When you hear this phrase, what goes through your mind:
“A salary won’t make you rich”
If you’re thinking, “Bullshit!” or “Oh yeah? Hold my beer,” then you’re wrong. Well, sorta. That statement is true, but the problem is there’s a little more to it than that.
It’s not the whole story.
The fact is your salary provides the resources to make you rich.
But there’s a giant catch to that.
A Salary Won’t Make You Rich
Philosophically, the statement “a salary won’t make you rich” is 100% spot on. After all, look at some of the wealthiest people in the world.
The top 5 names on the Forbes 400 list:
- Elon Musk
- Jeff Bezos
- Larry Ellison
- Warren Buffett
- Larry Page
What’s one thing all these guys have in common?
If you said they all built ragingly successful businesses, you’d be right. It’s their businesses that made them rich, not just their salaries.
“Sure, Steve, but these are the most successful people on the planet. Of course they are rich. What about the rest of us?“
Literally no difference (other than their net worth compared to ours).
Let’s back up a minute.
Your salary is essential. It’s where the wealth-building timeline begins. But it’s critical to remember that your salary is only the beginning.
Your salary gives you the cash flow to buy assets, such as investing in the stock market or real estate. Or to build your own business, just like those five dudes on the Forbes 400 list did.
Investing in appreciating assets is how wealth is built.
This means your salary alone won’t make you rich. But your salary is the first step toward getting rich.
Here comes a gut punch:
Earning a hefty salary doesn’t mean you’re rich. It means you have the potential to be rich.
It’s true, and many high-income people figure this out the hard way.
Let’s say you earn $250,000 a year. You work a stressful job and are paid handsomely for it. As a result, you feel justified in enjoying the nicer things in life because of that job.
👉 You have season tickets to your favorite sports team.
👉 You routinely go out for $500 dinners with your spouse.
👉 Your pantry is stocked with 18-year-old booze at $1,250/bottle.
You get the idea…you’re a spender. You’re plunking down $220,000 a year on your house, car, season tickets, restaurants, yada yada.
Your rockstar lifestyle costs you $220,000 of your $250,000 salary (let’s assume the $250 Gs is after tax to make the math easy).
That means you’re left with $30,000 to…you know, save or something.
Compare this scenario with someone who only makes $120,000 but spends $70,000 a year. That’s $50,000 left over.
While making less than half of our hypothetical big spender, this person is saving more money and, therefore, getting richer.
The lower-income person is better financially than our $250,000 high-income rockstar because they use their salary to build an emergency fund and buy appreciating assets like stocks and ETFs.
Sucks to be you, big spender.
This teaches us several things, and this is what I want you to take from this email:
- “A salary won’t make you rich” is 100% true
- Your salary is important, but it’s only the beginning
- Do whatever you can to keep your salary going up
- Then, buy appreciating assets with your salary
- A big salary + small savings = looming financial disaster
Happy Saturday, everyone. Let’s get rich.
Chat next week!