So you’re wondering what income level is considered rich. If everybody makes $1,000,000 a year, are you considered rich if you make only $500,000 a year? Probably not! In other words, rich is relative and also subjective.
When Obama was president, he considered single people making over $200,000 to be rich. He specifically called for raising taxes on singles making over $200,000 and couples making $250,000 every year he was in office.
At the end of 2012, there was a compromise in Congress for raising income taxes for those making $400,000/$450,000 and above. Why $400,000 + $400,000 doesn’t equal $800,000 for a married couple to pay more taxes, I’m not sure. The government harkened back to its old days of believing one spouse should stay at home. Thankfully, the marriage penalty tax has all but been abolished.
New Tax Changes Increase The Definition Of Rich
With the new tax plan that started in 2018, the Trump administration now views individuals making $500,000 and married couples making $600,000 as rich, because those are the income thresholds that now pay the top federal marginal income tax rate of 37%. Further, the estate tax threshold doubles to $11.58 million per individual and $23.16 million per married couple.
There are two aspects of monetary wealth we can focus on: Income and Capital. Some make a lot of income, but have only a little amount of capital since they are either starting off in their careers, or haven’t saved and invested an appropriate amount. That’s not going to happen to you because you read Financial Samurai and will follow my savings guide to ensure capital accumulation.
Meanwhile, there are those with a tremendous amount of Capital, with little income given they may have inherited their wealth but have no income generating skills. Capital heavy people may have invested skillfully over the years, built great companies, or were incredibly disciplined in their savings. There are many different types of folks in the Capital heavy category. It’s not a bad place to be at all.
Ideally, it’s best to have both high income and a large capital base. This is my goal, and therefore my goal for all of you as well. In this post, we’ll focus on the income side of the equation and what to strive for just in case we don’t have a trust fund from mom and dad.
What Income Level Is Considered Rich?
Instead of just saying what I think, I’m going to share my thoughts on various income levels per person for populations living in coastal cities such as San Francisco, New York City, Los Angeles, Boston, and Washington DC and work out the answer.
The idea is to focus on the more expensive parts of America, which can therefore translate into living in other expensive countries in the world such as Paris, Hong Kong, London, Tokyo. Of course, if you move to much cheaper places, you’ll be considered that much wealthier.
Let’s look at what income level is considered rich.
Is Earning $50,000 Considered Rich?
Not at all. The median household income in 2020 is about $65,000. After contributing $10,000 to your tax-deferred 401(k), you are left with $55,000 in gross income to live. With an effective tax rate of about 15%, you have about $46,750 left after taxes. $46,750 is enough to live a middle-class lifestyle, however, you’ll probably want to find a partner who makes at least $25,000 a year to be comfortable with a family.
Is Earning $100,000 Considered Rich?
Earning $100,000 is not considered rich either. You are considered middle class to lower middle class in expensive coastal cities. $100,000 is considered upper middle class in lower cost areas of the country.
After contributing $19,000 to your tax-exempt 401k, you are left with $81,000 a year in gross income, and ~$60,750 net income based on a 25% total effective tax rate. The income limit where you can no longer contribute to an IRA is $73,000. It’s too bad the government puts income caps on certain retirement programs given everyone should improve their finances.
Is Earning $200,000 A Year Considered Rich?
At $200,000 a year, you are considered upper middle class in expensive coastal cities and rich in lower cost areas of the country. After $19,000 in retirement contributions to your 401(k), you are left with $181,000 in gross income, leaving you with roughly $126,700 in after tax income using a 30% effective tax rate.
By the time you are making $200,000 in your career, you’re probably in your 30s or older and have a mortgage and kids to consider. Preschool may run $10,000-$25,000 a year, followed by $30,000-$40,000 in annual housing costs for a reasonable home. You’re left with $20,000-$40,000 to spend on food, travel, groceries, gifts, lessons, and so forth. Not bad.
Here’s a sample $200,000 household budget. It comes from my post: How To Make Six Figures And Still Not Feel Rich. The money goes quick!
Is Earning $350,000 A Year Considered Rich?
At $350,000 a year, you’re upper middle class in an expensive coastal city and rich in a low cost of living area. After $19,000 in 401(k) retirement contributions, you’re left with $331,000 in gross income, or roughly $231,700 in after tax income using a 30% effective tax rate.
With a 30% after-tax savings rate, you guys have $157,000 left to spend. Your family has grown to four, and you seek a bigger home. An average 3 bedroom, 2.5 bath home in a good area in San Francisco will run you about $1,500,000 to $1,700,000. We’re not talking anything super fancy at 1,800-2,800 square feet. Your mortgage at 3.5% on $1.1 million will therefore cost around $60,000 a year + $15,000 a year in property taxes.
Below is a detailed budget I’ve put together for a family of four earning $350,000 living in an expensive metropolitan area. Both parents work, so they get to contribute double the amount to their 401(k) while also now earning $4,000 worth of child tax credits.
