How Not to Get Rich
July 15th, 2009
The secret to not getting rich is to set your lifestyle around your income.
To simplify things, we’ll take a look at the following hypothetical scenario from a high level and assume no investment spending occurs. Bob earns $100,000 in a given year and spends $100,000 in that same year. Sue earns $50,000 in a given year and spends $40,000 in that same year. Sue is therefore able to build $10,000 more wealth than Bob despite earning significantly less than him.
Sue is able to build more wealth than Bob because she spends her money based on what she needs to live her modest lifestyle. If Sue gets a promotion and earns $60,000 next year, she won’t spend more to move her lifestyle up, instead she’ll still only spend $40,000 next year.
Bob however sets his lifestyle around his income. If Bob gets a promotion and earns $120,000 next year, he would increase his spending to $120,000 next year to live a more luxurious lifestyle.
If you emulate Bob and set your lifestyle around your income, you will never get rich.
Written by: tim
Categories: Frugal Living, Misc, Saving Money