Money Myth Number One - More Money Will Solve My Money Problems
I often hear people say, "if only I could just make a little more money, I'd be able to get ahead financially.
" This sentiment actually reflects a myth about money that has kept countless people from reaching financial prosperity.
This is the myth that more money solves money problems.
I'll also look at what the reality is, and how you can leverage that reality to gain incredible mastery over your money situation.
This is the first of a series of five articles that each describe a myth about money management, and explain how understanding the true principle can be a powerful force in building prosperity.
At first glance it seems incredibly logical that an extra $500 or $1,000 would make an incredible difference in dealing with our current money difficulties.
And, if all else were to remain equal, this would likely be a valid assumption.
Unfortunately, where increases in income are concerned, all things seldom remain equal.
I worked with a man once who was an insurance and investment salesman.
Over the course of four years he increased his income from $50,000 a year to one million dollars a year.
That's an increase of 1,200 percent! There's another side to that story, though.
The same year that he earned a million dollars, he spent $1.
1 million.
He closed out the year with $100,000 in consumer debt.
That's twice as much debt in year four as his entire income in year one.
And, when his income dropped significantly in year five, he had some serious financial troubles, even though he earned over half a million dollars.
The situation of another man I knew was quite a bit different.
This man never earned more than $40,000 a year.
Yet, he never seemed to have any money problems.
So what was the difference? When he bought his first house, he bought one that was significantly less expensive than what he could "qualify" for.
He made additional principal payments, and had the house paid off within 15 years.
He set aside 20 percent of his income for savings and investments.
He saved up for his cars, and paid cash for them.
And, he was able to retire debt-free, as a millionaire.
These two examples illustrate the true financial principle: spending less than I earn will solve my money problems.
An interesting study was done a few years ago.
In this study people from every income group (from $15,000 a year to $150,000 a year) responded that they needed about 10 percent more money to really meet their needs.
If you remember the man with the income of $1 Million, you begin to see that, no matter how much money you make, that same inclination is there.
In 'The Richest Man in Babylon,' Arkad states, "that which men call their necessary expenses will always grow to equal their income unless they protest to the contrary.
" This is a reflection of Parkinson's Law, which states that the amount of a resource required will always grow to meet or exceed the amount of that resource which is available, if natural tendencies remain unchecked.
In other words, if our income increases by 10 percent, the amount of money our lifestyle requires will also increase by at least 10 percent, unless we take specific steps to prevent this.
There is almost no limit to the number of things that we can do with our income.
However, there is a limit to our income.
This means that our spending will always grow to the amount that we allow.
"No down payment, easy terms" means that it is often very easy for our spending to exceed our income.
Ben Franklin said that, if we want to increase our financial choices, we only have two options: We can either increase our income or we can decrease our spending.
He added that, if we're wise, we'll do a little of both.
" This sentiment actually reflects a myth about money that has kept countless people from reaching financial prosperity.
This is the myth that more money solves money problems.
I'll also look at what the reality is, and how you can leverage that reality to gain incredible mastery over your money situation.
This is the first of a series of five articles that each describe a myth about money management, and explain how understanding the true principle can be a powerful force in building prosperity.
At first glance it seems incredibly logical that an extra $500 or $1,000 would make an incredible difference in dealing with our current money difficulties.
And, if all else were to remain equal, this would likely be a valid assumption.
Unfortunately, where increases in income are concerned, all things seldom remain equal.
I worked with a man once who was an insurance and investment salesman.
Over the course of four years he increased his income from $50,000 a year to one million dollars a year.
That's an increase of 1,200 percent! There's another side to that story, though.
The same year that he earned a million dollars, he spent $1.
1 million.
He closed out the year with $100,000 in consumer debt.
That's twice as much debt in year four as his entire income in year one.
And, when his income dropped significantly in year five, he had some serious financial troubles, even though he earned over half a million dollars.
The situation of another man I knew was quite a bit different.
This man never earned more than $40,000 a year.
Yet, he never seemed to have any money problems.
So what was the difference? When he bought his first house, he bought one that was significantly less expensive than what he could "qualify" for.
He made additional principal payments, and had the house paid off within 15 years.
He set aside 20 percent of his income for savings and investments.
He saved up for his cars, and paid cash for them.
And, he was able to retire debt-free, as a millionaire.
These two examples illustrate the true financial principle: spending less than I earn will solve my money problems.
An interesting study was done a few years ago.
In this study people from every income group (from $15,000 a year to $150,000 a year) responded that they needed about 10 percent more money to really meet their needs.
If you remember the man with the income of $1 Million, you begin to see that, no matter how much money you make, that same inclination is there.
In 'The Richest Man in Babylon,' Arkad states, "that which men call their necessary expenses will always grow to equal their income unless they protest to the contrary.
" This is a reflection of Parkinson's Law, which states that the amount of a resource required will always grow to meet or exceed the amount of that resource which is available, if natural tendencies remain unchecked.
In other words, if our income increases by 10 percent, the amount of money our lifestyle requires will also increase by at least 10 percent, unless we take specific steps to prevent this.
There is almost no limit to the number of things that we can do with our income.
However, there is a limit to our income.
This means that our spending will always grow to the amount that we allow.
"No down payment, easy terms" means that it is often very easy for our spending to exceed our income.
Ben Franklin said that, if we want to increase our financial choices, we only have two options: We can either increase our income or we can decrease our spending.
He added that, if we're wise, we'll do a little of both.
