Income vs. Wealth — What’s the correlation?
Most of us have the goal to create wealth — the question is how do we get there?
I’ve found most people focus on the wrong “side” or part of the wealth equation.
If wealth = total income + [savings/investment amount x interest gained], what would you wager is the pivotal part of that equation?
In my experience, people choose to focus on their investments delivering the highest rate of return possible. While that’s certainly important, it’s doubtful your investment returns will come anywhere close to what you’re able to earn annually via your income.
Here’s the key factor: you need to increase your income, as much and as often as possible, to stack more and more of that cash into the savings/investment “bucket” as possible, for as long as possible. Then, and only then, will increasing the percentage of interest gained create any sizable difference.
You need to have money to put into savings and investment for the rate of return to have any meaningful impact.
We always hear “The most important real estate is the 6 inches between your ears.” That is entirely true, in more ways than one. By investing in yourself, and your knowledge, you will be able to sizably increase your earning potential, i.e. your income, which is the critical input in that whole equation.
Many of you reading this likely have substantial enough income to leave a sizable legacy behind. If you make more than $250,000 per year, you are starting to make generational money. It may not feel that way, especially in 2024, when prices are skyrocketing, but you are well on your way.
2 key factors that will contribute to your overall financial success:
1. Optimizing how you make your money. Depending on if you earn via
W-2, 1099, or if/how you take an ownership draw, you could be losing a lot of income unnecessarily through excess taxes.
2. How do you spend your money? Without a significant amount of discipline, if you aren’t already automating savings, your lifestyle is almost guaranteed to increase as your income increases. The habit of paying yourself first becomes exponentially more beneficial the more money you make. If you haven’t found a predictable way to automate savings, you’re leaving your financial legacy in jeopardy.
It is incredibly important to have a game plan that you can execute to a T to accomplish your financial goals.
Wealthy families like the Rockefellers and the Kennedys all have family offices that ‘captain the ship’ of their family’s finances, but that level of boutique service is usually reserved for those with an incredibly high net worth.
Why should sound reasoning and comprehensive financial strategy be reserved for the ultra-rich and famous?
I argue it shouldn’t!
My team and I specialize in providing business owners with comprehensive tax and financial strategies they can use to mitigate the ever-growing tax bills that come as their business(es) grow and we provide them with actionable strategies they can employ to start building towards generational wealth. We find ways to optimize their current financial processes and safeguard their income from any unnecessary ‘leaks’ or ‘hemorrhages’ [paying excess taxes, unnecessary fees, etc.] so they can keep more money in their business and their family’s pocket to ensure their financial legacy.
If this sounds like something you can benefit from, I’d encourage you to check out this book written by my friend and colleague Derick Van Ness. It’s called Tax Strategies Your CPA Isn’t Telling You About and will provide you with actionable content you can bring to your tax team so you can implement as many strategies as apply to your specific situation.
If you’d like someone on our team to walk you through those strategies, and bring others that’re unique to you to the table, you can book a call with us here.
Here’s to your continued success!
