Part VI · Chapter 15 · Enough · lesson 5
High income is not independence
11 min
Builds on The variable that dominates
Part VI · Chapter 15 · Enough · lesson 5
11 min
Builds on The variable that dominates
Two people earn 140,000.
One of them cannot take a month off without borrowing. The other could stop working for four years and change nothing about how they live.
Nothing in the salary distinguishes them. Everything that does distinguish them is on the other side of the ledger, and it is invisible from outside — including, often, to the person in the first position.
Income is a rate. Independence is a ratio.
The rate is what arrives per month. The ratio is what you hold divided by what you spend, and it has units of time: months, or years, of freedom purchased.
A rise in income moves the ratio only if the spending stays where it was. That is the entire mechanism, and it is why the two numbers can move in opposite directions for a decade without anybody noticing.
Case file
Composite, not a real person
Reached 140,000 over twelve years, from a starting salary of about 34,000.
Spending of about 128,000 a year against liquid assets of roughly 20,000. Two months of cover, and no ability to decline work.
Case file
Composite, not a real person
Combined household income reached about 74,000 over the same twelve years, from around 41,000.
Spending of about 38,000 a year against liquid assets of roughly 160,000, plus a home with nothing owed on it.
Put the two side by side and the salaries are almost useless. One number does all the separating: how many months of spending the household holds.
Two months against about fifty. The second household earns roughly half as much and holds twenty-five times as much freedom, measured in the only unit that means anything here.
That unit is worth adopting because it is comparable across incomes, across countries and across time in a way that an amount never is. A reserve of 20,000 is meaningless on its own. Twenty thousand against a spend of 128,000 is a sentence about how long you could say no for.
Predict
Something people say
“A high salary means you are wealthy.”
The claim confuses the input with the result. What accumulates is the gap between income and spending, and a higher income raises the ceiling on that gap without doing anything to the gap itself.
The two households above are the demonstration. Same twelve years, one earning nearly twice the other, and the ratio that decides whether you can decline work went the other way.
There is a second confusion inside the first. High income is highly visible — the house, the car, the school — and those visible things are the mechanism by which the gap gets closed. The signals of wealth and the accumulation of wealth are in direct competition for the same money.
It looks like the opposite. More money should make everything easier, and in most respects it does.
The difficulty is that the commitments scale with the income and they scale irreversibly. A household spending 128,000 has arranged its housing, schooling and transport around 128,000, and each of those is expensive and disruptive to unwind. The 38,000 household can absorb a bad year by spending 34,000; the 128,000 household cannot get to 90,000 without moving house.
There is also a social cost that the other household does not pay. Reducing visible consumption is read by everyone around you as a reversal, whether or not it was chosen. That cost is real, it is paid in a currency that is not money, and it is why the ratchet described in the behaviour track holds so much harder at the top of an income range.
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