What Determines Wealth?

How should you view your income? Is 100,000 a lot or a little?

I think the biggest way to understand how much you’re making is in the context of how much you are currently spending, and anticipate spending going forward. For instance, if you make 300,000, but you keep up with the Joneses in NYC, you’re probably not especially wealthy, and you’re kept in a sort of golden handcuffs.

By contrast, if you’re making 150 K in the Midwest, and don’t intend on having kids, you’ll probably be in a much safer financial situation.

Two factors that challenge this is travel, and large healthcare expenses, both of which undermine PPP type of considerations. When you visit somewhere new, it doesn’t matter how much cheaper the cost of living is where you originally live, it matters what you’re spending. This is why northeasterners are often screwed when it comes to college costs, their nominal income is higher. The other factor is large healthcare costs, or other large unanticipated costs. Typically medical care is something that isn’t planned around, and can be freakishly expensive in bad circumstances. The cost isn’t commensurate with how much people are making in a given area. An ER trip in West Virginia is basically as much as it is in NYC.

There’s also the question of future earnings potential. If you’re a 55 year old truck driver making 100 K, but savings are low and you can’t work much longer, you might not be in the best financial circumstance. A 24 year old making that amount is probably going to anticipate higher pay along the way.