We are going to explore a paradox that exists in personal finance, namely: if you are a corporate executive or an employee with a good salary, there is little chance that you will achieve wealth.
It may seem counterintuitive but it is statistical: the vast majority or even almost all average and high salaries (meaning middle and upper middle class – let’s say from $2,500 net to $8,000 net per month per person) will never develop significant financial wealth.
We decided to look into the subject in order to try to develop it. The goal is to perhaps trigger awareness about this. Especially if you are in this situation.
As we have already mentioned, this is – in our opinion – only one of the 5 axes of money work. In fact, many people know how to earn a good salary but are not aware of the following things:
· Spending money
· Saving money
· Investing money
These are skills that can be learned and developed.
And above all, having a good mindset about money is not innate. It is even the opposite, as we repeat in our generic: we can see that most people inherit more limiting beliefs and obstacles about money rather than good habits and real financial skills.
I will go even further: we can see in people or couples who earn good salaries that it is difficult to trigger a trigger in relation to these other axes of money work!
We must realize that many people have money problems and yet have average or high salaries. One reality is that when you have little money, it is almost obligatory to manage your money. You have no choice. Whereas when you have an average or high salary, you can “afford” to see the state of the situation “from afar”.
The problem is to focus only on the inflow of money, that is to say the salary. And finally they forget to look at the outflow of money. When we focus only on “earning money” we tend to forget to look at spending it intelligently, to save accordingly (the more I earn, the more I save) and we tell ourselves that investing is not for us, that we do not “need” to invest because we earn a good living or we will embark on investments that are not or not very profitable.
We therefore suggest that you take up our working methodology at save me budget on the 5 axes of money to analyze this in detail and discover the reasons why an average or high salary does not guarantee you a path to wealth any more than a basic salary… and sometimes it can even be a hindrance!
First axis: EARN MONEY
One of the reasons why people who earn a good salary statistically develop very little wealth is due to the following bias that sets in: Since I earn a good “living”, I don’t look for other sources of income. Well yes, it’s logical, if your salary allows you to meet your needs, why do you insist on looking for something else that brings in money? Your salary is “enough” for you. I put it in quotation marks because what is it enough for you?
Earning a decent living is great, but it also sets you up in a comfort zone that slowly reduces the hunger to go for better. What’s more, earning a bigger salary can be done through sacrifices of time (I do overtime, I work more to get a promotion, I’m available even in the evenings and on weekends, etc.). And finally, I’m absorbed by my work and I don’t have, de facto, the time to create other sources. Because, for example, I devote the remaining time to family and leisure.
And finally, a large salary is either enough for us, or it takes up all our time and certainly our energy.
However, I would like to remind you that there are two major paths to wealth… These are called investment and entrepreneurship. We talked about it in one of the first episodes but these are two other ways to earn money.
However,
- If the comfort of your salary makes you think that you don’t need anything more (well yes, you earn $4,500 per month, why would you take the risk of trying a side business or even starting your own company?)
- Or that you have neither time nor energy for that because you already put more than 40 hours per week into your job and you are exhausted… it becomes complicated.
Well yes, even so-called passive investments require active implementation.
And finally, a big salary puts you to sleep and keeps you away from these two paths that are nevertheless extremely useful for creating wealth.
I would like to come back to the fact that a bigger salary can be a bigger obstacle to enrichment than an average salary at certain times: it is due to the fact that, ok, I earn 4,000 euros per month, I will perhaps try a little thing on the side and we will see. But if you earn 8,000 euros per month, well believe me, to earn this type of net salary, you already have to have responsibilities and that takes up a huge amount of time and energy. So I ask the question if it is not easier to leave a job at 1,800 euros per month than at 5,000 euros to try a new path? It is up to you to judge.
It must also be added that most people have this belief that they will always earn the same, that there will never be less income. In a career, the salary is increasing, there is no decrease. However, with today’s world of work, we realize that there may be reductions in income.
Second axis: SPENDING MONEY
This is often the axis that people do not want to see: How do I spend my money?
