Many people think becoming wealthy is all about having the right job, inheritance, or just lucky breaks. And those things can certainly give you a leg up. But according to my guest, the biggest key to building wealth is your mindset, as research shows that even high earners can stay broke forever if they’re trapped in poor thinking patterns, while others can build lasting wealth on modest incomes by developing the right mental approach.
Dr. Brad Klontz is a financial psychologist, wealth manager, and professor, and the co-author of Start Thinking Rich: 21 Harsh Truths to Take You from Broke to Financial Freedom. Today on the show, Brad explains the critical difference between being broke and being poor, how learned helplessness keeps people financially stuck, and practical ways to develop an agentic, wealth-building mindset. We also tackle thorny issues like the role of homeownership in building wealth and how to handle relationships that might be holding back your financial future.
Resources Related to the Podcast
- Brad‘s previous appearance on the AoM podcast: Episode #529 — The Money Scripts That Are Holding Back Your Financial Future
- AoM Podcast #321: How to Think About Money
- AoM Podcast #536: How to Achieve a “Rich Life” With Your Finances
- AoM Article: Taking Control of Your Life
- AoM Article: Avoiding Learned Helplessness
- AoM Article: A Young Man’s Guide to Understanding Retirement Accounts — IRAs
- Compound Interest Calculator
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Read the Transcript
Brett McKay: Brett McKay here, and welcome to another edition of the Art of Manliness podcast. Many people think becoming wealthy is all about having the right job, inheritance, or just lucky breaks. And those things can certainly give you a leg up. But according to my guest, the biggest key to building wealth is your mindset, as research shows that even high earners can stay broke forever if they’re trapped in poor thinking patterns. While others can build lasting wealth on modest incomes by developing the right mental approach. Brad Klontz is a financial psychologist, wealth manager, and professor, and the co-author of Start Thinking Rich: 21 Harsh Truths to Take You From Broke to Financial Freedom. Today on the show, Brad explains the critical difference between being broke and being poor, how learned helplessness keeps people financially stuck, and practical ways to develop an eugenic, wealth-building mindset. We also tackle thorny issues like the role of home ownership in building wealth. And how to handle relationships that might be holding back your financial future. After the show’s over, check out our show notes at awim.is/thinkrich.
All right. Brad Klontz, welcome back to the show.
Brad Klontz: Excited to be here.
Brett McKay: So you are a psychologist who specializes in helping people with their money issues. And we had you on the podcast way back in 2019 to talk about this idea of money scripts. And that’s episode number 529 for those who wanna check that out. You got a new book out called Start Thinking Rich: 21 Harsh Truths to Take You From Broke to Financial Freedom. This is a book you co-authored. And you start off the book in the introduction talking about the difference between being poor and being broke. What’s the difference between the two and why is it important?
Brad Klontz: So our chapter titles are very insulting to poor people. And we felt like it was important to make a distinction here, ’cause I see it as two very different things. So broke is when you don’t have any money. I’ve been broke. A lot of us have been broke. Poor is a mindset. And the problem with a poor mindset, it’ll keep you broke forever. And there’s a lot of people who are broke. For example, are very high earners, but they’re living paycheck to paycheck, it doesn’t really matter how much money you’re bringing in. You’re never really gonna get ahead in terms of your net worth and lowering your financial stress if you have that poor mindset. And so a lot of my work has been trying to identify what is the mindset of wealth? What do the mindset that ultra wealthy people, what do they have? And then what is the mindset of middle class and lower? And what can I glean from the research on the ultra wealthy? And how they got there to teach as many people as possible. And really, it started as a personal mission coming from a low-income family myself, trying to figure out why do all these hardworking, intelligent, God-fearing people that I’m around, why are they… Why have we been broke for generations?
Brett McKay: Okay, so being broke is just not having money. But being poor, it’s about a mindset. And it sounds like you can be poor even though you have a lot of cash flow. You can still be poor.
Brad Klontz: Absolutely. I think that many, many Americans are in that position right now.
Brett McKay: And something I think we need to say from the start is that you and your co-author aren’t saying that there aren’t systemic problems that work to keep people poor and that there aren’t injustices that may need to be addressed. What this book is about is, okay, even if there’s changes you’d like to see, and even if those changes may come in the future, you’ve gotta operate and figure out how to get ahead in the current system. So like, what do you need to understand to do that?
Brad Klontz: Right. And so looking at it like the system is, well, first of all, it’s obviously unfair. I mean, I hope that’s obvious to everybody. Like if you grow up lower income, it’s very unfair. You are not getting access to things that people who have higher income, live in better neighborhoods, better school districts are getting. It’s just absolutely unfair. And certainly I applaud efforts to, improve the system, make it better, whatever. And that’s really, really important. See, I’m a clinical psychologist, though. And so when people come into my office, I am trying to help them succeed in a very unfair world. We even talk about capitalism in the book. It’s like, we’re not, economists in that sense. We’re not out to change a system or whatever. Is capitalism good? Is it bad? I mean, you can go ahead and decide that. The bottom line is, it’s a game, and that’s the game we’re in.
