For Feds, Net Worth Is More Important Than Income

There are many stories of federal employees who don’t have 6-figure incomes yet still manage to build considerable wealth.

Income and net worth are probably the two most talked about financial metrics in personal finance. When talking about the ultra wealthy, we tend to use net worth to describe their wealth. But when talking about ourselves or others in our close circles, we are much more likely to talk about income as the metric of financial success. 

As we all know, net worth and income are usually correlated but there are some notable outliers. These are the people that never had impressive salaries, but still managed to build impressive wealth. There are many stories of federal employees who never had 6-figure incomes yet still managed to retire as millionaires. 

Here are three big reasons why you should focus on your net worth more than your income. 

1. Debt is factored into the calculation. One of the main reasons net worth is a powerful metric to track is because you have to subtract your debt. For those that aren’t familiar with the formula, your net worth is the value of your financial assets minus your debt. 

We are living in a very consumer driven economy. It is not uncommon for many people to spend beyond their means and take on debt to do so. Not all debt is bad (a home mortgage and student loans can pay off handsomely in the long run, for example) but as a general rule, debt slows down our financial progress. 

The net worth formula is a reminder that even if you are saving money in the Thrift Savings Plan and building equity in your home, your networth won’t increase if you are racking up credit card debt, auto loans, and other debts just as fast. Having a large sum in your TSP is a great thing but if you have a lot of debt (especially credit card debt), it will erode your financial position no matter how much you have saved for retirement. 

2. The IRS comes after income. Here in the United States, we have a progressive tax system. This means the more money you make, the higher your tax bill. The more you earn as regular income, the less (percentage-wise) you’ll actually be able to keep. The tax system is often much more lenient on net worth. For example, when you save in your TSP, you not only get a tax break today (assuming the traditional TSP) but your investments will grow tax deferred until you take it out. By giving more attention to building your net worth, you will often improve your financial position while also paying lower taxes in the process. 

3. It’s the mindset for success. When it comes to reaching your financial goals (or any goal for that matter), your mindset can make all the difference. Financial freedom often happens only after we start focusing on the long-term consequences of our short-term decisions. Net worth is the long-term goal; income is the short-term situation. Income may allow you to buy and do cool things, but net worth can bring you long-term freedom. Income is important and can help us reach our financial goals faster. But without building our net worth, it is almost impossible to build a better life for ourselves and our families. 

Dallen Haws is a financial planner and host of the “Plan Your Federal Benefits”YouTube channel as well as a podcast at