How much money do you need to be considered rich?
Disclosure: This post contains affiliate links through which I'm paid. No additional cost to you that's just how marketing works sometimes, more here.
If I told you I had a big house, fancy car, and nice clothes, would you consider me rich? If I had a modest house and car, with no debt would you consider me rich? If I lived in a small house in the mountains and only cared about being around nature would you consider me rich?
The reality is, any one of you could answer yes to all of the questions above. The concept of being rich is extremely relative. For the sake of this article, we will break down being rich, or wealthy, in terms of dollars made vs a few different groups. What many would call "The American" definition of rich. In order to draw clear guidelines for this conversation let's break down what the US government considers rich.
Since the Joe Biden era began there has been a lot of talk about taxing the wealthy. According to Joe Biden's tax plan, wealth is defined as a household making $400k a year or more. Some of you may be thinking WHOA that's a lot of money! Others may be thinking the opposite. In New York, making $400k might get you a decent place, but in a place like Nebraska, $400k will buy you the home of your dreams. What's more, depending on whether you are a baby boomer, Gen Z, or Millenial, you define wealth differently as well.
What's crazy about household income, less than 2% of households make more than $400k, but that accounts for 25% of income earned in this country. Talk about the poor distribution of wealth! This is why President Joe Biden is looking to redistribute a portion of that wealth through changes to our nation's tax policy.
So, from a pure dollars earned per year perspective, $400,000 is a number that America is using as a line in the sand. If you focus your attention on net worth and what American's feel makes you "wealthy" things change slightly. According to Schwab's 2021 Modern Wealth Survey, the average American considers "wealthy" as $1.9M in net worth. That is down from previous years:
Source: Schwab Modern Wealthy Survey
If you think about earning $400k/year and how long it takes to get to a $1.9M net worth if you make that much money, it wouldn't be very long. So long as you don't spend most of your earnings each year. In fact, if you saved 20% of your household income of $400k it would only take 20 years (without any interest applied) to have a net worth of $1.9M. That is only half of a standard career. If you are earning 6% interest on that money you will have $2M within 15-16 years (that shows you the power of interest).
What I'm trying to say is, making $400k/year is a lot of money, and in a very short period of time would catapult the individuals surveyed in Schwab's study into "wealthy" status.
What we have yet to consider in our attempt to answer "How much money do you need to be considered rich?" is an individual's geographic location. As I mentioned above, making $400k in New York is a lot different than making that same amount in Nebraska.
To answer or identify what makes you rich in NY vs NE I typically utilize a cost of living calculator. How does a cost of living calculator work? Its pretty simple, you pick the city you live in, inssert how much you make annually, then identify a city you would like to live in, and the system will tell you what comparable pay for your "new" city would be.
Following our example of NY vs NE you can see below that the cost of living in NE is significantly lower than that of NY. Therefore, a person making $200k in NE might "feel rich" while someone making twice as much in NY might not feel as rich.
In summary, being considered rich or wealthy depends on a few factors and many people have their own definition. Place it upon yourself to determine if you are considered wealthy. If you want expensive houses and nice cars, then find an income and net worth that allow you to do so. Ultimately, be happy being you and all else will work itself out.
If you want a side hustle that can help you make more money and feel rich, check these out!
In short, that depends on you!