And if we lived actually in a communist country, this book would be a survival guide for how to thrive in a communist country. That’s essentially what we’d be writing. So we’re pragmatic about it. We’re not taking a side here. It’s really, really powerful to look at it like it’s a game. And so how are you feeling about the game you’re playing? So first of all, recognize that it’s a game. We talk about multiple ways to approach, making money. You know, there’s the entrepreneur game. There’s the, corporate game. It’s like, just recognize that it’s a game. So if you’re not happy with the results you’re getting, you have to ask yourself, am I playing the right game? Maybe you need to shift up the games. And then also, do I know the rules? So if you want to grow your net worth, since that’s what we’re talking about here, find out how people are doing it and then go ahead and do what they’re doing.
Brett McKay: And as you mentioned earlier, you’re coming at this from the perspective of personal experience. Like you yourself grew up poor.
Brad Klontz: Yeah. Grew up low income. My parents divorced when I was two years old. And if you weren’t sort of low income before that happens, you’ll be afterwards. And so my mom was a part-time teacher and I grew up not having much money. And this was something that I faced all along my development and it really does suck.
Brett McKay: And your coauthor, he weaves his story in as well. His parents were immigrants and they were millionaires by the time they retired and they weren’t working like a Silicon Valley entrepreneur type thing. They were just doing workaday stuff that most people do. Like his dad started washing cars at a car dealership and then worked his way up to being the parts manager.
Brad Klontz: Yeah. Adrian’s is a fabulous story. His father immigrated from Mexico, had nothing, had to steal food in Mexico to even eat, experienced a level of poverty that I’ll never experience and Adrian certainly never experienced. And what I find fascinating about his family’s story and he really traces it to his grandma’s entrepreneurial nature and hustling and doing everything she could do to get her family in America. I sort of compare his family who his dad first generation and he became a millionaire and he was a radical saver. Right. So Adrian talks about the story, his dad and all the family pictures, his dad had a Toyota shirt on that was his work shirt. And in retrospect, he’s asking his dad, Hey, what’s going on? Why are you always wearing that shirt? And he’s like, well, I didn’t buy clothes for five years. That was his mindset. I’m gonna save every penny I possibly can. And I sort of compare his family to my family and no disrespect. I love my family. Some branches of my family, we’ve been in the United States since the Mayflower and both sets of my grandparents were living in trailer parks. And so they actually never were able to accumulate any money. And it’s just such a curious thing to examine. And we’ve really nailed it down to the mindset they had around money.
Brett McKay: So let’s talk about that mindset. What are the big differences between a poor mindset and a rich mindset?
Brad Klontz: Fairly simple and logical, but I’ll talk about the psychology behind it. So essentially, how do you become rich? Well, first of all, it’s really important to understand that most wealthy people in the United States are self-made. And this is a very empowering understanding. Like when I was growing up lower income, I thought the only way to get rich was to be born rich or you had to go to private school. I had all these myths about millionaires in the United States. And it’s really, really empowering to know that no, no, no, most of them are self-made, like upwards of 90%, in between 80 to 90%. So just understanding that they got it on their own, they didn’t inherit it. And then you have to ask yourself, well, what are they doing differently than people who aren’t able to climb the socioeconomic ladder? And there’s a few psychological elements. The financial elements are living below your means, saving a percentage of every dollar you make and investing it. Like this is probably the mindset that’s the most important. And if you have this mindset at an early age, you’ll be a millionaire, plain and simple.
You can work in fast food your entire life. I’ve actually done the numbers with a lot of young people over the years. The job actually doesn’t matter nearly as much as having this mindset. And so they’re looking to buy assets. They’re looking to invest. They’re not racking up credit card debt. They’re not buying stuff to try to impress other people, which is a real constant draw in our culture, especially if you’re on Instagram and social media, you’re always feeling less than. And they’re looking to invest for the long term. That’s the rich mindset. The poor mindset, conversely, people, they get money, they spend it. They’re buying labels instead of stocks. They’re trying to impress other people. They’re not investing at all. And so those are the like the behavioral patterns. But we’ve also found some really deep psychological beliefs that have a profound impact. And the one I that I think is the most important. And this is based on all the research in psychology related to success in education, success in relationships, financial success. And I have an 11-year-old and a seven-year-old, and this is the number one mindset that I’m trying to instill in them. And that is something called an internal locus of control. And so this is really the location in which you attribute control of the outcomes you’re getting in life. This is a rich mindset that if you have it, you will become unstoppable. And I would imagine you’d succeed in every area of your life.
