What’s the real difference in a wealthy person and someone barely scraping by? Why do some become millionaires while others end up broke? I previously wrote about how poor and rich are really states of mind and not directly tied to your income level, and even went so far as to say you have to act like a millionaire if you want to become one. That leads to today’s discussion: how do you define “wealthy?”
There are really two schools of thought:
- A wealthy person is someone who EARNS a lot of money
- A wealthy person is someone who can SAVE a lot of money
I’ve read Dr. Thomas Stanley’s books, The Millionaire Next Door, The Millionaire Mind and Stop Acting Rich (Hey FTC, those are affiliate links!). I’ve also been privileged to know some people who would definitely qualify as rich/wealthy if you were to look at their net worth. So which is it: high income earners or skilled savers? Let’s find out.
Perspective 1: It’s All about Income
When I imagine a rich person, I see fast cars, big houses, private jets, nice vacations, fancy clothes, and all that other stuff society models for us. It’s what the media, the movies, and every music video all show us. I can even remember watching Lifestyles of the Rich and Famous in the 80’s and hearing Robin Leach sign off with, “champagne wishes and caviar dreams.” The people we see as rich are almost always extremely high income earners: pro athletes, music stars or banking and real estate tycoons.
Perspective 2: It’s All about What You Do with Your Income
On the other side of the coin is the rich person who doesn’t focus on how much his/her income is, but only on what to do with it. This is the person who never makes the news because his/her life is pretty boring as far as the media is concerned. This person works hard at a decent job, earning a reasonable salary, and goes about daily life without seeming concern for all “the finer things in life.” Then you find out this person has $5 million dollars in the bank and upon retirement has decided it is time to travel the world. It’s the story of people like Sam Walton (you know, the guy who started WalMart?!).
What happens with those high income earners over time, when they aren’t hitting home runs or selling millions of albums? Some go on to live in the lap of luxury as shrewd businesspeople, while others…well…don’t. There are numerous examples of broke former millionaires. What did each of them have in common? They were all extremely high income earners for a fairly short term. They made lots of money, and when their incomes dropped, they didn’t know how to change their lifestyle to match. Realistically, high income earners (I mean those who really earn the big bucks), won’t keep it up forever. And that’s the problem.
The other person has taken stock of what’s important in life and decided most of the stuff that matters to him doesn’t have a price tag and isn’t meant to be bought. Over the years, this person has worked hard to make sure all the bills are paid, set aside money for a rainy day and beyond, and generally been hard-pressed to let go of money. Society calls this person cheap because he won’t buy a new car every year or two, lives in the same house he bought (and paid for) years ago, and decided impressing everybody was pretty low on the priority list.
Why it Matters
Most of you reading this will never earn $1 million or more in a year, and many of you will never even see $100,000+ in a year. Some of you will be very blessed to even make $50,000 in a year. That means for 98% or more of you reading these words, you will end up broke (and fast) if you try to live like you’ll make a seven-figure paycheck. You can’t live like someone earning $1 million per year when you’re earning $30,000 per year. That math will never work. So that leaves us to look to the second person, the person who makes the most of her income and recognizes the value of a dollar as it relates to work. Live like a person making $30,000 when you’re making $50,000 and you’ll be surprised at how fast you’ll become wealthy.
Recognize that the things of value in this world usually can’t be bought (health, family, friendships) and impressing someone with your new car or fancy house only perpetuates an unending cycle of debt payments. I want you to have really nice stuff, and I want you to enjoy life, but I don’t want you to be enslaved to a bank to do so. To quote Dave Ramsey (and I have this quote on a sticker on the back of my beat-up pickup truck), “Act Your Wage.” That is the person who is, or eventually will become wealthy.