You’re likely to get various responses if you ask people on the street “Is a millionaire considered rich?”. Do you drive a sporty car? Own a second home? Not having to work to support oneself?
The replies might be much more varied if you were able to ask in different regions of the world or even in different eras. Do you recall the Fiddler on the Roof song “If I Were a Rich Man”? Tevye’s sense of wealth in his impoverished, czarist Russian town was not much more extravagant than a yard full of fowl.
Even in the modern United States, there is no single correct response. People can maintain the same standard of living with less money and assets in regions with lower costs, in addition to the fact that community perceptions vary.
So are you rich? Data can provide you with some ideas even though the answer is subjective by definition. In the past earning a million dollars was enough to call you a rich person. But is it still the same? Is a Millionaire Considered Rich in 2022? Let’s find out.
Before getting into the question “Is a Millionaire Considered Rich in 2022,” let’s understand some simple definitions of “what is a millionaire.” Let’s get started.
What Makes You A Millionaire?
The measure of wealth has long been reaching that coveted seven-figure threshold, but escalating inflation and job insecurity seem to be relocating the goalpost. This has led to a more expansive definition of wealth and what it means to be a millionaire being adopted by people.
Yes, the majority of people who are trying to get rich still desire to achieve seven figures. But if they want to achieve lasting wealth, they are aware that the first million must surely lead to many more.
According to financial gurus Gary Stewart and Anna N’Jie-Konte, anyone aiming for the title of millionaire must first decide what kind of millionaire they want to be before pursuing that aspiration.
These wealth gurus go on to discuss the distinction between being a cash-flow, net-worth, or asset-value millionaire, as well as the reason you can be a millionaire right now and not even be aware of it.
What Is A Millionaire?
There are three main ways to define “millionaires.”
According to Alexandria, Virginia-based financial consultant, and CPA Gary Stewart, “The most fundamental definition of a millionaire is somebody who owns $1 million.”
However, he believes that this description may be inaccurate when comparing millionaires with high net worth, high asset value, and high cash flow.
“A person who owns assets that generate $1,000,000 in annual cash flow, for instance, is said to be a cash-flow millionaire. A person who has $1,000,000 in assets would still have money left over after paying off all of their debts and selling everything they own.
Anyone with a net worth of at least $1,000,000 qualifies as a millionaire. What you own minus what you owe is known as your net worth in more formal language. You are a millionaire if the final sum is at least $1 million.”
Calculations of real wealth are impacted by the important differences between these classifications. According to Stewart, cash-flow millionaires often would not have the same concentration on real wealth as net-worth millionaires do “need huge investments, royalties, corporate earnings, or income from real estate.
Due to the amount of effort required to create a company or portfolio of that size, very few people will become cash-flow millionaires “He explains.
Instead, the majority of Americans hold multimillion-dollar assets, including a pricey primary residence. They might combine their investing and retirement assets to reach the $1,000,000 mark.
The majority of people would fall into one category of millionaire but not another, despite the fact that it is possible to be a millionaire in all categories.
Due to the fact that their money is held in non-liquid assets, asset millionaires are extremely uncommon to also be cash-flow millionaires. In a similar vein, asset millionaires may never become net worth millions.
As a result, it’s possible to have a million dollars in assets without ever realizing it, especially if the value of your home or stocks increases without your knowledge.
How Can You Tell If Someone Is A Millionaire?
We can determine if someone has a net worth of at least $1 million by examining their balance sheet and taking into account their assets and debts. Let’s say John Doe possesses the following assets:
- House: $350,000
- Car: $10,000
- 600 000 $ in retirement savings
- Investing: $80,000
- Investments: $100,000
- Other non-liquid assets’ resale value: $20,000.
- Cash: $10,000
- Assets in total: $1,170,000
Consider that John Doe is also liable for the following:
- Loan amount: $120,000
- $5,000 for a car loan
- Liabilities totaling $125,000
John Doe has a net worth of one million dollars, as determined by the formula: what you own minus what you owe. John’s liabilities total $125,000, and his assets are worth $1.17 million. Accordingly, his total net worth is $1,045,000 (assets fewer obligations). John is now a millionaire.
