At the start of a New Year resolutions are always high on everyone’s agenda and one of the most popular financial resolutions around has consistently been to make more money. This begs the question “to what end?” Does making more money really make you richer or is it a bit more complicated than that?
The following questions attempt to analyze if all it takes to be rich is to make more money.
Do Your Expenses Rise to Meet Your Income?
Scientific minds would understand the theory that matter expands to fill the space around it. Those interested in productivity argue that there is sufficient proof to suggest that there is a tendency for a task to prolong as more time is allotted to it and in finance it is generally accepted that if left unchecked expenses will rise to meet increased income. It is natural to want to get as much as possible so when you earn more money you may immediately find ways to spend it, but this approach doesn’t necessarily mean you are richer in the true sense of the word.
Do You Have More Purchasing Power?
Similarly, you may make more money but your increased income may be dwarfed by increases in the general cost of living. For a simple illustration, imagine you earn $1000 a month and it cost you that much to cover your basic living expenses such as food, clothing and shelter.
At the start of the new year you get an increase of $200 but you quickly realize that your living expenses have also increased or kept pace with your nominal increase in salary. In this case you haven’t really become richer even though you make more money.
What About Free Time?
Another element of how rich or poor you feel is enveloped in your quality of life. This can be hard to measure because it is different for everyone but generally the less free time you have available the more stressed you are likely to be and the less you notice any increase in income. This means that not only do you have to factor dollar amounts in your measure of richness, but you also need to consider your feeling of wellness.
Is Your Debt Load Too Heavy?
Related to the concept of expenses rising to meet your new level of income is the idea that excessive debt can actually drain away increases in income. Since debt obligations are not cheap, interest expense, or the cost of facilitating your loans, can make your increase in income negligible. This situation is quite common. For instance, a salary increase may mean you can qualify to borrow a greater amount but maximizing your credit can actually impede your wealth because loans are a negative in the calculation o your overall net worth.
Does It Really Come Down to Net Worth?
Strictly speaking, yes it does. Making more money does not presuppose that you are any richer than you were before the increase. The factors listed above need to be assessed before you can conclude that you are richer because of your increase in income. However, the soft issues are also important. It is possible to feel richer without making more money just by changing your lifestyle or readjusting your priorities.
If you have made making more money a priority for the New Year, it may be worth your while to think about why this is important and what it would really mean. You may realize that you have to supplement this goal with a few others for it to have the impact that you truly desire.