Income does not equal to wealth
TLDR: High income does not equal to wealth
Define Rich
What comes to mind when you think of someone who is rich. In your head imagine a rich person and close your eyes. What do you see?
A sprawling estate, huge house, pool, garden
Fancy cars
Expensive holidays
Branded wear, bags, watches, jewellery
Some version of the above list. Maybe more, maybe less.
But do you see a stock or bond portfolio. Isn’t that really wealth? The typical view of wealth in our minds is typically what you see on the outside but not anything that makes a person really rich.
High Income is not wealth
This blog post came about because of a recent news item which covered the aviation industry and how COVID has ravaged the industry and how the crew are struggling because of job losses and pay cuts.
But the surprising part of this article is as below.
For one pilot, having to take a pay cut has forced him to resort to borrowing money to keep his children in overseas universities. He is also trying to sell his car. The 50-year-old pilot who declined to be named has been with the airline for 27 years. He told TODAY that he is cash-strapped because the money he has earned during the span of his career has been invested in properties, stocks and bonds. On average, he used to earn S$23,000 a month compared with S$13,000 these days. “My monthly expenses add up to over S$19,000 a month and it’s not the right time to give up my stocks and bonds and sell my properties because I’ll get nothing. I’ll get a second job, I’ll sell my clothes if I have to,” he said.
Source: Todayonline
The median income in Singapore is around $ 4,500. So someone earning $ 23,000 puts them in the top 1% income earners in Singapore. Even after the pay cut the reduced salary of $ 13,000 puts them at the top 15% of earners in Singapore. But based on the news report, it looks like the pilot is struggling to make ends meet.
Living within your means
The only way to reduce it is to stash a good portion of your annual bonus or increments in a separate account to help visually separate it from your salary. I use an app called Spendee to track my income and expenses. I have separate entries for salary and increment as two posts into the account. Same goes for bonuses that i receive. This helps me visually separate the two out.
This helps. Also if your firm allows you to credit your salary into 2 separate accounts that helps too. Mine does, so I have 2 accounts to which my salary is split and credited into. One is my spend account and the other is my savings account. So only have a smaller starting point in my spend account to start with, which enables me to try and live within that amount.
Conclusion
The outside view of wealth is not real wealth, a flashy expensive car or a big McMansion might give the appearance of wealth. For the most part, they are liabilities. Real wealth is what you don’t see. Try and accumulate real wealth and reduce lifestyle creep.
Good luck and Happy Investing.