Just because you earn a lot of money doesn't make you wealthy. Wealth is about saving for the long-term. Anyone can work towards being wealthy.
It’s hard to feel rich when a stack of bills consistently takes a voracious bite out of your paycheck each and every payday. Spending money on essentials like housing and saving money for the future does not feel like a luxury when you compare yourself to high rolling friends.
Although the terms wealth and income are often confused, they have two completely different meanings. It’s important to know the difference in order to spot the contrasts in your life.
Income focuses on the present
Many people consider high income earners to be rich. Of course, if you are making a whopping six-figure income, then it is easy to look rich. Especially if you do not plan on saving any of that income for the future. With that high income, you can lease fancy cars, buy nice dinners, wear expensive designer clothes and go on fabulous vacations without breaking a sweat.
However, all of those expenditures are just a present-day reality of appearing rich. That does not necessarily mean that those spenders are in fact rich. A high income can vanish just as quickly as a changing tide due to a layoff, market change, or illness.
Wealth focuses on the long-term
Wealth is typically characterized by long-term financial prosperity in combination with your total net worth. Instead of the amount of income coming into the household for the year, wealth looks beyond a yearly snapshot of earnings. Wealth is meant to sustain a healthy financial future for years to come instead of a constant supply of Instagram worthy purchases.
Income is important but what you do with that income will build wealth or not. Building wealth comes down to leveraging your savings into long-term financial stability.
It can be tough to prioritize long-term financial success over short-term luxury items that make you feel rich. Even though driving a luxury car might make you feel rich today, you might feel differently as you approach retirement with meager savings.
A high income does not translate directly into wealth. If you spend all of your income, then you will not build wealth. Yes, it is that simple. If you earn a six-figure salary but spend it all, then you are not building wealth.
Luckily, you can build wealth on any income. Whatever your income, big or small, you can focus on saving your money and building wealth instead of spending on nonessential luxuries that make you look rich.
Of course, it can be easier to build wealth on a higher salary because you can afford to save more after your essential spending. It is smart to work towards increasing your income, while simultaneously lowering your expenses. The more space you can create between your income and expenses, the more you will be able to save towards long-term wealth.
The question of the hour – how can you build wealth.
How to build wealth
Create a budget. Understanding how you're spending your money and where you can cut back is essential to saving and growing your wealth. ...
Pay off any high-interest debt. ...
Build an emergency fund. ...
Invest as much of your income as you can. ...
Reduce your living expenses where you can. ...
Avoid “lifestyle creep” ...
Negotiate your salary.
As you build wealth over the course of your lifetime, you will be tempted to stray from your goals countless times. If you approach wealth building with an attitude that you are giving something up, then it will be even more difficult to stay the course.
It is important to adjust that mindset early on. You have the opportunity to build wealth and create a new level of richness that you’ve never experienced before. With a solid foundation of wealth, you’ll have more freedom and flexibility to pursue whatever you see fit. Use that as a motivating factor to continually push towards wealth. Even if your income is relatively low, you can still make progress towards wealth with smart spending choices.
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