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January 22, 2008

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I think most Americans lack perspective about what it means to be rich. The average worldwide annual income is approximately $5,000. The average household income in the US is about $44,000, or 9 times more. An average wage earner in the US ranks just below the top 1% in income worldwide. In America people talk all the time about how difficult it is to earn a "living wage". Yet even someone working on minimum wage in the US ($14,560/year) is making nearly 3 times more than the average person on this planet.

I (think) FMF misread the quote. It says that someone with $100k INCOME thinks that $200k in INCOME is rich while one with a NET WORTH of $5mil. thinks that a NET WORTH of $10mil. is rich. Maybe I am overly optimistic, but I think that you could easily describe yourself as rich with a $200k a year salary! I pity those who can't (unless they have like 8+ kids, then maybe they are middle-class with that income =P).

Psychology is an interesting topic. I guess "rich", much like beauty, is in the eye of the beholder.

Personally, I consider rich to mean you have enough money that you don't have to work - you could live off investment income.

I was not aware that over 1 in 20 Americans is a millionaire.

Here's my insight on that definition of rich. The net, take-home income of a servicemember at my paygrade (mid-management/NCO) is around $40k (more or less, depending on housing location) That's what we learn to live off of. If I could double my pay -- well, there's quite a few people out there who make more than $80k, but I'd consider myself well-off because not only can I improve my lifestyle, but if I remain close to as frugal as I am now, I still have easily 25-30% of my money left over in investible cash. That may not be a definition of rich, but it does represent well-off, and at the living standards I'm used to, it gives me the investment power to start on the road to wealth.

Also, money locked away in investments, retirement accounts, etc. doesn't make me feel wealthy, either, until I'm close to the point where I can withdraw that money. I think many of America's "millionaires" are simply thousandaires who have a lot of money in their IRA. That makes anyone feel secure about retirement, but doesn't help the 20+ years until you reach that age.

I would consider myself rich if I had enough income-producing assets so that neither I nor my wife would need to work for a living. The biggest single obstacle to this right now is the cost of health insurance. Our jobs currently provide us with health insurance, and we could not afford it on our own. I think we would need about two million dollars in income-producing assets to feel secure and live comfortably and afford health insurance.

Defining "rich" is like defining "happiness:" once you achieve it according to your former definition, your definition has changed. So you're always looking for and seemingly needing more.

To me, the key is to remember where you came from and where the rest of the world still is. There is only one person-out of several billion in the world- who has the most, who is truly the richest. I'd wager he's no where near the happiest and, sadly, might not even consider himself satisfied with his level of wealth.

Homer Simpson:
Wow, Mr. Burns, you're the richest man in the world! You own everything!

Mr. Burns:
Ah, yes, but I'd give it all away to have just a little bit more.

Sums it up quite nicely, don't you think?

I don't think you can define rich by income. You're not rich if you make $200K/yr but spend $205K/yr. You will have a negative networth which is more like POOR.

While most would consider me upper-middle class (doesn't really feel that way), I won't consider myself rich until I'm financially independent (meaning I could live the rest of my life off my investments and no longer need to work).

GeckoGirl --

You're right! It's net worth that counts. Still, I find it interesting that people always think the "next level up" (in either income or net worth) is wealthy -- even if they're way above the averages already.

Although my wife and I together make between $40,000 and $50,000 per year (and have debt and very little to no savings), we are rich and/or blessed. We have a roof over our heads, 2 cars to drive, clothes to wear, food to eat, utilities to keep our family of 5 warm, cool, etc, and are current on all of our bills. Plus, we have our Catholic faith which we practice daily.

Hey, if rich is always about double whatever my investable net worth is, it'll be interesting to see how many of us say, after the stock market's done with its decline, "I USED to be rich." :) Hopefully, we won't all be worth half as much this year as last......just another way to look at it!

It depends on where you choose to live. If you live in Manhatten then to be/feel "rich" you might just need $10M plus. On the other hand if you are happy to reside in rural Georgia, a net worth of $250,000 and/or income of $100,000 would make you be/feel quite rich indeed.

To be/feel rich is simply to have more than most of the people around you. If you have better than average housing, wear better than average clothes, have better than average income, et al, then you are "rich" in a relative sense. Anyone reading this, of course, is probably rich in a literal sense - especially if you compare us to the entire globe.

The definition of rich has to change based on your situation, where you are, and when it is, because rich is a relative term. I believe rich should mean that you have more than you need. Ryuko seems to have a similar idea. You can be financially rich by having enough income or assets to exceed your needs.

Most people seem to think being rich is when you believe you have enough to be better off than your peers. That blurs the issue by confusing needs and wants. Instead of looking at what they need, people don't feel rich until they have everything they want, which grows and changes to be more than what they already have.

I disagree that making $200k/yr and spending $205k/yr is poor. It may be stupid, and that person will not stay rich doing that, but that doesn't mean they are not rich at the time.

To me being "rich" is something people continually strive for, but they never really achieve. Money has a way of never being enough, when you have 1 million, you want 2. When you have 2 cars, you want 4.

I think people use money, and the attaining of wealth as a way of feeling secure, powerful and important, when in reality being wealthy does none of that. I know plenty of wealthy people who don't consider themselves to be -and are miserable.

