by Susan Paige
A part of the American dream is the story that anyone can win in life and become a millionaire with hard work and dedication. You probably dreamed of getting rich after your high school graduation or at least of having a great job with a big salary. Unfortunately, not everyone in America will reach this long-awaited wealth. For most, the reality is an extremely competitive job market with minimum wage.
Wealth is a subjective term, and everyone has their own ideas about what it means. Most people just want to achieve a minimum of financial freedom. For example, an average family in the United States will need to accumulate more than $1 million to maintain a considerable standard in retirement.
Have you stopped to analyze your current income, whether you are earning a lot or a little? How much of this income do you save? Have you considered the difference between having revenue and having equity? Assess the following factors the next time you consider yourself or someone else as “rich.”
Fake It Til You Make It
There are “new riches” everywhere, and it’s difficult to determine who is truly a millionaire with so many people pretending—that is, dressing, going to places, and driving cars as if they have a lot of money.
Modern society has seen the rise of pseudo-affluence with the people that appear to be the richest, often not. They earn high wages but spend almost everything. They wear expensive suits or designer accessories, drive luxury cars, and behave like wealthy people (or what they believe to be the behavior of wealthy people).
One fact—the truly wealthy are never so obvious. Often, the rich drive a more conservative car or wear less elegant clothes without big designer logos. Because they are truly wealthy, they see no need to show or prove it to everyone.
The signs of affluence are sometimes far less glamorous than the exaggerated behavior of the pseudo-affluent. The real rich are usually older because a real fortune takes time to build, they don’t like to appear in social columns, they rarely care about the opinion of others especially related to what they wear or consume, and are followed by a battalion of assistants wherever they go.
What is Rich?
A few years ago, an article in The Wall Street Journal tried to define the parameters of being rich. For example, according to the Federal Reserve System, a net worth anywhere near $1 million already puts anyone immediately among America’s richest 5 percent.
Regarding taxes, the wealth pattern is defined in another way; in 2020, a single taxpayer with an annual income of around $500,000 was already considered wealthy enough to enter the upper tax bracket, the richest 37 percent.
The problem is that even where you live can affect the idea of wealth. A salary of $100,000 can be quite expressive in some regions of the country, but at the same time, a tight budget if you live in Manhattan.
For the real rich today, these values don’t mean anything. Of the affluent households interviewed by the Wall Street Journal, 45 percent said that being rich means having $5 million or more, and 25 percent said it’s necessary to have at least $25 million to be rich. Only 22 percent agreed with the idea that $1 million are enough to be considered wealthy, and eight percent went much further, stating that the real rich are the ones that have an equity of at least $100 million!
Show Me the Money
It is not always the size of someone’s salary that is the best factor in assessing wealth. What really matters is your net worth, which are all the things that the wealthy candidate has, minus liabilities. To calculate how much you are worth, add up the value of your home, car, retirement funds, bank accounts, and any other assets, and then subtract any debts or payments. What remains is your net worth.
Anyone with a net worth of more than $5 million is already considered a high net worth individual. However, according to 2017 data from the U.S. Census Bureau, the median net worth of American households barely reaches $100,000.
That’s why financial entities consider someone’s equity as a better indicator of wealth rather than their income. It’s good to remember that, for many people, there is no “net wealth;” the money is linked to real estate, assets, or life insurance and is not immediately available to squander, as pseudo-affluents do.
It Depends on What You Value
Wealth is largely dependent on what the individual determines as important: savings, retirement, assets, real estate, investment portfolios. Many millionaires become millionaires just with simple economics, spending less on futility with a simple lifestyle, and knowing how to invest their money instead of squandering.
To define wealth, first, you must decide what’s important to you. This can change over time and is dependent on life circumstances. For many, wealth is not how much money you have accumulated but simply being able to stop working when you want or need it while maintaining the standard of living you lead.
It’s precisely the lifestyle you lead that will define how much money you need to have to live comfortably or feel rich.
Define Your Own Wealth
Officially, you are a millionaire when your net worth (not your income) reaches $1 million. Remember that this money cannot be tied to real estate or business; it must be liquid. If you want to become rich, this must be your long-term goal.
For most people, however, becoming a millionaire is a distant dream. All they want is to have financial freedom to enjoy a fair retirement plan.
You are the one who defines your wealth. Want to swim in cash? According to Forbes, in 2020, a new billionaire appeared every 17 hours. But remember that a comfortable lifestyle depends on your choices and there are things that money can’t buy.