The United States is the richest country in the world., from a Gross Domestic Product (GDP) standpoint. America’s economic output is nearly $21 trillion. The next closest country is China with a GDP of $14.72 trillion.
The American Dream is a catchphrase that carries significance for so many residents. Thanks to economic freedom and opportunity, any person is capable of getting rich in the United States. You can start a successful business or earn a high salary with a multi-billion corporation.
What is considered wealthy in America? Read on to answer the question, are you rich? Explore topics such as net worth and wealth statistics.
In general, wealth is placed in three different categories in the United States. There are the poor, middle class, and wealthy.
Some households fall in the middle of two categories. Studies show that the upper-middle class is growing significantly.
According to Pew Research Center, roughly 19% of the nation’s adults belong to the upper class. The lower class is comprised of 29% of the population, while the middle makes up the remaining 52%.
The question of how much money do you have is not the primary way to determine wealth class. By doing so, you are only basing the assessment on income and cash assets.
However, there is more to it than annual salary or bank account balances. Evaluating whether a person is rich or not also depends on their other assets. For example, the equity position in a home or boat also needs consideration.
Some people are business owners and have a valuable company under their name. Net worth assessments may include other valuable possessions like fine art, sports memorabilia, vehicles, or other rare property.
Now that you have an understanding of net worth, it is time to start discussing what is considered wealthy or upper class. There is not a universal definition for how much money is considered rich. Variables such as location, inflation, and appraisals make it a moving target.
In 2021, Charles Schwab produced a survey that said a net worth of $1.9 million qualifies as rich. Interestingly, this figure was $0.7 million lower than the prior year.
Did wealthy Americans lose ground in 2021? No, this is just an example of financial analysts changing their methodology.
One simple rule of thumb is to double the median household income.
In 2021, this figure was nearly $80,000. Under the doubling rule of thumb, anyone with a household income over $160,000 is considered upper class.
However, this is an imperfect method for evaluating wealth. It does not take into consideration a person’s spending habits and liabilities. Perhaps this household is frugal and diverts a portion of their income to investments and other tangible assets.
One positive about the doubling rule is that it is easy to adjust for location. Thanks to the U.S. Census and other Department of Labor (DOL) data, we have access to the median household income at the local level. This means we can better assess wealth in an area that is cheaper to live in.
Your income is likely going to take you a lot farther living in South Dakota as opposed to California. The taxes are less burdensome and assets like real estate are significantly cheaper.
Poor spending habits are one of the primary reasons preventing Americans from becoming wealthy. Some people with a household income of $160,000 or more do not have a net worth in the millions.
Often, the reason is that they misspend their disposable income. Their only appreciating asset is a primary residence. If they do invest, it is in low-yield options that do not match their age and appropriate risk level.
At the same time, they are making basic mistakes with their recurring paychecks. Did you know that 17.5 million people do not take advantage of their employer’s matching 401k contribution?
This is an alarming figure as millions are not accepting free money from their employer.
Along the lines of disposable income, a recent study showed one-third of Americans spend more on coffee than investing. Your morning latte adds up to hundreds over the course of a month and thousands for the year. By investing instead, your money grows exponentially and helps you get rich.
If you are wondering, am I wealth? The answer is probably no. The good news is that you could achieve the desired net worth with the help of a financial advisor.
A trained professional evaluates your financial situation and discusses your short and long-term goals. They discuss investment options to help you grow your net worth. For example, they may make recommendations on individual stocks to invest in.
In addition, a financial advisor helps you plan for retirement. They look at your employer-sponsored plan whether it is a pension or 401k-style savings account.
This evaluation includes estimates on how much you need to save to maintain your current lifestyle. They have a firm understanding of what taxes to expect in retirement. This allows your advisor to estimate how much you need to withdraw from retirement savings each month or year to live comfortably.
Your financial advisor also looks at your current income and spending habits. They will help you re-purpose money to achieve your financial goals. This may include tax strategies and other recommendations to protect your money and make sure it continues to grow.
If you are asking this question, it is time to take action. The answer to this question depends on each person’s circumstances and desires. Regardless of an arbitrary number, you should always try to grow your net worth.
A financial advisor can help you reach your financial goals. If you are asking the question are you rich, contact us today to schedule a meeting and discuss your future.