You Can’t be Wealthy if your Income is Too High
Isn’t this statement so rude? But well, This statement is 100% True. You can never be wealthy if your Income is too high. This is because the more you earn, the more you will pay in taxes and thus the less you will divert towards investing.
High Income group of people (Doctors, Lawyers & Actors) are markedly reduces their probability of becoming rich and wealthy because of their realized high income. Let us discuss this phenomena by example.
Mike paid $ 70,000 in federal tax last year on his $ 2,50,000 of annual income. This is equivivalent of almost 40% of his total wealth. While Tom also paid the same amount of federal tax ($ 70,000) last year but this tax is equivalent to just 2% of his total wealth.
Well, Yes. Tom’s Net Worth is well above $ 3.5 Million (35,00,000)…!!!!
So Why this dispariety between Mike & Tom. Well, this is because Tom realizes very less income every year in comparison to his total wealth. Most of the time he earns as unrealized income in the form of Capital Gains and appreciation in the value of his assets.
On the other hand, Mike is a professional person. So to maintain his high status life style, he has to realize more income every year and to realize more income, he has to pay more in taxes and thus he can not accumulate more wealth.
This is the scenario with most of the high income group of people. They earn a lot but still they can not accumulate enough wealth and struggle financially and sometimes living paychecks to paychecks.
So the moral is that, if you want to become wealthy than your realized Income should be less and your unrealized income should be maximum.
Isn’t this statement so rude? But well, This statement is 100% True. You can never be wealthy if your Income is too high. This is because the more you earn, the more you will pay in taxes and thus the less you will divert towards investing.
High Income group of people (Doctors, Lawyers & Actors) are markedly reduces their probability of becoming rich and wealthy because of their realized high income. Let us discuss this phenomena by example.
Mike paid $ 70,000 in federal tax last year on his $ 2,50,000 of annual income. This is equivivalent of almost 40% of his total wealth. While Tom also paid the same amount of federal tax ($ 70,000) last year but this tax is equivalent to just 2% of his total wealth.
Well, Yes. Tom’s Net Worth is well above $ 3.5 Million (35,00,000)…!!!!
So Why this dispariety between Mike & Tom. Well, this is because Tom realizes very less income every year in comparison to his total wealth. Most of the time he earns as unrealized income in the form of Capital Gains and appreciation in the value of his assets.
On the other hand, Mike is a professional person. So to maintain his high status life style, he has to realize more income every year and to realize more income, he has to pay more in taxes and thus he can not accumulate more wealth.
This is the scenario with most of the high income group of people. They earn a lot but still they can not accumulate enough wealth and struggle financially and sometimes living paychecks to paychecks.
So the moral is that, if you want to become wealthy than your realized Income should be less and your unrealized income should be maximum.
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