Money may not be the most important thing in the world, but it does afford those who have it the luxury and freedom to live life to the fullest. When it comes to money matters, there are a lot of misconceptions regarding the words “wealth” and “income.”
These two words are often used interchangeably. However, it is important to note that these terms are completely different from each other. While they go hand in hand, wealthy people don’t necessarily have the highest levels of income, and vice versa.
Income vs. Wealth (Definition)
Income can be defined as money that one receives on a regular basis, whereas wealth is a measure of the assets (including money but also cars, real estate, stocks, etc.) you own.
There is a myth in the modern world that income equals wealth, but this concept is not necessarily true. Likewise, wealth does not always equal income. Let’s look at an example to figure out what this means.
Income vs. Wealth (Example)
Let’s say you are currently earning $100,000 per year. However, you happen to live in San Francisco, California (one of the most expensive cities in America). In this scenario, let’s also say that you have taken on a sizable student loan debt in order to finance your education. Due to the high cost of living in your city and your monthly debt payments, you may be finding it hard to save money.
Now let’s say that your friend, who is currently living in Kansas City, Missouri, makes only half your income ($50,000). However, they have already paid off their student loans and are able to save up a nice chunk of their income each month, which they have used for a down payment on a modest home.
After a few years, your friend’s home goes up in value, making its price much higher than what he initially paid for it. Meanwhile, your salary has increased and you have paid down a good amount in loans, but your savings are still relatively low.
In this scenario, your friend (who has lower income than you), may actually have more wealth — at least for the time being. In the future, your higher income may allow you to outpace your friend in terms of assets, but for the time being, your friend’s appreciating house and growing savings account makes him wealthier.
How to Determine Your Wealth
To determine how much wealth you have, you can look at your net worth. It’s pretty easy to calculate.
Add up all your assets, such as your cash in the bank, the value of your home, property and other assets, and deduct your liabilities, such as your yearly expenses, debts, and loans. If you get a negative number, then you do not have any wealth at all.
However, you can use a big paycheck to create wealth, which this leads us to our next discussion.
Using Your Income for the Best Way to Build Wealth
Just because you don’t have assets today, it does not mean you won’t have any in the future. You can use your paycheck to create wealth-building opportunities for yourself. The earlier you start, the better. It is never too early to start investing and saving money.
There are many high-paying degrees that could earn you high-paying entry-level jobs. You can start to build your wealth by saving at least 10% of your monthly income on a savings account with high-interest rates.
The key is to start acquiring assets as early as possible. While your income is a stable and regular coming of money, you can leverage your paycheck to help you build your wealth, such as investing in real estate, insurance, investing in stocks, and business endeavors.
If you have your eyes set on creating generational wealth for your children and their children, the ideas mentioned above are a great way to start.
Generational wealth are assets that have been passed down from one generation to the next. It’s a great way for younger generations to have instant capital for their business endeavors and investments. If you’re lucky and the younger generations continue to accumulate wealth with the assets they’ve inherited, your generational wealth could expand and passed down to the 2nd and even 3rd generations.
High-Paying Jobs vs. Education
Let’s say you are intent on building wealth, and since you are not the recipient of generational wealth, you want to look for a high-paying job to get started. But wait—you don’t have a college degree. Don’t worry: There are many high-paying jobs you can get without degrees. In fact, not taking out a mountain of student loans may actually benefit you in the future.
There are also high-paying part-time jobs you may want to have as a “side hustle” if you already have an established career.
If you want a high-paying job without a degree, you can get into a number of skilled jobs that pay at least $79,000 a year. However, these jobs, such as power plant operators and transportation distribution managers, may require many years of experience. You can start these careers at the entry-level positions then move your way up. You can then use your savings from your early investments to slowly generate assets over time.
If you’re good with analytics and numbers, then you can look for the best paying jobs in finance. The financial industry in the U.S. is one of the most competitive because this industry is one of the highest-paying sectors of economy. Though a financial job does require a college degree most of the time, there are positions such as a financial analyst that doesn’t require a degree.
All you need to do is study the performance of stocks, investments, bonds, and commodities in order to provide sound investment advice. You will also have to start at the very bottom before you can apply for the analyst job as it takes years of experience to master.
Finally, if you don’t want to wait 5 years to earn well and start building your net worth, you can choose high in-demand jobs that have long-term growth and have large amounts of open positions. You won’t have a lot of competition and jobs are almost always available.
High-demand jobs are mostly in the health sector, such as home health aides, nursing practitioners, occupational therapists as well as in the software and programming industries.
Building wealth does not happen overnight and it takes time, patience, and smart investments. However, if you use your income right, you could accumulate wealth that could potentially give you the freedom and life you’ve always wanted.