I recently read an article about Parkinson’s Law. I have heard of Parkinson’s disease, but never knew of Parkinson’s Law. Parkinson’s Law could be further generalized as: “The demand for a resource always expands to match the supply of the resource.” This law can be applied to individuals as well. As a person’s income increases, their cost of living and lifestyle increase to match their income level.
So now let’s have a better understanding. T. Harv Eker, author of the best-selling Secrets of the Millionaire Mind, shares his point of view with us. Poor people and most of the middle class believe that the only way to get rich is to earn a lot of money. They believe that only because they have never been there. They don’t understand Parkinson’s Law, which states: “Expenses will always increase in direct proportion to income.”
This is what is normal in our society. You have a car, you make more money and you get a better car. You have a house, you earn more money and you get a bigger house. You have clothes, you earn more money and you get nicer clothes. You have vacations, you earn more money, and you spend more on vacations. Of course, there are some exceptions to this rule… very few! In general, as income increases, expenses almost invariably increase as well. That is why income alone will never create wealth.
Therefore, if your intention is to be a millionaire or more, you should focus on building your net worth, which is based on much more than just your income. Do you know what your net worth raised to a hundred is?