It's STILL Not What You Make But What You Spend

Here's a piece on Money Central that I just couldn't pass up. The article is about who's rich in the world (To be among the richest 10% of adults in the world, just $61,000 in assets is needed. If you have more than $500,000, you're part of the richest 1%, the United Nations study says.) But the part that I want to highlight is a little quote way down the page. It says this:

Many people in high-income countries have negative net worth and -- somewhat paradoxically -- are among the poorest people in the world in terms of household wealth.

Why is this? Well, first of all, there are simply poor people wherever you go -- even in high-income countries.

But, and this is a big one in the U.S., much of it is self-induced. It's because people can't keep their spending under control. So despite having a large income, they find themselves going backwards financially because they are spending all of that large income plus some.

I've said it before, but it bears repeating: it's not what you make that makes you wealthy, it's what you spend. In other words, you must spend less than you earn if you want to make financial progress. If you spend more than you earn, even if you're earning $1 billion a year, you're losing money.

For more on this subject, see these posts:

• There's a Small Difference Between Financial Success and Financial Disaster

• My Best Financial Advice: Spend Less than You Earn

• Wealth is What You Save, Not What You Spend

• It's Not What You Make, It's What You Spend, Part 437

Comments

[Lazy Man and Money]

It's what you spend to some degree, but not entirely. You really just want to have a positive gap between earnings and expenses. Whether you earn 20K and spend 10K or earn 100K and spend 90K it doesn't really matter.

Tell the person trying to scratch a living NYC on 20K a year that it's not what you make. Sometimes your expendatures are necessary, so that it truly is a problem of that person not making enough.

[FMF]

I'd tell the person making $20k in NYC to move -- doing so would instantly double their purchasing power! :-)

See this for details:

http://www.freemoneyfinance.com/2006/11/free_money_fina_6.html

[TJP]

If you're living in NYC, then you'll need enough roommates to curb living expenses. Living in the city is tough on your wallet, but as FMF points out, "save more than you spend, and you've just created wealth."

There's also a lot of money killers in NYC - bars, coffee shops, operas and plays, and other leisure activities. that eat your wallet without notice.

Perhaps documenting every purchase would help the situation, along with losing the credit cards.

[financialgal]

A few months ago, the handles on the bag that I bring to work started fraying, and I used some duct tape to tape it up. My friends, who regularly shop at Nordstrom and Saks for their clothes and accessories, gave me a hard time about it and asked why I didn't just fork over some cash to buy a new bag. It's hard to deflect the peer pressure of spending money to look good and have the latest fashions, but my frugality has enabled me to work at a lower-pay but better quality-of-life job, while my friends are toiling at a sweatshop. They make more money, but they are chained to the job because of they have incurred substantial credit card debt and have bought expensive SUVs. My work bag isn't the most attractive thing, but it works, and most importantly, I have financial peace of mind.