JULY 15, 2022
Are you wealthy? And what does that even mean?
For some people, being wealthy is defined as owning a big home or having enough money to purchase a fancy car. For others, being wealthy simply means having the ability to pay bills without stress, all the while having money left over at the end of the month.
It’s perfectly okay to set your own definition of what being wealthy means. And it’s also okay to land on a specific net worth you’d like to attain to achieve “wealthy” status. But if you’re curious as to what Americans on a whole think it takes to be wealthy, we have an answer — or rather, Schwab does.
In its most recent Modern Wealth Survey, Americans said it takes $2.2 million to be considered wealthy. That’s up from $1.9 million in 2021, but down from $2.6 million in 2020.
Now you might have a different number in mind as far as the definition of wealth is concerned. But no matter what that number is, there are different steps you can take to hit it.
How to build your net worth
Your net worth is calculated by taking your total assets and subtracting your debts. So, let’s say you have $40,000 in a savings account and another $200,000 in an IRA. Let’s also say you own a home worth $600,000, but you owe $300,000 on your mortgage. Assuming you don’t have other debts, that gives you a net worth of $540,000.
Perhaps you’re happy with your current net worth. But if you want to boost it, there are a few basic rules to follow:
- Leave below your means: don’t spend your entire paycheck month after month, and aim to lead as frugal a lifestyle as possible without sacrificing the things you love.
- Aim to put your money into assets that can gain value: homes, stocks, bonds, and other such assets tend to increase in value over time, whereas vehicles don’t, so you may want to spend minimally on a car and more on the aforementioned items.
- Put your money to work: invest money you don’t need immediately in a brokerage account or IRA so it grows into a larger sum over time.
- Keep growing your income: develop job skills and fight for promotions and raises so your income keeps rising.
Should you stress out about your net worth?
Not if you’re happy with the number, or if it’s not what you want it to be but you know you have time to make progress. Maybe your goal is to have a $1 million net worth by the time you retire. If you only have a $200,000 net worth now, but you’re 35, well, you still have a good three decades to build wealth, so that’s not something to stress about.
Should you chase a $2.2 million net worth?
Americans might think $2.2 million is the magic number when it comes to being considered wealthy. But many people live happy, comfortable lives on a lot less money. So rather than fixate on that $2.2 million, figure out what number it takes to allow you to live the way you want without financial worries.