What It Means to Be Rich in America

One of the biggest questions new clients ask is, “How do I financially measure against the typical person in the United States?” In this blog we outline household income averages compared to incomes across the country. We also discuss the differences between household income and net worth as we unpack what it means to be rich in America.
wealthy couple sitting pool side holding hands

Kevin Zywna, Wealthway Financial Advisors: Tonight, we’re going to talk about what it means to be rich in America. So I would say that one of the biggest questions that either new clients or potential clients have when they come to see us is, “how am I doing? Where do I stack up? How do I measure against your typical client and or the typical person in the United States?” I think that’s somewhat of a common sentiment that a lot of people feel. Money, one of the last taboo subjects that we don’t really open up about to our friends, neighbors, and family. So there’s kind of a somewhat shrouded in mystery on how everybody is doing and how you will compare to everybody else. So I thought tonight, I’d delve into that topic. And let’s peel the curtain back. And let’s talk about what it means to be rich in America.

Measuring Wealth Based On How Much You Make

So one way of measuring up or assessing a person’s wealth or ability to be rich, is how much did they make? How much do you earn? And we have really good statistics on that, because most people in this country file a tax return. And when they do, they have to declare their income. And if you have a traditional job and you work for an employer and you get a W-2 form, then that’s pretty accurate information. People who have business income in 1099 income from heavy cash businesses, there might be a little gray area there. That’s okay. There’s a ton of gray area in the tax code. But by and large, in this country, we have very relatively accurate information on income. How many people are making what. So one way of stacking up are you rich or what it’s like to be rich in the US is to compare income. So national average income across the US I should say this is household income. So if you have two earner household, it should be combined both incomes. So the National Household average income $60,000, I used to know what Hampton Roads was. And I, I think it’s a slightly higher than that, because we have a relatively higher wage base, military and federal government employees around here. But national average is about $60,000. Now, to be in the top 10% of household income earners, one would need to make $167,000. across the entire year, this is gross income, and that would include income from your job, wages, any side business. It would include interest, dividends, capital gains from investments, that’s part of household income, and it’s real money and you can spend it. So that gets included into that household figure as well. So you’re in the top 10% If your household income is about $167,000, in the top 5% household income, if your income is $335,000 in a year. And then we get to the dreaded much maligned one percenters, those dirty rotten evil 1 percenters that a certain segment of the population seems to resent? I certainly don’t, I think it’s a sign of achievement, in most cases. So the top 1% income earners in the United States, $820,000 a year of income. And just for fun, if you want to set a really high goal, in the top 0.1% of income earners, if you earned over $3,300,000. Alright, so that’s not too relevant for most people. But, you know, certainly entertainers and athletes, you know, that get those big salaries, those are most of those guys you see on Sundays, or, or at the ballpark, you know, up in Baltimore, or the Washington Nationals. They’re probably most of those guys are in the point 1% bracket $3.3 million, top 1% $820,000. So, income is a way of somewhat assessing wealth and whether somebody is rich or not. But it’s not. It’s not entirely accurate. Income, by itself is not wealth.

Why Your Household Income Isn’t A Good Metric of Wealth

Income is the opportunity to have wealth. But just because you make a lot of money doesn’t mean you have a lot of money. There is no limit to the amount of income one can spend. Just look at how the history books are littered with, athletes and entertainers and inheritors of family fortune, who have squandered hundreds of millions of dollars over their lifetime and died, broke and penniless. So just having high income does not make you rich. It gives you the opportunity to be rich, an easier opportunity than somebody who makes a low income. But income by itself is not wealth. Captured income is wealth.

What Is The Average Household Income In Hampton Roads?

Tonight, we’re talking about what it means to be rich in America, a little bit of a sensational title there. Rich can be and have a lot of different meetings. I should say thanks to our crack research staff, Damian Hall, he did come up with the average income in Hampton Roads. And coincidentally, or maybe not coincidentally, it is the same as the national average, $60,000 per year. Which I was telling them, it kind of aligns with a lot of other numbers that I know of the region such as housing and savings rates, and so forth, we are about the national average, across the board, in many of those areas. On unemployment rate, that’s another one where we’re about the national average. So there is nothing wrong with being average. You can do a lot by having the average salary, if you know what to do with it.

