Earning a high income and having a great education doesn’t make you automatically rich

I used to believe that if I earned a lot of money, at least $75,000 – $100,00 I’d be set for life financially.

It wasn’t until I was in $60,000 debt from my fancy degree, earning $65,000 a year (a very good salary in my opinion) that I realized it wouldn’t be as easy as I thought.

Don’t get me wrong, it’s a lot of money ($60,000 – $100,000), and people would kill for that kind of salary these days, but my point is more about a state of mind or an attitude change.

Becoming rich is all about delaying impulses and instant gratification, spending reasonably and most of all: saving what you don’t spend by living way below your means.

It is far easier to save money when you earn lots of it, but how many people really do that?

When you earn more, you tend to want to spend more.

You want to upgrade your lifestyle, treat yourself a bit more and enjoy life. (I know, I’ve been there!)

But having a high income and a great education doesn’t necessarily always translate into more wealth.

Wealth is only what you’ve saved from your net income after taxes & so on.

It isn’t what you earn as a salary.

Just because someone earns $45,000 a year versus another person who pulls in $100,000, doesn’t mean that the latter person will automatically be a millionaire in no time.

Don’t be handicapped by that way of thinking!

$45,000 income

Let’s imagine Betty earns $45,000 a year after a college degree, and starts saving 20% of her income at the age of 23 or $9000/year.

In 45 years, saving 20% each month ($750) at 5% interest rate, she would have $1,005,214 at the end of her retirement.

She deposited $378,000 but earned a whopping $764,895 in interest!

But FB, it’s unrealistic to save $750/month!

Is it? Let’s assume she works in a medium-sized city.

She earns $45,000 a year and is taxed 18% a year.

She pulls in net, $36,900 a year or $3075/month.

$750 taken away from that into savings, she has $2325 left to spent on rent, food, utilities and life.

It may not be enough depending on the city or whether she has a home, and so on… but I daresay it sounds doable if she shares an apartment or takes a very cheap one for herself to make that $750/month goal.

Very aggressive, but doable if she is inclined to do so.

It takes some slick budgeting and watching her expenses to the penny, but it’s possible.

$100,000 income

Let’s compare to Veronica’s $100,000 income, which for simplicity’s sake has a 35% tax on it.

Now say she has $30,000 in student loans which is why she started at a $100,000 salary and not $45,000.

She doesn’t start saving until she clears her loans, which is in 4 years later than Betty.

Once she begins, she starts socking away the same amount as Betty at $750/month.

She ends up with $673,655, or $331,559 less than Betty.

She started 4 years later, $36,000 less and with her higher, more educated income, she’s taxed almost double what Betty is (17% more).

To get to the same amount of savings as Betty, Veronica needs to save $1120/month, or $370 a month more, to account for her higher tax rate and 4 years of lost savings or (a net deposit of $36,000).

Earning $100,000 a year at a 35% tax rate, Veronica gets to spend $65,000 net per year on everything or $5416.67 per month.

Assuming she isn’t living in a high cost area and any other factors not placed in this simulation, she could easily sock away $2000 a month (or more!).

If she saved $2000/month, this is what she could have at the end: $1,796,414.

Save young and save a lot

If you earn a high income, congratulations!

But you have to factor in how much you are taxed each year, and how much more you will have to save to make up for any lost time.

If you have a great education that has great earning potential, congratulations!

But you have to factor in how much time you will take up in having to clear your student loans before you can start saving your money.

It’s just really only two factors that play into building and accumulating wealth and they have nothing to do with salary and education as they do with what you do after you earn your money:

start saving as soon as you can


start saving as much as you can

Don’t go crazy saving so much so that you deprive yourself, but keep that at the back of your mind when you want to upgrade your lifestyle.

Want to play around with some numbers? Check out the savings calculator used in the examples above, available at MSN.

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.