How to work at McDonald’s and still become a millionaire

Brad Klontz retired from financial psychology after the tech bubble burst in the early 2000s.

Klontz had tried his hand at stock trading after watching a friend make more than $100,000 in one year. But he felt great shame as the market crashed and his investments disappeared.

He tried to find out why he took such risks and how he could behave differently in the future.

Today, Klontz is a psychologist, a certified financial planner and an expert in behavioral finance. He is a member of CNBC’s Council of Financial Advisors and CNBC’s Global Financial Wellness Advisory Board.

In his estimation, psychology is perhaps the biggest obstacle to people’s financial success.

Klontz’s new book, “Start Thinking Rich: 21 Hard Truths to Take You From Financial Freedom to Financial Freedom” — co-authored with entrepreneur and social media influencer Adrian Brambila — aims to break down the mental barriers that stand in the way of freedom financial.

CNBC spoke with Klontz about these “harsh truths” and why he says people earning a McDonald’s salary can still become millionaires by changing their mindset.

The conversation has been edited and condensed for clarity.

Greg Iacurci: Why is psychology important when it comes to personal finance?

Brad Klontz: The basics of personal finance are actually quite simple. Financial literacy has its place, but I think it’s mostly [about] psychology.

Here’s my argument for it: The average American, the two biggest problems we have is that we spend more than we make and we don’t save and invest for the future. And I have literally yet to meet an adult who doesn’t know they shouldn’t do those two things. So everyone knows. No one stays broke because they don’t know the difference between a Roth IRA and a traditional IRA. This is not the problem we have.

It is not about lack of knowledge. I think it’s all about psychology.

GI: So how does psychology tend to get in the way of people?

BK: Biggest obstacle: money scripts. Most people are not aware of their beliefs about money. And there is a whole process to find out what they are. Part of it is looking at your financial flash points: these early experiences you have around money or that your parents had, or your grandparents had. People tend to repeat the pattern in their family, or go to the extreme opposite.

GI: You write very early in the book that there is a difference between being broke and being poor. Can you explain the difference?

BK: We are talking about a weak mentality.

Being broke means you have no money. I’ve been broken, my co-author is broken, our families are broken, a lot of people are broken. We distinguish between being broken, which is a hopefully temporary condition, and a weak mindset, which will keep you broken forever.

It’s not really about the money, because I know people who make six figures and multiple six figures, and they have a lean mentality. We all know stories of people who win the lottery, or they win a big sports contract or music contract, and then all of a sudden [the money is] gone Why is it gone? They have a weak mentality. That’s the difference we make.

GI: Does this suggest that people, regardless of their socio-economic circumstances, can lift themselves out of poverty if they adopt an affluent mindset?

BK: yes.

GI: Is this one of your “hard truths”?

BK: Yes. We frame it in different ways based on [book] chapter titles. For example, “It’s not your fault if you’re born poor, but it’s your fault if you die poor.” This is a pretty harsh reality that we are throwing in people’s faces.

GI: What is a rich mindset?

BK: It is an approach to life and an approach to money.

Some of them go against our natural wiring. It has an orientation to the future. You must have a vision for the future. A weak mentality [is] really focused on the here and now, not really thinking about the future. And if you don’t have a clear vision for your future, you won’t save, you won’t invest, you won’t live below your means.

A wealthy mindset emphasizes mastering their time versus mastering a bunch of stuff. A weak mentality, as we describe it, [is] very willing to trade time for things.

GI: What do you mean by that?

BK: A lean mindset is like, I want this fancy car. And I’m very willing to work an extra 10 hours a week so I can drive that car. And the problem with that is that mentality goes everywhere: “I’m going to buy the biggest house I can afford, I’m going to buy the nicest clothes I can afford, a big watch.” And then people have no net worth. They are not saving any net worth.

Meanwhile, a rich mindset is like: How can I own as much time as possible? You can think of this as retirement, where I no longer need to work to finance my life. They have a future orientation and think, “Every dollar that I get, I’m taking some of that money and I’m going to put it here so that I can own my time and eventually fund that money for the rest of my life.”

GI: I thought that was a great line. You write: “The belief that rich people are big spenders can be one of the most destructive money beliefs ever.”

BK: I have done research on this. In one study, we looked at a group of people who [each] had about $11 million in net worth and we compared them to a group of people who [each] had about $500,000 in net worth. These people had almost 18 times more money. And what we found is that they only spent twice as much, on their house, their vacation, their watch and their car.

They had money to spend 18 times as much, right? People who are the richest when it comes to money scripts [they] you have vigilant money scripts, which is the belief that it is important to save.

Those who spend more [have] “money status beliefs”. They had lower income, lower net worth. They are more likely to come from poorer homes. It’s like, “I’m going to show the world that I did it.” But it keeps you broke.

And, by the way, I had. All these insults to this poor mind, I had them all.

GI: So what’s the No. 1 that people can do to save themselves?

BK: The first part is embracing some of these harsh realities: Your political party will not save you. Your corporation doesn’t care about you. Your beliefs about money are keeping you poor.

All of these are meant, in different ways, simply to help you shift from an external locus of control to an internal locus of control: The results I’ve gotten in my life are because of me. It’s because of what I did, what I didn’t do, what I didn’t know. It’s a hard mentality to understand.

You need to wake up to the fact that it doesn’t matter who the president is when it comes to your financial freedom. None of them will make you financially free. They won’t send you a check. Your company? They don’t want you to be financially free. The replacement cost to you is really high. Your teachers cannot teach you to do this. They can teach you history and English. But they themselves are not financially free.

Ultimately, you have to do it yourself.

Then the next question is, well, what should I do? And that’s where we want to take people, because that’s a much easier answer.

GI: And what is the answer?

BK: The answer is really, really simple.

Here’s the rich mindset: $1 comes into your life; you will put a percentage of this into your financial freedom before you do anything else.

You can work at McDonald’s all your life and become a millionaire if you have that mindset.

GI: What percentage should people aim for?

BK: It just depends on how rich you want to be and how fast you want to get rich. This determines the percentage. You’ll hear personal finance experts say that you should save and invest at least 10% of everything you make. I defend 30%; that’s what I was shooting for, just because I think it helps you get there faster.

And people say, “Oh my god, 30%.” Well, it is very easy before you get your first job if you have this mindset. It’s really hard if you’ve designed your whole life around 100% of your salary. Here you have to make cuts.

We have a chapter on cutting costs. It’s called “Get a roommate, get on the bus, get sober, go bald and get a side hustle or shut up about being poor.”

in [hear] this all the time: “I can’t afford to invest.” We’re calling the bulls— for it. Yes, you can.

We looked at the average amount Americans spend on rent, cars, going to the gym, and alcohol. Two thousand dollars a month is the average rent; if you have a roommate, it reduces that to $1,000. That’s all, if you invested the difference, in 25 years you would have $1.3 million. Now, if you had three roommates, it would go up to $2 million. Just think about it. You are now a multimillionaire just from doing nothing else. And by the way, that’s the average market return.

But then when you add: Take the bus, stop drinking alcohol, shave your head? [That’s] $2.8 million over 25 years.

GI: If you do all those things?

BK: If you do all those things. This is just a roommate, riding the bus, not drinking alcohol and not going to the salon — watch YouTube [or] get your friend to cut your hair. The richest people I know, these are the things they do. And yes, $2.8 million.

I would say to all of you: This sounds terrible.

OK, so why don’t you go ahead and invest 30% of every dollar you earn? Then you don’t have to do any of that s—. If this is your mindset, it is impossible for you not to become a millionaire. Unless you do something stupid, like take your investments and do something crazy.