Why Increasing Your Income Won’t Solve Your Financial Problems

June 22, 2017

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I remember the day I received my first job offer. A $38,000 annual income! For a young guy right out of college, this seemed like an absolute boatload of money. I felt like Scrooge McDuck swimming through his vault of gold coins!

That same year, I leased an Audi Convertible, bought my first home with 10% down and traveled on a week-long vacation to Mexico using my home equity line of credit (HELOC). I was in my early 20’s, I was living paycheck to paycheck but I didn't care. I was having a blast.

A few years later, I was able to increase my salary to $48,000. I decided that if I really wanted to make the big bucks, then I needed to go back school and get my MBA. It would be a lot of hard work and it would cost me $40,000 over the years I would be studying, but I thought “hey, that’s what you have to do to really increase your income, right?”

Around my 27th birthday, I received a promotion that increased my salary up to $70,000 per year. I was ecstatic! This was the most money I’ve ever made in my whole life and I felt like I was on top of the world.

Reality Strikes

Even though that $70,000 income number sounded like rock star status to me, I continually felt strapped for cash and I didn’t understand why. How could I be making almost double my original income and have nothing to show for it?

Around this time, the housing market crashed. My HELOC that I had been using as an ATM was no longer available to me all of a sudden. The bank told me that my home value had decreased so much that I no longer had equity in my home. What the heck is “equity”? You mean I can’t get money to go to Coachella this year? WTF?!

Coachella Dance Guy
No more awesome dance moves at Coachella?!

Luckily, I had a stable job and I was able to keep my position despite the pending Great Recession. This lack of available funds got me curious though. I decided to read some personal finance books to try to get a better understanding of my disastrous money situation. There was one phrase that continually stood out to me during my research … Net Worth.

Net Worth Vs. Income

Now, I had heard the term “Net Worth” before but I never quite grasped the concept. I thought since I’m making $70,000 per year, I must be doing quite well. My net worth must be way up there. Nope.

My net worth was -$50,000. (That’s a negative symbol there, just FYI. So it was really my Net “Unworth”).

Evidently, my accumulation of stuff over the years (including lease cars, an underwater mortgage, student loans and a HELOC) was a negative drain on my net worth figure. Who knew, right? 

How Do You Calculate Your Net Worth

For those that want to know what I didn’t know, you can easily calculate your net worth right now. Total up all of your assets (cash, investments, properties, vehicles, etc) – “what you own”. Then total up all of your liabilities (debts, student loans, mortgages, lines of credit) – “what you owe”.  Subtract your liabilities from your assets and voilà! You have your net worth.

Assets – Liabilities = Net Worth

Here’s a handy calculator to get it done fast.

Change Please

Now, it wasn’t bad that my income continued to rise. In fact, that was the only thing keeping me afloat. From this point forward, I was determined to make a major change in my net worth figures. It would be a combination of increasing my income and eliminating this nasty debt I had accumulated over the years.

Shortly after this epiphany, I focused intently and paid off $50,000 in debt in around 12 months. This rapid change came through reducing my expenses, living on a monthly zero-based budget with my wife and spending well below our income each month. Yes, it required me to get rid of my lease car, not eat out as much and not attend as many concerts, but honestly I was more excited about the direction we were heading in than any of those things I had as a part of my former debt-filled life.

The passion for change and desire for financial freedom continued as the years past in our new marriage. Today, my wife and I are still chugging away at this new net worth focused life of ours. Our net worth has gone from $0 at the time of our marriage in 2010 to $640,000 this year. We also plan to pay off the mortgage on our house in the next few months.

Life is looking bright now for our family. I’m still working hard to increase my income every year, but I now realize that income isn’t everything.

My income can go away in an instant. If they felt like it, my employer could dump me tomorrow for whatever reason they choose. My income would be gone, but my net worth would still be intact.

I feel a lot more secure with a high net worth as opposed to a high salary as well. Better protection and more security sound like excellent reasons to skyrocket your net worth to me. If you’re able to earn a high income AND a high net worth, then you’re really living the dream.  

Where are you looking to improve your finances?

This post was originally featured on The College Investor on June 1, 2017.

Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.


  • Great post! I was in a similar situation coming out of school and it took me a few years before realising there was a problem. I just wish I would taken it upon myself to educate myself (since schools sure as heck don’t) on personal finances.

    • Why don’t we have programs like this in college?!?! Or high school for that matter! You are so right.

  • Great post! We’re blessed to have an great household income currently, but we also had above-average consumer debt to go along with it. We went without jobs for a month last year when we moved from Minnesota to Colorado and that’s when we realized our debt was a big problem. Fast-forward 6 months and we’re coming up on $25k paid off with a goal of increasing our net worth by over $50k in 2017. The end goal is to be able to take the job we want and do something we love, not for the money.

    • Awesome progress Ryan! You are building up your net worth and winning! And nice choice with Colorado … one of my favorite states. The mountains, the sunshine and a very active lifestyle.


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