Once, there was an ambitious young man from a middle-income family who dreamed of success. He started a business with little savings, few connections, and no employees. But he worked hard, completed key projects and, gradually, his income began to rise.
With growing confidence, he moved into a larger office, hired staff, and reprinted his business cards with the prestigious title of CEO. Landing major contracts, he seemed destined for greatness.
But bigger projects required more people, more space, and more money – so he borrowed to finance growth.
The projects were completed, revenues tripled, and his company earned multiple awards. Flush with profits, he borrowed even more – expanding offices, hiring additional staff, and raising his salary.
He bought a luxurious car, a bigger home, expensive gadgets, and enjoyed lavish holidays and parties. Life looked perfect.
Then the industry slowed. Customers demanded discounts and delayed payments, while bills, salaries and rent didn’t stop. Cash reserves drained quickly and, despite his high income, he couldn’t secure new financing.
Credit card debt piled up, and every month became a struggle. On the outside, he looked successful. On the inside, he was financially unstable.
The lesson to be learnt
This story may be fictitious, but it illustrates a common trap: high income doesn’t guarantee financial security.
Many equate luxury – big homes, flashy cars, designer watches – with wealth. Some truly wealthy people can afford these things without stress because they own income-generating assets. Others, however, finance their lifestyle with debt, leaving them vulnerable if income drops.
A person who earns RM1 million a year and buys RM10 million in luxury items through debt is not truly rich. Meanwhile, a person with RM100 million in dividend-paying shares who buys the same items with cash remains financially secure.
Turning income into real wealth
Crucially, one should adopt the mindset of the financially rich, which rests on two pillars: financial stability and income-generating assets.
Financial stability is measured in time, not total money: how long could you cover expenses if your active income stopped?
RM1 million in the bank might sound huge, but if you spend RM100,000 a month, it lasts just eight months. Meanwhile, RM500,000 with monthly expenses of RM10,000 lasts over four years – and provides far more security.
Income-generating assets, like stocks or rental properties, earn money without your daily involvement. This “buys back time”, giving you freedom to focus on family, health, hobbies, or causes that matter.
High-income earners rely on ongoing performance; the truly wealthy rely on accumulated ownership. One builds lifestyle first and hopes income keeps up; the other builds assets first and lets lifestyle follow.
Ultimately, rising income isn’t dangerous on its own. What matters is whether expenses, debt, and lifestyle costs rise faster than financial resilience.
Indeed, true wealth isn’t about looking rich during good times – it’s about staying stable when income dips, markets weaken, or life changes. That’s real financial success.
This article first appeared in KCLau.com.
Ian Tai is a financial content writer, dividend investor, and author of many articles on finance featured on KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore.