Do You Spend Money As If Your Earned Income Is Easily Renewable?

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) September 30, 2010 -- So as we continue in Dr. Thomas Stanley’s book Stop Acting Rich and Starting Acting Like a Real Millionaire, we pick up with his definitions of income statement affluent (IAs) and balance sheet affluent (BAs). The IA typically has a large income but they also spend a lot. Their ability to build wealth is not that impressive because they spend too much on depreciating assets (cars) and pay too much interest (buy expensive homes, mainly). The Balance sheet millionaire is very good at converting their income to wealth, however.

In fact if you want to determine if you are like a typical balance sheet millionaire, when it comes to converting income to wealth, here is Dr. Stanley’s Wealth Equation:
“Simply stated, your net worth [including your equity in your home] should equal 10 percent of your age times your annual realized household income (.10 x age x income = expected net worth). If your actual net worth is above this expected figure, I consider you affluent, given your age and income characteristics.” – page 17.

Now in calculating the above answer for yourself I suggest you take your average income over the last 5 years, if you have large fluctuations in your income. Don’t forget to subtract for debt!

Referring to the BAs:

“When he or she first became a millionaire (again augmented with home value) 11 years prior, the typical BA respondent was 45 years of age and had an annual realized household income of $89,167.”

So clearly the average balance sheet millionaire is not out there making a really high income. Mr. Stanley says that BAs play great defense with their finances. While the IAs have a great offense (high income) they aren’t nearly as effective at converting that income to wealth. “The BAs, those who played great defense, were much more efficient than the offense-minded IAs by a ratio of 3.7 to 1. The BAs needed $1 of income to generate $11.20 of net worth.” How do BAs do it?

• “They are those who spend below their means while building wealth and ultimately becoming financially secure.” – page 19
• “They are frugal and are investment, not consumption, oriented.” – page 20.
• IAs are significantly less likely than the BAs to say: “My parents taught me how to invest and manage money.” – page 21
• “They look at increases in income first as opportunities to invest more.” – page 22
Dr. Stanley goes on to write that “too many people spend as if money (their earned income) is the most easily renewable resource”.

So the question to ask ourselves, again, just like when we read anything is: What does God think about all of this? Is God a proponent of spending less than you make? Does God think we should just assume we are going to continually earn a good income?

Proverbs 6:6-11 - Go to the ant, you sluggard! Consider her ways and be wise, Which, having no captain, Overseer or ruler, Provides her supplies in the summer, And gathers her food in the harvest. How long will you slumber, O sluggard? When will you rise from your sleep? A little sleep, a little slumber, A little folding of the hands to sleep— So shall your poverty come on you like a prowler, And your need like an armed man.

Proverbs 13:11 - Wealth gained by dishonesty will be diminished, But he who gathers by labor will increase.

James 4:13-17 - Come now, you who say, Today or tomorrow we will go to such and such a city, and spend a year there and engage in business and make a profit." Yet you do not know what your life will be like tomorrow. You are just a vapor that appears for a little while and then vanishes away. Instead, you ought to say, "If the Lord wills, we will live and also do this or that." But as it is, you boast in your arrogance; all such boasting is evil. Therefore, to one who knows the right thing to do and does not do it, to him it is sin.

Proverbs 21:20 - There are precious treasures and oil in the dwelling of the wise, but a self-confident and foolish man swallows it up and wastes it.

Luke 14:28-30: For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it— lest, after he has laid the foundation, and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish’?

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