A high income does not guarantee a RICH YOU
Almost everyone among us aim for a higher income. We all work very hard towards achieving the fat pay package which we always dream of. For most of us, it’s a straight equation – more the income – more the bonus and we can be rich throughout our life and can retire rich in peace with loads of money.
Unfortunately with respect to finances, the equation is not so straightforward and simple. Had it been so straightforward, guys with high salaries would have become filthy rich and all of them would be happy by now.
More money, more income is sadly not the answer to financial woes of human beings.
Don’t get me wrong!
Here I am not denying the importance of the high income for an individual. A high income gives you a head-start in planning personal finances for you. It also gives you distinct advantages in the process of building wealth.
Here are the 5 indicators which points that you can not be rich even with the high income
- You are trying to keep up with joneses : This one is a major pitfall. While uncontrolled spending can leave anyone broke, keeping up with joneses will never allow any high income household to become financially responsible. whether we are working in corporate jobs or living in a tony neighborhood, there is a lot of peer pressure which compels us to own latest cars, expensive homes, latest gadgets, to party every weekend etc. Easy credit availability by the banks also fuels this mentality and the advertising ensures that you feel outcast if you do not buy the latest gadget or the fastest car.
- You think investments are to be done only when you are nearing retirement : Many individuals are highly qualified in their respective streams. They did well in studies, mastered the art of their trade and earn a lot. Many are doctors, engineers, designers – earning high incomes. But they seldom pay attention to investments just because of ignorance. Their incomes are high, their expenses are high. Their monthly income is usually equal to their expenses. Since their expenses are met month on month, they do not think of investments. Also they do not feel the need of taking consultancy on the investments.
When it comes to decision making about finances and investments, most of us like to postpone it to some other day. This stands true not only for decision making about investments but also for evaluating existing finances. Unknowingly, one ignores an important fact that there is a REAL cost which is associated with the delay in investments. Most of us tend to get away with this as there are no immediate visible effects of these delays. Nor we proactively calculate the potential damage it can cause.
If you keep delaying, you need more amount as investment at a later stage to achieve desired funds. The early you realize this, better it is for you. You must know how to use the magic of compounding to your advantage.
- You keep accumulating depreciating assets : When you have a high income, it’s easy to reach your financial goals of life and retire rich with sufficient money. Unfortunately most of us start pouring money towards depreciating assets. We tend to spend money on the asset class which loses its value quickly. We fail to identify these money drains and our money keeps losing its value over time.
By the time we realize this, it’s usually too late and a lot of money had already gone into the drain.
Latest cars, high end furniture, multiple vehicles, latest gadgets, luxury brand accessories are some of the items that comes under this category.
- Your fixed expenses are very high: If you compliment high income with less expenses, the leftover is the investable surplus. This investable surplus can be systematically invested to build wealth.
If the income is high and so the expenses, you will not be left with investable surplus. The lack of investable surplus will never let you accumulate wealth. The major expense month on month is the fixed set of expenses. Expenses like home loan / mortgage payments, monthly payments towards car and any other vehicle, utility payments etc.
A bigger house translates into a higher monthly payment for mortgage, higher utility bills, higher maintenance cost, higher home association charges. Same stands for cars. A bigger car translates into a bigger monthly payment, a bigger insurance premium, a bigger maintenance cost, a bigger wear and tear costs.
One need to identify fixed monthly costs and try to keep them at minimum. Buy the right house you need, do not overspend. Same stands true for your vehicle.
- You do not budget and you think that you are managing money well : Poor spending habits, uncontrolled expenses can be a disaster to your finances. They can even put you in a really bad situation financially.
But if you are not budgeting and not tracking your expenses, it can also cause a big disaster to your finances. It can not only put financial stress on your retired life, but also your day to day finances can get affected badly.
Tracking expenses becomes more important when your income is high. In case of high expenses, it’s good to track expenses and find money leaks. If you do not track expenses and budget, you can easily blow up your monthly income and will never come to know where all your money went. This will not leave you with any investable surplus to build wealth and achieve financial independence.
So, take charge of your money. Do not count budgeting and writing expenses as a burden. If you start budgeting and writing expenses, you can avoid many common issues and problems related to money which you are facing in your day to day life.
Here is how to make a simple budget?
- Money alone doesn’t bring happiness but it sure can help
- You only have to take care of your money and ensure that it grows – none else will do it unless they have their own personal interest attached to it
- Money can not solve all your problems. Yes but it can help you sail through most of your problems
Happy Investing !!!