Why Don’t I Feel Like A Millionaire Even Though I Am?
Anna N’Jie-Konte, MBA, CFP, is a Puerto Rican and Gambian-American entrepreneur who worked in wealth management for almost ten years, giving advice to ultra-high-net-worth families on how to increase and safeguard their fortune for future generations. According to her, being a millionaire is just as random as earning a six-figure income.
The real indicator of whether someone is doing well or not, she says, is not a financial success standard. It relies much more on a person’s lifestyle and financial objectives if they feel that a million dollars are enough to live comfortably.
According to N’Jie-Konte, a strong sense of financial security is greatly influenced by financial flexibility and liquidity. She observes that “To everyone’s detriment,” these are two of the personal financial areas that receive the least attention.
N’Jie-Konte explains that even if two persons have a $1 million net worth, one of them will be far more financially flexible or better able to handle life’s obstacles than the other. “For instance, it would be challenging for one person to obtain cash if they had $1 million in home equity and only had a little amount of cash or investments.
On the other hand, a person with $400,000 in home equity, $200,000 in a brokerage account, $50,000 in savings, and $350,000 in their 401(k) will be considerably more able to respond to whatever need or opportunity occurs.”
People frequently feel more at ease when they are flexible. However, this comfort varies according to their life stage, the number of dependents they have, and the financial security of their loved ones, of course.
For this reason, even a millionaire may experience financial hardship. In reality, due to their spending patterns, debt, and outside commitments, many high-net-worth people live paycheck to paycheck. Another issue that can lower spending power is the rise in prices brought on by inflation.
Net Worth Vs. Income
Many people consider income as their main metric for determining financial success. However, is it really the best measure of wealth? What is your current net worth? And what makes the two different in any case?
Your net worth provides you with a true view of where you are financial, whereas your income only informs you how much money you make annually. Let’s examine the differences between income and net worth.
What Is Income?
To put it simply, income is cash you receive on a regular basis, typically through work or investments.
You can make money in a variety of ways: The salary you receive from your employment every two weeks or the earnings from the company you own and run. Dividends or compound interest growth on your mutual fund investments. The money you earned last weekend at a garage sale by selling used albums or baseball cards. All of that is considered income!
Let’s examine the difference between gross income and net income while we’re talking about income:
Your gross income is the amount of money you earn before taxes, and other deductions are subtracted from it. Your gross pay, for instance, is $4,166 if you make $50,000 a year and are paid monthly.
Contrarily, net income is the amount that remains after taxes and payroll deductions like Social Security and 401(k) contributions. This is an example of your monthly net income: $4,166 in gross income minus $1,200 in taxes and deductions is $2,966. (net).
The bottom line is that your income is your most important tool for accumulating wealth. Therefore, make the most of it! Fun fact: The average American household makes roughly $67,500. By the time you reach retirement age, your nest fund might be worth $2.3 million if you put aside 15% of your income for 30 years.
What Is Net Worth For A Person?
What you own minus what you owe is simply your net worth. Your net worth is, therefore, equal to the sum of your assets minus your debts.
You have $200,000 in equity toward your net worth. For instance, if your home is worth $300,000, but you owe $100,000 on it. Therefore, sum up the value of everything you own and deduct any outstanding debts from that number to get your net worth.
The average net worth of an American family is $118,000, according to the U.S. Census Bureau. A large portion of such wealth is derived through house equity and retirement accounts (such as 401(k) and IRAs) (or how much of your home you actually own). The median net worth by age is shown here.
- Under 35: $15,700
- 35–44: $83,150
- 45–54: $139,200
- 55–64: $203,900
- 65–69: $266,400
- 70–74: $305,100
- 75 and up: $249,5003
You could be shocked by the results of your net worth calculation when you learn how much you have—or don’t have. Whatever the circumstances, there is always time to strengthen your financial situation and increase your fortune.
Is A Higher Income Better Than A Higher Net Worth?
Let’s imagine that Katie is a marketing professional earning $150,000 annually and having a net worth of $20,000 instead. Her buddy Lacy is a teacher who earns $45,000 a year and has a wealth of $250,000 in total.