Measuring Wealth Based On How Net Worth

So talking about income levels, and various income levels and how those stack up. But income is not itself wealth. Wealth is what you own. And income is just a means, a mechanism, a vehicle to allow you to own more things of value. So what is an appropriate measure of wealth, or of how rich a person is, is net worth. Net worth is the amount that you own, minus the amount that you owe. Or said a little bit more technically, it’s your assets minus your liabilities, or it’s your assets minus your debts. So you add up everything you own of material value. And then you subtract all your debts from that, and that is your net worth. And that’s something that we do for all our clients, and we update it routinely every time we get together. And so typically, what we consider to be assets, all your investable assets, so your stocks, bonds, mutual funds, savings accounts, whole life insurance, cash value, any annuities that you might own your house, as well, that has certainly that’s an asset that has value. Now we typically don’t put cars in there, or personal items like jewelry. Unless there was something remarkable, like if it was a collectible car, or really expensive jewelry. We typically don’t get into that level of detail because all cars, number one, depreciate and then usually just trade them in for another car. And jewelry is typically more than like a personal effect. Same thing with furniture, that’s more used for living expenses. But is it material to your overall net worth? Typically not.

How To Determine Your Net Worth

So add up all your assets, and then subtract your liabilities, your debts, your mortgage, your credit card balances, any car loans, any personal loans, subtract all that out. And that is your net worth. Net worth is what you own. And so that is a good solid measure of your wealth. And wealth is somewhat of a measure of, are you rich or not? So Damian said you did such a good job of finding out what the average salary was in or household income Hampton Roads. What level of net worth does somebody have to have before you consider them rich?

How Much Household Income Qualifies As Being Rich By Americans

WNIS: In today’s money in all practicality?

Kevin Zywna, Wealthway Financial Advisors: Today’s money.

WNIS: Before I’d consider them rich? Well I don’t know. I was talking to you about this earlier. I mean, a million dollars isn’t a million dollars, what it used to be anymore. I mean, that’s the 4% rule that’s 10 years at 80 grand or 20 years at 40. Which if you accumulated a million dollars, it’s kind of hard to live on, I guess. Before I would call them rich. I’d say they’d have to be the multi-millions at least two is still working.

Kevin Zywna, Wealthway Financial Advisors: Well, very good. There was a survey done not too long ago, and then asked, What do you think it takes? How much money? How much net worth does it take for somebody to be considered rich? The answer $2.2 million? So that’s the average American perception of what it takes to have somebody be rich, about over 2 million bucks.

WNIS: Kevin, do you know how many bubbles you just burst on their drive home after a hard day’s work?

Kevin Zywna, Wealthway Financial Advisors: Well, it’s only Tuesday. Well, if you hang with me to the end of the show, I’ve got some other thoughts on what it means to be rich that aren’t necessarily tied to money. But the average person thinks that about $2.2 million, is what it takes to be rich.

Unpacking Net Worth In America – Negative Net Worth

Now a little bit of detail on different levels of net worth in the United States. So you know, when we’re just starting out, a lot of us have zero net worth or negative net worth. I remember those days, myself, graduated from college had student loan debt. But it was about $25,000 at the time, which was a lot back then. $25,000 student loan debt and about 25 bucks in my checking account, right. So I didn’t own much of anything. And I owed a fair amount in student loan debt. I had a negative net worth. So by current standards of definition, I was technically poor. I didn’t think I was, but I was definitely poor. All the macaroni and cheese I ate at that time will attest to that. But anyway, net worth of $10,000 or less, puts you in the bottom 20%. And that’s, you know, most all of us would start our working lives lower than $10,000 in net worth. When you are just graduating high school, or college, and entering the workforce, most people start with zero and negative net worth. That’s kind of how things work. And that’s not necessarily to anything be ashamed of.

