Does Making More Money Make You Rich?

by Miranda Marquit · 30 comments

When it comes to measuring financial progress, many of us figure that if we could just have more money, then we’d be rich. But does making more money make you rich?

What is Rich?

One of the biggest debates going on right now in the world of personal finance (thanks in large part to talk about taxes and the “wealthy”) is what constitutes rich. To a certain extent, we can probably agree that where you live makes a big difference in whether or not you feel rich. After all, the cost of living someplace like San Francisco (as Vered does) is much higher than living in Utah (like I do). Vered and I might make the same — I have no idea if we really do — but because San Francisco costs a lot more than Utah, I might have more disposable income.

Even if Vered makes more than I do, there’s still a chance that I might have more disposable income, just because my expenses are smaller due to where I live. In our theoretical example, she may make more money than I do, and be “wealthier” in terms of income, but when it comes to how much is left over at the end of the month, I could be “richer.” Making more money may not translate into having that money to spend on what we want, or having more money to put aside for the future or retirement.

Expenses that Drain Away Wealth

On top of that, it is worth noting that how much money you have is about more than your income and where you live. There are other things that drain a wealth. Some of these include:

  • Debt: This is a big one. If you have debt obligations, you are paying interest to someone else, rather than using that money to build a nest egg or spending it how you want. I have known people who make more than $150,000 a year, but are so saddled with debt that they feel themselves quite poor, unable to make ends meet.
  • Your house and/or car: Many people I know are house poor. They decided to get a big house, and now struggle to make ends meet. We have a more modest home, and since we didn’t get what we “qualified” for, our housing costs are only about 1/5 of our monthly income. That’s less than the “suggested” 1/3, and certainly less than many people who bought homes before the financial crash and have monthly housing costs of almost 1/2 their income. The same goes for getting an expensive car, whose payments and insurance can suck up large portions of monthly income.
  • Kids: Sure, kids can bring a great deal of joy into life, but they can also be expensive. My husband’s parents had three kids, and they were able to put more aside than my own parents, who had five kids. Children can cost money, and your salary might not go as far if you have kids.
  • Pets: While pets can be fun to have around, they, too, can get expensive.

As you might imagine, there is nothing wrong with spending your money on things that are important to you. However, in some cases you might be spending enough that even an income that would seem to make you “rich” only barely covers your obligations. In my mind, “rich” is being able to buy what you need now, save for the future, and spend a little on things that you like. Having a higher income won’t make you rich if you don’t know how to manage your money.

What do you think? Does just having more money make you rich?

This post was featured in the Carnival of Money Stores and Carnival of Wealth.

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{ read the comments below or add one }

  • Esther Smith says:

    I wish I can Buy New House, My husband is Old School , and he is not willing to do something with our house, sale it, or Mortgage Reverse, In the mean time fix it is a solution, and I would love to do, because we have a good but old house and is ubicated in the best area of out town.

  • fred johnson says:

    Making more money doesn’t make you rich———–but it sure doesn’t hurt.

  • making more money means more debt… technically there’s no such thing as “financial freedom” as lifestyle change demands soars higher when you reach higher….

    • fred johnson says:

      I make about $930k a year and a net worth over $6 million. I live happily and easily on $75k a year, with no debt.

  • emenot says:

    I rather to have $ than no $ with problems or to even think about this stupid dilemma. With $ I can pay taxes, without money I have to fight for a bridge underpass to stay dry in the rain. JESUS, how stupid is this article, Miranda Marquit?

  • emenot says:

    If you are already rich, NO. If you you are poor, YES.

  • Philip says:

    Once you reach a certain level here in the US, it’s all excess. I don’t know what that number is, but it’s not above $100K. Like you say, you can live richly above that level if you treat your finances right. It’s up to you.

    • fred johnson says:

      You can’t decide for someone else what “excess” is because you aren’t them. You can only speak for yourself.

  • I’d have to say that having more money doesn’t necessarily make you “richer.” Actually, someone recently told me something that I really like. They said that true wealth is having knowledge. I tend to agree I think.

    • emenot says:

      Jacob my boy, I have friends that are lawyer, MBA, aerospace engineer, investment banker, architect friends with superior wisdom and knowledge that are out of work and broke and you think rich is relevant….? Spending habit really determine the person, spending beyond means is stupid and irresponsible but if finance dries up unless you are Bill Gates and their likes then maybe you are right… Knowledge does not equal wealth.

    • fred johnson says:

      “wealth” is not “having knowledge”. Wealth is more like “using” knowledge to your advantage.

  • Doug says:

    There are two ways to get rich — make more and want less. Why do people spend money they don’t have on things they don’t need to impress people they don’t like? You tell me.

