It’s not how much you make, it’s how much you save
This bothered me. Not because I was jealous of our acquaintance’s healthy household income, but because my friend automatically assumed that because of the salary they were making, they were automatically rich. If there’s one thing I’ve learned since I started this personal finance journey, is that when it comes to money, you can’t judge how financially savvy someone is by their salary or their appearance.
The definition of the word “rich” means to have a great deal of money or assets. Well, if our acquaintance is making $240,000, but also spending $240,000, then she isn’t rich – she’s just living a $240,000 lifestyle. A big pay cheque doesn’t mean a thing if you have nothing to show for it, and we just didn’t know what their financial situation is to know if they are actually “rich.”
From 2006 to 2011 (5 years) I grew my net worth from -$20,000 to +$63,000. That’s a difference of $83,000 (or an average of $16,600 per year)! And I did that all on an average annual salary of $44,000. My salary was quite low, but my savings rate made me feel rich.
Now that my income is higher (I’ll earn around $85,000 to 90,000 this year), I’m trying really hard to curb lifestyle inflation. Because let’s be real, the more money you make, the more you have to spend (and the more you likely will spend). More money equals upgrading your housing, buying nicer clothing, more frequent Starbucks trips, and more vacations. I’m guilty of some of those things, but I’m trying the best I can. :)
Below is a chart based on an average month of spending for me in 2007, 2013, and 2016:
Related: Can lifestyle inflation be avoided?
Let me be the first to tell you that I’m not rich. I do not earn large pay cheques, and my net worth is only about $120,000. But my monthly expenses (as shown above) aren’t that much different than they were 9 or 10 years ago. My rent has only gone up by $100, and I feel like my groceries and entertainment budget have increased by a normal amount.
So while my $120,000 net worth isn’t much to celebrate now, that number will continue to increase every month. And 2016 could turn out to be a great year for me, as I have the ability to save nearly $40,000 if I stick to my budget.
I’ve blogged about it before, but I no longer aspire to earn more money. If it happens, it’ll be due to working hard at my full-time job or becoming more strategic with my freelancing. But I’m not going to sacrifice my lifestyle in pursuit of more dollars. :) So that means I’m never going to have a enviable salary that my friends can talk about behind my back. I’ll never wear high fashion brand name clothes, or fly first class, or hire house cleaners (but actually that’s mostly because RD refuses to let me). I just want to be comfortable.
My method of getting rich is by being smart with the money that I already earn. I want to save at least 50% of my net income this year, curb lifestyle inflation as best I can, and grow my wealth in a healthy and sustainable way. To me, this seems like a way better plan than trying to figure out a way to earn millions of dollars, or buying Lotto Max tickets in the hope of striking rich. :)
So whenever you hear of someone who earns the kind of salary you could only dream of, just remember that comparing yourself to others (while tempting to do) is never a good idea. There are always going to be people who make more money than you, but you can live a fulfilling life on your own terms by keeping lifestyle inflation in check and saving your money.
What are your savings goals for 2016?
Author: Krystal Yee
I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.