Who is wealthier, the marketing executive or the teacher?
You figured it out. Due to her greater net worth than her buddy Katie, the schoolteacher Lacy actually has more money.
We claim that your income is not a reliable indicator of your financial status because of this. It doesn’t really matter how much money you make when it comes to wealth, after all. A higher income can help you accumulate wealth more quickly, but it won’t make you wealthy by itself. If you earned $1 million a year and spent $2 million, you would be deeply in debt.
The most important thing, though, is what you do with that money. Whether you earn $500,000 or $50,000 annually, if you want to accumulate wealth over the course of your career, you must save and invest that money. And yes, it is possible to retire with a million dollars even if you make $50,000 a year for the rest of your life.
If you are debt-free, earn $50,000 per year, and save 15% of your income for 30 years, you could have more than $1.7 million saved for retirement, according to some fast calculations. On the other hand, a person who earns twice as much but never invests even a modest percentage of it will probably struggle financially in retirement.
In the end, a high income doesn’t always translate into a high net worth—especially if you have debt from college loans and a car, and you always attempt to keep up with the Joneses!
Standard Of Living
The term rich will be different from person to person based on their standard of living. Some people won’t be satisfied with any amount of wealth they accumulate, and many others who do meet these criteria for wealth may not view themselves that way. When those who are struggling with debt or unemployment see these standards of wealth, they could feel like a failure.
According to experts, knowing how you stack up against your peers might provide an opportunity to learn about money management and wholesome financial practices.
They suggest taking cues from coworkers and competitors when it comes to income, for instance, and setting net worth targets that take into account both your own situation and the potential found in peers.
But according to Eric Pierre, CEO, owner, and principal of Pierre Accounting in Texas, this saying is accurate when it comes to money: Comparison is the thief of happiness.
According to him, “different people create money in different ways, they have different skills, and wealth can increase and decrease for various causes.” “Set a goal for your net worth, whether it is billions of dollars or only a few hundred. Choose a goal that will make you happy. Put an end to your concern over your neighbor’s behavior.”
Here Is The Minimum Income Required To Qualify As Wealthy In 12 Major American Cities.
According to a recent survey, having a net worth of millions of dollars may still only be seen as “comfortable” living in some areas.
According to financial services giant Charles Schwab’s annual Modern Wealth Survey, it now requires a net worth of $2.2 million to be regarded as “rich” by other Americans in the United States, up from $1.9 million last year.
It will take considerably more cash, though, to be seen as wealthy by people who live in huge cities. A net worth of $5.1 million is the cutoff in San Francisco for what constitutes wealthy. This is the highest sum found in the poll, which looked at 12 of the largest megacities in the nation.
A San Francisco resident’s net worth must be at least $1.7 million to be considered “financially comfortable,” according to the report.
According to net worth thresholds, the following table shows the requirements for being wealthy in each city in 2022:
1. Denver: $2.3 million
2. Chicago: $2.5 million
3. Atlanta: $2.5 million
4. Houston: $2.6 million
5. Dallas: $2.6 million
6. Boston: $2.7 million
7. Phoenix: $2.7 million
8. Seattle: $3.2 million
9. Washington, D.C.: $3.3 million
10. New York City: $3.4 million
11. Southern California (includes Los Angeles and San Diego): $3.9 million
12. San Francisco: $5.1 million
A sample of 500 to 750 locals between the ages of 21 and 75 from each metro region participated in the online poll, which was conducted in early February. In order to calculate one’s net worth, one must subtract their liabilities from the value of their assets.
Conclusion
Finally, we have come to the end of the article. You have gained sound knowledge about “what is a millionaire,” “How can you tell if someone is a millionaire,” and “difference between net Worth vs. Income,” Let’s answer the main question you all have been waiting for. Is a millionaire considered rich in 2022? A millionaire is likely regarded as wealthy by the majority of people. Hence the answer is most likely yes. The Federal Reserve Board Survey of Consumer Finances’ most recent data, which covers 2019, shows that the average net worth of American families was $121,700. That is a lot less than having a net worth of $1 million.
