Wealth vs. Income

It will be nice when the election is finally over on Tuesday and we can get back to not being bombarded constantly by campaign rhetoric (from both sides!).  One thing in particular really drives me nuts and seems to come up in some form or fashion during every election cycle.  That is any statement including the words taxes and wealthy...i.e. tax cuts for the wealthy.  Politicians need to be informed that wealth and income are not the same thing.  Wealth is a snapshot of your financial position at a point in time, otherwise known as net worth.  Your net worth is assets less your liabilities (what you own minus what you owe).  Income on the other hand is based on a period of time...it is the amount you earn monthly, annually, etc.

You all know the commercial where the fellow says "I am in debt up to my eyeballs".  He has all that great stuff and an awesome lifestyle, but he doesn't actually "own" that stuff...some creditor does...and he is probably living paycheck to paycheck in order to pay all those bills.  That guy probably even has a negative net worth at this point, especially if that beautiful home has decreased in value during this housing slump.  He might be a successful business person with an INCOME of $300K a year, but because of his purchasing frenzy and his dire financial position he is by no means WEALTHY.  With that significant of an INCOME he certainly has the potential to become WEALTHY if he were to read the top three books on my list to the left and actually live within his means.

The tax increases that the politicians are referencing only affect those with a high INCOME.  The fellow mentioned above who has the high INCOME, but is not WEALTHY, would be affected.  Those who are truly WEALTHY may or may not be affected depending on their INCOME.  For instance, a retired person age 65 with a $3mil IRA may be considered wealthy, but is able to keep his taxable income low by managing his withdrawals from the retirement account to a minimum of say $100K a year.  Therefore he would not be affected.  Also, someone with income from his job of $300K may choose to retire early or at the very least cut back on working if he has $3mil in savings he can tap in order to avoid the increased taxes on the "wealthy".  Newsflash - he IS wealthy!!