4 Assets That Separate the Wealthy From High Earners
On paper, a 5,000-square-foot house, a luxury car in the garage and a stack of pricey vacations look like financial success. But the difference between a high earner and a wealthy person has less to do with the size of the paycheck and more to do with what happens to it afterward.
“I’ve seen plenty of folks who are high earners who struggle with how they employ their income,” said Eric Mangold, founder of Argosy Wealth Management. “They rack up unnecessary debt and always feel behind and stressed, while the wealthy person employs their cash flow in tax-efficient ways and doesn’t take on unnecessary debt.”
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A big salary can fund wealth-building, but it won’t build wealth on its own. The real work is steering that income into assets that can grow and hold their value over time. Here are four that finance experts point to as ways high earners can turn a paycheck into something that lasts.
Real Estate
Real estate has long been viewed as a way to build wealth because it can generate income and potentially appreciate over time. According to David Shields, financial advisor and CEO of Wealth Watch Advisors, it's an asset that many wealthy people turn to.
“It helps diversify your investments outside the stock market,” he said. “Depending on your property and circumstances, owning investment property may occasionally provide tax advantages that differ from those available to you through salary income.”
The appeal goes beyond appreciation. Rental income can help offset mortgage and other ownership costs, while the owner builds equity over time, said Danny Ray, founder of PinnacleQuote.
“A high salary pays today's bills, while a productive asset has the potential to keep paying you after the salary stops,” he said.
Tax-Advantaged Investment Accounts
Tax-advantaged accounts, such as a 401(k) or IRA, can offer tax benefits that Shields said are particularly valuable to the wealthy.
“Your long-term wealth may change significantly if you allow your investments to grow in these accounts over time,” he continued. “Since the type of account can be nearly as important as the investments themselves, I advise reviewing both your investments and where you hold them.”
In a standard brokerage account, you pay taxes on dividends and capital gains as they come in. Inside a tax-advantaged account, you keep more of your returns, which lets compounding do more of the heavy lifting.
Private Business Ownership
Plenty of people earn a comfortable living working for someone else. Owning a business, though, creates something different: an asset.
“A business owner can build an asset worth many times their annual income because business equity can grow independently of what the owner takes home each year and may eventually be sold, transferred to family or continue producing income,” Ray explained.
That shift, from trading time for a check to owning something that can increase in value, is what separates a job from an investment.
Intellectual Property and Royalties
Intellectual property is an overlooked wealth-building asset, but it’s something created once that can produce income for years.
“Patents, copyrights, trademarks, books, software and licensing agreements can generate royalties without requiring the owner to continually trade hours for dollars,” Ray said.
The Bottom Line
A high salary gives you options, but what you do with it determines whether those options add up to wealth. Real estate, tax-advantaged accounts, business ownership and intellectual property each take a different route, yet they share one trait: they keep working after the paycheck lands.
Start with the one that fits your life and your goals, and talk to a financial advisor before making any big moves.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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