It may be awkward to openly discuss this topic. But you've probably wondered who is truly considered wealthy and whether (or if) you fit the definition. According to Schwab's 2022 Modern Wealth Study, the average American believes being wealthy means having a net worth of $2.2 million. But there is no universal definition of wealth. Just as beauty is in the eye of the beholder, being wealthy or not depends on your personal definition and circumstances. Here are some things to keep in mind when determining if you are wealthy and what most people consider to be wealthy.
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How much money do you need to have to be considered wealthy?
According to Schwab's survey, Americans consider themselves wealthy to mean having a net worth of $2.2 million, up $300,000 from last year's survey.
Furthermore, statistics show that the top 2% of the U.S. population has a net worth of about $2.4 million, while the wealthiest 5% of Americans have a net worth of just over $1 million. Therefore, roughly 2% of the population owns enough wealth to meet the current definition of wealthy.
But Americans' feelings about wealth go beyond just the dollar amount. For example, surveys show that more than half of the nation's workers would be willing to take a pay cut to be employed by a company that aligns with their values. Additionally, nearly 90% of employees want fulfillment in their work and pursue a career based on their beliefs.
As a result, while Americans set a dollar amount to be wealthy, they also place equal importance on their ideals in the workplace, even taking a pay cut to work for a company that resonates with their ideals.
Also, because being wealthy is subjective, some Americans may think that being financially comfortable is the same as being wealthy. Specifically, participants in the Schwab study reported that a net worth of $774,000 or more meant being comfortable. Thus, the goal of being wealthy depends on your lifestyle and financial priorities.
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What determines whether you are wealthy?
Because wealth figures are subjective, there are many ways you can analyze your financial situation to determine if you are wealthy. Different aspects of wealth beliefs include:
Save money
The rule of thumb for accumulating wealth is to spend less than you earn. In other words, if you can cover your monthly expenses and put any excess income into a savings or investment account, your net worth can grow to millions of dollars within a few decades. Therefore, financial habits like budgeting and goal setting are essential to becoming wealthy, regardless of the amount you have in mind.
You live within your means
Fintech company LendingClub recently reported that nearly two-thirds of Americans run out of money before payday. This financial approach can be stressful and unsustainable, and it's unlikely to allow you to save a lot of money. So cutting back on your monthly expenses (whether that's cutting back on monthly subscriptions or eating dinner at home more often) can help free up space in your budget and free up money to buy the essentials. Plus, it can help you prepare for financial emergencies.
I can afford to buy what I want
If you save money and live within your means, you'll be able to afford the things you want. Whether it's a new car or a Caribbean cruise, setting and achieving financial goals requires wealth-building habits. Therefore, having the financial capacity to achieve your short-term and long-term goals is a sign of wealth.
Your motivation is not money, it's the life you want
Your ideal life might be to run your own small business. Or it might mean paying off your debts and saving a set amount for retirement every month. But whatever your vision is, having a vision is more important. In other words, your motivation is fundamental to becoming wealthy. Greed is not enough of a driving force to make difficult financial decisions. From limiting luxuries in your budget to taking business risks, your choices will be most powerful when they stem from your vision for your life.
You're on your way to getting the retirement you want
Determining how much you need to save for retirement can be difficult. But once you've set your retirement goals by consulting with a financial advisor or estimating your retirement expenses, it's important to start saving now. Getting wealthy means preparing for retirement on a solid financial footing.
Money is a tool, not an enemy
Having financial problems creates the perception that money is a problem. Unfortunately, this mindset distances you from the reality that money is the path to a better life. For example, if you're living payday to payday and have serious credit card debt, thinking about money may be the last thing you want to do because it's stressful. But avoiding the topic of money can prevent you from becoming debt-free.
Instead, set small goals, like paying an extra $25 each month on the debt with the highest interest rate or lowest balance. This approach helps you see money as a means to a brighter future, not an enemy.
There are options
Wealth means the flexibility to deal with life's challenges. For example, you might want to take a few months off work when your new child is born. Or maybe you want to fund a business idea with your savings. Either way, the surest sign of wealth is exercising the choices you have to improve your life, learn new skills, and grow your wealth.
To determine the right strategy for your financial goals, consult with a financial advisor.
Conclusion
Being wealthy today means having a net worth of approximately $2.2 million. However, this number can fluctuate over time, and wealth can be measured according to your financial priorities. So, whatever your definition, healthy financial habits, like spending less than you earn, are essential to becoming wealthy.
Tips to understand your wealth
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A financial advisor can evaluate your financial situation and help you create a wealth creation budget. SmartAsset's free tool connects you with up to three vetted financial advisors in your area so you can meet with them for free to decide which one is right for you. If you're ready to find an advisor to help you reach your financial goals, get started now.
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Some of the world's most famous entrepreneurs started out with just a few dollars in their pockets and a dream for the future. But they didn't get rich overnight. To follow in their footsteps, use this guide on how to build wealth.
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Keep an emergency fund on hand to cover unexpected expenses. Your emergency fund should be liquid. It should be in an account that isn't at risk of large fluctuations like the stock market. The trade-off is that liquid cash may lose value with inflation, but you can earn compound interest in a high-interest account. Compare savings accounts from these banks.
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This article first appeared on the SmartAsset Blog.
