admin

Why the Rich Don't Feel Rich

Recommended Posts

I think the issue is, we think that income = wealth and that is not true. Many people earning $20k - $30k/year have built great wealth simply by living within their means and investing what is left over into investments that they understand. Meanwhile, people making high 6-figure incomes are either bankrupt or one mishap from bankruptcy.

The biggest thing with those who are wealthy is that they are content with what they have. They do not need to look better than the Jones. In fact, they can afford to purchase, with cash, many of the toys that the rich but not wealthy person owns. They don't do so however unless there is a compelling reason.

The Millionaire Next Door by Thomas Stanley is a great book to read if you want to learn the difference between Rich and Wealthy.

Link to post
Share on other sites

You are on point on all three points you made (including the book recommendation).

First and foremost, higher income is like a movie reel whereas wealth is a snapshot. The two are only tangentially connected.

Additionally, creating higher income inevitably causes expenses to rise. So that my wife can work and raise our income, we have two kids in daycare. That eats up $2450/month which we can't deduct from income because of phase-outs. So that both my wife and I would have higher incomes, we both went to grad school. The student loan payments chew up another $1400/month, which cannot be deducted because of phase-outs. So now we have boosted our income but the first $46,200 of post-tax income has disappeared. That means we have to gross an additional $60,000 just to tread water. I'm using myself as an example, but I know many families who are in exactly the same situation. They are two income folks with kids, make a combined income that at least on paper puts them in the top 5% of families, but yet at the end of the month they find themselves clipping coupons to get by.

Another factor is regional costs of living. $250k in income goes a long way in the heartland. Not so much near any big US city where housing costs are upwards of $300/sq foot.

Link to post
Share on other sites
Guest
This topic is now closed to further replies.