Why Earning More Won’t Solve All Your Money Problems


When I was younger, I did a lot of insane long driving. I’ve driven from coast to coast at least twice. There was even a period in 1999 when I drove 500 miles every weekend to see family.

But nothing is crazier than when I drove, over the long 4th of July weekend of 2003, from Philly to Dallas round trip— hoping to be able to return to work the following Monday.

That’s 3,000 miles only to see my then-girlfriend (now my wife) for a few hours.

As you probably guessed, I ended up missing work that Monday. The stunt would have been successful had I not made one major blunder: I drove in the wrong direction for an hour on my way back after I stopped for gas in a rural area. Ugh!

As romantically dumb as you think I was then, metaphorically speaking, it is the same reason why people fail to achieve their financial goals: they are heading in the wrong direction.

Money is only fuel. You are the car.

Think of money as the fuel that runs the engine. Adding gas can make the engine run faster and longer. But it won’t change the direction of where you are driving. You won’t necessarily reach your destination any faster.

If you want to solve your money problems, you must first learn to control the steering wheel before you even think of stepping on the gas pedal. Otherwise, you could end up in a ditch— or worse, hit an oncoming vehicle.

Rented lamborghini
Inspecting a rented Lamborghini in Nevada

In this analogy, the steering wheel represents your competence and mindset towards money. Without financial knowledge and the right mindset, you can’t get to your destination.

Financial ignorance is expensive. Here are examples:

  • Not refinancing a high-interest mortgage when rates are record low costs thousands of dollars in interest payments.
  • High-income earners pay thousands more in taxes because they don’t contribute to tax-advantaged accounts.
  • Not understanding investment options results in poor investment returns or excessive fees.
  • Co-signing the student loan of a nephew who happens to be a crack addict.

Small “psychological wallets”

Bo Sanchez, a popular personal finance guru in the Philippines, talks about enlarging your psychological wallet— a container in your subconsciousness that dictates how much you can keep or receive.

If your psychological wallet is small, you will have a hard time receiving and keeping money. People with small psychological wallets are likely to squander it all away because their container is too small to keep the amount.

Here are a few examples:

  • Lottery winners who declare bankruptcy a few years after winning.
  • Heirs who are unprepared to receive their inheritance often lose it all.
  • Newly graduates who finance new cars after taking their first job instead of aggressively paying off student loan debt.
  • Workers who put more money into their lifestyle after getting a huge pay raise instead of boosting their retirement savings.
  • People who think that money is evil (you subscribe to Money magazine, hence you worship money).

Income and wealth are not highly correlated.

According to a Nielsen study, one out of every four families making $150,000 a year or more is living paycheck to paycheck. It’s not just the poor and middle-class America who find it hard to save for an emergency— or retirement. One in three households earning between $50,000 and $100,000 find themselves in the same predicament.

Having a high income doesn’t necessarily mean your psychological wallet is big either. Think about professional athletes and celebrities who went broke: MC Hammer, Mike Tyson, Allen Iverson, and Evander Holyfield, to name a few.

The American workforce is full of high-earning physicians and lawyers who are saddled with $200,000 student loan debt. These people are often pressured by their peers, and society in general, to look and act rich.

In contrast, have you heard of the janitor who donated $6,000,000 to his local library and hospital?

Fact is, in one survey, teachers receiving meager salaries, NOT physicians or lawyers, are the ones that are more likely to become millionaires.

When someone drives a fancy car, lives in a big house, sends the kids to private schools, and eats out at the nicest restaurants, the less likely that they are wealthy (and not necessarily happier).

Happiness vs Time
Financial (Rest in) Peace

My personal experience

Working in a highly lucrative financial technology sector, I never had any struggles with income. My entry-level salary in 1997 was around $40,000, a decent salary for someone “fresh off the boat”. But by 2000, I was making close to $70,000, including bonuses— that’s about 20 times more than I was earning in the Philippines!

I remember, my first paycheck was for $6,000 after my employer withheld my pay for three months (more on this in a future post).

Three years after moving to the States, however, I have nothing to show for it— my net worth was negative.

Thanks to a $16,000 car loan, and some high-tech gadgets that I had blown my money on. Like the $2,000 JVC digital camera and Toshiba laptop that got stolen in a New Jersey parking lot (toys were freaking expensive back in the day).

The irony is, at this point in my life, I was technically poorer than when I was living in Manila. All because of my propensity to consume.

I’ve educated myself and corrected my mindset about money since then. And only then was I able to get my ducks in the row to steer myself in the right direction.

Driving in the wrong direction? Start by tracking your net worth and subscribing to this blog (you can unsubscribe any time).

Great article! What you said is so true. I work for a group of doctors who are very highly compensated, but many of them still live paycheck to paycheck. Seems crazy. If I could have their salary for 1 year I’d be set! It really is about changing your mindset. Thanks for sharing.

You are welcome. My guess it’s because of the pressure they are getting from Dr. and Mrs. Joneses. Thanks the comment, Shelley.

Great article. I agree with you that there are many people who earn handsome money but they hardly save money. In contrast, there are many people who earn little less but save a huge portion or simply say invest their saving to make their retirement life comfortable. It doesn’t make sense of earning high income if you spend all of them on luxury items and not saving for future.


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