082 | Income vs. Wealth

It’s easy to conflate having a six-figure income with being wealthy.

But they’re not the same. In fact, your income doesn’t have as much bearing on your ability to build wealth as you might think.

In this episode, we’re talking about the difference between income and wealth, why many lawyers who make a lot of money aren’t wealthy, why some people who make less are, and why it’s important to understand the distinction.

Lightly edited transcript appears after the show notes.

Topics Discussed

• why income isn’t directly tied to wealth
• overspending at all income levels
• why many lawyers who make a lot of money aren’t wealthy
• why many people who make less are wealthy
• using your income to set yourself up to have options

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Resources mentioned

Couple who paid their house off in 5 years

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Email: hello@rhothomas.com

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Lightly Edited Transcript

Hey friend, welcome back to the show. I hope you’re doing well and having an amazing day so far. Today we are talking about income versus wealth. Income is a hot topic among lawyers, especially those at big law firms. There’s always a lot of talk when firms increase starting salaries. Or announced bonuses and things like that. And a lot of lawyers think making multiple six figures means all as well for them financially. There are also some lawyers, especially those in areas of law that pay less who think the opposite, or maybe not the opposite. But something like I need to make more money before I can improve my finances. But let me tell you something. There is no rule that making six figures means you’ll be wealthy and not making six figures means you won’t the amount you make isn’t directly tied to how much wealth you can build. Because wealth is not about the amount of money you make. It’s about the amount you keep. People at all income levels including those who make six figures, multiple six figures, seven figures struggle with overspending. And people at all income levels, build wealth, when you fall into the trap of thinking that just because you’re making a lot of money you’re doing okay or thinking there’s no point in looking at your finances because you don’t make enough then you’re not looking at what’s actually going on with your finances, and you’re missing some key information that could help you in your wealth building activities. And this was me like I remember my husband and I thinking, Oh, we’re making six figures. So we’re doing well. And the first time that we sat down to look at our net worth, we just knew it was going to be great, right because we were doing quite well. And if you’re not familiar with how to calculate your net worth, it’s the total of all your assets so any properties, checking savings accounts, retirement accounts, other investment accounts, cars, basically, anything that has value, right, so the total of all of that, minus the total of all your debt mortgages, credit cards, student loans, car loans, personal loans, 401k loans, all the loans, right. So we were doing quite well. So imagine our surprise, when not only was our net worth, not high, it was below zero. Like multiple six figures below zero, it was negative 342,000 and some change. And it just shows you that having a certain income doesn’t mean anything. Right. Like we made six figures. We weren’t doing anything with it. Bringing in six figures is great, but if you spend it all, then you’ll still be broke. At the end of the day. If you’re making 200,000 and you’re spending 200,000 Or you’re making 500,000 and spending 500,000 Or a million and spending a million. You don’t have anything to show for the income that you’re bringing in. You’re not building wealth, that income is doing nothing for you. And then if you also have the six figure student loan debt that a lot of us finished law school with, and you’re not doing anything with that you’re not doing anything to tackle it to pay it off. Then you may be in the same boat that we were in with a negative six figure net worth broker than broke, right? So looking at income, it’s great to bring in six figures or multiple six figures or whatever. But that’s not the end of the story. Because wealth is all about how much of that money you keep. There are people who make way less than six figures who are building wealth. And that’s actually part of the beginning of my husband’s and my money story and how we got started on this whole journey building. Well to begin with. We were looking at these people who were making way less than we were, but who were doing way more with it. And I’ve told you before, for example about the couple who they were teachers, or at least one of them was a teacher, and they paid off their house in five years. Then there’s the whole financial independence movement that I told you about where you’ve got enough assets or investments that you no longer need to earn money because your money is earning money for you. Like your money will work harder for you than you ever can. And people who are making less than six figures people making 50,000 70,000 are retiring from their jobs in their 30s and 40s. Because they’re paying attention to how much money they’re bringing in versus how much money they’re keeping. In other words, how much money is going toward building their net worth? And I have to know it doesn’t only have to be about cutting expenses, like there are always two sides to this equation. So you could be bringing in additional streams of income, which would allow you to keep more of the money you bring in as well. But the point is just to get you thinking about this, don’t just assume that you’re doing great financially because you’re making x income or that you can’t do anything financially because you’re making y income. actually look at it. Like look at your net worth and that will show you how well you’re truly doing. And what’s happening for a lot of lawyers is even though they’re making x income, they don’t know what’s going on with their money. Right? They have no idea where the money’s going, what they’re spending on, if they even like the things or care about the things that they’re spending on how much they’re spending. And that’s why you’re not able to use that income to build wealth for yourself. So you want to go from just bringing in this income and giving it all to Amazon and your local restaurants and whatever your favorite places. To shop are to using the income to strengthen yourself financially. Making a six figure or multi six figure income is great. But you want to make sure that you’re using that income to set yourself up down the line. Like you want to have options available to you because there may come a time that you don’t want to continue doing the job that’s paying you that income. You might not be thinking about that right now. Right like I never saw myself leaving big law. I thought I was going to be there for my entire career. I was the first year who went to my team leader asking how I can make partner and now here I am doing something completely different. And part of why I was able to do that is the way that my husband and I set ourselves up by using our income to pay off our student loans and build wealth. We had to get out of thinking that we were doing well just because of our income. So what I want for you is for you to have options for you to have flexibility in your life, for you to have the freedom to choose what’s best for you whatever that means for you, and learning how to manage your money and stop overspending and start spending intentionally and building wealth. All of that gives you options. I want you to look long term, right not just at what’s happening right now. So when you’re dependent on the level of income you make just to live, you know needing this level of income to maintain your lifestyle that keeps you stuck. That keeps you having to stay in the position you’re in now because you can’t afford to make changes. You can’t afford to make less than what you’re making now. And that’s the concept of the golden handcuffs if you’ve ever heard of that. If you have to bring in the amount of money you currently make or you won’t be able to live and cover all your bills and expenses. Something has to change. And you know if I’m talking to you, if you know you’re making good money and don’t know where it’s going reach out to me. I can help you get yourself on track so you can head to rho thomas.com/call and schedule a call to get started. The moral of the story in all of this is there’s a difference between income and wealth. Making a certain income doesn’t automatically equate to being wealthy. You can make less than six figures and be wealthy. You can bring in six figures, multi six figures, seven figures and be broke. It’s all in how you’re managing your money. You have so much room to live an amazing life and still build wealth. It’s about being more intentional with your finances and making decisions in line with the future you want for yourself. Not just what feels good in the moment. Alright, so that’s it for this week’s episode. Come connect with me over on social media. I am most often on Instagram at I am rho Thomas, and LinkedIn. Also subscribe to the show on whatever platform you’re listening on. Leave me a written review. Both of those things help the show to be seen by more people. And of course, you can always help this show by telling a friend and I greatly appreciate it. As we close out friend I pray that you will take some time to review where you currently stand with your finances. I pray that you will think about what you want for your future and start making intentional decisions to get there. And as always, I pray that you continue to take steps to regain control of your time, build wealth, and live the life of freedom and choice you deserve. Talk to you later.