Everyone wants to know the secret to building wealth. To get to that secret, lets first start off with some basic math. There are just two variables in the wealth equation:
1. what you make (your income)
2. what you spend (your expenses)
The aggregate total of what you make, minus the total of what you spend will determine your net worth. Improving your influence on those two variables is the secret to building wealth. It’s pretty simple math.
On the income side of the equation, if you meet status quo, you can get pretty far. For example:
- Being an obedient student can result in good grades and proficient standardized test results, which can get you accepted in to a post-secondary educational institution.
- Doing the same at that post-secondary institution can result in you getting a college degree.
- Obtaining a college degree can land you a solid corporate job.
- Doing the expected things at a corporate job can ensure stability, longevity, modest raises, occasional promotions, and a good income.
In other words, status quo can bring you income success. And that’s half the battle.
- But things take a drastic turn for the worse when we seek to meet status quo on the expense side of the equation:
- The typical path to getting that college degree results in crippling education debt
- The purchase of overpriced and unnecessary luxurious stuff and entertainment results in paralyzing credit card debt, and ironically, little to no sustained happiness
- Buying a home that is way bigger than needed results in mortgage slave debt that can last for an entire lifetime, and even more consumer debt to fill all of the empty rooms
- A soul-less traditional wedding results in $30K+ of added crippling debt and the start of couple financial turmoil (the top cause for unfortunate and expensive divorces, by the way)
- A long commute results in 2+ inefficient vehicles in the driveway and more paralyzing debt
- Health and cooking acumen suffers at the hands of opting for the “convenience” of plenty of unhealthy takeout and restaurant meals (at 3-4X the price)
- To keep up in appearance at work, a complete wardrobe refresh is thought to be due every year or two
- To try to take one’s mind off of work, cookie cutter and painfully antiseptic tourist experiences are financed once or twice per year
- Pricey data, cable, and new-every-year devices are purchased to further numb the mind from reality
- To pay for all of of this, careers must last well into the 60’s, 70’s, and beyond (out of necessity, not desire) because retirement savings are non-existent
Those things that are status quo on the expense side result in status quo savings (an average personal savings rate below 5% and often in negative territory), paycheck-to-paycheck living (as 55% of Americans do), and the constant fear of drowning in financial ruin.
If you want to build wealth and earn true “FU money”, giving you the financial independence and freedom to do what you truly want in life – then you have to deny status quo on the expense side of the equation, because earning more does not cure all. It does take practice and discipline, but contentment can beat consumerism.
There are exceptions to this rule, but not many. And even those whose luck lands them in the 0.1% with obscene amounts of income and wealth (i.e. lottery winners, professional athletes, musicians) have been known to blow it in pursuit of a lavish status quo on the expense side.
The beautiful thing is that a little acknowledgement, discipline, creativity, reducing cognitive load, and gratitude is all it really takes to defy status quo.
Couldn’t agree more. Simple things (but hard to do) that could save us bucks in the long run may be painful at first but is truly rewarding.
I just started cooking meals at home a week ago and I’m still in the adjustment phase. It saves me a lot! Though I need to allocate time for cooking, the savings are pouring in so I get happy in return.
Also, the health benefits are fantastic as I avoided sugar and salt in my diet. I’ve never felt any better than before
The easiest way to build wealth is actually by cutting costs. It takes less time and energy than trying to increase your income. Unfortunately, so many people want to “keep up with the Joneses” and like you said, status quo savings. I totally agree that if people want to become wealthy, they need to defy the status quo.
Sure, and taking a look to how much money you spend (and waste!) can be a great way to start making adjustments and decisions that will lead you to having a greater net worth next week, month and year.
Great post! Too many people are worried about the bigger home or luxury car that in reality they can’t afford and will end up working forever to pay for the lifestyle.