Marlene Dietrich, the renowned actress also known for her humanitarian efforts during World War II, is quoted saying, “There is a gigantic difference between earning a great deal of money and being rich.”

It’s true—you can earn a great deal of money and never be rich.

This truth brings us to the most important principle in building financial wealth because building wealth isn’t about how much money you make. Instead:

Building Wealth Is About How Much Money You Keep

This principle is the foundation on which all wealth is built.

For those new to the wealth-building journey, this can be a significant mindset shift. Many people believe that income is the metric that determines how wealthy you are. The logic is that if you earn a high income, you’re wealthy and if you earn a low income, you’re poor.

This belief is a large misconception, because income is a lever that can be adjusted and can contribute to your financial wealth, but income is not a direct measure of your wealth.
While income does play a significant factor in your ability to build wealth, your income isn’t wealth itself.

Instead, the amount of money that you keep is the more direct measure of your wealth.

To explore this, let’s look at the story of the doctor and the plumber in Colorado.

The doctor makes $200,000 per year as her salary, and the plumber makes $58,000 per year as his salary.

Based on these numbers alone, most people assume that the doctor is more wealthy because the doctor’s income is more than 3x more than the plumber’s.

If we break down the doctor’s salary, it comes out to be $16,666 per month. In the state of Colorado, this would end up being somewhere around $11,433 per month in take home pay after taxes for a single person.

If we break down the plumber’s salary, it comes out to be $4,833 per paycheck. In the state of Colorado, this would end up being somewhere around $3,698 per month in take home pay after taxes for a single person.

Based on these numbers, the doctor clearly has much more money to work with every month. So, the assumption remains that the doctor should be more wealthy.

In theory, that assumption is absolutely accurate—the doctor should be more wealthy.

But in practice, let’s take a look at how the doctor and plumber spend their money each month.

The doctor, with a high take home pay, bought a big house and leased a luxury car. She makes a lot of money and works hard, so she wants to reward herself with nice things that she can afford. With the big house and luxury car, she pays more for utilities and car insurance.

She also likes to eat out regularly with her friends downtown when she’s not working, but also wants to make sure she has her refrigerator stocked at home for the times she isn’t out and about. She loves keeping an eye on her favorite online stores for good seasonal sales, and she has her student loans to keep up with every month.

All in all, her monthly take home pay and expenses look like this:

Take Home Pay$11,433
Car Payment$700
Auto Insurance$180
Health Insurance$300
Cell Phone$70
Eating Out$400
Grocery Bill$400
Student Loans$2,100
Total Expenses$11,433
Total Saved$0

Yes, she can technically afford everything that she is buying, but take note of how much she is saving every month. It’s zero.

The plumber on the other hand has a much lower salary. However, he’s conscious of what he spends and why he spends it. He lives a life of Examined Wealth.

Because of this, he rents a small apartment for $1,000 a month. He bought an older used car and paid it off so that he doesn’t have a monthly payment on it. His auto insurance is lower, he saves a bit of money on his cell phone by limiting the data he uses, he doesn’t have a high utility bill because his apartment is small, he makes an effort to make most of his own meals and keeps his shopping and entertainment spending in check. His monthly take home pay and expenses look like this:

Take Home Pay$4,833
Car Payment$0
Auto Insurance$140
Health Insurance$300
Cell Phone$65
Eating Out$200
Grocery Bill$400
Student Loans$0
Total Expenses$2,580
Total Saved$2,253

At the end of the month, he can afford everything he is buying AND he is saving $2,253 per month.

The plumber, making significantly less every month, is saving significantly more every month because he is making more conscious decisions about where he is spending his money.

This brings us to an important sub-point of this principle:

Lifestyle Inflation is the Enemy of Building Wealth

Lifestyle inflation is the increase in spending that occurs when your income increases.

In this example, the doctor didn’t start off after high school with an expensive mortgage or luxury car payment; those things were acquired after her income went up. She knew that she had a bigger salary, and that she could afford to spend more freely, so her lifestyle inflated to fill the gap between what she was previously spending and what she could spend with her bigger salary.

As people earn raises or get promotions with higher salaries, most allow their monthly costs to increase because they can afford it.

But in doing this, you never empower yourself to save money, which is critical because:

Your Saved Money is The Foundation of Your Financial Wealth

If you look at the savings account of these two individuals over the course of a year, you can clearly see why building wealth isn’t about how much money you make. Here’s what it looks like:

Doctor’s Annual Savings

Month 1$0
Month 2$0
Month 3$0
Month 4$0
Month 5$0
Month 6$0
Month 7$0
Month 8$0
Month 9$0
Month 10$0
Month 11$0
Month 12$0

Plumber’s Annual Savings

Month 1$2,253
Month 2$4,506
Month 3$6,759
Month 4$9,012
Month 5$11,265
Month 6$13,518
Month 7$15,771
Month 8$18,024
Month 9$20,277
Month 10$22,530
Month 11$24,783
Month 12$27,036

At the end of one year, based on monthly savings alone, the doctor has $0 whereas the plumber has $27,036.

That’s a significant difference! The plumber has built more financial wealth in the course of a year than the doctor, despite having a significantly smaller income.

When you have savings, you can then choose how to invest that money into assets that help you grow your financial wealth.

If the plumber invests it in a conservative money market account receiving 1% interest on his savings, his total amount increases to a little over $27,160 by the end of the year.

If the plumber invests in the stock market and receives 7% growth over the year, he’ll have $27,920.

There are a number of different assets you can invest in, and we’ll explore those in later articles. The point of this article is to cover the first principle in building financial wealth; that building wealth isn’t about how much money you make, it’s about how much money you keep.

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