Don’t go broke, trying to look rich.

Posted in Blog
14/08/2019 Mduduzi Luthuli

Learn to gauge and master your burn rate.

In The Algebra of HappinessScott Galloway discusses his definition of rich when it comes to income and expenses:

“The definition of “rich” is having passive income greater than your burn.

My dad and his wife receive about $50,000 a year from dividends, pension, and Social Security, and spend $40,000 a year.

They are rich.

I have several friends who earn between $1 million and $3 million, with several children in Manhattan private schools, an ex-wife, a home in the Hamptons, and a lifestyle fitting of a master of the universe. They spend most, if not all, of their money.

They are poor.”

By the time you’re 30, you should have a feel for what your burn rate is.

The mistakes that most young people make is to be 100% focused on their income and ignore their relative expenses.

A higher income definitely helps but true financial progress comes from creating a gap in the right direction between your income and your spending.

Focus on your burn rate.