How Much Money Does It Take to Be Rich?

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Do you consider yourself rich? How much would it take? In a 2019 survey from Charles Schwab, participants said it takes $2.3 million to be wealthy.

With $2.3 million, you could generate $138,000 in annual passive income (assuming a return of 6%). Without needing a job, you could afford to:

  • Pay taxes
  • Spend $3,800 per month on housing expenses
  • Have $6,300 in cash left over each month to spend any way you like—cars, vacations, clothing, charitable donations, entertainment, or education

The Definition of Rich

However, "rich" is still a relative term. It's subjective and might change in relation to your current net worth. If you make $30,000, someone who makes three times that might seem rich to you; after all, they can afford so much more. There's no hard-and-fast line that marks "rich" from "poor." But there are a few indicators.

Measuring by income

You can measure wealth in terms of income. For example, the IRS says that taxpayers making $480,804 or more are the top 1% of income earners. Making less than a 10th of that—$40,078—puts you in the median. Contrast that with the poverty threshold for a family of four, which was $25,750 in 2019, and you can see a difference.

But a large income doesn't mean you're rich if you're living paycheck-to-paycheck (as 59% of Americans do, according to Schwab).

Measuring by net worth

Measure by net worth, on the other hand, and you'll get a much different number. Net worth is the sum of a person's assets, including bank accounts, investments, and property, minus their debts, including loans and mortgages.

But, while it's possible to define wealth by net worth, it's much more difficult to get people to agree on what that dollar figure would be. Moreover, someone may appear to have a high net worth, but if you don't consider their debts, you don't see the full picture. So if you have a mansion with closets full of designer clothes, but all the clothes were bought on credit, and the home loan is underwater, you aren't so rich after all.

Does Rich Equal Happy?

Rich can be a state of mind: 72% of the respondents in Schwab's survey said their definition of wealth is based on the way they live their life, rather than a specific dollar amount. If so, how much does it take to be happy?

Studies show that personal well-being tops out at an annual income of $75,000, and life satisfaction at $95,000. (That figure is almost 50% higher than the median household income of $61,937 in 2018.)

However, Purdue researchers found that once that threshold was reached, well-being and satisfaction decreased even if income rose. They theorized that once basic needs were met and debts repaid, the chase for more money resulted in the sorts of social comparisons that actually decrease well-being. The money, in other words, fueled the sort of "keeping up with the Joneses" that springs from a feeling of lack, even with a full bank account.

People may be more satisfied by the perceived trajectory of their life, not necessarily their absolute income. That is, a person who goes from making $25,000 a year to $150,000 a year may feel more satisfaction than a person who goes from making $600,000 a year to $500,000 a year, even though the latter is still among the highest-earning households in the United States and earns far more than the former.

Another important measure of wealth is the freedom it affords. That is, you can consider yourself rich when you can pay for your lifestyle simply from passive income or investments, without needing a job. When you're not beholden to an employer, you're free to do what you want, whenever you want to. By this definition, someone can be rich without a high income or a high net worth, as long as they're content with their standard of living.

Your Wealth Goals

Being rich won't make you happy, but it might improve your quality of life. Knowing your financial goals will allow you to plan investments that will support your definition of wealth. For some, that might mean living in a log cabin, fishing and reading all day, or learning to play an instrument. For others, it might mean expensive cars, bespoke clothing, and diamond jewelry. Just as tastes differ, so will the requirements to support your lifestyle of choice.

Learn to collect assets, avoid liabilities, pay attention to asset placement, and figure out how to get paid to do what you love, and you can build wealth to a level that's right for you.

Once you have set a goal, there are numerous resources available to help you achieve it. Working with a financial advisor is one method; they can help you build a budget that incorporates savings and investments toward your goal. Long-term investing, conscious spending and strategic planning are useful techniques as well.