Brett McKay: Okay, so if you don’t have an internal locus of control, you basically blame your external circumstances for your situation.
Brad Klontz: That’s exactly right. And so when something’s going bad in your life, you know, easy examples like when I walk in the door and my wife’s grouchy and she takes it out on me, it’s so tempting to just blame her for the fact that I’m not feeling understood. And does she really realize how hard I’m working? And an internal locus of control would say, so I wonder if there’s anything I can do to improve my relationship with my wife. It’s a powerful mindset shift because it’s so tempting to blame everybody else for your problems. And the problem with it is there’s a lot of people out there you can pin blame on. And a lot of these people are not very nice. And so you could get stuck in this never-ending cycle of every time something bad is happening in your life financially, you blame the stock market. You blame somebody at the bank loaned you money for a house you couldn’t afford. Why did they do that to me? And you can find people who are blameworthy, but that is gonna keep you stuck in a cycle of failure.
Brett McKay: And so having an internal or a strong sense of an internal locus of control, it’s all about developing your sense of agency that you’re able to act on the world and you’re not just acted upon.
Brad Klontz: Right. And that’s ultimately where this strength comes from. It’s not about belittling you or shaming you. It’s about actually getting quite excited that what’s happening in your life, you have an impact, you helped create it consciously or unconsciously. And if you can recognize that, that’s when you can make these shifts that are really, really important in terms of becoming wealthy.
Brett McKay: So related to this concept of an internal locus of control, it’s like the opposite of it. It’s something called learned helplessness. How does learned helplessness play into all this?
Brad Klontz: Yeah. So learned helplessness really does help explain why so many people are stuck in a poor mindset and can be there for generations and pass this poor mindset down to their kids. And really dates back to some horrific studies that psychologists did on dogs. And so what they would do is they would stick a dog in a cage and they would electrify the bottom of the cage and see what would happen. Well, you could probably imagine what would you do in that situation? The dogs try to escape. They’re yelping, they’re barking, they’re jumping up and down. And eventually they realize escape is impossible. And so they sort of shut down. And this is also an adaptive response. And they just lay down and they whimper. Okay. So they have learned that I cannot escape from this, and it’s entirely accurate. Now, the scary part about this, and I’ll say this too, if you grow up in poverty, if you grow up in an abusive home, this is a mindset you will learn.
It’s like, I can’t fight back. I can’t escape. I’m going to try to survive, and so I’m gonna get real small. I’m gonna stay in the corner. Escape is impossible. I have learned that I’m helpless. Now, this is the challenge. What they did with those dogs in the next experiment, they put them in a cage that had a barrier in the middle. Half the cage would get electrocuted, the other half, no electrocution. And then what they would notice is that they’d stick a dog in there who hadn’t been in the previous trial where they got traumatized and the dog would jump around and then find that, I jumped to the other side, there I’m safe, no more shock. But the dogs that were in that first condition who learned that escape is impossible, they wouldn’t even try. So literally all they had to do is hop over this barrier, no more pain, there’s escape. And you think about it metaphorically for us, there’s abundance, there’s the financial goals you want, there’s the happiness, it’s right there.
And as a psychologist working with people who are stuck in this learned helplessness, it’s so obvious to me that all they have to do is this, it’s right there. They don’t believe it. They don’t believe that it’s possible because they’ve been so beaten down earlier on in life where escape was indeed impossible. They developed this learned helplessness attitude. And so it’s so crippling. It’s so sad to see, but it makes sense how people end up there. And you’ll find that they will tell you all the reasons why they can’t get it, why it’s impossible for them. And it’s based in a real experience. Like these experiences they had were very, very real. What’s so fascinating and so should be inspiring is that there’s escape right there. They could do it. And if you have that learned helplessness mindset, you’ll hear things like, oh, nine out of 10 millionaires are self-made in the United States. And you’ll start to discount that. You’ll look for evidence to suggest that’s not true. And I get this on social media all the time. Self-made, you know. Somebody changed your diaper. So they’ll essentially redefine what the word self-made means to try to prove themselves right. And so that’s one of those instances of a poor mindset that just keeps people down.
Brett McKay: Well so how do you increase the size of your locus of control and overcome learned helplessness? I think this is like the base issue as a clinical psychologist that you’re dealing with. It’s like, what are the research-backed and then also experience-backed tactics that people can do to start increasing their sense of agency and decreasing the amount of learned helplessness.
