Recently I posted Making the Most of the Money You Have which suggested that it's not how much you make that matters in your financial success, but how you handle what you make. Here are some similar thoughts from the book The Net Worth Workout: A Powerful Program for a Lifetime of Financial Fitness
Perhaps you're one of those people who thinks that if you earn a bigger paycheck, your money issues will go away. Ask yourself how you lived when you were twenty-five. Are you earning more than you were then? Most of us are. Have your financial problems been alleviated because you're earning more now? Then what makes you think anything will change as you earn more in the next five years?
It's not the number of digits in your paycheck that makes you financially strong. It's what you're doing with the money you have.
This is what I've found to be the case as well. People who spend all they have (and more) will do the same even if they make more. Those that don't spend all they have already will most likely save/invest any extra money they earn. The issue isn't making more money -- it's how people handle money. And what they do with a smaller amount of money, they'll do with a larger amount as well.
For more thoughts on this issue, see these posts:
"Are you earning more than you were then? Most of us are. Have your financial problems been alleviated because you're earning more now?"
Yes I am. And yes, they have.
OK, my financial life isn't perfect yet, but it's WAY better than it was at 25. At 25, I was being hounded by debt collectors night and day, I lived in constant fear of my life because I couldn't afford to keep my car insured, which meant I kept getting arrested (which led to the beatings and gang-rapes), I went to bed hungry most nights (I might not have cared, if the debt collectors had let me sleep more than 90 minutes at a time...), my family had completely written me off as a lost cause, and if I hadn't been afraid of hurting my only remaining friend, I'd have gone ahead and killed myself, like I really wanted to. (Yeah, going to college sure made my life after college swell...)
Now I'm (almost...got a mortgage to pay) debt-free, my credit history is starting to (very slowly) age itself into better shape, I live in a nice house, have a wonderful fiancee, drive a completely legal and responsibly insured car, and at some point in the next ten years and probably within the next 5 (depending on various semi-unpredictable factors) I'll be earning more from my businesses and investments than I am from my W2 job, and I'll be able to "retire" (and probably work harder than ever...just without a boss or any fear of getting "fired", and never again on anything to which I have moral objections or even anything which I don't enjoy).
I am, at this moment, 31 years old. So we're not talking about a span of decades in which compound interest and marginal raises gradually accumulated. Indeed, the most important changes happened over a period of just four years.
Now, a case could be made that it wasn't the fact that I made a series of job moves that led to a much higher salary that got me here, because I _could_ (in theory) have just gone out and blown the money and ended up just as bad-off. But frankly that's bogus. WITHOUT that increase in income, no amount of responsible behavior was going to get me out of the hole I was in and enable me to improve my life much at all...and CERTAINLY not as much as I actually _have_ improved it.
Saying that income improvement isn't the cause of life improvement because some people blow the money is like saying that seatbelts aren't the cause of safer car crashes because some people get trapped in burning cars by them. How many people does that happen to, compared to the number they save? Likewise, how many people are worse off with more money, compared to how many are better?
Posted by: Matt | February 19, 2007 at 11:12 PM