See: Why Households Need To Make $300,000 To Live A Middle Class Lifestyle Today
How About Earning $500,000+?
With a $500,000+ income, you are considered rich, wherever you live! According to the IRS, any household who makes over $470,000 a year in 2020 is considered a top 1% income earner.
With $481,000 in gross income after contributing the current $19,000 maximum to your 401(k), you have about $300,000 in after tax income (effective at 35%, which includes 10% state). That’s right, you are paying around $183,000 in taxes alone, yet the government still wants to take more from you!
Undeterred, you crank up your savings to 35%, and put away another $105,000, leaving you with $195,000. Subtract $70,000 for annual mortgage/property tax leaves you with $125,00. Then subtract another $40,000 in tuition for two.
With around $7,000 a month in money available for travel, food, entertainment, goods, gifts, you are sitting pretty, especially since you are putting away away $122,000 a year in savings. That said, there are couples still struggling to get by on $500,000 a year!
The Alternative Way To Know You Are Rich
The debate about what income level is considered rich is endless. The income level really depends on your cost of living and your desires. Therefore, here’s another definition for when you considered yourself rich.
If you don’t have to work for a living, you are also considered rich! To be free, you need to have enough investment income to cover your desired daily living expenses. If you are super frugal, then becoming rich is much easier. However, there is obviously a balance where you don’t want to be so frugal that you’re miserable.
I left full-time work in 2012 at the age of 34. Even though I went from a multiple six-figure salary to $0, I felt incredibly rich because I was 100% in control of my time. I had about $80,000 a year in passive investment income that could provide a simple life for my wife and me in San Francisco.
For five years, we lived a care-free life and traveled the world. Then in 2017, we were blessed with a baby boy. The desire to earn more money took a jump higher. We needed to make enough so that both my wife and I could continue taking care of our boy full-time before he goes off to kindergarten in 2022.
We were also blessed with a baby girl at the end of 2019. Therefore, we’ve been 100% focused on building more passive income.
Below is our latest non-401(k) retirement portfolio income streams. Sadly, we’re still about $50,000 short to live a middle-class lifestyle for a family of four in expensive San Francisco. But thankfully, we have supplemental online income from this website.
Favorite Passive Income Investment
The most exciting passive income source right now is real estate crowdfunding. To simplify life, we sold an expensive SF rental property for 30X annual gross rent and a 2.5% cap rate, and reinvested $550,000 of the proceeds into real estate crowdfunding across the heartland of America.
Now we don’t have to deal with maintenance and tenant hassles, while earning a much higher cap rate of ~12%. If you’re interested in diversifying into real estate, check out Fundrise for free. It is my favorite real estate crowdfunding platform if you want a diversified, low volatility portfolio portfolio.
You can also check out CrowdStreet, if you are an accredited investor and want to invest in specific commercial real estate deals across the country. CrowdStreet is focused on 18-hour cities where valuations are lower and growth rates are potentially higher due to demographic shifts. It is also free to sign up and explore.
The Rich Person’s Game Plan
If you want to get rich, here is the game plan I would follow.
Depend on yourself.
Earning a high level of income is a choice, no matter what the naysayers tell you. It is up to each of us to further our education to develop a skill-set that enables us to earn more. It is up to us to work longer than our peers, so that after two more hours of work a day, we’ll have made over 600 more hours of progress a year. Don’t you think you could develop something amazing with 600 hours of time? You know you can.
Get a mentor.
If you want to learn how to become wealthy, learn from someone who is already wealthy, not someone who tells you how to get wealthy without being wealthy. Those folks are charlatans, and some do it very well, which is why they are wealthy.
Instead, seek out a mentor and do everything possible to ingratiate yourself into their circle. Successful people want to give back. It’s the way they are hardwired. Your mentor can tell you what income level is considered rich and give you great guidance.
Remove disabling beliefs from your mind.
Wherever you go, there you are. You mind is either like a power plant of positivity, or a cesspool of negativity. You must believe in yourself, otherwise nobody else will. I am so internet/computer illiterate that I thought there was no way I could start a website, until one day in 2009 I said ,”f*ck it” and got it done. I’m only slightly more literate than a doorknob now, but at least things are running and I can just do this full-time if so desired.
Go the traditional route.
Earning six figures and saving millions of dollars is straightforward. It just takes time. When you are incredibly rash, you do stupid things and screw up your financial goals. Save and invest even 10% of your income over 30 years and you will likely have more money than you will ever need.
Be your own boss.
Time and time again, you stumble across stupid things that turn out to be big hits. Twitter, for example, was one cockamamie idea that has revolutionized the way we communicate. Airbnb is another idea that has helped lower costs in the hospitality industry.
Everybody should at least own their brand online by starting a website. I started FinancialSamurai.com in 2009, and by 2012, I was making enough to live a good life in expensive San Francisco. Now, I never have to go back to work again! Not a day goes by where I’m not thankful for starting this site.
Find an amazing partner.
