How Much Do You Need to Be Rich?
When I was growing up, I frequently felt poor. In hindsight, I wasn’t actually poor. We always had enough food to eat, a nice home, heat in the winter, and a couple of gifts on birthdays. But it wasn’t until I was in my late 20s that I remember feeling rich. Maybe it was the first time I went grocery shopping and didn’t carefully scrutinize the per-pound cost of apples. Or maybe it was when income from my first company enabled me to take 4 weeks off while I was searching for my next job. Since then, I’ve been fortunate enough to feel rich with increasing frequency as my net worth and income have grown.
I think that being rich is very much a mindset, not a static number. With that said, I’ve always found it interesting to think about the numbers even when they’re only directional. In this post, I provide some concrete wealth benchmarks for what I think constitutes being rich in the US in 2023.
Wealth and Age Percentiles
I think this chart from the NYT neatly sums up the thresholds for various ages and wealth percentiles:
But these numbers don’t really answer the question of what it takes to be rich. It’s a robust set of data points, for sure. But there’s a big difference between having a $10M net worth and living in Cincinnati Ohio vs Atherton, CA.
If I had $10M and I lived in Cinci, I’m pretty sure I’d feel rich. In Atherton? Probably not. So I think we have to dig deeper than just describing feeling rich in terms of wealth percentiles.
Wealth to Income Ratios
One way that we could triangulate the experience of being rich is to think in terms of wealth to income ratios. The idea here is pretty simple: by using survey data about what level of wealth people say you need to be rich in various places, we can take into account the cost of living. The Cincinnati and Atherton example above can be taken into account. Here are what respondents to Schwab’s 2022 Modern Wealth Survey say you need to have to be considered wealthy in these cities compared to a top 10% income according to DQYDJ:
So this suggests that for high earners, being “rich” requires that you have a net worth between 14-27x your yearly income. Okay, now we’re starting to get somewhere.
How Much Do You Need to Be Rich According to The Bloggerati
Most of the finance bloggers I read have written about this topic. Not surprisingly, they tend to be more extreme and conservative than the mainstream. Partly I think this is just the nature of journalism. You’ve gotta say something counterintuitive for anyone to want to read your stuff. Partly I think it’s selection bias: the people most likely to write about wealth are themselves quite focused on its accumulation and have higher standards for what constitutes “rich.”
Just the same, I think it’s instructive to see what other people who have thought about the subject think defines “rich.”
Financial Samurai uses effectively the same data, but calculates an inverse wealth ratio based upon median home prices. The thought here is that the average person experiences the cost of housing on a daily basis. So housing is a good whose price most people have internalized. The ratio between the average cost of housing and the aspirational Schwab number measures how much more you would need to have to feel “rich:”
Over on RetireBy40, the readers have spoken and the range looks pretty familiar:
Then there are lots of data points around a yearly income that qualify you as rich. If you assume an average 4% yearly rate of return, we can calculate the implied invested assets. Not surprisingly, these numbers are higher because they make a further assumption about being wealthy: that you can generate a wealthy income passively:
So on the low end, we have the Charles Schwab number for Houston, TX: $2.6M. On the high end, we have A Wealth of Common Sense with $10M. But wait, the long tail is even longer!
The Fattest of Fat FIRE
One interesting additional data point is one that comes to us from Thomas Picketty’s book Capital in the 21st Century. He makes a compelling argument in the book that for quite a long time, the landed gentry in Britain understood two things about money:
- The average rate of real return (primarily from land ownership) was ~5% per year.
- The amount of annual income necessary to keep your immediate family in the aristocracy was ~33x the median national salary.
Using these two parameters, we can get at what a proper blue-blooded aristocrat from the 18th or 19th century would consider “rich” in modern America.
Median US household income was $67,521 in 2020. [source] That means that the lowest yearly income necessary to be an American aristocrat would be 33x that number, or $2.2M. Remember that’s the yearly income, not a net worth. To earn $2.2M passively (as any true self-respecting aristocrat would want) requires a total net worth of $55M.
So, at the very top of the chart, we can add this data point.
