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Income Does Not Equal Wealth

Seth Jentner01/23/2015

While unemployment continues to be a major talking point for our politicians and media, those of us who are working have much to be grateful for. Building wealth typically begins with a good education and then obtaining productive work. However, income does not equal wealth. Let me repeat that: income does not equal wealth.

Even while blessed with work, it is wise to acknowledge how temporary work may be. During our employment years, we can lose our jobs due to a layoff or due to a personal injury or an extended illness. Even if we own our own business, a bad economy or a competitive market can force us to lower our incomes or even go out of business. Eventually most of us reach the age where it is difficult (if not impossible) to continue working. This is why I state that income does not equal wealth.

Having worked with people who earn modest as well as generous incomes, I observe that the size of the paycheck has much less to do with the creation of wealth than you might think. It is the personal commitment to invest something out of every paycheck that makes the real difference. In a landmark book written in 1996 by professors Thomas Stanley and William Danko, on average, millionaires invest nearly 20% of their income each year. Here is the real point. They are not investing 20% of their income because they are millionaires. They are millionaires because they invest 20% of their income.

If I can encourage you to do one thing, it is to make a commitment to invest something out of every paycheck. If you take the responsibility to build your own wealth, you may be less dependent upon others.

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