Two hardworking people are headed toward each other. Person A moving at 80 hours a week and Person B moving at 10 hours a week. They both make $50,000 a year. Who will be richer when they pass in the middle of the night? If you said B, you would be correct, and this is the difference between absolute and relative income.
Absolute income is measured using one holy and unchanging variable: the raw and almighty dollar. Jane Doe makes $100,000 a year and is thus twice as rich as John Doe, who makes $50,000 a year.
Relative income uses two variables: the dollar and time, usually hours.
The whole “per year” concept is arbitrary and makes it easy to trick
yourself.
Let’s look at the real trade. Jane Doe makes $100,000 a year, $2,000 for each of 50 weeks per year, and works 80 hours a week. Jane Doe thus makes $25 an hour.
John Doe makes $50,000 a year, $1,000 for each of 50 weeks per year, but works 10 hours a week and therefore makes $100 per hour. In relative income, John is four times richer.
Of course, relative income has to add up to the minimum amount necessary to achieve your goals. If I make $100 an hour but only work an hour a week, it’s going to be hard for me to run amuck like a superstar. But assuming my total income is where it needs to be to live my dreams and and I’m not comparing myself with the Joneses, relative income is the real measurement of wealth
