupid” behavior right up until they hit one of life’s speed bumps. I was lucky and got my wake-up call before wiping out.

If you’re not winning, it’s not because you lack intelligence. If you’ve tried to work a plan in the past and have been unsuccessful it could be you’re lacking some self-control. To fix that all we need is a bag of marshmallows.

Oh, The Temptation from Steve V on Vimeo.

In the 1960’s Walter Mischel conducted an experiment to measure the self-control of preschoolers. The kids were given one marshmallow and were told they could eat the one marshmallow now or if they could wait they would be given a second marshmallow. Turns out those who waited were, in later years, more dependable, better adjusted and scored higher on their SATs.

The cool thing that is rarely mentioned about the marshmallow study is that Mischel, in later studies, was able to teach the kids some simple mental tricks that dramatically increased their self-control when measured by the candy test. Mischel found that the kids that stared at the marshmallow could not resist, but those that looked away, sang songs and distracted themselves could. One successful trick Mischel asked the kids to try was to pretend that the temptation was only a picture. When they kids employed this trick they could wait 15 minutes.

Mischel says. “Once you realize that will power is just a matter of learning how to control your attention and thoughts, you can really begin to increase it.”

So this means if you have car fever stay out of the showrooms, you shoe collectors stay out of the shoe store, unless you selling stuff stay away from ebay.

You don’t need an iron will. You just need to focus your attention and thoughts on something other than your temptation.

Do you want one marshmallow or two?

Click to read more about Mischel The Secret of Self-Control.