What does it take to become a wealthy individual? A lot of assets? A high six-figure salary? I would argue that these can play a role in accumulating wealth, but the most important factor is you: your lifestyle, your goals, and your plan.
This article discusses the pitfalls of chasing ever-higher salaries to achieve the goal of building your wealth. Let’s begin by defining “wealthy.” According to the Merriam-Webster dictionary, the definition of ‘wealthy’ is an affluent person. A person who has an abundance of assets and has more than enough to satisfy their needs. This is the definition that we are using for this article.
What Constitutes Wealth?
As a Financial Planning Analyst, a significant portion of my day-to-day is calculating cash flows from pay stubs and budgets. I then project these values over a person’s lifetime to see if they will have enough assets or wealth to support their lifestyle in retirement. In my role, I don’t always see a correlation between one’s income and successful retirement plans. In fact, the primary correlation I see is income and expenses.
As income increases, people tend to spend what they make. Some clients earn well over $300,000 a year but will not have a successful retirement without making significant changes to their plan. I have worked on projections for some clients with significantly lower annual incomes who are personally happy with their status and lifestyle. When asked if they would want to take on a higher paying management role within their organizations, they confidently turn the offer down because our projections show they don’t need the extra income.
How Do I Become Wealthy?
So, “how do I become wealthy?” you may ask? The solution is simple.
Step 1 — Spend less than what you make.
Create a budget, get an idea of what you spend, and tailor it around your values and hobbies.
Step 2 — Ensure your surplus money (i.e., the money left over after paying your non-discretionary expenses) is working for you.
You can achieve this by working with a financial planner to develop a well-diversified, well-managed portfolio and a comprehensive financial plan. Of course, there is more to this step, but it depends on you and your goals.
Step 3 — Time. Give yourself and your portfolio time to grow.
You don’t need a $500,000-a-year salary to achieve true wealth. With a financial plan and proper guidance, you can achieve financial independence.