Want to be wealthy? Well before you start dreaming about luxury cars and huge houses, you might first want to take into account where you live. That’s right, wealth comes from where you live…and NOT your salary.
Wealth Comes From Where You Live…Not Your Salary
Have you ever known a doctor that owned a huge house, had a Mercedes convertible in the third stall garage, and cruised around the lake in a sweet boat on the weekends…but was in debt up to his eyeballs and a net worth of zippo??!! Well, they’d probably never tell you about their financial troubles, but there are plenty of docs that have a huge salary and absolutely no savings or investments to speak of.
Why is this?
It’s because a high salary does not equal wealth. Sure, it can help, but just because you make a lot of money at your job doesn’t mean you know anything about saving, investing, or planning for your retirement.
Instead, I’m convinced that wealth comes from where you live, not your salary.
And what the heck do I mean by that? Ha, well actually, many things! 😉 Read on!
1) The Cost of Living Factor
I live near Grand Rapids, MI where costs are pretty reasonable. Let’s say I earn a salary of $50,000 a year. What would I have to earn to live an equivalent life in New York City?
According to CNN Money’s cost of living calculator, I’d have to earn $125,000!!
So sure, I could increase my salary from $50,000 to $100,000, but if this move forces me to live in New York, then I’m actually earning far less money! So much for improving my wealth!
The cost of living in your area plays a huge factor in your potential wealth.
2) The Jones Factor
Wise investors often say,
“If you want to make good money on your house, buy the worst house in a great neighborhood.”
Makes total sense – I mean, you get the appreciation of the great neighborhood at a pretty reduced price – but there’s one factor of this that might actually cause you to save less and spend more…and therefore become less wealthy down the road. This is commonly known as, “the Jones factor”.
Live in the wealthy part of town and you’ll see nice houses, sweet cars, and shiny boats (you know, all the stuff that doctor had in our intro paragraph!). And you’ll get to see them every. single. day. It doesn’t take too long, and you find yourself wanting one (or all) of them…
Happens to the best of us, and if you live in the best part of town, it will likely happen to you too.
3) The Regional Mentality Factor
On the opposite end of the spectrum is what I call, “the regional mentality factor”. This is when you live in an area that believes:
- the world is against them
- no matter what they do, they can’t win
- the lottery, professional sports, and drug-dealing is the only way out of poverty
Let’s be clear here. I’m a white male. I’m privileged. I have absolutely no idea what it feels like to climb the mountain of racial or social prejudice. But what I do know is that when somebody talks to me every day about why it’s not possible for me to do something, no matter how strong my will is, I’ll eventually believe the lie and give up.
So while I’d say that you don’t want to live in the best part of town because of the allure of stuff, you also don’t want to live in the worst part of town because of the mental, parasitic garbage that floods every building in sight. It’ll take down your spirits and ultimately, your chance at wealth.
Want to learn more about the effects of depressed living? Here’s a great read from Justin Wolfer with the New York Times: “Growing Up in a Bad Neighborhood Does More Harm Than We Thought”
4) The House Payment Factor
This porridge is too hot, this porridge is too cold, this porridge is juuuuuust right…
When you’re searching for a place to live, you really want to find a home mortgage that hit’s the sweet spot – ideally one that’s within 25% of your monthly income on a 15-year fixed loan.
Why such a low amount?
Because you don’t want to live in a house that sucks all your money every month.
- First off, if your payments are huge, you won’t be able to put any money away into retirement
- Second, you’ll hand-cuff yourself from doing anything fun (you know, like going to Bora-Bora…or running with the bulls…or whatever it is that you used to want to do before you bought a massive house that sucks up all your money)
- And third, houses appreciate at an average rate of 3%-5%…in other words, they rise with inflation and earn you absolutely nothing when it comes to buying power
So buy the house that’s moderate. One that’s in a decent area of town and is large enough for your family. Plain, simple, affordable, and a great move for your future wealth!
Related: Your House is a Terrible Investment
Wealth Comes From Where You Live: In Summary
Having a big salary is a great start to riches, but more often than not wealth comes from where you live. It’s obviously not a hard and fast rule (for all of you that are cracking your knuckles, getting ready to crush me in the comment section below), but you can’t argue against the potential impact of all the factors mentioned above (and summed up here below).
- Cost of living
- Keeping up with the Joneses
- Getting mentally abused by your local friends and family
- Signing yourself up for high house payments for a long period of time
…All of these reasons keep people from becoming wealthy every day, and they all have to do with the location of your next move.
Choose wisely, for it might just be that your wealth comes from where you live.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.