Unpacking Net Worth In America – 50% Range

Now, what puts you in the 50% mark, about the mid-range net worth in the country? And I should say, these are median figures, these are the middle not the mean, which is the average, the average net worth numbers get skewed too high, because of people like Jeff Bezos, and Elon Musk, and Warren Buffett and the old super ultra wealthy, kind of skew the average numbers. So a more accurate representation is using the median or the middle numbers, when measuring net worth. So you’re in the middle, at $280,000 of net worth, that’s considered to be about the middle net worth across all households in the United States, $280,000.

Unpacking Net Worth In America – Top 10% Range

Now you break into the top 10% at $1.9 million of net worth, really close to the typical Americans perception of what it takes to be rich is at 2.2M. So one can make the case that the top 10% of net worth households in this country, at 1.9, are by most people’s definition, what we would consider wealthy and that’s kind of like a net worth, where you start to enjoy some perks of your hard earned money. Maybe your kids go to private school, maybe take some longer term, somewhat lavish vacations, you’re not worrying about paying the bills so much. You’ve got to a point of financial stability at that $1.9 million dollar mark. It’s not Rockstar money. Most people can’t quit their job at an early age and live on that, believe it or not, or they can’t maintain their lifestyle, I should say, or you could live on of course you can do a lot of things if you have to get by. But in most cases, that’s not enough money to maintain a high level of lifestyle at an early age. That’s the $1.9 million figure.

Tonight, we’re talking about what it means to be rich in America and we went through some income levels to start the show. But income is not wealth, net worth is wealth. And net worth is everything you own, minus everything you owe. And that is what you have of value that can be used to typically support a certain lifestyle. So net worth is the true measure of wealth. And to give you some metrics on how people stack up in the US, I was talking about various levels of net worth and what that means to various percentages of people in society. So you’re in the middle of net worth, if you have $280,000. You’re in the top 10% if your net worth is $1.9 million or greater.

Unpacking Net Worth In America – Top 1% Range

Now you’re in the top 5% If your net worth is $3.2 million, and the top 1% of households in the US have a net worth of $16.7 million. Something for us all to potentially aspire to. So that’s kind of the range of net worth for people to use to compare themselves, if that’s important to you. I did say that we get that question a lot of new clients or potential clients, like how am I doing? How do I stack up? You know, I, I look around me, I see my friends, my neighbors, they take better trips than I do. They drive nicer cars, they have a bigger house. I feel poor and they have like 3 million bucks, you know. So it goes to show you, it doesn’t matter. The one thing that I have found is pretty true in a lifetime of working in and around money and personal finance is that probably until somebody gets to $5 million of net worth, they don’t feel rich. Now, based on the survey I talked about earlier in the show, the average American thinks that 2.2 million is rich, but I’m saying talking to people who actually have that, and they don’t feel rich. And you know, whether you agree with that or not, that’s, that’s kind of the perception. I find that like, once people get the 5 million bucks, then they kind of know, okay, I guess, yes, I’m doing all right. And, and they feel comfortable. And I guess you could describe them as, they would describe themselves as, rich. But you know, there’s no limit to the amount of money you can spend, and you have to work and earn and save, and invest in order to grow that net worth over time to those meaningful numbers.

Now, there’s no magic number that you don’t have to get to anything to be a success in life. And that shouldn’t be a measuring stick of who you are as a person, or your worth, to your family. But it is, those are interesting numbers to know. And the numbers give you options. And options help enhance the quality of life. So the more net worth one has, the more options one has, typically speaking, the better quality of life, they think that they have.


