ACCOUNTANTS rgfa BUSINESS ADVISORS
rgfa ACCOUNTANTS
207 Sandy Beach Rd.
Plymouth, MA 02360
United States
ph: 508-295-1758
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You make $40,000 or $10,000,000 what's the difference, not much
Well there is a difference in the numbers that’s about it. What society wants you to believe is that the more money that you make, the better off you are. I hear clients say all of the time” If I made more money, I would be all set. Ok, fine. But regardless of how much money you make, if you always spend 20% more than you earn you will run into problems. So if you make $10, you will spend $12, if you make $1,000, you will spend $1,200, if you make $100,000, you will spend $120,000 and if you make $10,000,000 you will spend $12,000,000. You see how it works. In this case, and in most cases in personal finance people usually spend more than they make so they are left with a problem.
The other problem is that most people regardless of how much money they make always think that they will be better off by earning more. For example. I love sports. Today’s professional athletes can make in the millions of dollars. Now add the 20% concept to their salaries? Are they better off, not really. Unfortunately the rest of the world thinks they are better off. If they spend correctly they will be.
I was giving a lecture once on growing your business. I asked the class, “is it always good to make more money in your business”. You may think it is an easy question, but it is not, it depends on a number of different variables that currently exist in your business. I then said; well let’s bring this to a personal level. I asked, are you better off making $500,000 a year and spending $550,000 or making $40,000 and spending $30,000/ Let me give you a hint. The person who made $500,000 owes someone $50,000 because they spent too much. The person who made $40,000 has $10,000 left over. Yes, the person who made $40,000 is in better shape.
Now do this over a five year period. The person who's salary is $500,000 now is in debt $250,000 ($50,000 a year at 5 years). The person who makes $40,000 has $50,000 ($10,000 at 5 years). Add some years onto and this is a perfect display of how wealth is created. Some of the wealthiest people I have been surrounded by in my career didn't necessarily make a lot of money, they spent well.
I was speaking with an executive the other day from a company by the name of yelp. We went off topic for a moment and started to discuss the topic of spending. We started to discuss the financial issues that people with children have, and their strategy to save for them. I never thought of this so I thank her. She said it's very simple, "today people aren't ready to let go of their current luxuries to benefit for the future of their children". Wow, that hurt. Unfortunately, there is a lot of truth to that; it seems like the American way these days.
So to reinforce, is it about how much you make. The answer is no. Is it about how much you spend, the answer is yes, it’s all about how much you spend. The sooner our society figures this out, the better we all will be.
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rgfa ACCOUNTANTS
207 Sandy Beach Rd.
Plymouth, MA 02360
United States
ph: 508-295-1758
info