Brad Klontz: Well, first of all, you have to be somewhat open-minded. So you have to want something better and you have to believe it’s possible to a degree, even if it’s like 1%. Do you have 1% agency over your life? I can work with that. We just need to get you to the 1%. I think you probably have like 99% ’cause there are certain things that are gonna happen that are outside of your control. But I’d love to talk to you about that ’cause maybe we can find some areas in which you do have control. But it’s just like opening the crack a little bit. And I think one of the things that helps the most. And it’s one of the reasons why in this book, I’m telling a lot about my personal story and Adrian’s telling a lot about his and he has such a incredible story. He’s most famous on social media for making $1.7 million in one year while living in a van, becoming a multimillionaire in his early 30s. What we’re trying to do there is tell stories because what we want you to do is find an example of somebody who came from a similar situation that you are in right now or that you came from and was able to find that success. Because I think that all you need to do is see somebody who is like you comes from an area you came from that you can relate to. And then all of a sudden the light bulb can switch on for you and be like, oh, you mean maybe I can do it.
Brett McKay: Okay. So it sounds like you got to have a little bit of hope, a little bit of faith in order to overcome these things.
Brad Klontz: I think so. And it’s one of the reasons why, I’m passionate about trying to spread that hope and healing around.
Brett McKay: Yeah. And then also just start off small with small things. Like Stephen Covey talks about in his book, The Seven Habits of Highly Effective People. He talks about the locus of control and he talks about just doing small things to increase your locus of control. So maybe you can’t become a millionaire in a year, but like, what can you do now within the range of possibilities that are in front of you? What are you able to do? And then do those things. And as you do those things, your sense of agency increases. So you can start doing bigger and bigger things.
Brad Klontz: I love it, Brad. And so one of the things we really encourage people to do is save and invest a dollar today. And, ideally I try, I shot for like 30% of my income that I saved and invested. And by the way, I did it immediately when I started making money. So I felt like I was rich, I was making like 25,000 a year. I was like, oh my gosh, I’m making so much money. Well, Luckily, I had had this mindset by then. I was in school forever, so I was in my late 20s. And I had read books about it. I’m like, okay, so I got to do this if I wanna become wealthy. And so that’s immediately what I did. And to tell people like, oh, you gotta save 30% of your income. And Adrian saved 95% of his income that year living in a van.
That’s like an impossible dream for most people. Find, catch it just before you get your first job, it’s very, very easy. But many of us have a life. And we have kids, and we have a mortgage, and we have car payments, whatever. So do 1%, like commit to investing 1%. And we have chapters in the book too, that sort of challenged this notion that you can’t afford to invest. I hope you had a chuckle with some of those. They’re very real examples with good math behind them, but you can’t afford to invest. Like I just wanna sort of push back a little bit on this, but just do 1% ’cause what it takes for you to invest 1% of your income, you gotta go open an account. You gotta look into, oh, should it be a Roth IRA? You got to figure out what I’m gonna invest in it. By the time you do that groundwork, that’s essentially most of the work it takes to become wealthy. So start with 1%.
Brett McKay: We’re gonna take a quick break for a word from our sponsors. And now back to the show. I wanna get into more specific tactics, personal finance tactics. So you have a chapter about investing early and investing, even if it’s just a dollar or just a percent of your income. And there’s some personal finance advice out there. I’m sure you see a lot of it ’cause you’re like in that. Personal finance TikTok Instagram world where there’s a whole bunch of talking heads giving out different bits of advice. And there’s this idea that, well, you shouldn’t invest until you have paid off your debt. But you say, no, you don’t need to wait until you pay off your debt to start investing.
Brad Klontz: Yeah, like as a psychologist, I think it’s a terrible idea for several reasons. First of all, I get it on the math side. You know, if you’ve got like a credit card that’s got 35% interest, here I am saying, well, you need to start investing. And you’re like, whoa, I’m gonna be shooting for an 8 or 10% return and this, yeah, I understand. I get it, I get it. I just want you to start investing right now. Now let’s say that you can put 10% of your income towards paying off debt investing, whatever, make it 1% and do the 9% over there. But the problem is for a lot of Americans is you’re never gonna be out of debt ever. You know, what’s gonna happen is you’re gonna pay off your credit card debt, then you’re gonna pay off your student loan.
Now you got a mortgage for 30 years, then there’s another car payment, but then your kids go to school. I mean, the idea that once I pay off my debt, then I’ll start investing. You are gonna lose the most important thing in the wealth formula. And that is time. Time is the most important thing. You want to have money invested for as long as possible because that’s where that magic of compound interest really starts to snowball. And that’s where these small amounts you’re putting in each month become worth millions. It’s that time factor. So invest as early as you can, and if you’re not doing it now, start as soon as you can.
Brett McKay: Okay. So for someone who’s listening to this and they’re feeling overwhelmed because they got student loans, I mean, they got a mortgage, they got a car loan, and they’re like, I just don’t, I don’t have room for investing. So what would that look like? I know it’s gonna vary from person to person, but broad strokes, how do you balance paying off debt and doing investing at the same time?
