In America, income and wealth are perceived as being synonymous. While the two concepts often go hand in hand, using the terms interchangeably is misleading. America’s most wealthy individuals don’t necessarily draw the highest levels of income. For example, while occupations such as professional athletes, top executives, doctors and lawyers have reputations for earning high salaries, their personal and financial obligations can make accumulating significant wealth very difficult. Many wealthy individuals have never earned an exceptionally large paycheck.


Let’s take a look at an example of two working Americans: Adam and Bill. Adam is wealthy, but he has never earned a large income. After earning his bachelor’s degree by paying in-state tuition at a state university, Adam began working at the age of 22. Although his starting salary was fairly low after graduation, Adam has managed to live well below his means for 28 years. He has committed himself to investing at least 10% of his income and has diligently avoided credit card debt. Through an excellent reputation and hard work, Adam was promoted to a management position and now earns $60,000 a year. Adam’s family lives simply, and they’ve remained in their small three-bedroom house in a working-class neighborhood. He and his wife Susan, paid off the mortgage a few years ago. Their children attended public schools, and when the kids grew up and needed cars, they bought used cars with cash. They may not live a lavish life, but the family is comfortable and debt-free. After years of investing 10% of his income, Adam has built up an investment portfolio worth close to $1.5 million. With an annual budget of $45,000, Adam’s family could sustain their current lifestyle for more than 30 years without Adam or his wife ever needing to work again.


On the other hand, there is Bill. Bill earns a large income, but he isn’t wealthy… yet. Unlike Adam, Bill attended an expensive private university, which cost about $200,000. Bill is highly intelligent and hardworking. With his stellar academic record, he gained admission to one of the best medical schools in the country, incurring another $200,000 in student loan debt to earn his M.D. After receiving his M.D., Bill got a job as a physician, earning over $200,000 per year. With the comfort of a high annual salary, Bill’s family lives extremely well. He qualified for a mortgage on a $750,000 home in an exclusive gated community, complete with a golf course. Bill’s children attend the most prestigious local private schools, and Bill and his wife Jennifer both drive luxury cars. As a highly skilled physician, Bill has worked his way up to an annual salary of $350,000, but Bill’s family’s expenses (the large mortgage payment, his payments on two luxury cars, the children’s private schools, his own student loans, club memberships, designer clothing and expensive vacations) add up. The total cost of Bill’s indulgences is equal to his yearly salary. Some years, Bill ends up spending even more than he makes, and his family lives paycheck to paycheck, despite his large annual salary. If Bill were to stop working, his family would soon be destitute.


As a society, we sometimes complain that we don’t have enough money and always want more. Yet, my question to you is how much is enough? Today, almost the majority of the common population spends their money rather than using it for necessary items. For example, many people buy an excessive amount of expensive designer goods and luxury cars, and they dine at high-class restaurants. They swipe their credit cards without looking at the price. These spending habits are liabilities; they won’t help a person to produce wealth. As a result, a lot of people owe the banks money because of credit cards and debts that they are unable to pay for, amounting anywhere from $50,000 to even $200,000 or more.


Driving a luxury car, like a Lamborghini, Porsche or Ferrari doesn’t make us feel rich. Wearing designer items like Louis Vuitton, Gucci, and Prada don’t make us feel like we are high class. These perceived emotions give us the feeling of being rich or high class. That is why today, especially the middle income group also know as the “middle class”, face a lot of financial difficulties, family problems and work issues. In certain situations, when worse comes to worse, the result can be bankruptcy.  A lavish lifestyle does not make us rich. Shouldn’t we education ourselves about money and spending to gain financial knowledge so we are able to be wiser with our finances? Do you feel there are any other solutions to help individuals understand the difference between income and wealth?