I can assure you that people with low incomes know how they spend their money. If you earn little, you must (it is an obligation because otherwise you jeopardize your vital needs) know where your money goes.
On the other hand, the phenomenon that we often encounter is thoughts like:
· “Since I earn well, I don’t look”
· “Being careful is for the poor”
· “I kill myself with work all year or all week, it’s not to deprive myself on the weekend”
· “I don’t have much time with my children so I like to please them with these purchases” (note there is no criticism, I am reporting thoughts heard)
And finally, we realize that there is little, very little or no control over spending among people who earn average or higher salaries.
As we know that vital needs are not in danger, we know that we can “treat ourselves”, that we can “not look”.
Remember this: most people earning average or high salaries do not control their spending! By controlling we do not mean not spending anything, we mean facing the truth, having knowledge of these expenses. Another vicious phenomenon that appears in the work axis of spending money for people who earn a good living is that of inflation of the standard of living and the “show off”.
We will find more or less unconscious mimicry behaviors:
My colleague goes on vacation to the islands, I go to the islands. Unconscious process.
The members of my entourage change cars, I change cars. And if they drive a German brand, I have to drive a German brand obviously.
I earn more, I buy a bigger house because a financial director does not live in a small house.
I go to the restaurant twice a week with colleagues even if I do not really want to or would prefer to spend this money elsewhere
I buy these branded clothes not for myself but for others
And finally, we find ourselves in a vicious circle which means that people earning higher salaries find themselves faced with higher expenses. We then think that we have to earn more to get by and if we do, well, guess what? Expenses continue to increase … and not necessarily towards items of expenditure that make sense.
Nothing is under control and earning more even turns out to be a problem the day we have to face a decrease in income (health problem, layoff, career change, etc.) because it is often easier to increase our expenses than to decrease them!
And even without an accident in life, let’s imagine that you decide to save more, it may be difficult to do and with a feeling of deprivation.
Third axis: SAVE MONEY
- “Why would I save because every month the money comes in”.
- “If I have to save, I just have to do it next month”.
- “If I wanted to, I could save 1,000 euros per month”.
This is the kind of thinking that you can hear from someone who earns a good living but who does not master this area of work.
By making the connection with what I have just highlighted in the axis of spending money, earning more means in most cases spending more and not saving or investing more.
We often find in people who start to earn more protection mechanisms put in place by their brains. They will tell us proudly that they manage to save 300 euros per month. That’s really good, except that it is the same monthly amount that they have been saving for 5 years while since then their income has increased much more significantly. If we follow the logic, they should have saved much, much more…
I still remember this sentence from an acquaintance who had received a nice promotion, allowing him to almost double his salary but who told me “Since I have my new position, we always put the same amount aside. It’s not what I imagined”. What had happened? Well until then they went skiing once every two years, and the other year to the seaside. Well guess what? Following the promotion, they went skiing every year… And to the seaside! But in addition, they had planned major renovations, allowed themselves more extras for themselves and the children…
In fact, they had not taken the time to put all the figures together and say to themselves – hey I earn for example €2,500 more, we are going to use €500 for this or that thing and save €1,000 for this or that future project. They were sailing without a specific destination! And the end result? A lack of understanding accompanied by frustration.
As a reminder, the best way to save is to make a budget, follow it and respect it!
But to really save, you need goals. They are obviously financial, but also life goals.
Fourth axis: INVESTING MONEY
- This is an axis where higher salaries are also generally not very skillful.
We can see, for example, people who have a lot of money set aside or who have a lot of guarantees to be able to invest and who: - Either do not get involved in investing at all because once you have money, a fear of losing it can appear.
- Or they invest but without being “hungry”. Sorry for the expression. We think that since we know how to earn a good salary, investing is easy and often these people get involved in unprofitable investments. For example, an investment at 5% gross annual yield, government bonds with very, very low yield, or even life insurance because “they can deduct taxes from that”. They forget to improve their investment skills before investing.
