Login
Password

Forgot your password?

The Difference Between Income and Net Worth

By Edited Jun 3, 2014 0 0

 

For some reason, our society is obsessed with income. How much does Jim make a year? What did he bring home in 2011? Does he/she make six figures? Seven!? Turn on any politicial debate on income inequality, and you'll be sure to hear our President speak of the "rich" being the"highest earners." We must tax the rich! Tax the highest 2 percent earners in the country! But those who earn more aren't always worth more, which is something our society has failed to understand.

The number one factor is what determines whether or not you are rich is NOT your income. It is your net worth, which refers to an individual's "net economic position; similarly, it uses the value of all assets (long term assets) minus the value of all liabilities," according to Wikipedia. Basically, how much would you have if you sold all your stuff, minus your debts? $500,000? $20,000? Negative?

You see, income is not wealth. Not by any means. As a nation with people currently in massive amounts of debt, credit cards maxed out and all, we should know this. Just because you're a lawyer or doctor making $250k a year, don't mean your rich! Your expenses could be out of the roof. 

It is quite possible a pizza delivery boy is "richer" than a doctor...very possible! He just may handle his money better. When you see a couple in a big house in the suburbs, with 3-4 cars, all the latest clothing and jewelry...I want you to remember this quote: nothing is what it seems.

Here are a couple of the best ways to get "richer" by increasing your net worth:

  • Control your expenses! You must make sure you have more coming in than going out. Cut out anything unneccesary, anything that you won't miss. Live below your means (but don't torture yourself, we all need some fun sometimes). With that extra money you've saved, you MUST invest. Get compound interest working in your favor. 
  • Get rid of that debt. Start with consumer debt (credit cards) because those typically have the highest interest rates. Pay them off now and try to keep them low.
  • Pay down the highest interest rate loans you have first. Personally I have no credit card debt, but I do have those dreaded student loans. However, the rates on those loans vary from 2 to 10 percent. Therefore I make only the minimum payments on the lowest percents, and a little bit more on the higher percent loans. Instead of using excess money to pay off my student loans, I invest, because I think I can get a better return than 2-8 percent.
  • Set out a plan and goals, and stick to them!

Let me know what you think of these tips in the comments.

Advertisement
Advertisement

Comments

Add a new comment - No HTML
You must be logged in and verified to post a comment. Please log in or sign up to comment.

Explore InfoBarrel

Auto Business & Money Entertainment Environment Health History Home & Garden InfoBarrel University Lifestyle Sports Technology Travel & Places
© Copyright 2008 - 2016 by Hinzie Media Inc. Terms of Service Privacy Policy XML Sitemap

Follow IB Business & Money