Brad Klontz: Yeah, I say don’t make it too complicated. I love the idea of identifying like three financial goals, getting really excited about them, we did a study on this where we had people visualize those goals and we saw a 73% increase in savings after just doing it that for an hour. So people went from about 10% to over 17% because they were so excited about it. So whatever that is, whatever that goal is for you, maybe it’s financial freedom at a certain age, maybe it’s a house someday. Like get a real exciting, clear vision of it and then just decide how much you can right now. Like maybe you have a goal, you want to save 10% of your income towards this goal or whatever. You can only do 1%. You just commit to doing it and, learning what it takes to do because it’s really not all that complicated.
Brett McKay: And then you, also recommend when people do start investing, don’t complicate your investments. You don’t have to do the whole penny stock, Robinhood, AMC stuff. Like just get an index fund and pile your money in that so you don’t have to think about it.
Brad Klontz: That’s exactly right. And I, as I mentioned, grew up low income and that was a huge mistake I made when I had $100,000 in student loan debt and I saw a buddy of mine make $100,000 in one year trading stock and he was trading stocks on margin. This guy knew nothing about what he was doing. ’cause I even asked him, I said, why are you buying that stock? He’s like, I have no idea. Click. And I was like, it’s really that easy. And, I got appalled. The reason I make TikTok videos is because I got appalled because a few years ago I’m like, oh my gosh, day trading’s back. I saw it on TikTok. And so now I’m a psychologist, but I also own an asset management company. So I actually manage money like close to a billion dollars for ultra wealthy people.
So I actually know what wealthy people do because I do it for them. And what they don’t do is any of the stuff that you’re seeing people sell you on get rich quick ideas. Whether it’s I’m gonna be a trading crypto, I’m gonna be trading stocks, this new NFT. To me, I put it in the same bucket as lottery and it’s a get rich quick scheme. I fell for it Coming from a lower income environment. You’ll hear stories about people who made it so big on this coin or that coin. It’s so seductive. It’s a poor mindset. It’s a poor mindset. Even on like day trading, like 97% of day traders lose money, 3% make money, but only one of those people make more than minimum wage. Their studies show that the longer you do it, the worse you do.
Even the pros on Wall Street can’t consistently beat the market. And so what makes you think you can do it? Some of that’s random error, it’s just not how people get rich, but it is how people stay poor because they have this idea, I’m gonna make it quick and I get why, I get why you have it, man, I had it. You know, it’s like being poor sucks. And so you don’t know how people become wealthy. So that’s what you’re very tempted to do. And so to your point, and I can’t give financial advice because I don’t know what, everyone’s circumstance is, but I’ll tell you that a lot of personal financial experts suggest as, starting out look at a Roth IRA. So just investigate that. And then when it comes to investing research, something called a target date fund. And what you’ll notice is it has a few key factors in there that are really important.
It’s diversified. So instead of like buying one stock, you own thousands of stocks. Instead of buying one size of stock like a small company, a large company, you got all of them across the world. It’s very diversified. It adjusts as you get older. So it’ll become more conservative as you get older. The point is you open that up and then you forget about it. And then you focus on what wealthy people focus on. Self-made. Wealthy people don’t focus on trading stocks. They don’t do that. They outsource it to these fund companies or in a financial advisor as we’re describing right now. And what they do is they focus on making more money so that they can invest more money. And that’s how they get there faster.
Brett McKay: Okay, so it sounds like becoming wealthy is pretty boring.
Brad Klontz: It’s pretty boring. And I know it sounds terrible and I know that many people aren’t believing me right now. And I just, a big part of our book too here is we don’t want you to make the same mistake. Save yourself some time. The poor mindset towards investing too is like, I’m gonna take this thousand bucks and I’m gonna turn it into 20,000 bucks this year. There are so many sharks out there waiting for you to do that. And they’re just gonna make money off you. Nobody does that. Who’s wealthy, nobody. And people who do that don’t become wealthy.
Brett McKay: So you got a chapter with another provocative title, get rid of your poor friends if you want to get rich. When I read that, I was like, man, this is harsh. What do you mean by that?
Brad Klontz: It is harsh. And I wish I could blame Adrian. I wish he was here. I like to blame the most offensive chapters on him. But if you’ve read any self-development books, you have probably heard something like you’re the average of your five closest friends. Like this is very common knowledge and in psychology it makes sense. So we have spent 99% of our time on earth in hunter gatherer tribes of about 100 to 150 people. And we’re very closely connected. You know, we ate what they ate, we wore what they wore. We were, we did what they did. Okay. And so that’s the way we’re wired. And so if you are hanging around a bunch of people who have a poor mindset, now remember we’re talking about a poor mindset. We’re not talking about being broke because I know a lot of broke people and I spend five minutes with them and I’m like, oh, oh, this kid’s gonna be a multimillionaire, like slam dunk.
