Joker wrote: A friend of mine is a millionaire on paper but his investments are heavily in property. That just means that he can be a millionaire and still have cash flow issues. Frugal Fran had it right when she said balance is the best!

That is very true as well. and in a distress situation the property may not be valued at what he/she thinks it is.

A friend of mine is a millionaire on paper but his investments are heavily in property. That just means that he can be a millionaire and still have cash flow issues. Frugal Fran had it right when she said balance is the best!

Curry wrote:

FrankN wrote: You have it exactly right James, let me know if that doesn't make sense Curry or if you have any additional questions.

What he said makes sense, but not the opinion he has that some people do not look past income alone when determining their wealth. I could be wrong, but that's them impression I got from his post.

That makes sense I was referring to only that you should look at your assets in determining your wealth.

FrankN wrote: You have it exactly right James, let me know if that doesn't make sense Curry or if you have any additional questions.

What he said makes sense, but not the opinion he has that some people do not look past income alone when determining their wealth. I could be wrong, but that's them impression I got from his post.

djames wrote: I've never seen anyone determine wealth by income alone so not sure where you heard this.

From the people who have just as many assets as they do debts, because they used credit to acquire the assets......credit they acquired due to their income. These people don't seem to care about the debt incurred and how it effects their actual worth.

FrugalFran wrote: I think what was meant here regarding living within a person's means is that people typically don't have a huge income and have little of that going out to spending and overhead. As Egghead said, people adjust their spending habits to match the income they have, so more money usually means more spending. If someone was making $200,000 a year and had very few bills, that would seem odd.

I would generally agree with that, but there are people who grow their income, but keep their spending habits constant so they are able to accumulate wealth very quickly.

I think what was meant here regarding living within a person's means is that people typically don't have a huge income and have little of that going out to spending and overhead. As Egghead said, people adjust their spending habits to match the income they have, so more money usually means more spending. If someone was making $200,000 a year and had very few bills, that would seem odd.

Moneyes wrote:

Cents wrote: That's true, Egghead. It's human nature to live within one's means. I'm sure it happens, but it's probably a rare occurrence. It would probably seem like a red flag to a lender, too.

Then why are so many people up to their eyeballs in debt? Most people I have run across don't really care about their credit to income ratio.

I think it's become cultural. People start their working lives in huge amount of debt due to student loans. Mortgages are well over several years' salary, even not allowing for living expenses that people accrue over that time. The idea of "Why wait" has been pushed so hard for so long it would take a major change in finance and culture to make it possible for people to live within their means.

Cents wrote: That's true, Egghead. It's human nature to live within one's means. I'm sure it happens, but it's probably a rare occurrence. It would probably seem like a red flag to a lender, too.

Then why are so many people up to their eyeballs in debt? Most people I have run across don't really care about their credit to income ratio.

That's true, Egghead. It's human nature to live within one's means. I'm sure it happens, but it's probably a rare occurrence. It would probably seem like a red flag to a lender, too.

If I was responsible for making the decision to lend money I would be wary of someone with a huge income who declared very low outgoings. In my experience such a situation is rare, as people tend to adjust their spending habits in line with a rising income.

Like most other things in life, I think it's about balance. Earn the best income you can, live frugally, save as much as you can, and keep debt under control.

I am not sure I agree with that. Lenders and banks really do look at ratios as compared to total income. Someone with earns a $100K per year with no debt will be a much better lender candidate than a person who makes $500K a year, but has $250K of student debt, $100K of credit card debt, and $150K of other debt. High income levels can take on more debt, but banks and lenders look at their capacity to get repaid.

Interesting concept and I completely agree with this. I think that the determination of wealth should be based on a person's income and expense ratio. I believe there are some banks that treat it this way because I know when I have tried to apply for a loan they determine the approval or disapproval based on your debt-to-income ratio. I think more credit card companies should treat it this way too.

In terms of credit ratings I'd say that the higher earner would always be seen as the better risk, despite the plausible scenario of them having less disposable income than someone earning less. Money attracts money at the end of the day.