Let’s be frank. Life is much better if you can find a loving partner to share not only your experiences, but your expenses. Your loving partner will also be your greatest champion, pushing you ahead during difficult times. If you’ve haven’t found someone yet, it’s absolutely worth spending more time finding a life partner.
Finally, here’s a good net worth target to follow. After all, it’s not so much how much you make, but how much you keep. To be truly rich, you should aim for a net worth equal to 20X your average annual gross income or more.
You can also shoot for 25X your annual expenses, but I’ve found many people cheat using expenses as a variable. People will just severely restrict their spending to try to get to 25X.
But with your annual gross income, it’s much harder to cheat because it’s a more rigid figure. Further, income tends to go up over time, making the capital accumulation goal harder.
Track Your Net Worth Like A Hawk
I hope this post has answered what income level is considered rich. Choose the income you believe to be ideal, and go for it.
In the meantime, sign up for Personal Capital. It is the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to track your spending and manage your net worth. You can also make sure you are not paying excessive investment portfolio fees with their award-winning Investment Checkup tool.
After you link all your accounts, use their Retirement Planning calculator. It pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely check to see how your finances are shaping up as it’s free. There is no rewind button in life. Therefore, you might as well do the best you can now to make sure your finances are in good shape.
What Income Level Is Considered Rich was originally published back in 2012. It has been updated for the new decade. It now takes over $470,000 to be a top 1% income earner.
Not sure how this information is even considered facts. Where I come from in the midwest, and most other places I’ve lived, if you make 100k or more, you’re rich no matter how you slice it. If you make 100k a year you’re already making more than about 90% of the country does. And if you’re having money problems making over 100k a year, maybe you should sell that summer home that you really don’t even use for anything more than bragging rights. Maybe downsize they number of vehicles you own. Do you really need that convertible corvette that makes you looks like a creeper? I know lots of families with children in their homes that make around 40 – 50k a year and they’re considered upper middle class. The only people making half a million dollars a year and still complain it’s not enough, are greedy people who care about no one but themselves and don’t care who they have to step on to get it.
I agree. Rich is subjective and being rich definitely depends on where you live as well.
For example, it takes about $300,000 a year to live a middle class lifestyle in a big city today.
I encourage people to make their money in a big city and then geoarbitrage to a lower cost city once they’ve had their fill.
Do you have a formula for what you believe is a healthy amount of debt to leverage based on risk and reward? I’m currently leveraging about 350,000 dollars of debt in real estate. I’m only 25 years old.
In general, limit borrowing to no more than 3X your annual gross income while having at least 6 months of living expenses in cash and liquid securities.
Not all debt is rated equal either.
Agreed about the creeper in the vette! When I dreamt about lots of money it was about fancy things, then when I made money it was about peace of mind. Realized the fancy things weren’t as important as I imagined. Net worth is now $4.6M and I drive the same 2010 4Runner and wife’s in a 2015 Highlander.
A different perspective on being rich in the US: No debt. Well, ok you have a mortgage on a house that has appreciated considerably in the years you owned it and you maintained it well. Even if you don’t have a six figure income, if you have no credit card debt, no student debt, no car payment, you have a couple of months worth cash on hand and you have a decent 401K with your employer, you are much better off than the average American family. I consider it rich because you can go to bed every night without worries. That’s a big thing because no worries is good for your health.
The middle class in this country is shrinking day by day and it’s just plain sad and WRONG. Why is it that someone who makes 50K a year has to struggle basically? This bothers me to no end, hopefully one day we’ll find a solution this has to end.
Cut wasteful government spending . Get ride of the public schools and make it competitive again and accountability . Then you will have a simpler system that can thrive in the free market which creates more opportunity for everyone to make more money.
well in this case there is no such thing as inflation gas still costs that silver quater from the 80’s so as silver and gold prices go up other prices go up
I think to make things VERY SIMPLE. If you are in the top 1% in income or net worth in your region, you are considered rich. It makes no sense to compare income of $500K in SF or NY to $500K in Ohio. Purchasing power is vastly different and your level of wealth is always relative to others. So go find what is the top 1% (of individuals or households) making in your area and you will know how you are doing. I am in the 1% in my region (California) and I have more than I can spend in this lifetime. If anything, I need to set up a good trust so the future generation doesn’t waste it and can appreciate it.
I prolly will never have what you have but I invested at 18 and at 35 I got a million in stock dividend payments and tons more in stock assets I am gonna start selling down to about 200,000 in stocks and start the drip accounting again. It blows my mind that I am literally 5-10 richer than any person I know and that I literally earn 30k after taxes a year just sitting around before investment returns. I only spend 15k a year and that I am richer than every person I know. I try to explain till I am blue in the face to these kids that the only ones that should be taxed are those over a certain income but they have a mindset to just blow through cash, most earn more than me short income wise but have no cash cuz they just waste it on arbitrary crap and moving around. It scares me cuz I got my wealth by slowly reinvesting less money than most people I know waste and wisely saving any gift that rolled my way (luckily my grandmother taught me about stock trading) and any time I worked it was also reinvested. I refused all of my working mans 30k trust fund and insisted that it be invested in proctor and gamble, 20 years ago. then apple, microsoft, chevron, ibm, disney, intel, boeing all about 15 years ago. Not one of my picks tanked, all were ringers….. not everyone gets to be that lucky and live like that.
