Discover the misconception about wealth that just won't die

Many of us have preconceived ideas about what it means to be wealthy. Whether you drive a nice car, live in a house that has as many rooms as it does bathrooms, everyone has a vision of what wealth means to them.

However, there seems to be one idea that just won’t die out: the idea that income equals wealth.

Sarah Stanley Fallaw, director of research for the Affluent Market Institute, has interviewed 600 millionaires in America.

“It continues to be the assumption of those who increase consumption as their income increases that they are the same,” she explained in her book The Next Millionaire Next Door: Enduring Strategies for Building Wealth.

“Believing this myth gives the false perception that those who appear to be rich (neighbours driving luxury cars or friends in $US200-plus jeans) are wealthy when in fact it only means they spent more than real millionaires on these purchases.”

It seems like many people are getting their wires crossed when it comes to understanding income and wealth.

Wealth refers to the net worth of a household, which is all of the household’s assets minus all of its liabilities.

Income is what is reported on your tax return.

A self-made millionaire, Chris Reining, previously told Business Insider that people are more attracted to spending like a rich person.

“When people say they want to be rich, what they’re saying is they want to spend like a rich person. They’re focusing on earning a big pay cheque.

“But that’s not the definition of being rich,” Reining said. “The definition of being rich is having assets generating income that exceed your standard of living.”

Did you know what the difference between wealth and income was? Let us know in the comments.