As seen in Part 1, when it comes to thinking about wealth, I am primarily concerned with feeling wealthy. All the money in the world does no good if you are incapable of contentment. If you can control your wants, however, you are well positioned for financial prosperity regardless of your income level.
It is widely (and wrongly) believed that you need to have a high salary to achieve financial success. In my experience, there is almost no correlation. The highest earners I know frequently have very little money saved relative to what they spend annually (sometimes bewilderingly so), and some of the people that appear “lower/middle income” are very close to being set for life (due to a long history of saving and living modestly). It’s very much a case of “The Millionaire Next Door.”
The big difference between these two groups is that, while the lower earners have lower incomes (and even sometimes smaller portfolios/nest eggs), they spend a lot less. $500k, which might not sound like nearly enough for a rich person to retire on, can be more than adequate for a frugal person to pay the bills indefinitely.
If a high earner/high spender and a low earner/low spender each have $500k, which one is wealthier? It’s not a trick question. When it comes to the impact of that money, I believe the lower spender is far wealthier! That person, content with spending a smaller amount, has become financially independent! They can do whatever they want for work, regardless of whether it pays well. Meanwhile, the high spender remains shackled to the highest paying job available, no matter how burned out and ready for a change they might be. It’s ironic, given how quickly a high earner could accumulate that amount of money and be happily set for life if only they would reform their wants.
A correlate of this is that you can become wealthier without accumulating any more money. Even if you sustain a stable amount (say, $500k), your wealth will increase with your ability to make that money last! At a certain point of minimal spending, you’re Bill F***in’ Gates! The only difference is that, whereas his main hobby is philanthropy, you might choose to put more time into fly fishing, or writing, or beer making.
The failure of many Americans to become wealthy (in any sense of the word), looks like a simple matter of consuming too much and not saving enough. Technically, this is correct, but these are more like symptoms than root causes. Really, a big part of the problem stems from our convoluted sense of what it means to have a good life.
Thus, the key to becoming wealthy is not making more money, or even working harder. Instead, it comes down to spending less than you earn, and being content with that lower level of consumption. Doing so grants far greater resiliency, peace of mind, and flexibility for how you live than does a high salary. And the bigger the gap between your money-spending and your money-making is, the faster you will accumulate money and the wealthier you’ll feel. It’s a virtuous cycle, where feeling wealthy leads to lower spending, which leads to greater financial riches!
The better life is about being happier with what you have.