Is a high income always indicative of a high net worth?


Quick Answer

A high income is linked to, but not always indicative of, a high net worth. This is because an individuals' net worth can be high even when his or her income is low and vice versa. Net worth is influenced by income in that one's income impacts the amount of money he or she has in accounts and cash, but net worthis also dependent upon assets and debts that an individual holds.

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Full Answer

For example, if an individual has a high income but numerous debts and few assets such as stocks, savings or a rental property, his or her net worth may not be high. If someone has a low income but lots of artorcollectibles, no mortgage or credit card debt and valuable retirement accounts, he or she could have a high net worth.

Wealth is largely acquired not through highincome, but by having equity in businessesandassets that contribute to net worth. Income is only one facet of acquiring a high net worth and wealth. Net worth is largely considered more important in the long term than income because the government taxes income and not wealth. Additionally, income can encourage people to spend and lose their money, while the money invested to constitute net worth is much harder to withdraw. Having a high net worth means that money is stocked away as savings and can serve as support if income diminishes substantially.

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