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Net Worth And Risk Tolerance

WNIS: Kevin, if I can jump in and just on this on this topic. I can see what you’re saying where people don’t feel that they’re comfortable and safe until 5 million. And I can see that. So if the economy takes a 30-40% slump, but they’ve still got 2.5, so they’re still rich, even if it takes a hit that takes out hurts, it really hurts a lot of people, but where if you’re at that $2 million range, and you know, you lose 40% in the stock market or whatever, but you just mentioned to get to those numbers, you kind of have to play the game. And so tell me about the adversity to risk when wanting to get to these spots. And I often think of the business owner, people go, Oh, that greedy business owner that did all that. And I’m like they risked it all. And likely lost once or twice, you have lost the shirt off their back once or twice, right. But they’ve risked it all in order to get to where they are. And you know, no great triumph comes without great sacrifice. Tell me about that. Because a lot of people feel too scared, right?

Kevin Zywna, Wealthway Financial Advisors: So that’s a good point. So first off, it doesn’t take a lot of money to one day, have a lot of money. If you have a lot of time, you start saving and investing young and you’re smart with where you invest, and you most importantly, adopt the behaviors to live below your means. And that is one of the you know, I say at the top of every show that the majority of people in this country have the opportunity for financial security if they choose it. It’s a choice and most people do not choose it, in my opinion. Most we live in a very consumerist society in the United States. Spend spend, spend bigger, faster, higher, flashier, you know, that’s kind of our in our American DNA. And we can use that to fuel us in a lot of good areas. But sometimes it acts as a detriment as well. And so, in my very rough, unscientific analysis, I feel like only about 20% of the population really is willing to do what it takes to gain meaningful net worth and meaningful wealth that can sustain them throughout their lifetime.

WNIS: We are in a DoorDash culture where everybody wants things right away. And for a lot of people one of their biggest expenses is DoorDash you get a meal we pay for convenience.

Kevin Zywna, Wealthway Financial Advisors: So yes, it’s not how much you earn necessarily, it’s how much you save. And it doesn’t take a lot if you have a lot of time and you have the behaviors and the discipline to get there. But the point about the business owner is a good one. Yes, a fair number of these high net worth individuals own their own business, or did own their own business and sold their business. And it takes a lot of risk to start, build, maintain, and sell a business. And you have to overcome huge amounts of adversity, typically in order to get there. But one of the beauties of our country and of the capitalist system is that those who are willing to do that, to four have to fight through that adversity, then, most of them or maybe that’s too, not fair, but a significant number of them, then eventually get to reward get the rewards of a lifetime of hard work. And so yes, starting your own business can be the route to high net worth. But it’s filled with pitfalls and travails. And a lot of them don’t make it and, and those are the ones you don’t read about, you don’t hear about, you don’t see. “I had it all. And then I lost it.” And then you know, technology or a competitor undercut me or, or whatever. And, you know, you don’t hear those stories too often. It’s the successful ones that we tend to talk about, and either write about or glorify, and then some people are resentful of that. Because they, some people, perceive that they have too much. And who is to decide what is too much, I often say. So, there’s a sort of guideline of net worth levels in the country.

What Is The Net Worth By Age In America?

And one more point before we go to break, something else that I found was interesting is the median net worth by age. So again, median is the middle, we’re not using averages here, because that that gets skewed by the super wealthy. So median net worth by age, if you’re 55 to 64, the median net worth is $1.18 million in that age group, for those who are 65 to 74 $1.22 million, so pretty close, actually a little bit over a million dollars. And then if you are 75 or older, the median net worth actually drops a little bit to $977,000.

And that’s probably because that cohort is starting to spend down their assets, spend down their savings after a lifetime of hard work and hopefully enjoying it, because that’s the purpose. And you know, we tell our clients that most people don’t really want to accumulate throughout the entirety of their lifetime and then just die with a pile of money and pass it on to their kids. Too much unearned wealth can create problems. So it’s it is prudent and important for most people to start spending their money at some point and enjoying it from a lifetime of hard work and thrift.

What Is Financial Freedom?

