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Why a High Income is Not Enough

Are You Earning And Saving Enough To Build Long Term Wealth?

A high income creates a sense of financial security, but is it really the safety net we think it is? Imagine studying for years to get an advanced degree then taking on a stressful career only to be left struggling to get by if you were to lose your job. Or worse, being unable to retire because you depend on your current income to maintain your quality of life. This is the problem many high-income earners face and why it is vitally important to invest.

Living Pay Check To Pay Check On A Six Figure Salary - Why Do High Income Earners Go Broke?

I recently had the chance to sit down with *Sarah an attending physician at a prominent NYC hospital. Despite her high income and decades long career she was unable to retire. At first, I thought this was a one-off case but after talking with a few other physicians I heard how they also were short on savings.

The common thread was, as we earn more, we spend more – lifestyle creep. See, high income is fleeting. We all struggle on different levels despite our income. Higher education may teach us the skills needed to have a high-income career but provides little guidance on how to manage that income effectively.

So how can you tell if you are financially healthy?

So how can you tell if you are financially healthy?

How Do You Track Your Financial Health?

One way to track your financial health is to calculate your net worth. Simplified, your net-worth is a marker of your wealth, your true financial health. It compares what you own to what you owe, your assets minus your liabilities.

When you lose a high-income job, either by retiring or being fired, you also lose that high income. Net worth on the other hand is not as fleeting as a high income (specifically high-income tied to your ability to work). Net worth can be transferred and inherited by future generations. Net-worth translates to wealth. A high-income career does not. I would even go as far as to say net worth is the more valuable of the two.

A high income is advantageous as it allows you to build your net worth quickly, but you must first understand how to do so. Understanding how to calculate your net worth aids in understanding how to increase it.

3 Steps To Calculate Your Net Worth

You can calculate your net worth in three simple steps:

  1. Calculate the fair market value (how much you would likely get if you sold) of all illiquid valuable assets you own. (Think real estate, businesses, fine art, jewelry, vehicles, patents/copyrights, family heirlooms, antiques/ collectibles etc.) and combine this with the value of all the liquid valuable assets you own (stocks, retirement account, savings account). This will be the total value of your assets.

  2. Calculate the total of all your liabilities, this includes outstanding loans, credit card balances, outstanding lease payments, essentially all the debt you currently owe.

  3. Subtract the liabilities from the assets and you have either a positive or negative number that equals your net worth.

Why People Who Earn A Lot Of Money Still Can't Pay Their Bills And How To Fix It

Monitoring your net worth is important as it tells you if your financial health is improving, declining or stable. You should aim to do this routinely, at least annually. Think of it as your annual physical exam – just for your financial health.

This exercise makes it clear how to build your net worth and in doing so your wealth. You will be able to identify the problems that leave you unable to pay your bills despite your high income. You will see the warning signs of unnecessary or unproductive expenses and liabilities that eat away at your financial health. To put it simply, the way to build your net worth is to have more assets than liabilities. If you invest you can acquire income producing assets, such as real estate, that generate cash-flow.

This increases your income and your net worth simultaneously. If you invest wisely you can even replace your current income so that your income is no longer fleeting as it is no longer tied to your ability to work. If you were unable to work, your children or siblings would not automatically inherit your JD or MD license the next day. However, your net worth can be transferred. This is why a high income alone is not enough. If you build your net worth by investing in income producing businesses or real estate, you pass on both high income and high net worth that can continue to grow for generations.

Interested in learning more about investing in multifamily apartments? Give us a call or check out some of the other free resources we have available at

*Names changed to protect identities

This article was originally published on and is being reproduced here for the benefit of our members.


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