Many people naturally assume that the higher your salary is, the wealthier you are. That seems to make sense, right?
However, this is not always true. There are people who earn six figures a year, and yet still struggle financially. How does this happen? And if this is true, how does one go about building wealth if a high salary does not guarantee it?
The answer to these questions is not how much someone makes, it’s how they manage their money.
First, it’s important to understand that income is different from wealth. A person’s salary, or income, is the money they earn from working regularly. Wealth is the value of what someone owns, such as savings, investments, property, or other assets. Most importantly, wealth can continue to grow even if someone stops working. This is why wealth can become generational.
As people earn more, they also tend to spend more. They may want to enjoy things that a higher salary makes possible, such as more vacations, a nicer car, or a bigger house. This is completely natural. However, this spending can sometimes grow faster than income, leaving very little or nothing saved. Being mindful of lifestyle inflation when income increases can help someone begin to build wealth.
Paying off large debts, such as student debt, credit card debt, loans, and mortgages, can take up a large portion of someone’s income and affect their ability to save. Many people must also account for fixed expenses, such as childcare, which can take up a significant amount of their disposable income.
Even if someone has a high salary, a lack of future planning and high spending habits in the present can negatively impact their ability to accumulate wealth in the future. Keeping track of credit card spending and focusing on building up savings are simple ways of keeping finances healthy and the first steps in being able to build wealth.
Careful financial planning, making sure not to overspend, and a focus on saving are all good beginning steps to building wealth.
Beyond that, wealth comes from income-generating assets. Many people focus too much on earning more and not enough on investing more. Instead of relying solely on wages, investing in stocks, real estate, businesses and more is what truly begins to help people accumulate wealth.
It is also important to keep in mind that wealth—to a certain extent—is relative. Constant comparison to people online can make people feel as if they are never wealthy enough and can create an unhealthy mind. Try to focus on the joy of personal gains instead of comparison.
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