This week…why net worth is more important than income.
The Income Rule
Why Net Worth Is More Important Than Income: Most people interested in personal finance have a goal to build wealth so they can have options, whether it’s traveling, switching careers, or simply retirement. In making that happen, it’s important to focus on income – earning more.
It’s all fine and dandy to have a $20,000 a month income. But if you’ve got no assets to speak of, if your income goes away suddenly, you’ll end up back to square one because people have a tendency to spend everything they earn. Growing your net worth requires a higher level of financial acumen than growing your income.
While it’s great to have a six-figure job, not focusing on net worth could destine you to work at that job forever. Here are a few of the reasons why net worth trumps income:
- You’re taxed on income, not net worth: The BIR is interested in how much you make, not how much you have.
- A different wealth mindset: While income focuses on your being a “worker bee,” net worth focuses on your own investments.
- A higher level of security: You feel more secure about your financial situation.
Of course, this isn’t to say that income isn’t important. It is, and, in fact, net worth and high income usually go hand in hand. It simply makes more sense to focus on how much you have than how much you make. And this focus can be helpful when planning for financial goals.
Next week, what we all look forward to…retirement
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“A wealthy person is simply someone who has learned how to make money when they’re not working.” – Robert Kiyosaki
