How We Fail: Middle America’s Inability to Gauge Wealth

We’re taught to think of wealth in absolute terms. But doing so prevents us from understanding the relative difference in the costs of living between ourselves and the fantastically over compensated.

Instead, we’ve got to think of wealth in relative terms.

You know what stuff costs you relative to your salary. What you don’t know is what stuff would cost you if you earned double (half), triple (1/3), ten times (10%), one hundred times (1%) your current salary.

So, I did the math for you.

If you earn $50,000 a year, gas costs you $4 a gallon. If you earn $5 million a year, gas costs just 4 cents a gallon. Relatively speaking, why would the rich care if it goes up a dollar a gallon. To the wealthy, that’s only a penny more.

That Harley you want? $20k. A $5M man pays just $200.

That $400,000 dream house you’re looking at? Super affordable at $40,000.

Why’d I pick $5M to compare? Because the CEOs of 171 publicly traded companies all earn at least $5M a year in 2010.

The best-compensated CEO earned $84.5M. Relative to someone earning $50,000 a year, he pays 2/10ths of one cent per gallon of gas. This guy will only start to feel your pain when gas reaches $2000/gallon! But of course, he’s an insider sitting on boards of directors and leveraging his obscene salary to build more, so his wealth has ballooned beyond imagination long before that’s happened. Meanwhile, you’re still waiting on that cost of living adjustment that adds $85/month to your takehome.

PS. You’re what we refer to as the middle class.