Genuine wealth
Income isn’t necessarily an adequate measure of prosperity because it simply indicates how much you make, not how much you keep.
A six- or seven-figure income is a valid accomplishment, but after taxes, debt servicing and lifestyle expenses, many high-earners are left with little to no savings.
For instance, U.S. physicians can earn an income of roughly two or three hundred thousand per year, but since medical student debt is $200,000 on average, according to the American Medical Association, some of these professionals may struggle to create wealth unless they qualify for loan forgiveness or repayment.
In fact, 36% of individuals who earned more than $200,000 in 2024 said they were living paycheck-to-paycheck, according to a PYMNTS survey. This is why income offers an incomplete picture of your personal finances.
Savings accounts, according to Galloway, are a much better way of measuring financial success. Savings and investments can generate passive cash flow, providing a genuine safety net for retirement. Owning a million-dollar house or stock portfolio that generates $50,000 in passive income can make you more financially stable than earning $1 million but saving nothing.
Fortunately, you don’t need to make a seven-figure salary to start saving money and creating wealth.
As Galloway puts it, "Wealth isn't about how much you make, it’s about how much you save.”
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Learn MoreHow to create wealth regardless of income
A disciplined and consistent savings plan can help you create wealth regardless of income.
Galloway suggests buying a home as a “forced savings plan,” maxing out tax-advantaged accounts like the workplace 401(k) and investing in low-cost index funds to accumulate capital.
“Don’t delude yourself and think you can pick stocks better than anyone else,” said the professor. “You can’t. You want to find someone great at it who’s really cheap, that’s called an index fund or an ETF.”
In 2023, the median household income was $80,610, according to the U.S. Census Bureau. Saving just 10% of this income would add $8,061 to your wealth every year.
Investing that in a low-cost index fund could help you expand your wealth at a reasonable rate.
The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is a popular option for investors and has delivered a compounded annual growth rate of over 10% since 1993.
If this fund can deliver a similar rate of return over the next few decades — remember, past performance is not an indicator of future results — you could accumulate over $1 million within 27 years. Saving more than 10% or earning more than the median household income could get you there even faster.
Simply put, you don’t need an extraordinary income or exclusive investment strategy to create wealth in America. Just focus on preserving as much of your income as you can.
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