If I tell you that income itself is not that important in measuring financial success you may look at me funny. But that is exactly what I am going to tell you!
What is important is the surplus income that you have (or deficit, if you are overspending). It is the amount that you get to keep that will tell you how successful you are financially, not the amount that flows through your hands.
There are plenty of people that make big bucks yet are always broke. Why is that you may wonder. That is because as their income grows so does their houses, their boats, their lifestyle and the expenses. They are frittering their money away.
In the long run this will actually create a lot of stress in their life for several reasons. One is that wanting to keep getting more comes from their lack mentality, as such no matter how much they have it feels like it is not enough. They will work harder and for longer hours to bring in more.
Secondly if this job is no longer, then what will happen? There is all this debt (as generally the bigger things and the lifestyle is purchased on borrowed money) and no way to pay it.
Because all of this generally relationships and health of these people are affected.
So what do I recommend instead? Start with looking at your current net worth. This is a simple exercise of adding up all that you own versus all that you owe. What is the difference? Are you coming up in the positive? If so that is a good place to start. If not, you have some ground to make up.
Next look at what are your current income and expense levels? Are you making enough to cover your living expenses? If so great! Let’s go to the next level. How much surplus do you have?
If you think there isn’t any, I urge you to do this simple exercise for a month – every day track your income and spending. Where dos your money go? Do you spend on eating out, take aways, buy food that you don’t eat? Do you have pay TV? do you entertain a lot or being entertained a lot? Is there a weekly purchase of clothing that you do not need?
Once you have completed your tracking, have a look at where you could cut some expenditure from? Managing your cashflow will come down to priorities. Become mindful about your spending. Before you splurge on the next pair of Jimmy Choos or latest gadget consider the following:
- Is the purchase you are about to make going to help you reach your long term goals or is it providing instant gratification only? (with the guilt attached to it after the purchase)
- Is the expenditure high or low given your current circumstances? Will you get value out of it?
- What are the consequences of this purchase? $15-20 a day for lunch may seem low and convenient, but what is it in the big picture? If you look at how much that may bring if you invest it, in two years time that could be as much as $15,000!
I am not saying cut out all fun from your life. By becoming mindful you can become aware of your spending and make a choice for the better by doing so you will bring balance into your life, not to mention long term growth and prosperity.
Want to see how you measure up right now? Complete our FREE 7 Day Money Mindset Makeover Challenge!