To me I am rich because I have a wonderful family, a good job, and a faith that gives me hope.

When it comes to money, I use a definition similar to Don's. I look at wealth not income. I'll be rich when I have enough passive income that I don't need to work a job anymore. I don't see how anyone can think themselves rich if they are dependent on wage-based cash flow. Imagine losing your job and not being able to find one for a year. If you could comfortably live through that financially, you are definitely on your way to rich. If you could say, "who needs to work anyway", you are rich by any definition.

Right now what I am shooting for is comfort and stability. I am comfortable because I live a lifestyle that is not excessively frugal but allows me to invest a sizeable portion of my income. I'll feel more comfortable when I have fully realized my safety net fund goals. Do I feel rich? Hardly. Stability? Getting there.

Rich is something other people are. It's like a rainbow - you think you can see where it is, but you can't ever catch it (although a lot of people really mess themselves up trying).

Happy people stop chasing rainbows and target a realistic goal. It's called enough. It's a lot harder to see, but much easier to catch.

I had a very wealthy friend, my mentor infact, that said being rich was being able to suffer alone. Meaning that one could afford a private room in the hospital, as opposed to a shared one under most private insurance plans.

I like what Mark Cuban said about being rich when he wrote on his blog a response to Warren Buffet's statement that taxes should be higher on the rich.

Cuban said "You are rich when you know that money is no good unless you can enjoy it."

The actual post is an interesting read in itself, with Cuban making several good points about taxing and spending.

http://www.blogmaverick.com/2007/12/11/warren-buffett-taxes-and-the-presidency/

I agree with the previous commentators that net worth should be the indicator for wealth. I do not think of myself as "rich" and have made over $200K for a couple years. This mentality has allowed me to completely pay off my student loans $150K and save money. Being debt free has allowed me to make choices and have options, as I do not expect to maintain this income indefinitely. I do not plan to continue working in this profession (law), as I would never see any future children or spouse.

Yes, I'd love to be rich, but will probably never think of myself as rich so that I don't get caught up in the hype of spendings lots of money for big screen tvs, $2000 bags, $600 shoes and other status symbols. Not even, if my net worth was over $5 million.

Yes, Anon is right: a $200K income but nearly that much in student loan debt does not rich make, especially in Manhattan. I made more than that last year and I live in an apartment of about 275 sq ft.

Although I will say one feels a lot more comfortable with that extra $2500 going into voluntary accelerated debt repayment than not having it at all. That degree of security is definitely valuable, and part of what I would consider being rich--the sense that you definitely have more than enough income to meet your monthly needs and emergencies. Of course, if you're frugal enough, you can achieve *that* feeling on a significantly lower salary!

I was amused to see this - and am quite appreciative of it!

Years ago, I mentioned to my then MIL that she was rich (they live on the rich side of Ft Lauderdale, which only has rich and poor (who serve/work for the rich) - not much of a middle class anywhere to be seen).

Despite the fact their home is worth $1M, her husband had started out in the military as a doctor, then moved to Ft Lauderdale and was a specialist (ENT) and made money then from investments in real estate (oh, he did lose a lot - over $1M one year - once) and other things, her reply to me was shocking (but now well-explained above): "OH, we're not RICH - we know people who have a lot more than us - THEY're RICH!"

I guess I go by how the majority of people live. They wanted for nothing, but then we can always want more. Her point of comparison was Dave Thomas, founder of Wendy's, who then lived in a gated community down the street from them. I guess there are a lot of CEOs of companies out there. Interesting how upper management is getting bonuses these days as lay-offs are happening within their companies. Plus the lay-off packages (one year's pay) is not a bad way to leave a company. I'd gladly go for one year's pay. Who else would be willing to do that? That might be an interesting topic for next week...feel free to use it if you like it.

I remember a great quote from the Cosby show:
Claire Huxtable (the mom) said something to the effect of "your father and I are not rich. We work very hard for our money. You are rich only if your money works for you."

If you have to wake up every morning and go to work, attend meetings, and brave traffic, is it any wonder why people don't feel rich. Of course it's subjective. You could quit, move somewhere cheaper, and live off of the interest/dividends of the money you've amassed. However I'd venture to say most people in the U.S. don't want to sacrifice to feel rich because it goes against what they understand rich to be: no sacrifices.

You're rich when you can support the lifestyle of your preference indefinitely without the need for earned income. You don't have to _actually_ quit working to qualify, but as long as doing so would mean either dipping into capital and savings (which isn't sustainable in the long term) or cutting back drastically on your lifestyle, you're not rich.

By that standard, I'm about 2 years away from being rich, and staying on autopilot ought to get me there. Which is pretty darned good for someone who, as recently as 2003, was dead broke.

The wealthiest person is not he who has the most but he who needs the least.

Obviously, "rich" is relative to cost of living in your area... But if two people have the same income and one buys a five-year-old car from a private seller, only gets liability insurance on it, buys off-brand food, gets housing with relatively low monthly payments, etc, while one has to feed five kids and a stay-at-home parent, put the kids through college, pay the mortgage of a big house, own two cars that were bought new from a dealership, they're going to feel differently about their money situation. Some of that is unavoidable (feeding the kids), some isn't (expensive cars).

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