Like I could just tell they have a rich mindset. I also know people who make six figure incomes, multiple six figure incomes. And I’m like, oh, they’re gonna be broke forever. Because they have a poor mindset. They just spend the money as soon as they get it. And so what we’re talking about here is if you want to climb the socioeconomic ladder, you are gonna have to distance yourself from people who have a poor mindset. ’cause they’re gonna suck you right into it. They’re gonna suck you into the spending. They’re gonna suck you into the competition around who can have the fanciest watch, who can have the most expensive car? And that mindset does keep you broke. It’ll keep you broke forever. And so what you wanna do is find people, first of all, if you don’t want to lose all your friends, immediately, try to convince them to come with you on this journey.
Let’s start there. And you’ll find a lot of them sort of refusing. What you want to do is be looking for people who have this rich mindset who are bragging about. It’s so cool too. I’ve met some communities. There’s this whole thing called the FIRE community, which is stands for Financial Independence, retire early. And I just went to one of the meetups over here in Colorado. These, people and, they’re crazy. They’re having conversations that are very different. They’re like bragging about what percentage of their income they’re investing. They’re having competitions on who’s paying the least amount for the best coverage for their auto insurance. If you rolled up with a Tesla or an expensive car at one of these things, they would look at you like you’re an idiot. I mean, they would just like look down on you.
Because that is a tribe that is focused on getting financial independence. And so they’re using all the tools even to the degree, which I don’t connect with, right? But because it’s so extreme, but they want it so bad, they’re willing to do that. So the general idea here is if there’s a goal you want to achieve, you should surround yourself with people who are moving in that direction or who are even a step or two ahead of you because you are going to, subconsciously you’re gonna drift towards what your closest friends are doing.
Brett McKay: Yeah. And you talk about your friends of the poor mindset. You can often be like crabs in a bucket, right? You’re trying to get, trying to improve yourself, but then like, ah, I don’t like that. And they’re gonna try to bring you back down. Did you experience that when you’re trying to work your way up in the world?
Brad Klontz: I did. I did. And it’s easy to look at those crabs as being nefarious. You know, they’re not, they love you. This is really what it comes down to. It’s that tribal mindset. It’s like all of a sudden they see you and you’re packing up your stuff and you’re about to leave the tribe and they love you and they don’t wanna lose you. And so they will try to sabotage you. They’ll try to keep you back in the tribe because they’re afraid you’re gonna drift away and you’re not gonna be a part of their life. And so that’s the way I look at it. It’s not like they’re trying to tear you down because they’re trying to be mean. They don’t wanna lose you. And so I would hear things like, oh, it must be nice and that could be like, must be nice that you have this car must be nice that you have some retirement savings, must be nice that you’re able to take a vacation or you’re able to work less.
And I’ve spent a lot of time too trying to teach the people closest to me how to make more money. And one of the things I love about collaborating with Adrian is that’s his deal. Like he teaches people how to make money online. And, just, just as an example too, I got an 11-year-old who’s making five grand this month by doing one of these side hustles that Adrian talks about in his book, that’s true too. I’ll show you the receipts. So I tried and I will continue to try to support and model, but the bottom line is there’s pressure and you feel guilty. And what I’ve noticed over time, not just in my life but many other people’s lives, there tends to be a bit of a drift because people start to feel bad around each other. And if you think about it as an example, let’s say that all of a sudden you’ve got 50 times the net worth of your best friend.
It’s like, when is it gonna start to be awkward? You know, is it like you pay for their dinner every time? You’ll say, of course I do. Well what about your trips? You’re gonna pay for the first class ticket or like in that movie bridesmaids, you’re gonna make them go and coach while you’re up in first class. It creates all these awkward situations and people don’t really want to talk about it. They don’t know how to deal with it and then they sort of drift apart. And so I think people know that on a visceral level. And so I see people come into money and then blow it all because they actually don’t wanna leave their tribe because of all that deep emotional connection and stress that ensues as you start to leave your tribe. And so that’s why I think it’s really important to make connections in, this tribe that you want to join someday, whatever tribe that is, whatever your, goal is in life.
Brett McKay: And you, also talk about you don’t have to cut off your friends completely or even family members. Like you just have to learn like it’s an issue. As you try to make yourself better and try to make a better life for your immediate family and for yourself, there’s gonna be that awkwardness. You’re just gonna, you’re have to learn how to deal with it and you might have to just learn how to live with that tension and be okay with it without having to resolve it.