A Shortcut to Feeling Rich
I’ve covered a variety of approaches to answer the question “what do you need to be rich?” Probably the easiest way to achieve any of these numbers is to spend part of your career in a high cost of living area like NYC or SF and then move to a lower-cost area.
You might be wondering whether wealth concentration is really all that different between big cities in the US. Here’s a fun data point: there are more than 2x as many millionaires, centimillionaires (>$100M), and billionaires in Silicon Valley than in Houston. There are nearly 3x as many millionaires in NYC than in Houston. [source]
The Bay Area and NYC are the homes of the tech and finance industries respectively. So, if you work in those fields, it makes sense to go do a tour of duty in those blisteringly expensive areas. Spend your 20s and part of your 30s building your credibility and professional network. Enjoy living in a vibrant community of young, intelligent, motivated people. But then plan to leave after you’ve saved a bunch of cash from your lucrative career.
That’s exactly what me and my family did. In the Bay, we always felt poor. Parking in the city started at $35 for an evening. Going to the movie theater as a couple was $75 minimum. A nice sitdown dinner required reservations weeks in advance and was at least $150. The rent for our tiny, run-down 1940s rental in San Carlos was $5,300/mo.
If you care about feeling rich in your community, it’s a cheat code to arbitrage the wages in major metros.
How Much Do I Think You Need to Feel Rich? The 6 Inflection Points
Every article written on this subject always wraps things up in a predictable way. We are exhorted to understand that wealth is relative and a good life is defined by things outside of a person’s investment accounts. And you know what? I think that’s true. The things that make my life meaningful are the people I get to live it with, not the numbers in an account.
In my experience, being rich isn’t a distinct event. You don’t go to sleep a sad, sorry individual worth $999,999 and wake up happy and fulfilled with $1,000,001. The feeling of being rich is a journey with milestones that you gradually get to experience as you achieve your goals.
I haven’t personally experienced some of these milestones, but from more successful peers, here’s what I’ve understood are the approximate ‘richness” milestones. I don’t mean to suggest these are exact, but I hope they will provide a guide for what being “rich” gets you on a day-to-day basis.
$10,000 Net Worth – 25% Percentile
After you’ve reached a net worth of $10,000, you will be approximately in the 25th percentile of wealth for households in the US. And your ambient stress level will decline dramatically.
When I was running my first company, I frequently had less than $500 in my checking account. One day, my car got towed unexpectedly and the repo company predictably extorted me for $700. I had to ask my dad for the money to get it out of the impound lot. I was scared of cars for years after that.
Until I had ~$10,000 in free liquid assets – free and clear of debt – I started to breathe more easily. I could get my car out of the metaphorical impound lot with less than 10% of my net worth. That was a great feeling.
$50,000 Net Worth – 35% Percentile
A net worth of $50,000 puts you in the 35th percentile for households in the US. Having that amount of wealth will push your stress level much lower. Personally, I think the difference in stress is more than 10x lower.
With $10k to your name, you know you can cover some emergency stuff, but big things are still very scary. I once had to go to the ER after I unexpectedly went into anaphylactic shock after being stung by a yellowjacket. Even as I lost feeling in my toes and hands, I drove myself to the ER because I was terrified of the cost of an ambulance. When I got to the ER, I had lost feeling to the right side of my face. I was luckily able to get a shot of liquid Benadryl and was fine, but the experience stuck with me.
At the time, I was probably worth $10-20,000 and a 5-figure medical bill had a good chance of wiping out all my savings.
$250,000 Net Worth – 60th Percentile
By the time you get to a quarter million in net worth, you have made it into the top 50% of US households by net worth. With $250k, you are able to stop playing defense in a lot of areas in your life. You are immune to many of the expensive and unexpected surprises that life can throw at you.
That $700 impound fee is only .3% of $250,000. It’s gone from being a major life stressor to a minor inconvenience. To be sure, repo businesses are still an exploitative racket, but you no longer even need to think about that potential problem.
Around this level of wealth, you start thinking about ways to make your money work harder for you. A 4% rate of return on $250k is $10k/year. If you are able to deploy all of your net worth into assets that generate value, you would be earning more in passive income at this point than your entire net worth at the first inflection point. Compounding is powerful!
