Tuesday, December 13, 2011


A high income is not wealth.  And wealth is not necessarily tied to a high income.  Most people think being wealthy means having a big paycheck.  Not so!

The popular media perpetuates popular misconceptions about money.  And one of the most popular of these is that a high income equates to being wealthy.

Nothing could be further from the truth.  In the book, The Millionaire Next Door, it is reported that the average Millionaire has a wealth of about 3.7 Million, but an income of only about $247,000.

* Our household's total annual realized (taxable) income is $131,000 (median, or 50th percentile), while our average income is $247,000. Note that those of us who have incomes in the $500,000 to $999,999 category (8 percent) and the $1 million or more category (5 percent) skew the average upward.

* We have an average household net worth of $3.7 million. Of course, some of our cohorts have accumulated much more. Nearly 6 percent have a net worth of over $10 million. Again, these people skew our average upward. The typical (median, or 50th percentile) millionaire household has a net worth of $1.6 million.

* On average, our total annual realized income is less than 7 percent of our wealth. In other words, we live on less than 7 percent of our wealth.

Read that last part again.  Seven percent.  That means that someone with a net worth of a million dollars is making only about $70,000 in income.

On the other hand, there are a whole lot of Americans making $100,000 a year or more who claim to be living "paycheck to paycheck" with little or no savings at all.  And when we were in the Real Estate business, and saw the financial statements of a number of home buyers, we were shocked how many triple-digit earners had tons of debt and no savings.

We even met a fellow from a government home mortgage lending entity, who had a combined income with his wife of well over $100,000, yet no savings, even in his 401(k).  They did have $50,000 in credit card debt, plus $1500 a month in car loan payments.  And we wonder why the mortgage industry melted down.

But talk to your average wage-slave about wealth, and they don't think in terms of money-in-the-bank, but in terms of a higher-paying job.  A higher-paying job means they qualify for more loan money, so they can buy more stuff.

You see where this is leading, don't you?  We are being conditioned to believe that income is wealth, because more income qualifies you to borrow more.  And most people believe that wealth is your credit score - your credit-worthiness - your ability to pay back.  Very few believe in the idea of accumulating wealth over time and in the concept of "owning money".

And the powers-that-be would like you to continue to think that way, too.

The government wants us to believe that having a high INCOME is equal to wealth, and in fact, they want us to have high INCOMES (which are taxable) and no accumulated wealth (which is not taxable, until spend, and then only at capital gains rates).  And with no accumulated wealth, we are all dependent on government handouts if we lose our jobs.

A person making $100,000 a year, but heavily in debt, with no savings, is a perfect pawn for the establishment.  Their entire lifestyle is predicated on "not rocking the boat" - they want low, steady interest rates and no disruptions in the job market.  Because their money train is so heavily overloaded that if they lose their job, they lose their apparent wealth in a hurry - the mini-mansion is foreclosed upon, the leased cars towed away, the debt collectors start calling.

People like that - which is to say, most Americans - are dependent on government handouts, if they lose their jobs.  They desperately need that unemployment to pay the interest payments on their credit card debt.  They cannot afford to not have an income stream for even more than 10 minutes.

Their lifestyle is one of apparent wealth but not real wealth.  Income is not wealth, it is how one builds wealth over time.  Wealth is the accumulation of money, not the spending (dissipation) of it.

And yet, how many people today believe just the opposite?  That how wealthy you are is a function of how many luxury cars you have, or how big a house you "own" (the bank really owns) and all the other stuff in your life that you bought, using credit cards and will spend years paying off?

This is what people believe, and they get these beliefs from poor normative cues.  Who provides these cues?  The government.  Industry - the credit industry particularly.  The television - which panders to its advertisers and sponsors, even during the programming.

So again, what are we to do?  Turn away from the poor normative cues that are being forced upon you like ill-fitting clothing.  Turn away from the siren song of the credit industry and the commercial bazaar that is television.  Unplug.  Drop out.  Tune out.  Turn off.

Accumulate your own wealth, don't spend it.  Become wealthy.  Own money.  Because, in the long run, having your own money is better than any foodstamps, unemployment insurance, or welfare.

And eventually, you will retire, one way or another, and will have to live off your savings.  You might as well start saving for that now!