What Is a Millionaire?

Do You Know the True Definition of the Word "Millionaire"?

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Definition:

We hear about "millionaires" constantly. The term usually evokes images of celebrities, athletes and business leaders. We assume Kim Kardashian, Dennis Rodman and the CEO of Pepsi are all millionaires.

We might also assume that a millionaire literally has a million dollars of cash laying around, ready to be spent.

So what exactly defines a millionaire? The answer isn't as straightforward as you might expect.

The technical definition of "millionaire" is a person (or a married couple) with a net worth that's greater than $1 million U.S. dollars.

"Net worth" represents that person's assets, minus their liabilities. Net worth is described as "what you own minus what you owe."

Pronunciation: mill-yon-air

Common Misspellings: milionaire, millionair

What a Millionaire Looks Like:

Let's say John Doe has the following assets:

  • House: $350,000
  • Car: $10,000
  • Retirement Fund: $600,000
  • Stock Fund: $80,000
  • Mutual Fund: $100,000
  • Re-Sale Value of Items in His Home (Clothes, TV, Furniture): $20,000
  • Cash: $10,000
  • Total Assets: $1,170,000

Let's also imagine he has the following liabilities:

  • Mortgage: $120,000
  • Car Loan: $5,000
  • Total Liabilities: $125,000

Is John a millionaire? One school of thought argues yes. Another says no.

The side that argues "yes" would point out that the value of John's assets equal $1.17 million, and his liabilities total $125,000.

That means his total net worth (assets minus liabilities) is $1,045,000. By definition, that makes him a millionaire. His net worth is greater than $1,000,000.

The side that argues "no" would say that the value of his home, his car and his personal belongings (such as his clothes, TV, and furniture) should not be counted.

After all, he's most likely not going to liquidate those assets, or sell them for cash. He needs to live somewhere. He needs to drive a car. He needs to wear clothes, eat at a table, and sit on a couch.

What to include in net worth calculations is commonly debated over — many people calculate it differently.

Should Only Liquid Assets Be Considered in Net Worth?

The "no" side argues that only his liquid assets should be considered. These include his mutual funds, stock funds and cash. Some people would also count the value of his retirement account; others wouldn't, given that those assets are protected from bankruptcy filings. Either way, he's not a millionaire once those personal belongings are left out of the equation.

Yet another school of thought would adjust the value of John's house, car and personal possessions. Yes, he needs to live somewhere, but he doesn't need a $350,000 house. They would "credit" him with a housing allowance, and count any excess toward his net worth.

In short: there's no agreement on whether or not he's a millionaire. But one thing is certain: John doesn't have a huge amount of cash in the bank. Most of his money is tied up in housing and investments. Just because he's (arguably) a millionaire doesn't mean he can spend as lavishly as Kim Kardashian or other celebrities.

In other words, a million isn't what it used to be.