The Income Trap

The Income Trap

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?

Income Trap

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 itโ€™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.

Tyrone is a passionate financial literacy advocate. He started this blog on November 2008 when he watched The Secret which talked about Law of Attraction because he wanted to become a millionaire and wanted to know how a millionaire acts. At the age of 26, he achieved his first million. To find out more about him, click here or follow him at Instagram

15 responses on “The Income Trap

  1. So true… I earn little euros but I manage to put some penny to mutual funds. You just need to accept that there are social costs in investing.. ๐Ÿ˜€

  2. Very well said.Exactly my sentiments.
    That’s why I’m never buying a Smartphone or any other gadget using my own money.
    Invest you money first and let it work for you.
    Live a simple life now so you can enjoy later.

  3. I like the comparison with the pail of water. It’s so true ! I believe people should apply a money management system, and stick to it, in order to avoid that situation where the hole in the pail drains the water inside ..

  4. Hi Guys,
    I’m totally agree with this article, that’s why I’m planning to open now a long term investment to apply the “pay yourself first rule” .. the problem is, I’m new with these stuff.. I’m so confused if I’m going to open a mutual fund or an EIP. Mutual fund is good cause there is a fund manager who can manage your money wisely, however, most people suggest me an EIP account. any suggestions? any opinions would be very much appreciated.

  5. Besides I’m naturally thrifty, it’s good thing that i learned saving and investing my money. I still consider myself as beginner and my asset is still little pero in a way these activities give me a sense of accomplishment and at the same time relief.

  6. Hi,
    I just saw you today in Youtube and I did not expect that you’re the owner of this blog which I visit every now and then. I was surprised to know that you earned your first million while you were in your 20’s.In my case I earned it when I was in my late 30’s but because I am an OFW. I already have my insurance, house and lot and some property investment so last year I focus on mutual fund. I opened one in 2006 but just took it seriously last year by adding money every month. If I did it seriously since 2006, it could have been double. I lost many opportunity but I think it is not too late to begin and do it perpetually.

  7. i saw you last time in ANC, its so inspiring. i like the idea, now i know how to save and invests. I just follow the 3 laws of money:)

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