How much net worth does it take to be rich? This is what Americans are saying
You may find the number surprising.
- Many people have specific goals when it comes to increasing their net worth.
- Recent data reveals that Americans have high standards for defining what it means to be wealthy.
Many people aim to get rich. but what does that mean exactly?
For you, that might mean having a net worth of $500,000. For someone else, that might mean having $1 million in your name.
But if you’re curious about what the public thinks, Schwab has some answers. In its recent Modern Wealth Survey, Americans said you need an average net worth of $2.2 million to be considered wealthy. That’s up from $1.9 million last year, but down from the $2.6 million Americans thought it took to be rich before the pandemic began.
At first glance, $2.2 million may seem like an unattainable sum. But you might be surprised at just how possible it is to achieve this level of wealth.
What’s the net worth, anyway?
If you’re not familiar with the concept of net worth, it’s basically the sum of your assets minus your debts. So if you have $30,000 in your savings account, an IRA of $100,000, and you own a house worth $500,000, the sum of your assets is $630,000. However, if you owe $300,000 on your mortgage and have no other debt, that leaves you with a net worth of $330,000.
How to increase your net worth
There are a number of steps you can take to increase your net worth. And perhaps the most important thing is to set a budget and live below your means.
To grow your wealth, you need to spend less than you earn. It’s so simple. Once you get into this habit, you will have options. You can put money into savings and, just as important, you can invest your money so it will grow over time.
Buying a home is another good way to increase your net worth. Homes tend to increase in value over time, so if you buy one today and stay there for many years, you could end up adding a lot to your equity.
Now you might be thinking, “That’s great, but is $2.2 million really achievable?” Here’s how it is.
Imagine you are a middle income earner, but strive to save and invest $500 per month starting at age 25 and continuing until age 65. Let’s also assume that your investments offer an average annual return of 8%, which is a little lower than the stock. market average. That alone will leave you with just over $1.5 million.
Also suppose you buy a house for $300,000 and keep it for several decades. After 30 years, the value of this house could increase to $700,000. Meanwhile, after 30 years, you could own it after paying off your mortgage. So if you add $700,000 to $1.5 million, you get $2.2 million.
Now, to be clear, there’s no need to dwell on that $2.2 million figure. Just because Americans seem to agree that this is what it takes to be considered wealthy doesn’t mean you won’t settle for a smaller number. Or, you might want to aim higher.
The fact is, it is possible to achieve high net worth with the right strategy. And the earlier in life you commit to that goal, the more likely you are to achieve it.
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