Most of us know (or can easily calculate) how much money we make a year. But there’s another number that matters much more to your personal finance: how much of that you get to keep.
To a certain extent, spending your money is inevitable. However, the gap between your income and expenses determines how well off you really are. If you make $50,000 a year and spend $45,000 of that, you’re not as well off as someone who makes $35,000 a year but only spends $25,000. As personal finance blog The Money Principle explains:
When you want to know where you stand in the game of wealth you are likely to compare earning. The more you earn, the better of you think you are. This is what I thought. I always earned well; for most of my life I’ve earned more than most. Where did this get me? Four years ago, we had about $US160,000 consumer debt.
To get out of the debt hole, I had to understand that how much I earn is irrelevant; how much of that I keep is what really matters. If I’d planted this money seeds in my 20s, I’d be already working for the pleasure of it rather than the pay.
Certain expenses have to occur no matter what you do: housing, transportation, utilities and food are all mandatory. Most other things are optional. Taking a look at how much of your pay you actually get to keep can help show you how well off you really are.
6 Money seeds to bring you prosperity in later life [The Money Principle via Rockstar Finance]