Good for you! Back when I used to work at a company as a Sales Manager, I tried explaining to the team (people in their 20’s just out of college like me back then) that if they could save up $50K and put it away in a 401K or IRA, it would be worth millions by the time they reached 60 and would retire wealthy. I would say out of 40-50 people who heard my explanation of interest compounding in the stock market, maybe 1 or 2 actually grasped it (and we are talking college-educated people). People are not financially equal because most do not pay attention. Most people spend and spend to the last cent. That’s why few of us are meant to be wealthy but most will not. They will work and work until old and wonder how people like you did it.. if only they would have paid attention!!
Hi
My take is that it does not matter how much income to be qualify as rich. This is entirely up to each individuals’ perception.
WTK
Sam – interesting post. I appreciate your work but feel sometimes you need to be more precise in your choice of words. This caught my eye from the beginning of the post: “The government still harkens back to its old days of believing one spouse should stay at home”…. Is that ideal (of at least one parent to tend to the children) not what you have voluntarily come to the conclusion of, at least in the short term as your son in young? Perhaps there some wisdom in government policy.
Additionally, I encourage you to take a look at the Book Coming Apart by Charles Murray – there is no technical definition of a middle class, never has been.
It’s one of those things that’s up for debate. I believe 1 + 1 = 2 because I believe men and women are equal.
But the government believes 1 + 1 = 1.21.I don’t think that’s right. The government should let us decide how to live our lives.
Related: The Average Net Worth For The Above Average Married Couple
Maybe what they should do is giving you the option of ‘filing separately’ if you are married. Without the “married filing separate” penalty of course! Reason being: there are some tax benefits out there for low/middle income families with children that would be less available or more difficult to administer (e.g., child tax credit, earned income tax credit, double standard deduction for MFJ couples, etc.). Not a big benefit but hurting the MFJ couples in the low/middle would be a shame just for the purpose of evening things out in the upper-middle/rich brackets.
P.S. – I really enjoyed Coming Apart. It’s worth a read.
Single means separate house, furniture, bills etc.
Married means shared house, furniture, bills etc.
Single therefore means more expenses.
It’s an apples to oranges comparison when we assume things are equal when married.
Not sure why people find this concept hard to understand other than wishing that their personal situation is treated better than someone else’s.
e.g. a single guy might say, but married couples don’t have to pay two mortgages etc, and, he’d be 100% correct.
Assuming 1+1 = 2 here is giving all the benefits to the couple, and all the disadvantages to the single. It would be unrealistic and unfair.
Great points across the board. Interesting take on the different political regimes and what they consider rich in America.
A super relative concept I think, and room for debate on actual numbers presented, but great example of how to blow through $500K a year in our consumeristic, short-sighted society overall.
I think you hit the nail on the head with the 34k after tax amount for a single person. If you push that forward to a per person amount in a family you are doing well. Hell when I was poor, single, and happy I was living on 32k before taxes. Had a lousy studio apartment in the bad part of town, shopped at the cheap grocery store, cut luxuries like cable and internet. That insured I had plenty of money to invest and buy beer. I had tons of free time to read, fish, and do anything I felt like.
Now I have a “real” job and I have to manage ignorance and laziness.
Kids grown. Home owned. Cars paid off. Retirement in a few years and take home income goes up 50% the day we both retire. We are going to do some serious traveling, freed from never being able to be more than a couple weeks out of the office at a time.
Next step after that? Get a primary residence somewhere besides this coastal northeastern state, one that has lower property taxes. Aside from dividend income and occasional changes to non-retirement fund investments, retiring pretty much makes us immune to this state’s income tax . . . but only until we have to start taking RMDs at 70.
That’s a still a very comfortable distance away, but even so, what they call property taxes here are what we called mortgage, taxes, and insurance, for a house twice the size (and half the cost) in the state I’d rather call home.
The the trick is living to 116 when the RMD’s end (just as they empty the last of the non-Roth retirement accounts) and we are worth a couple hundred million, even adjusted for inflation and index fund returns. May take awhile. I’ll try to be patient.
Sounds like a rich life to me. Can you elaborate more on how you feel regarding the kids been grown up and I’m assuming independent? I’m imagining that I would feel a little bit of sadness, but also Full of pride. With no more responsibility taken care of children, that’s got to feel quite rich no?
Well, both of us had bad first marriages and spent the best part of a decade each as single-parents. Her with two boys and me with two girls. Mine ran away from their mother, who had primary physical custody, due to her worsening mental problems (I only got her to leave them alone by agreeing to continue child support until both were out of high school and/or 18) so having them both become “of age” was a huge relief as it removed any threat of her occasional continued attempts at emotional abuse (and they will ALWAYS be my girls). I celebrated by taking a cruise (my first “grown-up” vacation in a decade or more) and met the woman I am now married to.
