Earning A High Salary Won't Make You Wealthy, And Here's Why
Being wealthy is on my bucket list, right next to climbing the half dome at Yosemite National Park and becoming immune to carbs.
There's a key distinction here: I'm not saying I want to be rich. Instead, I'd like to accumulate wealth. A common misconception is thinking the two are synonymous. To put it simply, rich people spend money, but wealthy people grow it.
To me, wealthy means being able to do what I love without financial anxiety. I hope to have enough to take a year off and snowboard all over the world before I'm in my mid-30s.
Like most, growing wealth and having money is a priority for me. It's not going to happen in an afternoon of looking at my expenses and budget. It's a lifelong goal I'll have to work at consistently. It starts with making a good salary, but it certainly doesn't end there.
What's the point of making money if all you know how to do is spend it and pay bills? Having a high salary won't automatically make you wealthy.
Having $100,000 and making $100,000 are two different things.
The best way to lose $100,000 is to spend it all. Obviously, you can't stash away every penny in your paycheck, but the more mindful you are about your money, the more you'll have.
I'm not going to skimp out on some experiences, like traveling once in awhile, but I'm not going to live large every day either. Since I'm only financially responsible for myself, I have more wiggle room to cut down on bills and invest as much as I can.
After clearing debt and saving up for an emergency fund, investing should be your number one priority. Putting your money into stocks, bonds, mutual funds and more gives it a chance to grow. While the market fluctuates, the long term return on investments can make you wealthy. Play with this calculator to see how you can potentially turn $100 you invest now into $100,000 later without working 24 hours a day. That way you can actually be worth more than just the money you're making.
A high salary is the dream, but taxes are a nightmare.
The more money you make, the more you have to give up to the tax man. If you're curious about what tax bracket you're in, check this chart on Bankrate. According to the chart, once you make just under $100,000 with income from a salary, you're giving up almost 30 percent to taxes. Gross.
So taxes suck, but there are (legal) ways to soften the blow no matter what salary you make.
Contributing to a retirement account like a 401k is an excellent place to start. Not only are you putting pre-tax income aside for that sweet, sweet retirement, you're also lowering your taxable income. Meaning, you pay less taxes on the money you're bringing home. You can see how that math breaks down here.
What's the point of making a high salary if you're paying 30 percent in taxes?
Your income is only half the battle.
If you're in a place where you can save extra money, it's losing value over time in your bank account. Inflation is a thing. Most savings accounts have an interest rate that's so low it barely counts when you also consider inflation in the long run.
Net worth measures wealth, not how much your salary is. That's why investing is crucial. When you invest, your money is working for you, instead of losing value over time in a savings account.
The sooner you start, the better. And if a lack of knowledge is what's stopping you, it's time to start educating yourself.
Looking like you're made of money doesn't mean you have a lot of money.
Remember when Kanye dropped the debt bomb on Twitter? Fifty-three million in debt is no picnic. Kanye lost money because of his investments, not necessarily because he was spending too much. Either way, he can't be reckless! If I were Kanye, I'd start by selling my private jet.
Lots of celebrities have had to file for bankruptcy because of their hyper-consumptive lifestyles. No one really needs an island and a bunch of yachts. No one. It's all to show off a big paycheck.
Watching your money grow is actually more satisfying than wasting it on material things. If you need to keep up with the newest trends, you won't be happy running out of money all the time. If you've fallen in the trend trap, hit me up when we're age 60. I'll be chilling hard in my vacation house in Aspen, and you'll be able to tell me you were cool once.
Just because you make a million bucks doesn't mean you have to look like it. I'd rather feel like a million bucks by being financially secure.
I never feel sorry about the fact that I'll probably never own expensive bullsh*t because I live vicariously through the Kardashians on Instagram. Thanks, Kardashians!
Now is the time to think about what your lifestyle will be like later.
Being rich means something different for everyone. Start thinking now about what type of lifestyle you want to have down the line. Do you see yourself island hopping in Indonesia? Do you want to retire in Honolulu? Make a plan for your money and make it happen.
If your current lifestyle doesn't allow you to put money away, you should take a good look at where your hard earned cash is going.
Everyone in the world has some degree of money worry. Imagine a life where you could worry about money less later by building wealth now. Even just knowing you're taking steps toward saving and investing will give you less anxiety.
After educating myself on personal finance, I can wrap my head around where $100k would go when I end up making that much in the future. I'm telling you right now, I will save and invest as much as possible.