  • Joe says:

    I read an article awhile back that actually asked people what their individual definitions of “rich” were and the results were very interesting. For some people, “rich” mean being able to take nice vacations. For others, it was being able to pay cash for a car. Then they made each respondent do the math and figure out what dollar amount they would need to achieve that lifestyle. It was a really interesting read.

  • James Pruitt says:

    Great post. I totally agree that you don’t necessarily qualify as rich if you make a lot of money. Unfortunately, most people fail to moderate their spending when they have money, and then they have so much debt that they cannot see straight.

    I think one thing that people should think about is when buying a house, there are a lot of costs that you have to take into account that you may not think about. I know a lot of people who bought a house because it was cheaper than renting, only to find out they were actually paying less in rent. Once you take into account maintenence, bills, property taxes, and all the extras that come with owning a home, it can add up to a lot of spending that people don’t think about up front.

  • Janet says:

    I totally agree, Miranda. Haven’t we seen enough celebs who make millions yet end up bankrupt? Millions in income isn’t very useful if you owe more than what you bring in. Same thing on a smaller scale with those who have “six figure incomes.” High income does not equal wealth.

  • interesting subject, obviously as you stated rich is a relative term. if everyone on your blog got a 1 million dollar check in the mail would you be richer? This brings up a law known as parkinson’s law, which state that our expenses rise to meet our income. Not only that but we are seeing that it takes more quantity of money to buy the same things, the value of the dollar is decreasing. I’ve learned to redirect money going to debt and finance charges, back into my own pocket.

    • marci says:

      I wouldn’t feel richer, because I wouldn’t keep most of it…. – but I would feel more able to help my family – like adding majorly to the 9 grandkids college accounts…. and something for each family’s needs also.

    • fred johnson says:

      “parkinson’s law” or not, it doesn’t always apply. I make about $930k a year and a net worth over $6 million. I live happily and easily on $75k a year, with no debt.

  • Jonha @ says:

    There are many factors that makes one rich and having lots of money is just one of them. After all, it’s not the money you make but you get to keep/save and invest that matters.

  • I think there are two good ways to define rich, time and purchasing power. You may make $150,000/year, but if it costs you $800,000 to buy a closet-sized condo, taxes are sky high, gas and food are sky high, etc., are you really as rich as somebody that makes $50,000, but can buy a house for $40,000? I think purchasing power is a good measure of rich. Another good measure is time. How long can you live on your savings or cash flow/dividends/interest payments without working? If you can do it indefinitely, you are truly rich no matter how expensive stuff is in your area.

  • Evan says:

    Making more money can either improve your standard of living, make you more wealthy, or both. There are plenty of middle class, blue collar workers who out-save doctors, lawyers and surgeons however

    • marci says:

      It could also take you deeper into debt – if one is a make more, spend more, and only worry about the monthly payments type of person 🙂 Then when the “more money” bubble bursts, one is left with monthly payments that cannot be made.

  • Mike says:

    We wouldn’t call ourselves rich. What is rich anyway? What we do have though is peace of mind. We don’t owe anyone and that sure feels good. We can still remember the days when we were panicking over money and maybe that scared us straight.

  • Briana @ GBR says:

    Having more money definitely DOESN’T make you rich. So many people live up to, if not above, their means, which essentially puts them at breaking even or going in debt. Being rich means living below your means and have money in the bank.

  • marci says:

    It’s not the income – it’s the net worth – and a “feeling” of “more than enough”…

    If you look at my income – under $20,000/yr, you wouldn’t say “rich”….
    but if you look at net worth – I’m in the top 10% of Americans…. “more than enough”… 🙂 And according to the charts, the top 10% net worth are considered “rich”….. funny, huh??

  • I always tell people that it’s not the income it’s how much you keep. I save 30% of my income and force myself to live off the rest regardless of my income

  • To me, being rich (in materialistic terms) means having more than those around you. The real essence of wealth (which we often confuse with richness) is very much intangible and (for me at least) includes things like feeling good, being independent, being loved, valued and remembered for your legacy when you are gone.

    Wisebread had some good thoughts and comments on a very similar topic here

  • One thing to consider is the real cost of striving for more and more money, more than you really need to live and be happy. More time away from your family, more stress in your daily life, frustration stuck in commuter traffic or waiting at an airport, and less time to take care of yourself. Life is a long term event and if you burn yourself out on the front end, retirement life will be painful.

  • Your definition sounds about right to me. It’s fun to spend a little once you paid for everything you need and set some aside for the future. As far as “does making more money make you rick?” – I’m sure it’s easier if you make more money.

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