Separating Income and Wealth: You are What You Save

Even though income and wealth are closely related, they are two separate concepts. Many people often believe that if you have a high income that you are also going to be wealthy. This is not necessarily the case. Here are a few things to consider about the difference between income and wealth.

Income vs. Wealth

Income is the amount of money that you bring in. Wealth is the amount of money that you hang on to. Wealth is a product of saving and is not a direct result of having a high income. Many individuals have high incomes and they cannot save a dime of it. In order to be wealthy, you are going to need to be able to save a portion of your income for the future. Wealth is essentially your net worth. You can determine your wealth by adding up your assets and then subtracting your liabilities. You could make $1 million per year and not be wealthy if you spent every last bit of it. 

Developing Habits

Most people think that you have to make a lot of money in order to become wealthy. While it does help to make a large salary, anyone can eventually become wealthy. The most important part of becoming wealthy is forming the right habits. If you want to become wealthy, you need to get in the habit of saving and investing regularly. With time and compound interest, you can become wealthy even if you only put aside a few dollars every month.

Pay Yourself First

One of the most important habits that you can form is to pay yourself first. This is a strategy that has worked for hundreds of years. With this method, you are going to set aside a portion of your income as soon as you receive it. Many people make the mistake of getting paid and then trying to save what is left over at the end of the month. The only problem with this scenario is that there is never going to be anything left over.

You need to decide what percentage of your income that you want to save and then save it immediately when you receive your paycheck. If you can make this process automatic, it will be even more likely to occur. For example, you can set up an automatic transfer from your bank account every month into a savings account. By doing this, you are not going to have to think about saving a portion of your money and it will happen on its own. Before long, you are going to be left with a large sum of money in your savings account.

Save the Difference

Increasing your income is a great way to help you build wealth. However, many people end up spending the amount of money that they increase their incomes by. If you get a raise or develop some other source of income, you want to save at least half of the increase. This will allow you to improve your standard of living a bit and increase your savings at the same time.

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