Why Wealth Is Not Related To Income

what is wealth

What is wealth? Many people place their value on how much money they earn each year.  What if I told you that many high-income earners, making over $200K a year, are not wealthy? 

Today we will discuss why wealth and income are not directly related.


I have been reading The Next Millionaire Next Door: Enduring Strategies for Building Wealth (I highly recommend), and the topic of income vs. wealth at the forefront of the book.

Let’s address some of the common misconceptions associated with wealth and income.

High Incomes Are Common

woman wearing maroon velvet plunge neck long sleeved dress while carrying several paper bags photography

Do you know many high-income earners?  Individuals, who bring in over $200K a year?  I’m sure you interact with a couple of them, whether they are your primary care doctor, surgeon, pharmacist, dentist, or a small business owner. 

People who make over $200K a year are not as rare as they once were – but the wealthy ones are. It turns out, measuring wealth shines a light on our bad spending habits.

Many high-income producers spent a great deal of time and money to get to their income level.  If you thought you had a great deal of student loan debt, can you imagine what someone who went through medical school owes? 

Maybe you are one of those individuals who went through medical school and now owe over $100K in student loan debt and their financial health is struggling.

Spending Habits

Many people envy these high-income earners because of the amount of money they bring in.  Rest assured, these high-income earners know they are envied, and they are also pressured to spend more than the average person. 

Upper-class citizens who make a high income are pressured to live in nicer neighborhoods, drive a more expensive car, and pick up the tab more often than not.  High-income earners are as human as you and I and have the same temptations to spend more than they make.

The issue with a high income is the ability to spend more, and to borrow more, and to rack up much bigger debts.  If you don’t believe me, check out how many professional sports players and celebrities have gone bankrupt. 

How could any professional sports star go bankrupt!? They make millions of dollars each year! 

You or I could live off the interest alone from their annual salary, yet somehow they find a way to spend it all – and then some.  The pressure to spend is even more significant when you have a high income, which is a contributing factor to why income does not equal wealth.

Rich Celebrities Who Lost It All

For a perspective, here is a list of people who made fortunes and were “extremely wealthy,” but still found themselves declaring bankruptcy:

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  1. 50 Cent
  2. Donald Trump
  3. Kim Basinger
  4. Marvin Gaye
  5. Larry King
  6. Mike Tyson
  7. Willie Nelson
  8. MC Hammer
  9. Michael Vick
  10. Burt Reynolds
  11. Toni Braxton
  12. Gary Busey
  13. Sinbad
  14. Wayne Newton
  15. Curt Shilling
  16. Warren Sapp

I could go on and on, but I think I have made my point.  If you look at this list, these are people that most of us would consider as “wealthy.”

The perception of wealth is not always a reality.  Little did we know, they were spending much more than their high incomes brought in. 

Many of these individuals went millions of dollars in debt – much more than you or I could amass on our own.

What Is Wealth?

person holding pink piggy coin bank

So on the opposite spectrum, what is wealth?  Wealth should be more related to net worth. 

In reality, many millionaires in this world live in moderate/middle-class neighborhoods.  They drive older cars, spend responsibility, and don’t live a lavish lifestyle. 

Their lifestyle is what has made them rich – they spend much less than they bring in.

The Wealthy UPS Driver

Have you heard of Theodore Johnson?  He is what legends are made of.  He worked for UPS, and the most he ever made was $14,000 a year.  For over 50 years, he invested 20 percent of his income (roughly $3,000 a year). 

Do you know how much he had amassed by the time he was 90 years old?  

70 million!

Theodore didn’t change his spending and saving habits even though he had accumulated such a large amount of wealth.  That is what keeps wealthy people wealthy. Just because they are wealthy does not mean they now have an excuse to squander it all.

Even though Theodore only saved around $3,000 a year, he was able to retire a multimillionaire by being systematic and routine in his spending and saving habits.

Even You Can Become Wealthy

There is no reason you can not pay off your debt, experience financial freedom, and begin to build your legacy.  It’s not about getting rich; it’s about being responsible with our money and reducing/eliminating our financial stress. 

Stop making the excuse that only people with high incomes can amass wealth and pay off debt – anyone can build wealth if they can take control of their spending.

You and I buy too much junk.  I consider myself rather frugal – if not boarder line cheap.  I watch what I spend and regularly double-check my decisions to make a large purchase. 

Even with all my safeguards, I still waste money on things I shouldn’t.  It’s human nature, and you can still break the rules once in a while – as long as you don’t go off the deep end.

Combining Wealth And Income

assemble challenge combine creativity

My main goal is to continue to raise my income and my wealth as much as I can.  Building wealth is certainly easier with a higher salary – as long as you do not increase your spending. 

From the outside, it’s easy to say that if I made a million a year, I could live off of 50K and invest the rest.  Who knows what would actually happen though. 

We are all human, and in the end, we are tempted by different things.

Avoid the idea that wealth and high incomes are two in the same. 

They are two completely different things, and as showcased above, just because you make a ton of money, doesn’t mean you actually have any money!

Building Wealth Right Where You Are

If you are striving for a higher income because you feel it will be your answer to your debt crisis, rest assured, a higher income will not rid you of your debt and money problems.  The only way you will solve your debt problems is by changing your spending habits right where you are, with your current income. 

If and when you start to make more money, that means you can pay your debt off faster – provided you don’t spend more just because you make more.

Next month I am due for a salary increase.  I am not going to change my budget one bit – the extra I bring home will mean I can put more towards my mortgage. 

It’s about being content with where you are in life and learning to live within your means.  My salary increase will not change my lifestyle in any way – until I pay off my mortgage.  Once my mortgage is paid off, I can reap the benefits of a higher salary; but chances are I will probably just invest more rather than spend it on junk… 

Kevin Bacon’s Take On Wealth

kevin bacon
Kevin Bacon at the “The Woodsman” Special Screening at the 2004 AFI Fest, Pacific Arclight Theatres, Hollywood, CA 11-05-06

I recently came across an interview with Kevin Bacon after he lost much of his wealth to Bernie Madoff’s Ponzi Scheme. After losing millions he stated,

“It was a bad day, but pretty quickly, we were able to see all the things we had as opposed to whatever we lost, and those are the biggest cliches: children, health, love, a nice home. So we got through it together. I don’t think about Madoff, like, at all.”

Wrapping It Up

Do you have wealthy friends or just high-income earner friends? 

You may be surprised to learn that your “poor” friends might be much more wealthy than you thought.  The images people portray are just that – portrayals. 

Fight the urge to compare yourself to others and analyze their possessions.  You never know, they may be one late payment away from bankruptcy.

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About The Author

Ryan Luke

Ryan Luke is a father of three, a husband, a financial coach, and a full-time police officer. He has been featured on MarketWatch, Forbes, Fox Business, Experian, MSN, and USA Today. He focuses on providing easy to understand personal finance information to first responders so they can get out of debt and build wealth on a public servant salary.

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