“Yeah, but Chuck only makes 4 times what Bob makes. That really isn’t that much.”

I’ve heard something similar to that on several occasions in various conversations. It seems innocuous enough; they even used the word “only.” Those sorts of statements betray a deep misunderstanding of needs, disposable income, and the standard of living.

Below are how five fictional people of varying gross incomes stack up to each other relative to the standard of living here in lovely Rochester. The Frozen names seemed fitting for this never ending winter…

Kristoff represents the standard, Olaf is below, the rest above. The typical interpretation of a graph like this is for someone to say, “See how much more Elsa has taken from her than Olaf!? Stop over-taxing the rich.”

Instead, let’s have a look at an additional measure – I’ve included a line to show disposable income. Disposable income is the amount you have left over after taxes and things like your car, home, insurance, utilities, and food – the essentials – are taken out. Since we base the cost of essentials on the area standard of living (a prior set of posts) you can easily plot disposable income by figuring out the cost of essentials, taxes, and disposable income of the average. That’s the baseline.

What I hope you’ll quickly notice is that the real-life difference between $50K and $200K is so much more than 4 times. Try 20 times. Even compared to the average ($60K vs $200K) it’s not 3.3 times, it’s closer to 7 times. And it’s because each dollar above the standard of living is disposable. The standard of living doesn’t go up with your income, so comparing gross or net incomes is irrelevant. The true impact of your income is felt in disposable income. Want to go on a vacation, or have a nice car, go out for expensive meals/dates? You do those with disposable income.

In short, your quality of life (an economic indicator) is a function of disposable income. We need to think in those terms when considering a person’s intrinsic value vs economic value as an employee. That minimum wage worker has maybe $500 disposable income per year versus an owner/president’s $100,000 disposable income. What does that say about human worth?