Have you ever wondered why some employees, despite their large paychecks, end up being broke? The reality is a bigger income does not necessarily equate to becoming rich.
How many people have you heard winning millions in the lottery only to spend all of it in a few years to become bankrupt? How many celebrities did you know who, despite earning millions during their peak in show business, end up broke few years after their reign faded?
Many people believed that an increase in income corresponds to an increase in their spending capability. They are mostly pressured socially by friends to buy these and buy that. As a result, they buy the latest gadgets, go into luxury vacations, and some even upgrade their cars and houses to make it more grandeur to impress their friends. Before they knew it, their savings had dried up and their debts had piled up in their credit cards.
This is the mentality of most of us who belong to the middle class. According to Kiyosaki, middle class people spend their income to buy liabilities they think are assets. In the end, they end up becoming an employee of their credit card debts.
True enough, a huge income may help you to become rich but only if you know how to manage it. Imagine a pail of water being filled up. If it has a hole in it, no matter how much water you put in it, the hole will just drain the water inside. The larger the hole, the faster the drainage will be. Now, compare this scenario in your wallets and bank accounts.
The secret is delayed gratification. Think like the mindset of the rich. Every time their income comes in, they spend the bulk of it in assets producing passive income for them. Now if they want to buy liabilities, they use their passive income to buy these things. In the end, their assets work hard for them to buy liabilities.
Don’t fall into an income trap. Live way below your means. Always remember that it’s not how much money you make, but how much you keep, how hard it works for you, and how many generations you keep it for.