Last updated on January 6th, 2019
Increasing your income is great. But in order to build true wealth you need to use that income to acquire assets than increase your net worth.
Do you ever feel like you just can’t get ahead?
You want to start putting money away and investing for your future but there never seems to be anything left after you pay all your bills.
If only you could make just a little more money you’d be in much better shape. Maybe when you get your next raise you can open up a brokerage account or invest in a mutual fund.
Oh that’s right…you said that last year. And the year before.
But even with those raises you still never had any money left over.
There was always some unexpected expense that came up, or all that additional income just seemed to vanish into thin air and you’re not even certain where it went.
You my friend have fallen into a trap that all too many of us have found ourselves in.
Even smart people can confuse a high income with wealth. But it is possible to build wealth even if you only have a modest income.
It is also possible to have a very high income and still have no wealth at all to speak of.
As I’ve mentioned previously, the secret to building wealth is spending less than you earn.
You may assume that if you could just earn a higher income, everything else would take care of itself. But as you’re about to learn, there’s a big difference between income and wealth.
What Does Wealth-Building Really Mean?
When I first read The Millionaire Next Door I realized there was a big difference in mindset between a typical millionaire and myself.
One point that really made me stop and think was that “affluent people follow a lifestyle conducive to accumulating wealth.”
They carefully and purposefully allocate a considerable amount of time and energy towards building their wealth.
They focus on saving their money and investing in assets that generate income and appreciate in value. That could include real estate, stocks or a small business. With each asset they acquire, their net worth increases more and more.
Unfortunately, most people do the exact opposite.
They spend all of their income (and then some through credit cards and loans) on status symbols like 70 inch flat screen TVs and expensive sports cars.
While these types of purchases can be rewarding and make you feel good temporarily, they erode your wealth instead of building it.
The minute you open the box or drive it off the lot it is worth much less than you paid for it.
As your salary increases you just increase your spending instead of taking the extra funds and investing them.
That’s called lifestyle inflation.
That’s why a higher income doesn’t necessarily equal wealth.
Your neighbor down the street with the new Mercedes and the expensive landscaping may be up to his eyeballs in debt and living paycheck to paycheck, while the guy down the street with the old pickup truck in his driveway could be a millionaire.
Appearances can be deceiving!
So do yourself a favor and stop trying to keep up with the Joneses.
Because like your neighbor with the Mercedes, they may not be as well off as they appear to be.
Instead of following them rightto the poor house, follow your own path to financial freedom.