The Definitive Guide to Knowing if You are Classified as “Rich”
Are these just classist mind games?
Rich today, poor tomorrow.
Poor today, rich tomorrow.
“Rich” is just a social construct, isn’t it? You can be rich in life, friends, family, and love, and not be monetarily rich. It can be a state of mind and not a set of numbers in a bank account.
“Poor” is completely different. Being able to make a living wage and pay your necessary bills has a clear line. And if you can’t cut it, you may be below the poverty line. This classification is very black and white.
You can also go quickly from poor to rich and vice versa. Ever been strapped with medical bills? It’s a sure fire way to lose your riches overnight.
Wealth Is a Long Game
Now that I’m middle aged, I think way more about my future and retirement. Will I have enough money to retire? How much money will I need to live comfortably? What’s a dollar today going to be worth tomorrow? And dammit, am I going to make back the money I lost in the stock market this past year?
You can easily paralyze yourself thinking about these things.
I gave a family member some advice when she inherited some money a few years ago — don’t look at your financial balances everyday. You’ll just worry yourself unnecessarily.
For many, wealth is a long game. It has to be or we will all lose our minds.
The Scope of Research
But let’s say you really want to know if you’re truly rich, as defined by money. Where’s the cutoff? And doesn’t that line change every year?
If you have a million dollars today, is that enough to retire on 10 years from now? 20 years from now? 40 years from now?
I did some research on the topic to understand where the ranges are. But first, let’s define some parameters around this research.
- The scope of this investigation only concerned the United States
- Only articles from the past year were considered (especially given the recent, skyrocketing inflation costs)
- “Rich” and “wealthy” are used interchangeably in this article, although some experts would claim they’re not the same
How Wealth is Influenced by Perception
U.S. News & World Report claims that many factors have an impact on what we define as “rich.” There is no one size fits all.
The perception of someone’s wealth varies greatly from person to person. Where you live, your age, what your profession is, your background, who you surround yourself with, what generation you belong to, and other factors can influence this perception.
Also, the line for what is considered to be “rich” has lowered in recent years. The younger generations don’t define wealth quite like their parents and grandparents did.
For instance, in 2020 a net worth of $2.6 million was considered being “wealthy.” In 2021, that amount moved down to $1.9 million.
The U.S. Median Household Income in 2021
The median net worth of Americans is not even close to either of those numbers. It’s less than half of the 2021 number.
Does that mean that we’re all doomed? No. Keep reading.
The U.S. Census indicates that in 2021 the real median household income was $70,784. Note that “median” is different than “average”. Median means the middle point, whereas average can be greatly inflated by the numbers at the upper end of the spectrum.
How Does the U.S. Government Define Wealth?
With so much impacting perception, maybe it’s easier to take a cue from how people are taxed in America. (Not really, but we’re not going to get into those arguments here).
According to Financial Samurai, back when Obama held the presidency, individuals making more than $200,000 per year experienced the cutoff for higher taxes and were considered to be “wealthy.”
When Trump was president, that line was at $500,000.
This year, Biden has drawn that line at $400,000 per year.
I know and am related to people in these income ranges. They do not consider themselves rich, but “very comfortable.” They actually complain about money regularly. And yes, they are all CEOs and doctors.
How Household Income in 2022 Defines Your Class in America
Ok, so maybe the government definition is too vague. Maybe class is better.
This year (2022), the median household income is considered to be slightly higher than 2021’s, at ~$72,000. This leaves enough money after taxes to be considered middle-class.
According to Financial Samurai, this means if you earn $50,000 per year you are not “rich.”
If you double your income to $100,000 per year, you are also not “rich.” You are definitely middle-class, however.
If you double your income again to $200,000 per year, you’ve graduated to upper middle class.
But you’re still not in upper class which is where “rich” is defined.
Apparently, the magic number for being “rich” is earning a household income of $500,000. In 2022, this puts you in the top 1% of earners in America, no matter what many of those above mentioned factors are.
Wealth is Relative
If you’re middle-aged like me, you might remember one of the questions reporters and game show hosts would ask guests decades ago: “what would you do with a million dollars?”
I always pause when that question is asked nowadays. A million dollars, while unimaginable for some, is not worth what it used to be. It no longer defines upper class. If you’re used to a comfortable standard of living that involves nice cars, houses, and fancy gadgets, you need multiple millions of dollars to retire.
Recently, a handful of my friends became multi-millionaires over night. They worked for a start-up and within 5 years, their company went IPO. Their financial accounts grew to 8 figures literally overnight. The oldest of them has already retired (and still a few years earlier than the government recommended age).
Although the security of that much money is nice to think about, it’s interesting how I’ve seen them change since this happened. All except one is still working. Some want even more money. Some can’t stop talking about how much money they have. I don’t want to be like them.
Final Thoughts
In all honesty, I think all of the above definitions are stupid. My husband and I don’t earn anywhere close to $500,000 a year but many people consider us “rich.” My husband and I don’t have debt. We don’t spend beyond our means. We live comfortably. We have some money saved up for retirement. We’re both happy and fulfilled in our careers.
I even quit my full-time job last year and decided to do whatever the hell I wanted in this second half of my career. I redefined “wealthy” for myself.
To me, the most important thing is, are you fulfilled? Do you not worry about money excessively? Do you have control over your time? If you can check off these boxes, you are “rich”.
Yes, wealth is somewhat a set of black and white numbers on a piece of paper.
But it can also be the right state of mind.
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