🎙 This week, we’re talking about how wealth and income are different things. And having a high income doesn’t necessarily mean that you have wealth. This is a super important distinction especially on social media where we’re all vulnerable to the comparison game. But if your income doesn’t make you wealthy, then what does? 🤔
This episode discusses topics like:
Hey there, friends! And welcome back to Girl on FIRE, the financial independence podcast for independent women.
My name is Priya, I’m a Chartered Accountant, an analyst and the creator of Paper Money Co.
I’m also a fierce financial feminist and the host of this podcast. I believe that a woman who is in control of her money, is in control of her life.
This week, I want to talk about the difference between wealth and income. Because that’s something that can often be confused.
Now, this isn’t a super complicated topic and it’s honestly something that doesn’t take a whole lot of time to explain or to understand.
It’s going to be a fairly quick episode, and I know I say that a lot, but I really mean it this time!
But I really wanted to address it here on the podcast because I know that a lot of Girl on FIRE listeners are active on social media.
And social media is one of those places where the idea of wealth and income can easily be confused.
But before we get started, I want to remind you to head to my website — papermoneyco.com/startinvesting to download your free copy of my Investing Starter guide
It’s totally free, you just need to enter in your email address and I’ll send it straight to your inbox.
It gives you a step by step plan to follow to get your finances ready to start investing, including working with a budget, building an emergency fund and paying off debt.
The sooner you can get your foundation set and get those good money management practices in place, the sooner you can start investing and building your wealth.
If you’re really serious about learning to master your money, then it’s the perfect guide for you, and I’d hate for you to miss out on it.
As always, Girl on FIRE is about learning, so whip out your favourite notebook or journal and get ready to take some notes.
Okay, let’s dive in!
What’s the difference between wealth and income
Let’s start off with the difference between wealth and income. Now, way back in episode 11 we talked about net worth.
We talked about what it is and how it’s calculated. If you haven’t heard it then I highly recommend you go and listen to that episode before you continue with this one.
Because your wealth is your net worth. It’s how much you’re worth overall from a financial standpoint.
And only from a financial standpoint, it has nothing to do with who you are as a person or anything like that.
So, when you have more assets than you do liabilities, you have wealth. It’s when you own more than you owe.
So, when we talk about growing and building our wealth here every week, we’re measuring that by tracking our net worth.
Now, on the other hand, income is money coming in. That’s all it is. It’s your salary, your freelance income, your business income.
Or maybe it’s your dividend payments. Income is bringing more money into your solar system. And of course, you my friend, are the bright beautiful star in the middle of that solar system.
Think of it like this. Your wealth is the system of planets and asteroids that sit within your solar system.
But your income is the comet that passes through your solar system. Now, you can harness the power of that passing comet but it’s just passing through.
It comes and it goes. It doesn’t become a permanent part of your solar system unless you make conscious decisions and take specific actions.
Why wealth and income get confused
Now, that definition is pretty clear. So, why do wealth and income get confused? And this is the reason why I wanted to talk about this today.
A lot of the time, especially on social media, it’s easy for income to look like wealth. I’m sure you’ve seen these graphics where they’re comparing two different people.
One person has expensive Louis Vuitton shoes and nothing in the bank. Whereas the other person has reasonably priced Target shoes and $1M in the bank.
Graphics like that are trying to show the difference between wealth and income. Because they’re not the same thing and here’s why.
The idea is that person 1 has a lot of income which means they’re spending it on expensive items. But they don’t have a lot of wealth because their nest egg is really small.
Person 2 on the other hand may not have a lot of income but they have more wealth.
They have more planets and asteroids in the solar system. There aren’t as many comets passing through, but the solar system is bigger and fuller.
Let’s look at an example of this using 2 squirrels. We have Bonnie on one tree. She gathers 10 acorns every day. So, over the course of the month — 30 days — she gathers a total of 300 acorns.
She’s gathering them to store for the winter, but of course, girl gotta eat so Bonnie eats 200 acorns over the course of the month.
So, she’s the left with 100 acorns to get her through the winter. Now in a nearby tree we have another squirrel — Connie.
Connie also gathers 300 acorns over the course of the month. But Connie eats all 300 acorns. So, she has nothing left over to store for the winter.
Both Bonnie and Connie gather the same amount of acorns. That’s their income. They’re earning the same amount.
But Connie eats it all and so she doesn’t have any leftover for the winter. She hasn’t used that income to build any wealth. But Bonnie does. She has 100 acorns left.
Do you see now, the difference between wealth and income? Wealth and income are not the same thing.
And that brings me to the main point of this episode — conspicuous consumption.
Conspicuous consumption is an economic term. And like a lot of economic terms it sounds complicated and fancy. But what it means is basically being a show off with your spending.
So, think of things like draping yourself in designer labels head to toe. It’s showy for the sake of being showy. It’s a social cue to show people that you’re rich.
It’s more often than not a status symbol as opposed to a genuine love for the style and cut of the clothing.
But my challenge to you is to ask the question — is that a show of income or a show of wealth?
Because here’s the thing — income comes and goes. Remember, I said it was the comet that was just passing through your solar system. It’s the acorns you’re gathering every day.
Not only that, but at some point, if you want to retire, that income drops significantly or it can dry up completely.
Unless you have enough wealth to generate more income. If not, then you need to keep working because you need to keep bringing in that income.
You need to keep drawing that comet into your solar system because you don’t have enough planets and asteroids living in your solar system.
You need to keep going out in the middle of winter looking for acorns because you didn’t sock any way during the rest of the year.
The comparison game
Now, the other reason why you need to remember this distinction between wealth and income is that about 99% of what you see on social media from your influencers is a show of income as opposed to genuine wealth.
It’s the illusion of wealth. Usually used as a way to generate income from their followers or brands.
Actually, it’s more than likely just free stuff they get from sponsors. But the point is that it’s something that makes you look rich on the outside but there’s nothing substantial in the bank.
And the reason why this is so dangerous is because spending money to be like those influencers, to look showy on the outside is succumbing to the comparison game.
It’s easy to compare ourselves to influencers on instagram. We don’t have the same designer labels.
We don’t have the same styled homes or fancy cars. What we have is a larger nest egg.
What we have is a way to make money, to earn an income without having to go to work or promote things you don’t care about.
Just because someone flashes their cash with all their material possessions, it doesn’t automatically mean that they have wealth.
Looks can be super deceiving, especially on social media where everyone is just showing a highlight reel of their life or sponsored posts.
What looks like a beautiful princess carriage in public is really just a pumpkin when no one is looking.
So, I want you to remember that when you’re scrolling social media and you see some influencer flash something expensive that you can’t afford.
Or when you start to feel bad that they're rich and you’re still working for the man. Social media can be a toxic place were conspicuous consumption really runs rampant.
But expensive shoes and makeup does not equate to lasting wealth. And you can’t retire with a closet full of shoes and nothing in the bank, so remember that.
Next weeks’ episode
And that’s all I have for you Girls on FIRE today!
My challenge for you this week is to think about what you’re really seeing the next time you see celebrities or influencers on the news or on social media.
How much of what you see is wealth and how much of it is a show of income? How much show off spending are you seeing online?
On next weeks’ episode we’re going to talk about how to save money for anything you want, no matter what your income level is.
It’s going to be a super interesting episode so you’re definitely not going to want to miss it.