It's Not About What You Make, But What You Spend (or Don't Spend)

Life is all about choices. Good choices lead to good results. Bad choices lead to bad results. If we change our choices, we change the results. This is so true when it comes to money management. So many people are never satisfied when it comes to money. Many people say that if only they made x amount of dollars, they would be on easy street, with no worries about money. That is not always true. Often times, the more we make, the more we spend. How many times have we heard about famous athletes or celebrities that have made millions, only to end up broke due to poor money management? People need to think before they spend. I am convinced that debt is the number one thing that leads to financial ruin. Let's look at two scenarios:

scenario #1: an individual makes a gross yearly income of $30,000 per year
mortgage: $0
credit card debt: $0
car loan: $0
student loans: $0
other debts: $0

scenario #2: an individual makes a gross yearly income of $100,000 per year
mortgage: $300,000
credit card debt: $5,000
car loan: $25,000
student loans: $20,000
other debts: $15,000

Some people automatically assume that anyone who makes 6 figures has it made, with no money worries at all. The person in scenario #2 has a lot of their income eaten up be debts which require monthly payments where varying rates of interest are charged. I would rather be in scenario #1. The person in that situation has no debt obligations so they can put a large percentage of their pay towards retirement investments. That person may actually retire earlier than the person in scenario #2. The person in the first scenario may be able to put 15% of their income towards a 401k where the second person only can contribute 3% due to all of their debts. Person #1 may very well have more disposable income to spend on enjoyable activities. Now, these scenarios are extreme, and avoiding debt all together may not be realistic, but still it is food for thought. The term "rich" is relative. Someone can make one million dollars per year and be poor, and another person might make a modest salary and be rich in comparison when debt load is considered. So, next time you see someone driving a brand new Cadillac, they may not be rich at all. The person in the 10 year old car that has been paid off for years might be better off. You can't judge a book by its cover.