This is the time when you start thinking about investing. Maybe you prefer ETFs or rental properties. Whatever it is, a net worth of $250k enables you to start experimenting with ways to dramatically accelerate your wealth accumulation.
$1-3M Net Worth – 95th Percentile
Households with a net worth of up to $3M are in the top 95th percentile of households in the US. You aren’t quite in the vaunted top 1%, but you are getting close.
Moving up from $250k makes it much easier to redouble your focus on growth. At a net worth of $250,000, a 4% rate of return is $10,000. That’s meaningful, but doesn’t buy a lot in an economy that’s experiencing rapid inflation. The average new car in America cost 5x that amount in 2023. [source]
But at $3M in net worth, that same 4% return is now generating $120,000/yr in passive income. That’s nearly 2x the average household income in the US. [source] And you don’t have to lift a finger to earn it!
At this point, unless you insist on having only luxury stuff, all of your basic needs are met and then some. It would still be irresponsible to buy a new Ferrari, but a new BMW is well within your reach. You have stopped even looking at the more mundane costs of your lifestyle. You probably haven’t checked a grocery store receipt in years. The last time you filled up your car with gas, you didn’t even glance at the cost per gallon.
Not having to worry about the small stuff enables you to think even more about deploying your capital productively. Lots of people buy rental properties and invest in more speculative ventures in this net worth range.
$10-20M Net Worth – .6th Percentile
At this point, we can no longer use the percentiles graph to show how wealthy you have become. You’ve moved into that rarified world beyond the top 1%. With $15M to your name, you will be in the top .6% of US households.
Few people ever reach this level of wealth, but for those that do, the lifestyle benefits start to level off dramatically. After this point, there are very few things that money can directly buy you. Your passive income from a $15M net worth is $600,000 per year. You probably already live in a very nice home. If you wanted a vacation property or a fancy sports car, you have already purchased those things. If you want domestic help, you have hired those people. Want a plane? Sure, that’s in the budget. Want to travel around the world for 6 months in luxury? Done.
If it hasn’t already occurred, most people at this level of wealth discover what’s really important to them. If you own a small yacht, a plane, 2 vacation homes, and 2 fancy sports cars, you’ll quickly find that money isn’t the limiting factor in making your life better: it’s time.
Wealthy people in this net worth bracket just don’t have enough time in the day to hang out with their friends, go boating, fly off to their vacation homes, and spend time racing their sports cars on the track. And even if they do find time for all of that, pure entertainment has diminishing returns. The first yacht vacation is amazing. The second is pretty good, but after the 9th, you realize that you can only spend so many hours fishing, eating fancy meals, and soaking up the views.
$100M+ Net Worth – .03th Percentile
By the time you exceed $100M in net worth, you’ve managed to move your percentile over by 3 decimal places. You are in the top .03% of US households. There are only a couple of lifestyle benefits that accrue from hitting this final inflection point. If you wanted to own a private jet, $100M is probably the lower threshold to afford that. If you want to life in palatial mansions on private islands with a small army of staff, you can probably start to afford that at this point.
But almost everything else is a matter of degree. Like sports cars? You can now own a collection of the most exclusive vehicles. Like exclusive vacations? You can now easily afford to spend time in the most coveted locations for the most interesting events.
After the $10-20M net worth range, the primary benefit of additional wealth is your ability to influence the world. This involves stuff like political campaign donations and hosting parties to convert your wealth into power. I personally can’t imagine myself enjoying this very much, but it certainly appeals to some people.
My parents say they have felt rich for most of their lives. In large part, they say that this was due to spending 3.5 years building freshwater dams for villagers in western Burkina Faso in the 1980s.
Compared to life in the village, they’ve been materially wealthy their entire adult lives. Even though we were lower-middle class in our small midwestern town, they were easily able to remember being the only family in the village with an electric fan.
I am personally quite passionate about leveling up my net worth, but I remind myself of my parent’s example frequently. I think it’s possible to grow your wealth and remain grounded. And if you achieve that, you’ll be able to feel rich right now.
If this topic excites you, you should check out how you can position yourself to take advantage of high inflation. You should also probably level up your day job.
What do you think about my wealth inflection points?
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