Relative income can be a useful tool for putting salaries in perspective, particularly when considering a move or career change. High cost-of-living areas often have higher-paying jobs, but this doesn't always mean you'll be in a better financial position there. If your relative income decreases, you could find yourself with less buying power than before.
Why absolute income is important
Your absolute income plays a crucial role in how quickly you can build wealth. The more you make, the more you can save and invest. Of course, it's not the only thing that matters. Your spending habits are also a factor, as is your relative income. But absolute income ties into both of these, as well. If you raise your absolute income without increasing your spending, you can invest more. And when your absolute income goes up, your relative income generally does, as well.
It often makes sense for investors to focus on earning more, especially those who are still fairly early in their careers. If your current income allows you to invest $8,000 per year, that would grow to $1.45 million over the course of 30 years, assuming a 10% annual return (in line with the stock market's average). Raise that to $12,000 per year, and you're looking at $2.17 million, thanks to the additional contributions and compound interest.
