High Income is Not the same as Wealth. 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 invest in your first real estate property.
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 the additional income just seemed to vanish into thin air and you are not really sure where it went.
You my friend have fallen into a trap that all too many of us find ourselves in. You are mistaking a high income with wealth. You 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.
When I first read The Millionaire Next DoorI realised 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 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, especially real estate and a small business. With each asset they acquire, their net worth increases.
Most people do the exact opposite. They spend all of their income on status symbols like 50 inch flat screen TVs and expensive sports cars. While these types of purchases can be rewarding and make you feel good, they erode your debt 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 is why a higher income doesn’t necessarily equal wealth. Your neighbour 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.
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