Build Your Wealth: Graduate from a Paycheck Mentality to a Net Worth Mentality #TBT

This was originally posted last year:

Today's blog post is based on an article from The Art of Manliness:

The authors of The Bogleheads’ Guide to Investing (a book inspired by the sage investing principles of Jack Bogle) describe two mentalities when it comes to personal finance: the paycheck mentality and the net worth mentality. A person with a paycheck mentality just focuses on increasing their income in order to increase their wealth. A person with a net worth mentality also seeks to boost their income, but builds their wealth through saving and investing as well.

Most people live paycheck to paycheck, in fact a lot of people are one paycheck away from homelessness. According to Quora:

One in three of us are potentially one paycheck away from homelessness, with a new survey showing that many people would be unable to pay their rent or mortgage for more than a month if they lost their job.

Back to AoM:

The problem, according to the authors, is that it’s easy to conflate income and wealth:

“From the time we are old enough to understand, society conditions us to confuse income with wealth. We believe that doctors, CEOs, professional athletes, and movie actors are rich because they earn high incomes. We judge the economic success of our friends, relatives, and colleagues at work by how much money they earn. Six- and seven-figure salaries are regarded as status symbols of wealth. Although there is a definite relationship between income and wealth, they are very separate and distinct economic measures. Income is how much money you earn in a given period of time. If you earn a million in a year and spend it all, you add nothing to your wealth. You’re just living lavishly. Those who focus only on net income as a measure of economic success are ignoring the most important measuring stick of financial independence. It’s not how much you make, it’s how much you keep.”

Here are some highlights from the article:

The Benefits of a Net Worth Mentality

• The paycheck mentality is fragile; the net worth mentality is antifragile.
• Wealth grows even when you’re not working. 
• A two-pronged approach builds wealth faster.

How to Calculate and Track Your Net Worth

How to Start Increasing Your Net Worth Today

• Practice frugality. 
• Start an emergency fund.
• Pay down your debt.
• Start investing in index funds.
• Find ways to increase your immediate income. 

Take a few minutes and check out the article, there's plenty of additional information there.

I'm still reading "The Millionaire Next Door". This post fits right in with the ideas from that book. Also, check out this post for some hints on how to save for a down payment for a home...which is one of the best ways to build your net worth.

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