It's a financial truism that what you spend has more impact on your net worth than what you make. I've counseled people making well over $100,000 per year and going farther and farther into debt and also seen people making $30,000 with solid net worths. You have to consistently live below your means to grow a net worth of any meaningful size.
I was reading an article on "The Perfect Level of Rich" today when a paragraph jumped out at me and reinforced this point yet again. Here's what it said:
"You might think six- and seven-figure incomes suggest 'rich,' but that's not necessarily the case. For her book 'The Secrets of 6-Figure Women,' Barbara Stanny spoke to women who made anywhere from $100,000 to $7 million a year. But less than a third had a net worth over $1 million excluding their homes. Of those who did, few said they felt rich."
So...just to say it again with a twist...it's not what you make, it's what you spend that determines your net worth.
Update: Here's a follow-up to this post with real life examples.
It's the absolute truth. I'd have never believed it 10 or 15 years ago, but I believe it now.
Watching people who make much more than I do struggle with their money every single day ... it has changed so very much about how I view personal finance.
By the way, FMF, you have my site URL'd twice in your "Money Sites" link section at left.
Posted by: Michael | June 11, 2005 at 08:42 PM