“Shifting from a paycheck mentality to a net worth mentality is a shift from short-term to long-term thinking. Because the long-term future is so fuzzy and amorphous, it can be hard to plan your finances around something so abstract. But remember: One day an old man will visit you, and that old man will be you. By switching to a net worth mentality, you can be confident that the finances you leave him will be secure.”
Do you feel like you’re not getting ahead with your finances? That no matter how hard you work or how much extra money you earn, you’re still in the same place as you were a year or even five years ago? It may be that you have the wrong mindset about your finances.
The authors of The Bogleheads’ Guide to Investing (a book inspired by the sage investing principles of Jack Bogle) describe two mentalities when it comes to personal finance: the paycheck mentality and the net worth mentality. A person with a paycheck mentality just focuses on increasing their income in order to increase their wealth. A person with a net worth mentality also seeks to boost their income, but builds their wealth through saving and investing as well.
Pretty straightforward, right? The second path seems like the obvious tack to take. And yet many people are stuck in a paycheck mentality.
The problem, according to the authors, is that it’s easy to conflate income and wealth: