ARTICLE

Why the vast majority of high income earners are in fact middle class, NOT wealthy!

Written by: Gary Wilde

© Copyright Gary Wilde 2010 - All rights reserved

21 September 2010

Many of the clients I coach or consult to are high income earners by today's standards, clocking up high six-figure and even seven-figure incomes in a year. The majority of them live in expensive homes located in upmarket suburbs; they drive expensive cars, wear expensive clothes, enjoy luxury holidays regularly and generally live a decadent lifestyle. To the average man on the street, these high income earners are perceived to be wealthy... and few would argue the point.

It may therefore come as a surprise to learn that the vast majority of high income earners are not actually wealthy, but are in fact middle-class... or to be more precise, they fit into the segment of society frequently referred to as the ‘upper middle-class.’ The people that tend to be most disturbed by this revelation are the high income earners themselves who, until the bad news is broken, draw a strong sense of security from their perceived wealth status.

When asked why they perceive themselves to be wealthy, they tend to make reference to their generous monthly earnings, the expensive house that they can afford the instalments on and the lavish lifestyle that they lead... there is seldom any mention of assets that generate passive income of any significance, relative to their monthly expenses. These responses point to a serious error in judgement that leads to a false sense of financial security, because they perceive themselves to be wealthy when in fact they aren't. This can lead to potentially devastating consequences should any downturn in economic circumstances arise, as was experienced by so many during the 2007 global financial crisis.

This error in judgement is not limited to the upper middle-class, but is prolific amongst the majority of middle-class people. When individuals measure their financial security based upon the monthly income they earn, rather than on the economic assets they own, their financial security becomes entirely dependent on their ability to remain economically active. Under these circumstances, the consequence of losing their primary source of earnings is very often, complete financial collapse.

The wealthy on the other hand, are relatively immune to complete financial collapse because they do not depend on their primary source of earnings to finance their lifestyle... they have steadily built up a portfolio of economic assets that generate sufficient passive/investment income to finance the cost of their lifestyle. Therefore, should they choose to retire, or happen to lose their primary source of earnings, they can continue to finance their current lifestyle from passive income sources.

The point I want to reinforce is that the monthly income you receive from your daily economic activities (e.g. salary, business, profession etc) has no bearing on your wealth status and very limited impact on your financial security, regardless of how much you earn... it's how you use these earnings that will determine how much wealth you create and how secure you are financially.

The middle-class have a tendency to live beyond their means, using most, if not all their monthly income and even credit, to finance their current lifestyle. Whenever their income increases or they are given access to more credit, they use this to upgrade their lifestyle, rather than channel these resources into building wealth.

Even though the middle class have the financial means to create wealth, it is their spending habits that prevent them from doing so. Their need to increase consumption in order to gratify themselves with a ‘better’ lifestyle today, overrides their need to create wealth and achieve long-term financial security for the rest of their lives... which is why so many people find themselves in financial distress when things go wrong. 97% of high income earners in the world fall into this category, because their showcase of ‘wealth’ is more a reflection of what they owe, than what they own... only 3% of high income earners are truly wealthy!

It's worth mentioning that more than 60% of people that are wealthy today were once middle-class. They didn't achieve financial independence by receiving an inheritance or winning a large sum of money... they did it by changing the way they behaved towards money. Rather than choosing to spend their earnings on constantly upgrading their lifestyle, they chose to invest it in economic assets that increased their net worth and generated ongoing passive income.

The more income you earn that exceeds what is required to cover the cost of your basic needs, the more opportunity you have to create wealth. Whether you take advantage of that opportunity or not, is your choice. Anyone that earns more than they need to survive CAN be wealthy... all they need to do is develop the empowering habits that will support them in doing so and wealth becomes an inevitable outcome in their lives!

Until next time, here’s to your Wilde success!

Gary Wilde