Wealth Is Not The Same As Income

Gordon Robertson Investment Leave a Comment

In reality, there are lots of high earners. You can find them everywhere, the neighbor who owns two or more flashy cars, your friends that are dressed smartly and who always attend those expensive social events in town, “Oh they must be that rich to afford that!”

If you look at it in a different perspective, you’ll definitely see the issue. In fact, I have seen this in the UK and it’s even a bigger issue in the UAE. A lot of people think that they are earning a lot, and having high income is considered wealth. The sad reality is – it is not! Assets are wealth and income is commonly used to build these assets.

There were was an article that was published in Forbes many years ago. It talks about the wealthy segment of society or the 1% of the top income population that did not feel rich. Why? The reason being is that they were not rich at all. They belong to the AED 1-2million household income per annum. Like most high earners in the UAE, I too have an enviable income but I don’t feel rich at all L

The real issue here in the UAE is that the costs of everything like cars, schooling and accommodation not to mention the many tempting brunches, which I always try to avoid. It’s a struggle despite being branded as one of the wealthy top 1% earners.

By the time you are about to retire, you suddenly realize that you are not rich. Even if you have played hard, worked hard, you may have seen all those expensive social events, but all these comes at a cost – your high lifestyle comes at a cost.

Your wealth and money can be fleeting, and you will realise that your life may come crashing down. It’s essential that you assess your finances and think for a second, if the money train stopped today – do I have the money to cover my expenses for six months?

How can you change this? Here are some important tips that you can follow:

PAY YOURSELF FIRST

It may seem strange, but when you receive your salary or income, you often allocate it to various things then what is left is commonly added to your savings. How making your retirement the main priority, and make sure you have an amount allotted for it (pay yourself first), then pay for your lifestyle. Make sure to always reduce your costs, like choosing a smaller car, brunch at a less expensive venue or put your kids at a more affordable but better value school.

You may also consider, a less expensive vacation. Keep in mind that it’s better to spend a happy hour instead of an expensive hour. You will be amazed at how much you can save. In fact, I remember my colleague from the Philippines about 5 years ago. She told me, “I don’t understand why you Europeans do what you do, when you can always do the same thing for less.”

I truly appreciate her remark, because it hit me in the solar plexus, and I thought – wow, she was definitely right. I always keep seeing the Facebook profile of my friends that are well dressed, and always active. Let’s be honest, you can put your savings on the backburner because time is money.

So what if your investment pot reaches USD 1 million? Well, since you started one year later, then that has cost you perhaps USD 70,000. With that amount you can expect to have a very good year of living when you retire. When you failed to save a substantial pension pot, then you can expect to struggle in your golden years.

SET YOUR RETIREMENT GOALS

One of the few things that you have direct control with, is saving vs spending. If you have a goal then you need an effective plan to achieve it. Otherwise, it will remain as merely a dream. You must set your retirement goals and the steps you need to take to achieve them. By doing this, you will surely know your time frame and the risks required to attain this.

Currently, your cash devalues by 2-3% per annum. I remember back in the 70’s when we only had 29% inflation. But today, you can expect that your cash devalues at least 30% per year. This is happening now in the UAE and in many countries. If my time horizon is 20 years, then any short-term volatility should not concern me. Most people will get in and out of the market due to fear, this is clearly driven by lack of plan on their part!

As a final note, try to remember that income does not equate to wealth, then the opposite must also be true. Wealth does not necessarily equate to income. Wealth can be achieved by proper and planned investing. Also, adapt your lifestyle to the current times and you will surely achieve your goals.

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