We rarely find this type of person behind, for example, very profitable real estate investments. Because yes, they often have neither the time nor the energy. They are not ready to turn to other modes of operation such as LCD or shared accommodation that may be more profitable. Due to lack of time, energy or desire.
A person with a low income, who has nevertheless managed to save and who has managed to raise their first loan for a real estate investment, I assure you that they are not stupid enough to invest at 5% gross.
But hey, I often say that it is better to have a bad investment even at 5% than nothing at all.
Another obstacle to investment that I have been able to detect is the fact that people who earn a lot, if they invest, they want to earn a lot. So either they take completely reckless risks or they set themselves such high wealth goals (for example: with 3 million euros net) that it is so huge that it completely demotivates them.
They therefore find themselves not motivated at all because, yes, investing takes time and the results are exponential and as you know, the start of the exponential is rather flat at the beginning! They will give up faster than others and will not continue especially if their first investment is much too risky and they lose a lot or precisely if the return is so low that they say to themselves: what’s the point?
That’s it for investment and the obstacles that exist among those who earn good salaries.
Fifth axis: THE MONEY MINDSET
There is also a commonly accepted shortcut that if a person earns a good living, as they say, it is because they have a good financial mindset.
This is false, it is even completely false.
It is also a skill that must be strengthened and developed! Even and especially on people with good salaries.
For example:
You can very well earn $10,000 per month and see money as evil. With this mindset, there is no risk of building anything like wealth.
You can earn $15,000 and spend $20,000 per month until you reach a financial disaster.
You can earn $5,000 and tell yourself that you do not deserve it. And not dare to invest to have more
· You can earn $20,000 per month and still compare yourself to others who earn more and feel inferior solely on the basis of this criterion.
· You can invest or rather take reckless risks with your money just to make “a good move” an exceptional move … just to attract the attention of those around you.
· You can earn $6,000 per month and forget your humility a little to the point of believing you have arrived. To believe that you know how to manage your money and even that you have a healthy relationship with it.
· You can also not dare to invest because you don’t dare to talk about it with your partner.
· You can spend all your money on gifts for your other half because there is a fear of losing it
· You can be afraid of succeeding … because if you succeed, will people still love you?
In all these examples, we are not faced with a problem of numbers but of mindset. This reason is fundamental in my opinion: it is not because someone is good at the skill of making money that they know how to manage their personal finances and know the path to wealth.
And finally, it might be interesting to define what wealth is. Here we are of course talking about financial wealth. However, significant financial assets can represent 100,000 dollar for some, 1 million dollar for others or even much more for some people. I think that this could be the subject of an entire podcast dedicated to wealth, in fact I am adding it to the list of topics to be developed. I will still recall Kyosaki’s definition of wealth, namely that your wealth is measured in time: it is the time during which you can survive if you lose your salary. In short, a rich person for him is someone who, if he loses his salary tomorrow, is still able to pay for his lifestyle with his assets.
But other riches exist, you know it as well as I do:
- What is the value of being healthy?
- Having a meaningful job?
- Having a positive impact on others?
- Seeing your children grow up?
- Waking up tomorrow?
We will end this article with the quote of the day: “Money does not buy happiness, but it can give you the choice of what makes you happy.” – Jim Rohn
This quote leads me to think that money is not the most important thing in life, but that it can give us the freedom to choose what makes us happy. Whether you are an executive or not, each of us can use our money for what we want. We can therefore see that money remains a powerful tool. It can give the freedom to choose our own path in life and thus help to achieve our dreams.
Of course, money and wealth are not the only things that matter.
It is also important to have harmonious relationships with others, to feel good about yourself and also, this is one of my convictions, I think it is important to make a difference in this world.
So let’s keep in mind that money can certainly be a valuable tool to help us achieve our goals and live a happier and more fulfilling life. So if you earn a good living, why not align your finances with your life goals? Why not transform your finances and your financial management to transform your life? This may be a great reason to try to become rich.
And no matter your situation, do not fall into fatalism. You are the master of your destiny.
