Words About Money are Often Subjective

A few weeks ago we got to discussing the various words many of us use to talk about how much money someone has or makes. It became clear pretty quickly that we all had different opinions on what certain words meant -- when it came down to putting a number on them. What words am I talking about? These, in particular, though I'm sure there are more:

• "Rich"
• "Wealthy"
• "Secure"
• "Surviving"

Specifically, I'll have one set of numbers for what I think people need to be rich, wealthy, secure, or just to survive financially. You'll have a different set. Another person will have a totally different set. And so on and so on.

For instance, I've seen reports that say people think the amount it takes to be rich is always one or two notches above where they are personally. So a millionaire thinks it takes $5 million to be rich, someone with $5 million thinks it takes $10 million, and someone with $10 million thinks it takes $20 million. So how can we ever use the word "rich" and still be communicating effectively?

Then add in wealth, secure, surviving, and a whole host of other "vague" financial words and it gets really confusing really quickly.

I attempt to define these terms based on the averages (median numbers where available.) So, for instance, if the average income in America is $50,000 a year (which it is) and someone is making $250,000, then I can make some general conclusions about the person who makes $250k -- namely that he should have more than enough to get by on since he makes five times what others who get by on $50k make and he has much better potential at becoming "wealthy" (which is a net worth term, IMO). I would define being "wealthy" as someone who has a net worth well above the average net worth for his age. But that is subjective too. After all, my "well above" might be different than your "well above."

And just for fun (and probably throw everyone into a tizzy), here's my shot at defining the words below:

• Rich -- Net worth of $5 million or more.
• Wealthy -- Net worth of $1 million to $4.99 million
• Secure -- Net worth of $500,000 and/or income of $60,000 a year.
• Surviving -- Income of $30,000 a year.

I'm sure all of you agree with these numbers, don't you? ;-)

So how do we resolve this quandary of definitions? I don't have any solutions. But I thought I'd throw the issue out there and let you all offer your thoughts on it. Perhaps we can come to some sort of consensus.

Comments

[tllstaco]

If you are near retirement, you would need $1.25 million to support an average income of $50,000 per year (4% withdraw rate). If that the case, would a net worth of $1.25 million be average instead of wealthy??

[Bill]

A wealthy man is one who makes $1000 more than his wife's sister's husband. Cute quote but the idea is true, we all measure our wealth relative to those around us.

[Lurker Carl]

Most people I know are 'secure' by your definition but are just barely 'surviving' because they spend every penny they earn. Their net worth, if any, is tied up in real estate and retirement accounts and basically only one paycheck away from catastrophy.

[cashflowmantra]

How true that wealth and riches are relative. I think I am pretty secure now but if I had a few big round rocks, I could be wealthy on the island of Yap.

[stlouiskaren]

I think your figures are pretty realistic.

To tllstaco - 1.25 million would make that retiree wealthy, considering that over half of American households have less that $50K saved for retirement - even those within just a few years of retirement.

I think most people are over extended in their day to day expenses by choice. And by "choice" I mean that they choose to call luxuries necessaties! Like full cable tv, big cell phone plans, lots of meals out, a computer and television in every room.

Our society is so spoiled by material possessions most of us will never be wealthy because we choose not to be.

[Strick]

No justification or attempt to sway Webster, just my gut feeling toward each...

Rich - income >$500K/year

Wealthy - annual expenses to investment ratio of .05 or lower (and your SOL at those expenses is self-described as "comfortable")

Secure - annual expenses to investment/savings ratio of .5 or lower (and your SOL is self-described as "good enough"), plus adequately insured and normally saving at least 10%

Surviving - SOL at a minimum acceptance level and bankruptcy not imminent

So with this I can imagine plenty of people who live off of <$30K/year who I consider wealthy, and plenty of people I defined as Rich as not being wealthy (and not even secure)

[Old Limey]

I guess, by FMF's definition my wife and I are monetarily rich.

However at the ages of 76 and 78, and now having a lot of money, doesn't make us feel any richer than when we had a whole lot less, because our lifestyle is a long, long way from that of the rich and famous personalities that are always grabbing the headlines. We wouldn't trade our very happy, private and contented lifestyle for anyone else's. I feel so fortunate to have had a happy and loving partner since we met at a dance when I was 15 and she was 16. We have both had careers that brought us lots of satisfaction and we have become a good team because we each have very different skills. Our "Bucket List" is empty because we have had so many exciting vacations all over the world. We have raised three children that we are proud of and that are each self supporting, with children of their own. We are also healthy and able to enjoy a normal lifestyle, and by a stroke of fortune there's nowhere else in the world that we would rather be living.

