A little tidbit gurus like to throw around is the first part of the phrase in the title of this entry. The second part is the sound Seth Green uttered as the voice of the character Chris Griffin in the new episode of Family Guy that was on earlier tonight.
“It’s not what you make, it’s what you spend.” Surely those who preach this phrase use an example of two people in the same position earning the same amount, having the same path to the current point in their careers. One spends more money than the other. The one who saves more builds wealth faster. Sure, that’s pretty straightforward.
But just like every other bite-sized nugget of “wisdom,” the credo just doesn’t hold up under real life circumstances. Take two frugal people in the same type of job. One is an event planner (and manager of that department) for a non-profit organization, the other is an event planner (and manager of that department) for a corporation. Let’s say they both have a decently frugal lifestyle and have expenses totalling $20,000 in the particular year we’re evaluating.
Our non-profit manager is making $40,000 during that year. Our corporate manager is bringing home $80,000. With the same conservative expenses, who is coming out on top, by leaps and bounds over time?
Our favorite phrase is often used in conjunction with the goal of becoming a “millionaire.” The fact remains that the individual with the highest net income at the end of the year, regardless of gross income or gross expenses, given the same opportunities for investment, is going to reach the goal first. Therefore, these two categories — income and expense — must be weighted equally. If you still believe that level of income is secondary to level of expense, someone has been trying to sell you something, and they have succeeded.
Updated February 6, 2012 and originally published September 25, 2005.