Making Money vs. Keeping Money

The Trap That Prevents You From Building Wealth

Let’s assume you work a full-time job.

That’s 40 hours a week (not counting overtime, side hustles, etc).

At a minimum, that is how much time you’re spending on making money.

Now, let me ask you a question:

How much time per week do you spend on keeping money?

In other words, how much effort are you putting into monitoring your investments? Reviewing your budget? Educating yourself about the economy and how it might impact your wealth? Or even your job!

Even if you spend 30 mins per week on your investments (which I assume most of you aren’t), that’s 1% of the time you spend making money…

Today, we’ll discuss:

• Inflation & the 9-to-5 salary trap

• How “Lifestyle Creep” destroys wealth

• What to do instead

Let’s dig in.

Inflation & The 9-to-5 Salary Trap

I vividly remember in high school wanting to make 6-figures.

$100,000 per year! It felt like such an accomplishment. A milestone that would mean ‘I made it‘.

And I know I’m not alone. A lot of millennials I speak with have (or had) similar goals.

But there’s a big problem that high-school Brandon didn’t understand:

Inflation.

I graduated high school in 2011.

Earning $100,000 in 2011 is the equivalent of earning $140,000 today.

If you’re unfamiliar with ​inflation​, this might seem strange to you.

To put it another way:

$100,000 in 2011 dollars and $140,000 in 2024 dollars buys the same amount of goods.

“What does this have to do with my salary?” you might be wondering.

Because while your salary increases in nominal terms (the numerical value you see on your paystub), it is not increasing nearly as fast in real terms (the amount of goods it can buy).

We see the number go up, and our human brains are satisfied.

Going back to Taleb’s quote, a monthly salary is dangerous for many reasons:

• It creates dependence on your employer

• It limits the growth potential of your income

• It discourages risk-taking and entrepreneurship

• It makes you susceptible to economic risks and downturns

But on top of all that, your salary is deceiving you!

Because when you get that 3% raise, you’re likely not thinking about the 2.6% loss of purchasing power due to inflation.

The Solution?

Stay informed about inflation. Think of your salary in real terms, not nominal terms. And never put yourself in a situation where would be financially wrecked if you lost your job.

Lifestyle Creep Destroys Wealth

Here’s a scenario that shocked me the first time I heard it:

But how can this be? Bob is saving more money.

The reason for this boils down to their savings rate (%).

Alice is saving 50% of her post-tax income, whereas Bob is saving 40%.

The main assumption here is that Alice and Bob won’t reduce their spending when they retire.

And that’s where ​lifestyle creep​ comes in.

Lifestyle creep is the tendency to spend more money as you make more money.

You get that big promotion at work… so you move into a nicer apartment or house. You buy that car you’ve always wanted. You start eating out more often. You subscribe to Amazon Prime…

All those costs “creep” up, and they eat away at your savings.

Before you know it, even though you might be saving more dollars, you are saving a smaller % of your income.

And as you get used to that new lifestyle, it becomes harder and harder to give those things up.

The Solution?

Monitor your budget regularly. If you don’t have a budget, create one. Cancel subscriptions you don’t need and be judicious about making big purchases, especially recurring expenses.

What To Do Instead

Important Disclaimer: This is not financial advice, and is for educational purposes only.

Investing in low-fee index ETFs is a solid option when you’re first getting started with investing.

This avoids the costly fees of financial advisors, provides you with diversified exposure to the stock market, and is largely a set-it-and-forget-it approach.

A downside of this approach is that you are, by definition, going to achieve average returns.

To be clear, average returns are still great! The S&P500 has averaged about 10% per year for the past century (and that’s still ~7% after adjusting for inflation).

Being invested in an index ETF is vastly superior to holding cash over the long term.

However, as we’ll discuss in future issues of ​Wealth Potion​, passive investing has downsides as well.

For now, just know that by investing in the SP500, you are relying on ​past performance to predict future results.​

And the global financial system in 2024 is facing obstacles that it has never encountered before:

• The arrival of AGI

• A weakening US dollar hegemony

• Record-high government deficits around the world

And much more.

My opinion? The next 20 years will not be nearly as smooth sailing as the past 20 years.

And depending on how your investments are positioned, that could be extremely positive or negative for your wealth.

My goal is to make sure you’re positioned well.

Build in Public Update

This week, I added a new ​Newsletter​ page to my website. The design is pretty barebones for now, but its main purpose is to provide an archive of all previous Wealth Potion posts for people to browse.

Also, Google was having trouble indexing all of my posts so I’m hoping this will remedy that.

My 2nd long-form YouTube video went live this week as well:

Next week, I’ll be posting Part 1 in a 3-part video series all about the Sales Mindset.

I’ll also be sharing my goals for July. So stay tuned for that.

Until next time.

To your prosperity, Brandon @ Wealth Potion

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