Wealth vs. income
Posted by Jason Apollo Voss on Dec 19, 2008 in Blog | 1 commentOK, I thought I was done for the weekend, but each day for the last week as I log into my personal e-mail account there is a jackass story on MSN that I just have to comment on. The story is entitled, “Does $250,000 a year make you wealthy?” If you follow the link you actually have to search around the MSN site to find the article and ultimately you are led to:
CNBC originally broadcast this video around the time of the Democratic National Convention and it was prompted by an (ignorant) comment by Presidential candidate, Barack Obama. Apparently Obama said that making $250,000 per year was the cutoff for rich vs. not-rich in our country.
The reason that this entire story bothers me is that it perpetuates a misunderstanding about the difference between income and wealth that many, many people have. The difference is that income is how much money you make in a given year, whereas wealth is the accumulated assets that you have at your disposal. A classic analogy for explaining this difference is…
Imagine a faucet, a bathtub and a drain. The faucet is your job and the water coming out of the faucet is your income. The drain represents your spending. In order for you to accumulate wealth/fill the bathtub, the flow of water into the tub has to be greater than the amount of water draining out. The level of the water in the bathtub is your wealth. I remember during the course of the campaign Obama having mentioned his definition of wealthy as tied to income. But the statement is totally ignorant and shameful.
I consider this a very important issue because in the many discussions that I have had with people over the years about their personal finances I know that many of them do not have even a rudimentary understanding of the basics. Such as the difference between wealth and income. The empowering thing about the bathtub analogy that I shared above is that you can see that having a high income does allow you to fill the bathtub faster, but only if you don’t have the drain open too far. What this means though is that people who do not make boatloads of money in income can also accumulate wealth if they manage their expenses well. As you may have read in my bio, I retired at age 35. Yes, I made a lot of income, but I lived in a very modest house that cost around $200,000 and drove (and still drive) an ’02 VW Jetta. And I never used credit cards. That combination led to rapid wealth accumulation.
Separately, do you remember my postings about the poor quality of the news in the U.S.? Why is MSN still highlighting a story that is 4 months old, about a meaningless debate, whose entire mojo was based on an ignorant premise? This kind of stuff drives me crazy. Follow the link and watch the story if you want to see the kind of inanity that passes itself for “news” in our country. This story was stupid when it ran and its import did not grow in the intervening months. Geez!
Soapbox dismounted.
Jason
do you know any good plumbers? my drain has been stopped up for years ! Happy Holidays