This past year her older son gave us a splendid granddaughter, and my oldest daughter just announced she is expecting in 3 months. Grandkids are great. It’s just like I’ve heard many other grandparents say: “All the fun and joy of having your own kids, then you get to send them home and take a break.”
My wife’s dog died shortly after we met and she kept talking about getting another. I finally caved and agreed and then she announced she wasn’t ready for us to tie ourselves down like that. The freedom is magnificent, the only thing left is to free ourselves from not being able to take a vacation for more than a week or two at a time (and not enough of them, at that).
On the other hand, we refuse to wish our lives away. Even while we are still working, we try to savor every day and fill our lives with all the positive new experiences we can as well as spend as much time as is feasible and desired with both our kids and grandkid(s), and with our surviving parents.
Very interesting to read the article and all these stories from the comments. Reading about those $300-500k yearly salaries and millions of dollars some of readers accumulated, only for a moment I felt not so well off, but then I remembered how privileged I actually am and that I should never compare myself to others, and that same amount of money has different value based on costs of the country and city one lives in.
Here is a non US perspective. I’m 32 years old male leaving in one of Eastern European countries. Married with one kid.
My net worth is at about $1.2M, consisting of cash, investments and real estate equity. Beside that, my wife and I also fully own 2 flats, total value of about $500k. However, the flats were gift from our parents, and because I like to keep track how much I made myself, I didn’t put that in my/our net worth, while ultimately it really is.
I’m also driving a luxury sport car which I bought used a year ago, and which has value of about $45k, which I also didn’t put in my net worth as for me the car is a necessity, and I don’t consider it liquid – I will only sell it to buy another one, so it’s never gonna be a cash or cash-bringing asset I can count on (except perhaps in extreme circumstances). I really appreciate and enjoy that car, but will replace it with new fully electric one for the same or even less money then the resale value of current, in order to get cut on fuel expenses almost completely.
Now, the average take home salary in my country is $1,000 per month.
I never really budgeted or kept track of the costs, as I currently have a lot of one-off monthly expenses (new flat furnishing, costs associated with new investments and opportunities, etc.), but I’m quite sure my family can live fairly comfortably with total of $3k per month here.
Worth mentioning, having lived in 3 different Western European countries, also few months in US, and traveling enough to see many others, I enjoy living in my country and lifestyle here, and don’t really want to live anywhere else again (at least for now).
I only worked as FTE for 6 years in finance in few west European countries, and my last salary was about $100k gross. I quit my job and industry at age of 30 (didn’t like it, boring, and I couldn’t imagine myself doing that for the next 30-40 years, heck, even for a few more years. Come to think about it, I didn’t even want to wait for a few months more before I left in order to get a year bonus), and due to a split of circumstances I never got a new job. While I was working in finance, I had a business idea and founded a startup on the side, which didn’t work out and that attempt costed me $20k total. I also moved a lot for jobs, traveled, made one badly timed mutual fund investment, and it all took toll on my savings. By the time I quit my job, I didn’t have a lot of money saved – about $25-30k (and iliquid real estate equity), which was okish given circumstances and that I only worked full time for 6 years. I had no debts, except for mortgage payments on investment real estate I bought few years back – with 5% down payment being gift from my family (total of about $80k).
After some testing, I took that $30k and invested it in crypto in mid-2017. Crypto became obsession and full-time occupation. Beside investing, I also started side business within that industry that did well and probably accounts for at least 50% of what I made.
Come to think about it, it’s hard to believe that it was only 2.5 years ago.
In those 2.5 years I made close to a $1M from investments, lost most of it when bubble popped in 2018, and then made most of it back once again. Extremely costly lesson and experience that I truly value and appreciate, especially for happening while I’m still relatively young. I learned the valuable lesson and hopefully that experience shall serve and guide me well through future market bubbles and economic boom and bust cycles.
Now I’m focused on preserving the accumulated capital and creating passive income streams, partly by streaming capital to real assets like real estate/vacation homes for renting and flipping, and starting some cash-flow heavy businesses.
Goal I would like to reach over next 10 years is net worth of $2.5M+, and $120-240k passive income per year, without taking excessive risk.
But financial goals aside, not having to work for anyone else, having found a soulmate and a great life partner (extremely important as well), having a lot of free time to be able to be there with my family and watch my son grow every day, while working full time for myself and doing what I like (building wealth by managing my own portfolio, investments and discovering new opportunities) is invaluable in itself. Because of all that, I consider myself very rich and grateful.
Site like this and experiences from others helps me to keep focus and objectivity. Even writing about my own experience helps- makes things more clear and puts them into perspective.
I forgot to add that schools here are good and free (!), even universities are almost free.
Healthcare is decent and also almost free. There is no annual property tax as well.
Childcare is also much less expensive than in US, but still expensive for average $1,000 take home monthly salary. Salary tax deductions are higher though, and there is no 401k, deduction for pensions are relatively big, and the final value you get when you retire is small, not to be compared to 401k or other private company pension schemes that exist in UK for example.