Brad Klontz: Yeah. And maybe you don’t talk to them about some of the things you’re doing, you know? Maybe you’re just not as open about your income. You know, I talk about Adrian a lot because we’re buddies, but like when I call Adrian and I tell him about my net worth went up this or I got this business. He’s like, yeah, that’s awesome. And, there are people I wouldn’t call because I’d feel guilty and they’d be like, yeah, that’s great. You know, you’re talking about this business deal that you just signed. You know, that’s three years of my income, you know? And so you just have to be careful because that’s a terrible feeling and subconsciously you’re actually gonna probably try to sabotage yourself subconsciously because you feel terrible about it.
Brett McKay: Another observation you make and you write about this in the book is that poor people, people with a poor mindset, they don’t ask for help. How have you seen this manifest itself in your work as a clinical psychologist?
Brad Klontz: Yeah, so this is something that, came out in one of the studies I did on the ultra wealthy comparing them to, it was actually upper middle class, the ultra wealthy, We were much more likely to have professional help like financial advisors and CPAs and attorneys. And I’ve noticed this as a self-inflicted glass ceiling that a lot of lower income middle class people have. I call it do it yourself itis. ’cause I come from a family of do it yourself itis. And by the way, this is a survival technique when you don’t have much money. So I had an, one of my aunts did everybody’s taxes in the entire family ’cause she had a semester of taxes and getting an associate’s degree and she did it all for us. My dad grew up on a farm. You know, something breaks, you fix it yourself. You can’t afford to pay for it.
And so the challenge here, ’cause I get that, the challenge is that it can keep you stuck because, for example, with your taxes you could pay CPA hundreds of dollars. And the first time I did this, by the way, I outsourced my taxes immediately I had a 10x return. Like these people found some stuff I could write off and found some ways to do this or that. And all of a sudden I’m like up $1000 So I paid them a couple hundred and I’m, and then I just, I’ve seen this pattern repeatedly. So don’t be afraid to ask for help because the do-it-yourself itis that lower income middle class mindset’s gonna sort of shame you for doing it. And so the intervention there is only poor people are afraid to ask for help. That’s a poor mindset.
Rich people are actually, they’re actually, it’s easier for them to humble themselves and saying, look, I don’t know. I don’t know how to do this investing stuff. That’s sort of a tribe thing too. Like when you’re, as you become wealthier, you’re much more comfortable outsourcing some of that. And part of it is your social circles because you know, an accountant you know attorneys like when I was growing up, I didn’t know any of those people. So for me there were foreign outsiders and we didn’t trust them at all. So it was really hard to make that leap to asking for help. And so just to understand, most rich people in the US are self made and most of them have no problem asking for help. And so when I discover that in my own research, I’m like, oh, I started to look around. Are there areas of my life I could ask for more help? I mean, if that’s the rich mindset, I want it.
Brett McKay: So you have a chapter on building wealth about home ownership. And this is like in the personal finance world, it’s a very contentious topic and you and your co-author have divergent views on home ownership when it comes to becoming wealthy. So what’s your take on the role home ownership can play in developing wealth?
Brad Klontz: Yeah, so Adrian has a bunch of spreadsheets in the appendix if you want to nerd out on if you paid rent and then you invested the difference, how you would be better off 20, 25 years from now. And it’s, his math is really compelling. It’s like, okay, fine. The thing that tripped me up though is that nine out of 10 millionaires own their own homes and there’s a large percentage of people’s net worth is accounted for by home ownership. And so when you look into it a little bit deeper, you realize, first of all, nobody’s gonna go invest the difference in terms of how most people do it. And it so it becomes a forced savings for you. And so you’re gonna pay your mortgage, right? You’re gonna pay your mortgage before you go blow it at fancy dinners or on a car you can’t afford, you’re gonna pay your mortgage. And so I think that’s the association and there are other benefits to owning a home. But I think that’s the reason why you see that close correlation between wealth and home ownership. It’s because it’s a four savings that you’re gonna pay every day. It’s sort of forces you to pay yourself first, which is one of the main concepts in becoming wealthy.
Brett McKay: I’m curious, like what would you say to someone who you know, is listening to this podcast? I know a lot of our audience might be in their 40s, 50s and they feel like they’re behind on their financial goal timeline. Any advice for them? Like they feel like, ah, it’s just too late for me. And maybe that’s a like a learned helplessness or a lack of locus of control. What would you say to these guys who are in their 40s, 50s, 60s, who are just like, ah, it’s too late for me.
