Leo Zwiener — Market Insights

Many believe that earning more money leads to wealth. While a higher salary can increase both spending and savings, this does not usually result in greater wealth.

The factor that matters more than how much money you take in is how much you keep. This is your savings rate: the percentage of your income that you consistently save and invest instead of spending. Income gets most of the attention and social status, but the savings rate is what is behind the scenes and actually drives long-term financial progress.

To understand this, consider two people. Person A earns $70,000 a year and saves $20,000 a savings rate of around 28%. Another earns $150,000 a year but only saves $10,000. Despite the large gap in income, individual A is building wealth faster due to the high savings rate. Their income is different, but their ability to retain and invest money is distinct.

Lifestyle inflation is a key reason for this. As income rises, spending often increases as well, leading to higher expenses rather than greater wealth. A recent Yahoo Finance article notes, “Recent studies show that approximately 60% to 69% of Americans live paycheck to paycheck … While more common in lower-income households, about 43% of those earning over $100,000 per year also report living paycheck to paycheck.” This demonstrates that many high earners save little due to increased spending.

Your savings rate cuts through this entirely. It reflects discipline, priorities, and the ability to think long-term. A higher savings rate means more money is being invested and set away, which allows compound interest/growth to work more effectively over time.

Income definitely still plays a role; don’t get me wrong, it sets the upper limit of what’s possible. However, your savings rate determines how much of that income actually contributes to your future. More importantly, your savings rate is something you can control day to day. While income can fluctuate due to external factors, your spending and saving decisions are within your control on a daily basis.

In the end, building wealth isn’t about how much money passes through your account, it’s about how much of that money you keep and put to work. Focusing on your savings rate creates consistency, and this is what drives long-term results.