Do you know that being rich does necessarily mean you are creating wealth?
Why? Because its possible to earn over $150 million dollars and still go broke?
Yes you heard me right…
You can still go broke even if you are earning a fortune…
It’s true because a legendary Hollywood actor filed for bankruptcy recently …even after earning over $150 million in 5 years
In an article published by celebritynetworth.com
Nicholas Cage declared he was broke even after many years of high earning …that you and I can only dream about.
My first reaction when I read the article was: How is it possible for someone to burn through such a huge mountain of cash?
Why should Nicholas Cage wind up broke? Because at the peak of his career Nicholas cage was one of the highest paid celebrities who pulled in at least $40 million dollars per year.
Nicholas Cage earned $150 million between 1996 and 2011 from acting alone.
You would expect that after earning such a fortune that- you can only dream of –that he will save at least a portion of the money…Right?
No… Nicholas Cage saved nothing!
In fact, he burned his earnings so fast-that he also incurred tax liabilities of more than $13 million-to the United States Inland Revenue IRS.
How did Nicholas cage go broke after earning over $150 million?
The answer is : His spending habits spiraled out of control as his earnings increased.
The good news is Nicholas Cage can still earn more money as a Hollywood star . he has a able to start over.
However, for many people that do not have the celebrity earning power of Nicholas Cage…
Filing for bankruptcy could be a bitter life-transforming experience that could ruin your life-or scar you emotionally
The point of my story is not to judge Nicholas Cage’s personal money habits…
The real lesson here in the story of-one of the many Hollywood celebrities-and other high earning professionals that share similar fate is:
Unless you exercise the mental discipline to rein in on how you spend your money… you can go broke easily
Why? Because one of the greatest traps you can fall into is-the temptation to increase your spending-as your income raises
Sir Cyril Northcote Parkinson first wrote about this trap in a humorous essay he wrote about the British civil service in the Economist in 1955.
In his essay Parkinson observed that the demand of a resource tends to expand to meet the supply of the resource.
In order words Parkinson’s Law applied to your income: says that your expenses will rise as your income increases.
The secret to becoming wealthy is to defeat Parkinson’s Law. This means you must figure out a way keep …or reduce your spending as you earn more money
You would agree with me that it is very difficult in practice to avoid spending more as your income increases .
The truth is that it is difficult but not impossible to earn more than you spend. You can develop the skill of earning more money than you spend
The main reason wealthy individuals (not high earning individuals) sustain their wealth is that:
they have found a way to decrease their wants at the same increasing their fortunes.
What separates the wealthy from the poor and middle class is that:
Wealthy individuals take a different approach to managing their personal finance
The main habit you must develop in order to avoid spending more than you earn is:
develop the mental discipline of counting your money
Why? Because when you start counting your money … you’ll start to become aware of your cash flow
Why do you need to become aware of your cash flow?
Because it is your cash flow pattern that determines whether you’ll end up rich, middle class or poor
It’s not how much money you earn that makes you rich …
It’s how much money you keep and invest to earn more money that makes you wealthy
Did you get that? If you have not understood what I said…
I urge you to go back to the last statement and reread it at least 3 times-until it sinks into your subconscious
How do you start counting your money? The answer is simple.
You take a pen and a piece of paper to take count of how much assets you own-how much you owe-and-you then calculate the difference
Your net worth is equal the difference between your assets and liabilities.
I can tell you from experience that if you count your money as I have told you …You’ll quickly sober up about how you spend your money
Why? Because most of the time you’ll likely come up with a negative value as your net worth
If at the end of the money counting exercise … you find out your net worth is almost zero .It means you are spending more money than you earn.
What should you do if you find that your net worth is zero?
The answer is spend some time to reflect on why you are in your present financial state.
The next step you should do is: use this exercise to commit to becoming wealthy
How do you commit to building wealth?
You should make a commitment to get rid of unnecessary expenses… save more…
and earn more money through starting a side business or investing your money
Next you must develop the-mental-discipline-of-counting-your money. So that you can to rein in your spending.
I want you to think about developing the discipline of avoiding living above your means like this:
You are buying yourself freedom and peace of mind
The financial freedom you seek will come to you when you-learn the habit of counting your money. In addition, develop the discipline of living below your means
That’s all for now…
What are you waiting for? Get your pen , paper and start counting your money starting today
I will like to hear your comments on how to avoid spending more than you earn