Income Does Not Always Determine Wealth, Smart Management of Your Finances Does

You must make this your number one priority.

Many people think that wealth is directly determined by your income. A high level of income will allow you to be rich and live a comfortable life. From then on, you will go on a quest to earn more and more money.

I am not saying that this quest is a bad thing since we all need money to live.

However, before you get into this mode of operation, you must understand something more fundamental. Something without which you will not be able to achieve wealth even with an income that will keep increasing over time.

Joe has an income of $150K per year but neglects his finances

I'll use the example of a computer engineer who earns $150K a year. Joe graduates from a good university and has a good job at a tech company. He is fully focused on his work. Wanting to succeed, he puts all his energy into it.

Thus, he neglects to manage his finances.

Joe doesn't spend time building a budget to optimize his spending. Although he works hard to earn money every day, Joe doesn't take the time to invest the fruits of his labor to protect himself from the ravages of monetary inflation. Too obsessed with the success of his business, Joe does not seek to develop additional sources of income.

Joe is caught in the trap of the consumer society that keeps developing the materialistic side of us all. As a result, he spends a lot of his money on unnecessary things. As his income increases, his expenses also increase. He is in a vicious circle of impoverishment.

William earns $50K a year but is smart about his finances

At the other end of the spectrum, we have William who earns a paltry $50K a year. William did not have a great education like Joe, and he has a difficult job. However, William understands that he needs to manage his finances wisely if he is to get ahead financially.

William manages his budget carefully so that he doesn't fall into the trap of consumerism. When he has an urge to buy something, William gives himself time to think about it, which allows him to save a lot of money each month on unnecessary things that he chooses not to buy.

William uses his free time to develop other sources of income. Given his low salary in the 9 to 5 work world, this is a necessity for him. Little by little, William manages to generate money to supplement his income. He uses this money intelligently by investing it.

Well aware of the ravages of monetary inflation, he wants to protect the fruits of his labor.

The moral is that you cannot build financial wealth without smart management of your finances

At the end of the year, we have a Joe with very little left. Perhaps Joe even has debts that he had to incur to pay for his standard of living that he is unable to control. William has money available to him via emergency funds, but also via his investments that have grown.

Although he earns less money than Joe, William has more wealth.

The difference between these two profiles is how they use their income. You may have the highest income in the world, but you'll still be in bad financial shape if you don't know how to manage your finances properly.

The key is to keep your expenses at a constant level as your income increases. This is how you can truly achieve wealth, even if your income is not spectacular.

So the best thing you can do right now is to seek complete control of your finances. That's the first step in achieving financial wealth.