I think there are three—knowing full well that some clever person will point out a fourth in the comments—mindsets that govern the spending of money. These are so different that I think they can be considered paradigms and thus they require an epiphany to get out of.

  • The debtor mindset focuses on paying the bills, living paycheck to paycheck, etc. This mind signs up for a ton of obligations, the worst one being the mortgage, and is scared to lose the only thing that keeps the creditors from knocking on their door. Being scared it is impossible to imagine not working for a living. It is like a person, who can’t swim, wearing a life jacket in the water. The last thing he thinks about is learning how to swim.
  • The second mindset focuses on paying for stuff. They don’t live paycheck to paycheck and a job loss is not as scary. Still, the mind is firmly set on the notion that to live a good life one must have money to pay for things and so one works to pay for nice houses, vacations, stuff, and experiences. While having a job is not a matter of survival it is still a matter of personal enjoyment. Not having a job means saying goodbye to a lot of stuff.
  • The investor mindset buys investments that can make more money. It is realized that investment income can actually replace working income. This is a paradigm shift because for the second mindset with an average liquid net worth of around $30,000 their investment income amounts to around a thousand bucks a year which barely covers a couple of weeks worth of living for them.

It is hard for me to identify with the first mindset, but I came from the second mindset. My paradigm shift came about for four reasons. First, I had recently gotten a raise (from a normal student stipend to a grad student stipend) so suddenly I was having problems spending money as fast as I was making them. Second, I learned about the peak oil problem and soon after the consumerism problem. Third, I realized that I was getting to be of house buying age; I had no money; and more importantly, interest payments meant I would pay for the house twice over compared to buying it in cash. Fourth, I read one of the Rich Dad Poor Dad books (I forget which one) and found the Your Money Or Your Life website which both presented idea that instead of buying stuff, I could save the money which would produce interest income for me. (Investing in higher yields than a savings account came much later.). When you think about it, that’s actually a fairly revolutionary idea to somewhere who used to think that unused cash sitting in an account has no purpose at all.

So in a sense, I too had an epiphany. They don’t really seem to happen until you are ready for them and usually several things have to be in order beforehand. It’s like mixing chemicals. You add a little of this and a little of that and then maybe you have gun powder. After this, it only takes a spark. That’s how I see it.