Saving

Spending like a rich person can help you grow your wealth, says financial psychologist — here's how

Share
Twenty/20

If you'd like to save money, one of the best things you can do might be to learn to spend like a rich person.

This doesn't mean buying a designer wardrobe, though. It means understanding what's known as your money script, or the personal history and subconscious beliefs that form your approach to money. Your money script shapes your approach to spending, saving, and investing — and it can have a big impact on your finances. If yours isn't helping you make smart choices, your next step could be to get rid of it and adopt a rich person's instead.

"We learn" our money scripts, or "we inherit them," says Brad Klontz, a financial psychology professor at Creighton University and author of "Mind Over Money." "One money script is, 'There will never be enough money,' and that's very real for a lot of people."

Klontz, who researches psychology and behavior around money, says this money script is rooted in a scarcity mindset, or the belief that there will never be enough, so you should spend whatever you have now.

Wealthy people, many of whom don't have scarcity mindsets, generally don't spend as much money as they can, Klontz has found. One study of 1,096 respondents showed that ultrawealthy people who had 18 times more money than the middle class only spent twice as much on watches, car, vacations, and housing. For example, billionaire investor Warren Buffett is known for his frugality, including not spending more than $3.17 on breakfast

"Wealthy people are actually cost-conscious, and they save, and they use coupons, and that's how they become wealthy," says Klontz.

How to swap 'a scarcity mindset' for a more useful one

A lot of people have a scarcity mindset, one they may have developed in response to financial stress, or one they may have inherited from their parents, says Klontz. Regardless, it's not the way rich people think, and if you want to grow your wealth, it may not be the most helpful mindset for you, either.

Klontz says it's important to figure out where your money script comes from. "Sometimes that's inherited from their parents," he says. "You may have grown up middle class, but your parents grew up in the Great Depression."

It can hurt your self-worth to feel like you have less, and you might end up spending more or being "vulnerable to buying status items," says Klontz. "You grew up poor and now you make $100,000 so you buy a $10,000 watch and a luxury car."

Since the scarcity mindset can cause you to spend more, Klontz suggests asking yourself, "What would an actually wealthy person do?"

Wealthy people are actually cost-conscious, and they save and they use coupons, and that's how they become wealthy.
Brad Klontz
financial psychology professor at Creighton University and author of 'Mind Over Money' Brad Klontz

The money mindset Klontz says is associated with strong financial health and higher net worth is called "money vigilance," he told Grow earlier this year. This assumes you have the right amount of financial anxiety — enough to keep you motivated, but not so much that you're stressed out.

"It's understanding that it's important to save for a rainy day, or feeling like you'd be a nervous wreck if you didn't have money saved for an emergency," says Klontz.

How to spend like a rich person

Developing a mindset of "money vigilance" requires practice, and making some of the same money moves that rich people make can help. For example, they buy status items sparingly. "People who flash those luxury items, it's almost a sure sign they are actually poor, because why else is this so important to you?" says Klontz. "I don't see Bill Gates wearing Armani suits."

Wealthy people shop around and look for deals, says Klontz. They comparison shop. "They are not blowing all their money on luxury items." 

Buy the affordable item instead of the more expensive status item, he suggests: "Recognize you have an aversion to this, but this is what wealthy people do, and end up on the other side of the bell curve." 

Overall, he says, thinking and spending like rich people can help you put more money away, and let that money grow.

"Becoming wealthy, it's one variable: It's saving," he says. "It's not how much you make. I know people who make six figures and have a negative net worth," because they spend more than they have.

You want to do the opposite and have much more than you spend. After all, he says, "the definition of wealth is net worth." 

More from Grow: