What's It Take to Be "Rich"?

Continuing our discussion of trying to put some sort of absolute number (or even range) on subjective words about the amount of money someone has, today we'll talk about what it means to be "rich." here are some thoughts from MSN Money on the subject:

What's rich? A recent survey of millionaires put the number at $7.5 million.

This fits with what we've seen from other studies/surveys -- that people think "rich" is one or two economic levels above where they are. So if you ask millionaires what they think, you get $7.5 million as the answer. Ask people who have net worths of $50,000 or so, and I can guarantee you that the number will be much lower.

And some more info:

A Gallup poll found the median definition of rich in the United States was an annual household income of $122,000 -- which is still close to the threshold income for being in the top 10% of households. To be honest though, you're just squeaking by if you make that much in high-cost areas like New York City or San Francisco.

Again, we see the "one or two levels above where I am" philosophy at work. The median income is around $50k, so of course the average person would say a $122k income makes people rich.

Then again, they're using income to determine wealth, so the study is flawed in that way already. As we know, a high income gives you a better chance of having a higher net worth (which is a closer determinant of wealth/riches IMO), but high income often doesn't translate into a higher net worth (because people tend to spend what they make, no matter their income level.)

Also, it's worth noting the cost-of-living issue raised in their comments. Quite true.

More from MSN Money:

Narrowing the focus to the top 2% of households -- to match the 2% of people that self-identify as rich in the Gallup poll -- puts the income threshold at $360,435, according to an analysis by the Tax Policy Center.

Yep, it just keeps getting higher.

The rest of the piece goes on to detail the ways people can become "rich" -- how they can get a net worth of $7.5 million. They cover working for a company/business and investing, but ultimately conclude that the "best" way to becoming rich is by starting your own business.

Then they end with this:

One final point: At the end of our conversation, Sullivan made an interesting observation. The fact is most Americans don't want to get rich. Sure, they would like the money. But they don't want to make the sacrifices necessary to have a shot at becoming really wealthy: the enormously hard work, missed birthdays, long days and forgone vacations and weekends.

Personally, I think being rich is well below the $7.5 million threshold and that many (most?) people can become "rich" with a lot less effort and sacrifice than what's portrayed above. Don't get me wrong, there will be hard work, discipline, and decisions to put off now so later you can thrive. But it doesn't mean you have to give up the rest of your life to achieve it. There can be balance and success/wealth/riches at the same time. But it does require self-control, perseverance, and commitment, and IMO most people are either unwilling or unable to adopt these qualities in their lives. Thus they are not and never will be "rich."

But what is "rich" anyway? ;-)

Comments

[Bill]

A rich man is one who makes $1,000 more than his wife's sister's husband.

[Chris Parsons]

"Rich" means not having to work & being able to live well based on your wealth.

5% of $7 million is $350k/yr, which is certainly above many people's definition of living well.

I think 2.5 million would count as "Rich". 5% of $2.5 million is $125k/yr, which is what I would consider good enough to not have to work and live well.

[Jonathan]

I definitely agree with your last paragraph...you do NOT need to sacrifice all other areas of your life in order to become wealthy. The wealthy people I know achieved wealth around living a very full life and having the freedom to choose when to work and when not to work (and having lots of time for family, trips, etc. in the meantime).

[Amanda L Grossman]

That is interesting--I didn't know that people consider rich to be a few income levels above their own. How relative!

[BD]

"But they don't want to make the sacrifices necessary to have a shot at becoming really wealthy: the enormously hard work, missed birthdays, long days and forgone vacations and weekends."

Strange, that sounds just like a poor person's life. Often, poor people work extra-long days at multiple minimum-wage jobs, are working retail during the holidays, never get vacations, never celebrate birthdays or anything fun....yet, they are poor, simply because they have such low earning power.

[Rick Francis]

I think the reason people confuse income with wealth is that most people are broke and only have their income to keep them afloat.

Having a higher income makes them feel wealthier, since they could buy more stuff and still be broke :-).

-Rick Francis

[Old Limey]

If I include our real estate then we're rich by this article's definition but we don't live at all like rich people. We do have a very nice home but it doesn't compare with those of the people in our area that I consider to be rich (and I don't mean Steve Jobs, Larry Ellison, Reed Hastings, Larry Page or Sergey Brin or any of the many other billionaires). We own nice cars but they are '91 and '98 Mercedes. I would only go to one of the fancy French restaurants if someone else was paying the bill, and we don't have either a cleaning lady or a gardener. Our largest expenses have been for the many exciting trips we have made all over the world during the last 50 years.

What being "rich" equates to for us is SECURITY and peace of mind which we think is worth a great deal the older you get. When I read about people losing their job, losing their home, losing their healthcare, having their car repossessed, and then maybe getting very sick I think to myself, that's why we worked hard, saved hard, lived comfortably within our means so that we can weather just about any calamity that gets thrown at us.