I went to FinCon this year (the large annual finance conference) and had a chance to see the opening keynote speaker Ramit Sethi (of I Will Make You Rich fame).
He had the best definition of being rich. Having a rich life is having the means to do what you want with you time or provide for your loved ones without feeling guilty of the amount spent.
You can make a lot of money and not feel rich (JP Getty was famous for saying More to the question of what does he want after becoming the richest man in the world. He was never satisfied and obsessed with money. That is not a rich life).
Examples Ramit provided about a rich life were simple things like if you have a difficult time choosing which appetizer to get, get both. Taking his in-laws on a luxurious trip with him on his honeymoon, etc.
I feel like I have a rich life not because my income qualifies me as being rich, but because I can go on vacations that I feel like I don’t have to compromise on what I want and to eat at great places without looking at the cost of it.
Another great bit of advice I learned from his presentation was that spend 10x of what you do now on things that you absolutely love and cut mercilessly on the things you do not.
I won’t be attending FinCon
Why not?
I assume Sally is commenting based on quality of presentation discussed. I agree with Sally. If the presentations are similar to this Ramit Sethi character, I see little value. What the hell kind of advice was this?? Sounds like book sellin gobbledygook.
Makes sense. I would also feel very rich if I was able to write a book on how to get rich, despite being a recent college graduate, and then getting rich off the book and courses! He was one example back in 2008-2009 when I realized I should start Financial Samurai. If he could grow an audience as a recent college graduate, I figure I could as well after 10 years working in finance.
Spending money on what you love is a no brainer. Hope you had fun and got inspired at the conference!
Wow. Didn’t know that book was written as he came out of college. Well the best thing that came out of it then is that you were inspired to start FS.
Definitely was a fun time, mainly hanging out with people I have developed online relationships with that I was able to solidify into actual true friendships in person. I gravitated to the other physician bloggers naturally (can you believe there were over 20 of us?!?!?) and was cool to find out the real identities of some of the anonymous onese.
In my opinion, you will never feel rich until you are 100% in control of your time and have the freedom to do whatever you want to do.
I have a ton of friends in private equity, hedge funds and in banking. They all make $500K+ and feel like they are middle class. Now people may think that they are rich based on how much they make, but they sacrifice a majority of their time and life to their jobs.
Once you build a substantial passive income stream to live off of, then you are considered rich in my opinion.
It’s also because they are surrounded by many people who are making $1M – $10M a year.
But having 100% control of time is key as I write in the article. I feel richer than my friend who is worth $500 million b/c he goes to work every day and is not happy having to answer to thousands of people.
Very very true. People in this industry are always comparing themselves to those making more than them.
Never satisfied!
Hi Sam,
I’ve read your articles for quite some time. I like you- like your philosophy but I just don’t understand your budgets. They’re incomplete and leave out quite a lot of everyday expenses. IMO
In the example above, I’m really struggling to understand how a family making 350k can afford a 1.8 million house? In your budget, you have them paying a mortgage of only $3900 a month. I’m not doing the exact math but they would have had to put down over a million dollars down payment to achieve this…so either they were gifted this generous sum or had other spectacular investments allowing them to achieve this. I know people DO have these conditions it’s hardly the norm in this HH income range. Especially considering that this level of achievement typically necessitates a considerable education investment.
I live in the mid-west, Cincinnati to be precise. We’re a family of 4 and have 2 small children. Our HH income is 250+. We live in a home slightly over 350k that is tax abated and by the time both of us max our 401ks, my husband continues to flex and FSA and we pay for childcare there isn’t a ton of expendable income.
We’re fortunate absolutely. I would never -ever- (for emphasis) classify us as “rich”. I can’t fathom how a family making in the 200+ range could ever get the upper middle “stamp” in a coastal cost of living region per your tiered representation above.
It’s possible that our lack of aggressive savings in our 20s and student loan debt we’re currently wrapping up paying causes us to feel less wealth than similar income peers…but probably not much.
Any thoughts?
Thanks for taking the time to read! Appreciate you!
I live in high cost north jersey. You are full of it. Making 330k and 700k home along with a 4 family investment property I bought back in 1999 when I was 19. I’m more than fine. I consider myself rich. Living in a 350k home clearing 250k a year, and not rich? What do you do with your money?
I feel I’m rich. I live on a beautiful lake in Michigan in a home that is paid for, during the summer, and a very nice home in Naples FL, on a gulf access canal, love to fish. I am 81 years old and my net worth is approximately $5,000,000.00, made up of utility and sin stock investments, and my two homes.
I have been retired for 21 years, and have not had to draw down on any of my assets or investments, due to a passive income of ~$180,000/year.
I truly believe the Financial Samurai proves a tremendous service to it’s readers, of which I have been one the last ten years…Thank You. Please don’t ever stop.