Brad Klontz: Yeah, I get it. And first of all, it’s not too late. I see this a lot too. Like, people are like, oh I’m in my 70s, I don’t wanna invest money because I’m afraid of losing it. I’m like, dude, you’re gonna live 30 more years. Like we need to have some money invested that’s gonna grow. We’ll put some in a more conservative area. But this isn’t an all or nothing thing. Like if you’re 40, 50 or even 60 you got 10, 15 more years to make more money, you can dramatically increase the quality of life you’re gonna have in retirement. Now you, might have some social security coming in. You could have an extra 1000 or 2000 a month even starting in your 60s. And just think about what that would be like for you. And so people underestimate the power of compound interest even under shorter time periods, 10, 20, 30 years.
We use 25 years as an example in our book on where people, if they cut down expenditures, how they can have millions more 25 years from now. But when, I’ve actually run the numbers with people who are in those age categories, they’re sort of blown away by looking at how much they could have. And I would just encourage listeners, if you don’t believe me, just find online something called a compound interest calculator. Just Google it, there’s a bunch of them and start putting in the numbers. So what if I invested 10,000 a year? What if I invested 1000 a year? And you play around and you say like, well I’ll just give you this number because this is the average return the US stock market for a hundred plus years. Just throw in there like what if it was an eight or 10% return a year? How much money would I have? And that type of calculator. I think if you do it, you are going to instantly realize that you could do a lot even starting out later.
Brett McKay: Do you have any advice for dads who want to help instill a rich mindset in their kids?
Brad Klontz: Yes. So first of all, talk about money with them. The biggest mistake parents make is they just don’t talk about it. And they don’t talk about it because they’re stressed or they feel like they’re not, they hadn’t done exactly what they wanted to do. Who am I to teach my kids? Your kids are learning, they’re learning all the time. That’s the first thing. Second is, I would encourage them if you’re doing allowance or if you’re helping them make money, model it for them, but then also make them invest it. You know, one of the things I hear parents complain about, oh, I give my kid the money and they just blow it. It’s like, well of course they just blow it. That’s what everybody does. You gotta train them. So my kids know they get a dollar, they’re investing right off the top. So half of it isn’t even theirs.
Half of it is their financial freedom, their future. And my kids are so into it. They asked me to show them their balances every day, their investing, their every dollar they get, they wanna invest it. I mean they’re fired up about it. And so funny, my 11-year-old, my wife is like, well, why don’t you spend some of that, Ethan? And he is like, why you guys, I don’t need anything. You guys give me food. You give me clothes. He goes, I’m gonna retire when I’m 40. That’s my 11-year-old. He’s fired up about it. So you, have to model it for them and put strings on it. So whatever values you want to teach, if you want to teach them that, oh, it’s important to be charitable, a third year allowance goes to spending a third goes to investing, a third goes to charity. And help them sharing your values, help them decide what charity to contribute to, and maybe even go down and hand the check over in person. So think about money is a huge reinforcer. It’s a huge part of their lives. And it always will be. What values are you wanting to pass down to them? And then figure out how can I structure that to show it?
Brett McKay: Yeah. Starting a Roth IRA account, I did that for my kids and it’s amazing like how fired up they get about it because you try to explain to them compound interest in the abstract and it’s, they might not get it ’cause they don’t like, wow. Doesn’t make any sense. But then when they get that vanguard statement every month, they’re like, oh wow, this is crazy. Like how much money I’ve made in the stock market for the past three years.
Brad Klontz: Absolutely. And it’s the pictures, it’s the emotion talking about why this matters. You can have a profound impact on your kids, and they’re hungry. They want to be taught by you. So make sure you do it around money.
Brett McKay: Well, Brad, this has been a great conversation. Where can people go to learn more about the book in your work?
Brad Klontz: Yeah, so the book is called Start Thinking Rich. And so go to startthinkingrich.com/artofmanliness. And so for any listeners of yours who go there, we’ll have some special bonuses for them, but, you’ll see the book and some other tools we have to help people really start thinking Rich.
Brett McKay: Fantastic. Well, Brad Klontz, thanks for your time. It’s Been a pleasure.
Brad Klontz: Thanks For having me.
Brett McKay: My guest today was Brad Klontz. He’s the co-author of the book Start Thinking Rich. It’s available on Amazon.com and bookstores everywhere. You can find more information about his work at his website, bradklontz.com. Also check out our show notes at aom.is/thinkrich. Where you find links to resources where we delve deeper into this topic.
Well, that wraps up another edition of the AOM podcast. Make sure to check out our website at artofmanliness.com where you find our podcast archives as well as thousands of articles that we’ve written over the years about pretty much anything you think of. And if you haven’t done so already, I’d appreciate it if you’d take one minute to give us a review on Apple podcast or Spotify. It helps out a lot. And if you’ve done that already, thank you. Please consider sharing the show with a friend or a family member who you think would get something out of it. As always, thank you for the continued support, Until next time, this is Brett McKay reminding you to not only listen to AOM podcast but put what you’ve heard into action.
