I believe that all women should be financially aware. To live la dolce vita well into our older years, we need to understand the difference between wealth vs. income.
What is the difference between wealth and income? They are not the same thing but people oftentimes confuse them.
Income is the amount of money you receive on a regular schedule as compensation for a service provided. Your paycheck, for example.
Wealth on the other hand does not rely on a salary, but includes things like savings, investments, assets, property owned, inheritance, your possessions.
Measuring Your Wealth
Think about your lifestyle. If you lost your job, how long would you be able to maintain your current standard of living? You can measure your wealth by how long you would be able to maintain your lifestyle without earning a salary.
Most people in the United States live off of their salary. They make their car payments with their paychecks. They pay their mortgage with their paychecks. But if there were no more paychecks, they wouldn’t be able to keep up with any of those things.
Calculate how much it costs you to live for a month. Factor in rent or mortgage, food, insurance, medical expenses, taxes, utilities, cable, light bulbs, trash bags, toothpaste, soap, every little thing that costs you money. Because that’s how much money you will need multiplied by twelve for each year of retirement. When you eventually pay off your house (and have thus accumulated some wealth) you no longer have to factor your mortgage into that number, because you have secured yourself a place to live. But if you always rent, then you will need to factor a rent payment into your retirement fund.
You Don’t Have To Be Rich To Build Wealth
Even with a moderate salary, if you live within your means and invest for the future, you could maintain your lifestyle after retirement for many years. By putting money away each month, investing wisely, contributing to a retirement fund, paying off your mortgage, you slowly build wealth. The earlier you start, the more time you have to watch the magic of compound interest grow your nest egg.
On the other hand, a high-salaried job, like that of a doctor or lawyer, may cost you a lot to obtain. Pricey college tuition and post-graduate schools can take decades to pay off. You’re forced to earn a high salary just to pay down the debt. It’s certainly possible, but you have to be aware of what you are getting yourself into.
Even if you don’t have a lot of debt but live extravagantly, you may appear wealthy on the surface by spending all your money on a fancy house and luxury car, but if you are living paycheck to paycheck, it can all go away in a heartbeat. If your high income stopped, you could lose it all. These people are slaves to their paycheck.
Patience Is Key
Many people live with the fantasy that they will suddenly win the lottery and receive a bundle of money that will save them. That happens to very few people. I know, I buy lottery tickets too.
Building real wealth can take time. That’s why as soon as you start earning, you need to start putting some of your income away and investing it. It’s very important to not go into massive debt. You can not amass wealth while paying off debt or letting debt revolve. You pay far higher interest on credit cards than you will ever make as a return on an investment.
If you have a spouse or a potential spouse, be sure he is on the same page about money. Discuss your goals, your views on money, savings and investments. Don’t marry someone who is already up to their ears in debt. I know that sounds harsh, but you have to take care of yourself first. The wrong person can cause you to lose it all. Don’t fall in love with potential.
Steps to Financial Independence
* reduce expenses
* generate income
* get out of debt first (before investing)
* save money
* invest money
* watch it grow
* enjoy the magic of compound interest
* acquire property so you don’t have to factor rent into your retirement living expenses
Wealth = Freedom
I’m not suggesting that you shouldn’t work. Your salary is what helps you to start saving and investing. But start planning early so you don’t have to depend on salary alone. When it comes time to retire, or if you lose your job, or if you can’t work because you or your spouse become sick or disabled, you want to be able to maintain your lifestyle.
You need to build wealth slowly and carefully so you can reap the benefits later when you will need them most. I want you to live the sweet life, la dolce vita, well into retirement.