Have you ever heard the saying “Big hat, no cattle”? I’ve never been much of a cowboy given my pretty and tender accountant build, but the phrase has more meaning than a sweet hat and lack of cows.
How often have you looked at a fancy-smancy car and thought the person driving it must be driving their gold brick home to sleep in their millions of dollars? Society tends to have the perception that if you are wealthy you spend money in a way that shows you are wealthy. This, when you think about it, is almost counter intuitive if your goal is to accumulate wealth. Generating income is similar to offense in sports; it puts points on the board, but doesn’t ensure you’ll win.
Being a high-income earner does not always equate to being wealthy. The problem with being a high income earner is often they feel obligated to spend to show they are such. Doing so leaves very little to invest at the end of the day. Just ask 78% of NFL players that go bankrupt within five years of retiring, or 60% of NBA players that do the same. These high income earners make more in a couple years than most do in a life time but their spending habits quickly catch up with their earnings. Once their professional careers are over and the pay day stops it’s difficult to support a lavish lifestyle and multi-
million dollar mortgage.
Defense Wins Games
The ONLY way to accumulate wealth is to make more than you spend. The benefit of accumulating wealth is that often it can be used to make more via investing. This has a snowball effect but only if
spending is managed.
I’ve always been more defensive minded win it comes to finance. I suppose a lot of that has to do with the fact I’m fairly risk adverse. I imagine this stems from the fact I could barely graze the rim when shooting basketball free-throws until my 20’s!
For most regular people that have average earning power managing our spending habits is a sure way to wealth and financial independence. Sometimes the best offense is a good defense.by