The most important measure of our financial progress is seldom discussed. It’s not in the tool kit of most financial advisers. Or certified financial planners. They focus on saving and the return on savings.
Not mentioned: Your income to asset conversion rate. How much of your annual income is converted to assets each year.
Convert a good deal of your income to assets each year, and you’re on your way to financial independence. Convert little or nothing of your income to assets each year, and you’re looking prosperous but heading toward indigence.
Sadly, the entire advertising industry is dedicated to convincing us that consuming is really investing. We’re “investing” in ourselves when we take a break and drink a latte at Starbucks. We’re “investing” in ourselves when we buy something called “investment clothing.” Increase the price of a piece of furniture enough, and it becomes an “investment.”
The true test for whether something was truly an investment is simple. What, if anything, is it worth if you want to sell it? The finding, usually, is nothing. Or next to nothing.
Skeptics should visit a few resale shops.
So the conversion rate on most consumption goods is about zero.
Here Are the Pioneers
If this notion is entirely foreign to you, I’d like to suggest some easy reading that will change how you think about your finances.
The first is a book by Joe Dominguez and Vicki Robin, “Your Money or Your Life.” First published in 1992 and reprinted many times, the book tells us about how we exchange our lives for money. It then outlines how to achieve financial freedom by being careful with every expenditure of our limited time. This book is the bedrock of the FIRE (Financial Independence/Retire Early) movement.
The second is a book by Thomas J. Stanley, “The Millionaire Next Door,” and any of his later books exploring the spending habits of the people he calls “real millionaires” – as opposed to the people who merely look like what they think millionaires look like.
First published in 1996, the book divides people into PAWs (Prodigious Accumulator of Wealth) and UAWs (Under Accumulator of Wealth) by examining their spending habits and the inability of the UAWs to accumulate actual asset wealth. Instead, the UAWs are merely “income affluent” and net-worth poor.
My Favorite Definition From Long Ago
Still earlier, Ferdinand Lundberg’s 1968 book, “The Rich and the Super-Rich,” has my favorite distinctions between having wealth and being poor:
“For my part, I would say that anyone who does not own a fairly substantial amount of income-producing property or does not receive an earned income sufficiently large to make substantial regular savings or does not hold a well-paid securely tenured job is poor.
He may be healthy, handsome and a delight to his friends — but he is poor.”
Show and Tell
You can see how concentrated true, income-producing wealth is in America by examining the huge role home equity plays in our net worth. As you can see from the table below, the bottom 60 percent of households have less in “other net worth” (income producing assets) than they have in home equity.
You must be at the 75th percentile or higher before “other net worth” is at least two times your home equity. That amount is about what is required to support the out-of-pocket expenses for a typical home. Not including the mortgage, if any.
You must be at the 98th percentile or higher before “other net worth” is at least seven times your home equity.
The Illusion, the Reality and the Risk
Does this mean homeownership is a bad deal?
No.
Owning a home is the one area where a display of affluence can help build net worth. Your equity growth is multiplied by the leverage from your mortgage. You receive valuable shelter services as you live in the house, but no cash,. And inflation is your friend, increasing the value of the house while decreasing the burden of your debt.
Historically, our homes have been fabulous income-to-wealth converters.
That’s why so many Americans are “all-in” on homeownership: It has helped to make them PAWs.
Endgame?
But nothing lasts forever.
Today we have high home prices relative to rent. High mortgage interest rates relative to the recent past. Rising homeownership expenses for taxes, insurance, utilities and services. And worker income growth not keeping up with inflation.
And here, living in central Texas between Austin and San Antonio, one of the hottest growth areas in the entire country, I keep seeing more “For Sale” signs. Some have been up for quite a while.
So tell me. What do you see? Are you thinking about changing the role of shelter in your life? Are you going to change what you do to convert income to assets?
Related columns:
Scott Burns, “The four-question wealth test,” 4/13/2013, https://www.seattletimes.com/business/scott-burns-the-four-question-wealth-test/
Scott Burns, “In America, Our Homes Are the Ball Game,” 2/6/2026: https://scottburns.com/in-america-our-homes-are-the-ball-game/
Sources and References:
Joe Dominguez, Vicki Robin, “Your Money or Your Life: Transforming Your Relationship With Money and Achieving Financial Independence,” https://www.amazon.com/Your-Money-Life-Transforming-Relationship/dp/0670843318
Thomas J. Stanley Ph.D., William D. Danko Ph.D., “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy,” https://www.amazon.com/Millionaire-Next-Door-Surprising-Americas/dp/1589795474
Ferdinand Lundberg, “The Rich and the Super-Rich: A Study in the Power of Money Today,” https://www.amazon.com/Rich-Super-Rich-Study-Power-Money/dp/1607968061
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Scott Burns, 2/14/2021 A humingbird takes up temporary residence
(c) Scott Burns, 2026