Last week I wrote a post called, “Money Will Change You” which talked primarily about how the more we earn, the more our desire changes. For example, if you enjoy cars (like I do), you won’t want to be driving the same old Honda Civic when you get to earning a six figure income vs. half of that for example. Rather than buying another set of dress pants for work at $89.99 from Sears, now you’re buying $210 dress pants at Hugo Boss outlet. One thing that is certain though is that we react to wealth differently, those who work their way to accumulating wealth react one way and those who inherit wealth react another way.
A great example of one’s reaction to inherited wealth is illustrated in this comment:
I was in possession of $100k of inherited wealth at age 18. Freshly graduated with no life plan, I blew through it all in a little over 2 years. I’m not sure if money “changed me”, but I definitely became lazy and had NO APPRECIATION for what I had.
Looking back, I wish I had locked than money away until I figured out where I was going. I have started to bring in more money (now age 26) and I DEFINITELY have an appreciation for what I have now. One thing I have noticed about people who fall into wealth quickly is a true lack of appreciation for it. I had a few rich friends, and one of them literally told me “it doesn’t matter what I do, I’ll be rich anyways, so I don’t care.”
Instead of doing a followup review to my post, I was fortunate enough for Sam (Financial Samurai) for having already done a followup called, “Making Money Too Fast Destroys You And Everything Around You“.
Instead I’m curious to know, what income level do you consider well off?
Ever since President Obama took the stand and became the President of United States of America, he has specifically worked over-time to raise the taxes on single people making of $200,000 and families making over $250,000, because President Obama considers $200,000 to be rich. Earning $200K as a family or singleton is a pretty nice income to bring in any way you slice it, and you are considered as part of the “Upper Class” in today’s modern society.
One thing that’s for sure is that even though I may consider $200K part of the upper class where I live, that same income amount is not considered upper class income in places such as NYC or Vancouver. Earning $500K in NYC can not be considered an upper middle class income, because the cost of living is atrocious, and if you’re a Manhattan resident you’re paying an additional 3% surcharge tax.
So, Why hasn’t President Obama been successful in increasing the taxes on the rich or why hasn’t Prime Minister Stephen Harper entertained the idea of a tax increase for the elite wealthy in Canada?
I think for two primary reasons one hasn’t been successful in raising taxes and the other hasn’t even considered raising taxes, because both countries depend on the elite wealthy and for the most part people mutually agree that $200,000+ incomes are not exactly rich. Furthermore, one can reasonably argue that no matter what tax implications are imposed on the rich, they’ll always find alternative ways to pay less taxes, so imposing taxes may not beneficial after all. Finally, the rich drive the economy in some form through job creation, exporting, and so on, and if they’re taxed further their motivation for new job creation will come to a stand still.
That’s my two cents, so rather than getting all political, I’ll let the politicians do their jobs, and I’ll get back to discussing what income level is considered well off.
The 4 Wealth Breakdowns
Income – The amount one makes in any given year from one or many different income sources. For example, I have three different income sources. I guess you can say I like diversification.
Capital – Some people earn very little but have a lot of capital, they possibly inherited some over time. As we all know Capital is considered accumulated assets or ownership.
Income/Capital Mixture – Probably the best position to be is to have a mixture of good income and capital. If you’re a home owner, and earn six figures or more, consider your self to have a good mixture of income and capital.
Inheritance - If you’re lucky to inherit something from your grand-parents or parents, consider your self fortunate. The downside of inheritance is that it wasn’t worked for, therefore the appreciation level will never be high.
While the idea of being ‘rich’ sounds simple, its actually a concept with many different ideas and viewpoints. Depending on your income level your idea of ‘rich’ might be different. The more income you currently have, the more additional income it will take to consider yourself rich.
Not all is doomed though. You can still get to a rich level with some careful planning and smart work. Notice I didn’t say hard work, because nothing has to be hard if you’re smart about it.
Steps To Richness
Traditional Sense - There’s no secret formula to getting rich. Everyone can create their own journey or you can take the traditional route through simple saving and investing. Even as little as 10% of your income invested over 30 years and you’ll be set for the rest of your life.
Watch & Learn – Watch those above you and learn from them, and if you’re lucky enough to have someone close to you, use them as a mentor. The key here is to learn from someone who’s wealthy already. There are millions willing to tell you how to become wealthy, and are not wealthy them selves. Ironic eh?
Mr. or Ms. Independent – You’re in control of your future, and there will be a lot of haterz along the way. They’re part of life and they make it more interesting. The income you earn right now is a choice you make. Can you earn more? Find an alternative income source? Upgrade your skill set? Those are all choices too, and you make the choice whether you do anything or nothing at all.
Inherit – It helps that if you were born to wealthy parents. Essentially the wealth will be passed down to you through time. And if you were unlucky to have wealthy parents, simply marry into wealth. I’m still on the lookout for this one. :)
Discipline- Find your own discipline and you’ll quickly find that the greatest rate of return you will earn is on your own personal spending. Being a smart shopper is the first step to getting rich. Yeah you have to give things up and that doesn’t work for everyone, particularly if you have a family. That is reality.
Invest in YOU - Discover what your hobbies, interests, and passions are. Find the one you love the best and get a job that supports your goal.
Be Daring Through Being Different – Don’t base your decisions upon what everyone is saying or doing. You can be the average , which is what everybody else is doing. In order to be above average, you need to do your own thing and not be a follower.
I’ll conclude by ending with this…
I’m always on the lookout to maximize my income and increase my capital base. I also strongly believe in diversifying my income, hence the three different income sources I carry. Personally $200,000 is not rich where I live, but I consider $200,000 as upper-class. If you live in NYC or Vancouver, as I mentioned earlier, $200,000 is probably not even considered upper-class, so you have to get creative in other ways in order to live a modest life.
The beauty of getting rich is that it doesn’t require hard work as much as it requires working smartly. Income levels are a consideration of one person, and if you’re fortunate enough to find a life partner that you can partner up with, that goes a long way to giving your family further stability.
Wealth starts in the mind. You have to be dependent upon yourself instead of relying on others.Incomes change, whether you decide to stop working or life decides for you. The income you earn directly influences your capital, but than again so does the life you live and the friends you have.
The best piece of advice that I can give you, and this coming from someone who’s not rich - just be your self. Do your own thing, be your own person, create your own path and don’t compare your self to others. In life there will always be some that have more than others, because that’s what makes life so interesting, we’re all not the same.
What income level do you consider rich?