Making money is no guarantee of being rich

Here’s a fact: In 2018, 121 people fell off Forbes’ “The World’s Billionaires” list. Backtrack a bit more, and you realise that over 70% of the names on that list in 1982 were no longer on there by 2014.

So what went wrong? Possibly nothing. But it’s a reminder that staying rich is far more difficult than becoming rich.

How is that possible, you think? Surely people who have money will make more money?

Not quite. You see, making money from money requires three things –commitment, discipline and forward planning. Without that, having money is no guarantee of financial security, and this is why making money is no guarantee of being rich.

The annals of famous people are absolutely littered with millions squandered. Michael Jackson was some USD 400 million in debt when he died. Rapper 50cent declared bankruptcy in 2016. The list of people with money woes despite earning a lot is long. MC Hammer, Marvin Gaye, Meatloaf, and Burt Reynolds are all on there.

And being poor despite making a lot of money isn’t even a recent phenomenon. Famed writer Mark Twain went bankrupt despite the success of The Adventures of Tom Sawyer. He built financial security back with more writing and a popular speaking tour – only to lose it all again because of a failed investment in protein powder.

This leads us to three key ideas as to why making money isn’t enough and doesn’t guarantee being rich:

First, income is not wealth. If you’re making five figures and spending ten, you’re not wealthy. You’re in debt.

Second, being wealthy today is no guarantee of wealth tomorrow. Most people’s wealth depends on their portfolios’ underlying assets, which fluctuate. Stocks can go up and down, and business investments can fold. It takes careful long-term planning to make sure investments are sustainable.

Third, you need careful wealth management and a prudent long-term approach to keep your portfolio growing despite market changes.

So how do you convert earning money into being rich? Every story is different and everybody has their own goals and obligations. That’s why we always start our discussions by getting to know clients and understanding them inside out.

But still, there are a few good habits you can get yourself into, starting today.

Create a budget: Always have a budget for your spending every month.

Track your spending: You can’t budget if you’re not tracking your spending. Write down everything you spend – even if it’s something as trivial as a cup of coffee.

Save first: Most people spend when the paycheck comes in, and hope to put aside something at the end of the month. Reverse that so that you pay your savings account first, and then spend from what is left.

Be careful of debt: There’s good debt and bad debt. Good debt is usually when you borrow for a meaningful asset – like a house or a car. Bad debt is used to fuel your lifestyle. Be careful of both sorts of debt, but avoid the latter like the plague.

Hire a financial adviser or wealth planner: People – even those who are good with numbers – are often bad at managing their own wealth. It comes from a lack of objectivity and being too close to seeing the big picture. That’s where a trusted financial adviser comes in – with unbiased advice and goals for you to hit. Don’t hesitate – because this is one area of life where a fresh pair of eyes is incredibly useful.

So there you have it. Making money is no guarantee of being rich and in fact making it is easier than keeping it, but we hope we’ve given you a framework to think about!

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Mike is recognised at the forefront of financial planning as a financial advice mentor who demands only the best outcomes for both individuals and businesses he works alongside.

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