[Mike Hunt]

Rich equating with security makes the most sense to me.

You can easily spend $1 - 30 million dollars on an extravagant house or property- that will lead to more expenses with taxes, maintenance and decorations...

Psychologically once you have a given amount of wealth and are accustomed to it, then it is easy to compare up to the next higher level of wealth. Even Warren Buffett has been a billionaire for such a long time that it won't feel like a big deal- he probably feels like he has to be a caretaker of the wealth and his company / reputation.

Ask Old Limey what he would do if he won the lottery and took home $5M after tax. I am sure the answer is that he will live his life the same way. That is quite different to many people who would immediately think about going on a spree that could be the plot line for The Hangover Part Three.

-Mike

-Mike

[FMF]

BD --

Perhaps I should have added "working at the right job/profession/career." You are correct to say that simply long work, if not in the right field, will not yield much.

[Sunil from The Extra Money Blog]

to me rich is the ability to do what you want when you want without having to think twice, and still having the safety and security of both assets and cash flow.

[Old Limey]

@Mike
For me winning the lottery wouldn't change a thing.
I would just take the check down to my Fidelity Service Center and then have to spend several days getting it all invested in more muni bonds. Our children would be the ultimate beneficiaries. Another vital component of being rich is to be in a warm and loving relationship. That's something that no amount of money can buy but when you have it you can experience real happiness.

On our many trips to Bali in Indonesia we got to know several families that were incredibly poor by our standards. They would invite us to their extended family compound for a meal where we would sit on the floor and share it with them and their children. They were very happy, hard working, and spiritual people but had so little money. On one occasion we were the only Westerners invited to the dedication of a new family temple in their family compound, it lasted two days and the whole village came. The religious ceremonies were preceded by cock fighting, gambling & dancing, concluding with the blessing and sacrifice of two pigs and the subsequent wonderful BBQ feast that resulted. It just goes to show that in many cultures you don't have to be Rich to lead a very happy life. Unfortunately in our ultra modern American culture people tend to obsess about money and we have as many broken families as we do happy families.

[Troy]

Simple.

Ask yourself what you would do if you "came upon" $1 Million dollars. Won it, inherited it. Whatever.

Woke up one morning and had $1M in your account.

If that changes or alters your life. If it causes you to make changes to your life, your living arrangements, your habits, etc...then you are not rich.

If it wouldn't change anything and off you go continuing on, they you are already rich.

This theory works because it takes into account both actual measurable wealth and contentness/psychology with money.

[KMI]

@Troy

I can't agree with your definition of rich. $1 million only translates to approximately $40k in income for a particular year. If we are on track for our goals, would most of us (FMF readers, not the average American) make major changes in our lives in response to increasing our income by $40k? I would pay off the mortgage faster, be able to retire much sooner, and be sure I could pay for all of college for my kids, but I would be afraid to change much in my life for fear of building up unsustainable expenses.

I don't know that my approach is an indication that we are rich, as opposed to prudent.

Of course, if anyone want to give me $1 million to try this out, I'm willing to test it! ;)

I like Sunil's definition - "rich is the ability to do what you want when you want without having to think twice, and still having the safety and security of both assets and cash flow."

[Carol]

At what price wealth?

[Derrik Hubbard, CFP]

@Old Limey,

I think you are really on to something.

Those of us who have lived our whole life in the United States view money and riches through a lens that very few people in the world do.

By many country's standards even the poorest American is superbly rich. Check out http://www.globalrichlist.com/

Derrik Hubbard, CFP

[JoeTaxpayer]

Troy has an interesting answer. As I'm further away from retiring than $1M will bridge, the next million is a deposit that gets us X years closer. No, none of it goes to buying anything different, we're not like the crazy lottery winners who take the lump sum and spend it all within a year. I'm not even in the "spend 10% frivolously" camp. To me, that's just silly.

[crashdamage1957]

Its interesting to me that in these surveys, the answer of the definition of rich tends to be focused on a number, rather than on the idea that the real answer to this question is not a number at all. In my way of thinking, as the experience's that others have pointed out above show, one feels rich if you are satisfied with the lifestyle you lead.

[Georgia]

In my small town, I am very much up there. And, I am living on SS & 2 small retirements (mine & deceased husband). I have less than $100k in a 503b and use it only for home repairs &/or trips. I am giving 20% of my income to church and charity. I am trying to save 20% because I know I need to have a good emergency fund. No savings in June & July, as I've been visiting family around the country.

Thanks Derrik, for the website. I am in the top 7.16% of the richest people in the world. Boy, I can thank God even more and try harder to do more for others.