It Doesn’t Matter How Much Money You Make.

It Matters how much you Keep and what you do with it.

If I told someone that the amount of money they made (their income) was irrelevant to their overall wealth, they would call me crazy. However, it is 100% true. The main point of this statement is that it doesn’t mater how much money you are able to make, what matters is how much you keep.

This was a principle taught in the book “Rich Dad Poor Dad” and while it is correct, I believe I could add to it. While it matters more how much money you keep, the most important thing is what you do with the money you keep. If a person kept 30% of their income, and everything else went to expenses, it doesn’t matter how much money they made at first, the only thing that matters is how much money was in that 30%. If they just kept that 30% and let it sit around in a bank and not invest it, they would be waisting possible MILLIONS!!!

An Example of People Financially Literate vs. Illiterate

An example of this principle would be an NFL player. Lets say that an NFL player makes 5 million dollars a year. But, 40% goes to taxes(the average NFL federal tax). He still has $3,000,000 left but 1/3 of that goes to utilities like rent and food. He still has $2,000,000 so wants to help his friends and his parents for helping him get to the NFL so he gets his parents a house, his friends new cars, and his family members expensive Christmas Gifts. This maybe leaves him with a few hundred thousand dollars that he saves. Even though his salary was $5,000,000 he is only able to save a few hundred thousand. Even if he is able to play at the same level for 10 more years (Which is a lot for the NFL) he would have $5,000,000 to live off at 35 years old for the rest of his life.

Compare that to an financially literate person at working at a Financial Firm as a sales person. Maybe he only makes $8,000,000 compared to the NFL player. However, He is very smart and manages his expenses. He is able to work the taxes to only pay 10% of his yearly salary. This gives him $720,000 left. He also manages his expenses very well only letting 1/5 of that money go to utilities. This gives him upwards of $550,000 left to save, and maybe he puts $50,000 away just to cover other expenses like Christmas Gifts, and clothing for himself and his family. Not only does he save $500,000 (Which is more than the football player), he also puts this into a 401K, investing in an index fund with an average return rate. He is able to save around $8,000,000 in 10 years. $3,000,000 more than the football player while making a lot less than him. If he did this for 30 years instead of retiring, he would be living off of $20,000,000 at age 50 and would be increasing his net worth without even working. This is why, how much you save and invest is much more important that what you make.

Maximize Wealth

A financially literate person would find out how to limit their expenses to maximize how much they would save. Then they would use that money they saved and invest that money so that while they were working at their job to make money, their saved money would also be working and increasing. MAKE YOUR MONEY WORK FOR YOU!

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