[Penta]

Rich = $700K fully paid home + $5k/m CC'd + $4k/m overhead (elec. Phone, insurance, et al) without working. To safely cover this at 3% withdrawal, you need ~$4.3M. Then need to round up to $5M to cover taxes. So we are pretty close with our definitions; with the primary difference being that this is my actual budget living as an early retiree. It's enough that I wouldn't be willing to work again for any amount of additional money.

[Bad_Brad]

I know you've blogged about how significant geography is in this, FMF, so I know I don't need to tell you this, but in some parts of the country, I wouldn't say an income of $60k is "secure", and I would say at $30k it's pretty difficult to survive.

On the other hand, personal circumstances matter, too. I'm in a high cost of living city, and I'd say a single person with no kids or other obligations could survive on $30k. A family of five? That's another matter.

[BD]

By your definition, I'm not even surviving. :(
To me, "Surviving" means you have a roof over your head, food to eat, and your bills are paid. I manage to 'survive' on around $6,000 a year. Many of my friends survive on close to that...around $10,000 or so a year.

$30,000 a year? That's thriving!

Since I make so much less than everyone else, here's how the terms subjectively play out for me (based on a one-person household):

Rich -- Net worth of $1.1 million or more.
Wealthy -- Net worth of $500,000 to $1 million
Secure -- Net worth of $100,000 and/or income of $40,000 a year.
Surviving -- Income that lets you pay your bills and keep your basics such as housing, food, etc.

You are so right...those terms are really subjective, especially when you throw someone like me into the mix, who is well under poverty-level.

[Matt]

Here is a good one that our local paper did around 7 years ago.

How much money does a middle class house hold earn a year?

You would have been amazed at some of the peoples answers.

[MC]

I think the real definitions should be in terms of what you feel comfortable and have to *spend*. As in:

Rich-no debt, own very nice home but no mortgage, can easily send kids to college, can easily support retirement, can live wherever you want to in the world, can support relatives, don't even have to work at a job to live.

Wealthy-no debt, own very nice home but no mortgage, can send kids to reasonable college & retirement is covered with sufficient assets in the bank, needs to pay some attention to own finances but can take 1 resort vacation/year for family without cash-flow problems, needs to still work at a job for a while longer but job is secure.

Secure-owns home with reasonable mortgage debt but no other significant debt, some money in college savings and retirement accounts, needs to pay attention to own finances but can only paid-for afford resort vacation for family every few years, needs to work until 67 but job is highly paid & fairly secure.

Surviving-large mortgage or unsecured debt relative to current income and future income, has job but also has cash-flow problems, possible small 'nest egg' for emergency/college/retirement but it is too small and there is no chance to grow it, resort vacation out of the question or put on credit card.

[Jonathan]

To me these words don't describe points on a linear wealth scale. For example, I have totally different connotations of the word "rich" vs. the word "wealthy." To me, rich is someone who makes a lot in income from a job and often spends a lot as well. They may or may not have wealth. Wealth is net worth with passive cash flow. The wealthy may or may not be "rich" but they are definitely "secure." Which I don't consider on this scale at all; secure, to me, means having comfortable savings or assets (and spend less than you earn) to where you wouldn't be in trouble if you had a long term job loss or illness. Wealthy people often fall into this category, and rich people often do not. Surviving is anyone who spends to the level or above the level of their earnings, whether they earn a lot or a little. People with no margin for error.

[Flexman]

What a bunch of worthless crap!!!

[Georgia]

In my area I would be considered rich. I gross @ 30k a year, in retirement. My home is paid for. I have no debts. I have $74k in a 503b. I use it only for upkeep on my home or for travel to see family. I try most months to save 20% of my income and give 20% also.

I have a youngish neighbor who is working 2 jobs and raising 2 teens. One graduated high school this year and one next year. The graduate is going to college this fall and will have to work as he goes to school. She cannot help much.

Another neighbor is retired, in his mid-80's and earns about $800 a month. He owns his own home, has lots of medical problems and keeps as active as possible. He treats himself occassionally and does not consider himself poor. He does qualify for Medicaid.

Each of us are doing our best to live on what we earn and each doing it in a different way. As many have said, rich is subjective.

[Bob Smith]

tllstaco - $1.25 million could mean rich or wealth if it was supplemented by:

1. social security income
2. a pension
3. an annuity.