Can I ask you if your net worth is $5M total, what is the total value of your 2 homes? Just curious. Do your homes represent 20% of your total worth? Also how did you get $180K per year in passive income. My goal is to have a net worth of $5M and a home in Florida (tax purposes) and the Midwest so your advice would be appreciated!
Thanks!
Sure, My homes make up ~15% of my net worth. My net worth would be much more if I carried them at market value, but I carry them at the value that I am taxed. This is at times less then even the appraised value.
The other thing is that I bought the MI. home in the early 70’s, and the Naples home in the 90’s. both are at a very low tax rate.
Thanks!!!
The problem is that “rich” is a function of “net worth” and not income.
I think most reasonable people can reach a conclusion of who is rich by having an agreed upon threshold for “net worth”.
Specifically, “net worth” here would be:
NetWorth = TotalAssets – TotalDebts – CostOfHomeYouWouldWantToRetireInOnceYouStopWorking
True in many ways: https://www.financialsamurai.com/focus-on-building-net-worth-more-than-growing-income/
I am an “e-merchant” and have income that ranges from 500-600K per year. However, I am not counting capital gains and I think that should be taken into consideration for retirement purposes. On a “good” year where I can 10%, my net would shoot up to a bit over a million, a slow year would be 5% which would translate to 700-800K. So I think once you have that capital cushion it really alters the actual net income as most people perceive it. With that said, I could have retired years ago but I enjoy making money being a business owner.
Want to tell me what a ‘e-merchant’ consists of?
Selling stuff on the internet. In the early days, it was internet hosting services. Nowadays is physical merchandise.
I’m curious what would level would you consider someone that was living purely on interest from their savings? For example someone who had build up a savings up to 2 million dollars and was living on 4% interest per year which would be about 80,000 dollars and not touching the principal.
Anything that is enough to live on and never touch principal until perpetuity.
See: How To Build Passive Income In Order To Retire Early
“You will never get rich working for someone else.”
Sounded like total BS, he doesn’t work in tech sales I smugly thought. 10 yrs later my wife and I make $800k/yr living in San Francisco and the Samurai’s “barely making it on 500k” post was freakishly accurate. We feel very comfortable and fortunate (I know being raised on 18k/yr) but I will never feel rich until I can live a good life not at the whims of my employer.
I think someone who makes 80k passive and needs 60k to enjoy his life is richer than I am. My number is 200k passive, saving 50% of gross working on it! BTW new to the site but loving it!
Welcome to my site! It’s funny you mention you want to have $200k dollars a year in passive income because that has always been my goal as well since I left the grind in 2012.
Here’s my 2018 passive income update hitting $200,000 again: https://www.financialsamurai.com/financial-samurai-passive-income-update-2018/
My numbers are similar to Toms. I know this seems like a lot of money to most people, but it doesn’t “feel” rich. You don’t have to worry about paying the monthly bills, but I still buy used cars and shop for lower prices on things we buy. My goal is to have my house paid off and $5M invested. That will make me feel FI, even if I keep working.
You and I are sailing in the same boat David
First of all, I don’t understand how you can live on 30k when the average health Insurance plan is about 10k for your Income level. I know you have already subtracted federal, state and property taxes, because that is more than 30k. I also think most people underestimate the cost of children. You can give them the minimum, or you can pay for lessons ($60 per violin hour) and educational goodies that most kids thrive with. When you do have kids, things change – what if he/she needs expensive therapy or wants to go on that high school trip with the band? Or refuses to make his own lunch and needs lunch money? I applaud you keeping touch with your roots and saving for a rainy day. But I do know elderly millionaires who won’t even spring for a hearing aid. And I did know one who would not fix his plumbing (no running water or toliet). Don’t become too thrifty, unless of course it gives you great pleasure. I would do the vacations now because they get very expensive with a family of 4. Obviously you are very good with money, so I wouldn’t worry about becoming poor again. I grew up that way as well. I still remember the wish list of clothes I wanted for school that I did not receive (I circled them in a catalog)!
Great analysis from the old vault of Samurai ^_^. I can spend forever reading all the comments. I’ll chime in…
Our family makes 250k so we’re right on the border of Obama’s definition of middle class. But to me, middle class stops and tops at $150k. You can have all the comforts and some leftover to cushion yourself at $150k even with a larger family.
Our family of 3 lives on $30k a year (including home mortgage). Our expenses are pretty low. Without the mortgage we can keep under $1,300 a month. I’m not saying this to bronze my frugal badge, a race to the bottom of how lean you spend money is dumb. But we choose to live this way because it’s easy to be out of touch. I don’t want to forget who I am…the girl from the wrong side of the tracks.
Anyways, there’s not much we want that’s appealing to part with the money. I enjoy grocery hunting for deals, it’s a fun game for me. Vacations makes me nervous because I’m not productive during. Having no kids saves buckets too. We’ll have our children attend public school when the time comes.
So adjusted for our standard of living, I consider us rich. I wonder if we made $800k a year would our spending change much… probably not?
