How Much Net Worth Do You Need To Be Rich?

In the early 1990s, at the dawn of the great expansion in the gambling industry, the state of Louisiana began a lottery. People didn’t really get how it worked, but they were eager to jump in.

In the fullness of time, a local lady from my parish won a million dollars. To her astonishment, she learned she was getting $40,000 a year for the next 25 years. Not, as she expected, a million dollars all in one chewy chunk.

In 1992, the average American income was $22,707, so you might imagine she could bumble along on that income just fine. Especially in a cheap state like Louisiana.

Nonetheless, she grumbled in the local fish wrapper. “Call me a poor millionaire.”

Thirty years later, lots of us are poor millionaires.

How do you know when you’re rich?

Because a million dollars isn't. And it hasn't been for a long time.

In 1993, an ethics-challenged stockbroker told me you weren’t really rich until you had $3 million. That was the net worth his victims — excuse me, clients — needed to have before he could sell them penny stocks without the SEC nosing around.

So, back in the day, if you had $3 million, you were rich enough for the government to think you had money you could afford to lose.

Hmm.

If you had $3 million today, would you feel you had money to lose?

Magic 8-Ball says, “Seems doubtful.”

Why the millionaire lives next door

When we talk about the psychology of money, people love to cite The Millionaire Next Door by Thomas J. Stanley and William D. Danko. As you already know, it’s a book from a time (1996) when Stanley and Danko could say with a straight face:

“In this book we define the threshold level of being wealthy as having a net worth of $1 million or more.”

The only Americans who still think a net worth of $1 million is wealthy have been in a coma since the turn of the century.

Heck, people were already saying in the 1980s that you’d need $2 million if you ever wanted to retire. In other words, a million dollars already wasn’t all that.

You could get the basic elements of the American dream. House, car, truck. Put a kid through college or fund your retirement, but you’d struggle if you wanted to do both.

In what world is that wealthy? It’s middle class.

The millionaire next door lives next door because they don’t have the cash for a bigger place.

Stanley and Danko interpreted their data to mean millionaires got rich because they didn’t buy nice things. Please.

Stop the madness.

Their millionaires didn’t buy nice things because they knew perfectly well they weren’t rich. They didn't feel safe splurging money on themselves.

So when do you get to feel rich?

In 2013, CNBC reported on a survey done to figure out when Americans start to feel wealthy.

In that year, the average person considered themselves wealthy if they had $5 million — as long as $1 million was in liquid cash where they could get to it easily.

Is that still true eight years later? If I had $5 million, would I finally break down and buy a Lambo instead of hanging onto the old Ford Focus for dear life?

Probably. Possibly.

Or maybe the goalposts would move again.

So what does it even mean to be rich?

I’m not talking about wealth is health or that nonsense. What does it mean to be truly rich in money?

For years, I used to say you were rich if you were unlikely to lose your standard of living even from life’s most challenging knocks. We all know major health or legal challenges can rack up staggering costs that are beyond your control. You can’t frugal your way out of emergency surgery.

I hear $25 or $30 million a lot. It isn’t any official number as far as I can tell, but I figured you were pretty set for life at that point.

Then I discovered this happy thought from UBS Wealth Management:

“Analysis shows the fleeting nature of wealth with only 44% of billionaires from 1995 still billionaires today (2019).”

Huh.

So even the billionaires aren’t secure. No wonder they’ve become famous for building all those bunkers.

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