We’re going to finish up our conversation about what it means to be rich in America. So you’re in the middle if your net worth is $280,000, you’re in the top 10% at $1.9 million of net worth, and you’re in the top 1% at $16.7 million of net worth. And so how do we get there? Another unique aspect of accumulating assets and growing your net worth is the concept of financial independence or financial freedom. And what is financial independence? It’s the ability to maintain your desired lifestyle without earned income, or without a job, like you don’t have to work for money. When you are financially independent, you have financial freedom. When you don’t have to show up to a job to earn money, that you essentially can live off your own money. Your money works for you, instead of you working for the money. So that’s when the opportunity for financial independence comes into play. And you know, retirement is a version of financial independence. And that’s a very common concept here in the US, of course, work, work, work, work, work, and then retire. Don’t work at all, enjoy your golden years. That’s kind of the traditional model of retirement.

Most retirees have at least a measure of financial independence between known income sources of Social Security, may be a pension, the savings that they’ve accumulated over the course of their lifetime. But you don’t have to, you know, you don’t have to necessarily wait until retirement to become financially independent. A lot of the equation on whether you can sustain your lifestyle, by your own by your own money and not having to work to earn it depends, of course, on that lifestyle. And there are plenty of people in this country who do not aspire to the trappings of wealth, large houses, cars, expensive furniture, clothes, trips, other plan people who are content, living a simple modest lifestyle. And obviously, the cheaper the less cost of your lifestyle, the easier is to achieve.

So and I see that a lot out in rural America and small towns where people live really good, high quality lives, they have good neighbors, they have good friends, they have good quality of life. They don’t make a lot of money, necessarily, but they don’t need a lot of money to live that type of lifestyle. And so whether one becomes financially independent or not depends a lot on how not how much they earn, but how much they spent. And that is a behavioral issue. And obviously, there are some people who are very content with a beat up farm tractor that’s 20 years old, and other people who want to trade in their vehicle every year and get the latest greatest model and probably lease instead of buy. So that depends on individual preferences.

And fortunately, we live in a country where everyone is kind of free to seek their own fortune and their own pursuit of happiness. So they’re so these numbers that I’ve given out about net worth, really, while they’re kind of interesting for a lot of people to know, they’re really not that meaningful to whether you’re happy or whether you’re successful. There’s you money is not the driver of most of life’s happiness, it is a component, and it is a factor. And it is true that money harnessed well can provide you with more options and more opportunities which can then enhance and expand the quality of your life. But it is not necessary in all aspects of life. But I think it’s important that I somewhat make that point. The idea of financial independence and financial peace and freedom.

So back to a little bit of how to get there. I’ll talk about this at a very high level in the few minutes that we have left in the show. And I could go on for an hour on this, but I’ll try to just keep it at that at the highest level, you’ve got to focus on things that are in your control, ignore the things that are out of your control, or at least not pay as much attention to them, and then manage the things that you have some control over to your benefit. So what do I mean by that? Well, the things that you have total control in terms of generating net worth and building wealth, how much you save, versus how much you spent. Obviously, the less you spend, and the more you save, the more likely you are going to grow your net worth over time. And then savings isn’t just money in the bank, in a savings account, it needs to be invested for long term growth. That’s where you’re going to be get your higher rates of return.

And then under the investment umbrella, that’s in your total control, your asset allocation, and the sectors of how, where and how you invest your money. And that’s a whole separate show unto itself. But you do have control on your asset allocation, the categories that you invest in for long term growth, you know what’s out of your control, that you shouldn’t spend much time on much brain space, thinking about market returns. You can’t control the market, I can’t control the market, Warren Buffett can’t control the short term movements of the stock market. So you shouldn’t bother try and you shouldn’t bother trying to time the market – that’s a road to ruin. You know what else you cannot control, taxes, tax rates, tax benefits and policies that’s done by Congressman you might be able to you can influence maybe who your congressman is. But yes, they’re the ones who make the decision on taxes and tax policy. And that’s completely out of your control.

You know, we have some control over that where you can influence the outcome to perhaps grow your net worth more, your employment earnings, and how long you work. The longer you work, the more you’re going to make, the more money you’re going to have. The more promotions you get to work, the more you’re going to make. And then the final thing, longevity. Yes, the longer you live, the more you’re going to have typically as well. Stay healthy. Don’t smoke, have a good diet exercise. All right all the time we have for today.

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