Opinion
Why you don’t need to earn lots to be good with money
Paridhi Jain
Money contributorDo you ever wonder why you’re not further ahead? After all, you followed “the plan” right?
You went to school, studied hard, landed a good job, worked harder, hustled for promotions. That was meant to be the road map to financial success, right?
Just because you have a high-earning job doesn’t make you automatically better with money than those who earn less.Credit: Simon Letch
Yet, no matter how hard you work, it feels like the money just disappears. There’s never much leftover. You never feel like you’re actually getting ahead, whatever that’s supposed to mean.
Many of us buy into the belief that the ticket to financial security is going to school and getting a good job. We spend decades of our life in this pursuit, chasing the promised land. Yet, it never seems to arrive. How come?
While a good income can definitely help you fast-track financial success, it isn’t a guarantee. It’s what receives the most admiration and makes the most headlines, making money is only one part of the financial puzzle. Alone, it will never be enough to create financial security.
There is plenty of evidence to show that earning more is not a guarantee for financial success. For instance, recent research by Finder found that 1 in 2 Australians live pay to pay, including 42 per cent of households earning more than $100,000 annually.
An average earner with strong money management skills will have more long-term financial success than a high-earner with poor skills.
A quick Google also reveals countless stories of millionaires, “HENRYs” (High-Earners-Not-Rich-Yet) and lottery winners who earn big but stay stuck in financial struggle. So, if chasing a bigger pay cheque isn’t the golden ticket to financial success, what is?
You will never create financial security until you learn how to manage the money you’re making. In other words, it’s not just about what you earn, but what you do with what you earn.
Here are the four core areas of money management that are critical to long-term financial success:
- Saving money: This isn’t about penny-pinching and bargain shopping. It’s about having the mindset, systems and habits to consistently keep a portion of what you make because this is the first step for turning your money into wealth. If your money goes out as fast as it comes in, you will always feel broke, no matter how much you earn.
- Investing money: This is where you learn how to take the cash that you earn and put it into assets (like shares, real estate etc) that protect the value of your cash against inflation. Even if you’re a fantastic saver, without investing, the value of your money is going backwards every year. The only way to ensure your money keeps its value is to put your money into an asset that grows faster than inflation.
- Protecting money: This is a less popular topic in money management. As you grow your wealth, you will need to find ways to protect it from different risks. This might include insurance to cover different financial risks, estate planning to ensure your assets are appropriately managed after you pass, various financial and tax entities to protect against legal risks, and so on.
- Spending money: This is perhaps the least talked about section of money management. Typically, we only talk about it in relation to saving money. In other words, “spend less, save more”, seems to be as far as the conversation goes. However, few people actively work on strengthening their relationship with spending money, even though the way in which you spend money directly impacts your quality of life. Do you always feel guilty about spending, or do you enjoy it? Do you spend mindfully or mindlessly? Is spending money a “bad” thing in your books, or something you can use to enhance the quality of your life?
One or more of these core skills is missing in all the cases of high-income earners who struggle financially. You can’t make enough money to compensate for the lack of these four core skills.
Having helped countless people of all educational and professional backgrounds transform their financial lives, I can tell you that an average earner with strong money management skills will have more long-term financial success than a high-earner with poor money management skills.
This is actually good news. It means you can succeed financially even if you have an average job or educational background – your pay cheque is not the sole determinant of your financial success.
It means you can succeed financially even without always trying to make more money because managing your money well allows you to stretch your existing income twice as far anyway.
Just like Ronald Read, the janitor born into an impoverished farming family who didn’t have any higher education but quietly amassed a fortune of $8 million by the time he died. True story.
His secret? He just learned how to save, invest, protect and spend his money well. You can too.
Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest their money through financial education courses and classes.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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