OH, having no kids makes a huge difference. No music lessons? No sports? What if they need specialized care your insurance doesn’t cover (eye training for problems tracking sentences for example). Wait for high school and college lol.
My kids are in their 30s now and cost for college was $185K including cars food book tuition – other emergencies happen and helping the people you love has its joys – not saying anything against building wealth – I am learning more about how to invest to get a higher % on the wealth acquired – without paying someone else to manage my money
Lily – It’s easy to be rich if you don’t mind living around poor people! Did that in DC for 6 years. Never again.
Am I all wrong or is everybody else crazy including the host. To me u cannot compare incomes in different parts of the country. You must compare disrectionary income after ones basic expences. That should be similar in likeness across the country. A European vacation or a lexus is about the same in Alabama as it is in California and so forth. That to me would be a much better way of telling if someone is rich or not. In my opinion If you can come up with 10k a month or 120k a year to spend on whatever floats your boat you have to be considered rich, not filthy rich but for the ordinary Joe, rich. That could be as little as 120k living off of mommy and daddy or 500k in SF with divorce and child support payments and a trophy wife with a couple more kids. To me it is all relative to what you have at the end of the day to spend on what you want, be it a vacation home , investments or a couple trips to the nude bar, whatever. My situation is i’m 60 been retired 4 years net worth 2.4m retirement assets 2m. I live on 105k yearly because that keeps me in the15% bracket. I spend only 2.5% of my retirement assets. I have 50 to 55k in discretionary income and have trouble spending that. I still am a value shopper but there is just so many vacations you can go on in a year. Life time habits are hard to break. Never made more than 89k. Lots of overtime. My wage was in the low 60’s when I left work. I live in a 275k home, slightly above the area norm and I always said pay off debt and spend below your means and save. Even with normal income over time you can accumulate a lot of money and still enjoy life. I always bought brand new homes and cars and paid cash for them, except the first one. I did have a mortgage for 7 years in the 80’s. Remember intrest rates were 12% back then. Be a smart shopper and and even smarter invester. I have made more money with investing that every cent i ever made on a paying job. Just my 2 cent. Thanks for listening
Your savings is impressive – you must have made some great choices – giving your salary and retirement fund, you must have done more that throw it in a 401K in a target mutual fund – Kudos to you!
Rchinpg – Rich is definitely a question of net worth not discretionary income. My household generates $10K in disposable income per month but it’s amazing how easily we dispose of it in our upper middle class Northeast neighborhood.
Rich is being able to cover all of your expenses with passive income. F you money. It would take us another 15 years of $10K per month surpluses before we had a big enough stash to be rich.
Your article makes me want to move to America. I live in Montreal, where Quebec’s highest income tax bracket starts at 104,000 and Canada federal highest income tax starts at 202,800. Salaries in Canada are generally lower than American and tax is much higher. So harder to save and accumulate wealth.
that’s what will happen here too if we get Medicare for all, free college and whatever else they’re trying to give away.
I’ve pasted the comment below from the original post I stumbled upon. All I can say is wow. Good job. Wish I was that good at write offs. Instead I pony up 35% of my revenue…….after all possible write offs. Guess I’m doing something wrong. Not so sure about deducting partially anything from income because you are a business / LLC. It still is to be a legitimate business expense.
After the accountant is done, I only paid taxes on 117k of the overall amount of 340k income.
It all varies per case, I have a business and a LLC so I can deduct practically anything from my income… is different when you have a set salary… you’re screwed.
I consider myself rich, point and simple.
– See more at: https://www.financialsamurai.com/how-much-income-do-you-consider-to-be-rich/#sthash.zE5kWP1q.dpuf
So if you get audited, will they find you overlap expenses? You make much more than us and we pay taxes on double that.
For all the commenters who are arguing that $250-400k isn’t that much in manhattan or sf – YES, IT IS, and here’s why. Living in those places gives you instant access to all the best culture that the world has to offer. Everyone else has to pay thousands to travel to those places to get that. You have chosen (wisely, imho) to pay big $$$ to have access to all that great stuff. To say you aren’t really rich because housing is so high would be like someone with $300k income in Alabama saying they weren’t really rich because they had to buy a boat for $150k so they’d have something fun to do.
I live in NH, which is a high-income/high cost of living place. Not manhatten or sf high, but high. I feel very comfortable with my $140k household income with a wife and 1 kid. The fact that we have 3 pensions between us that will replace about 80% of our current income and 2 401k plans makes me feel downright wealthy.
In my job as a high school teacher in Manchester I see what most people experience every day. 60% of the kids in my district receive free or reduced lunch. 25% live in poverty (less than $35k for a family of 4). Think of that the next time you want to complain that there just isn’t much left over after the $90k you spent on private school for your kids or the $700k you had to pay for a 3 bed 2 bath in a gated community.
Have you seen this post Fred? https://www.financialsamurai.com/how-to-make-six-figures-a-year-and-not-feel-rich-200000-income-edition/
Sure, the example family in the article are not rich, but you really had to hunt for a very narrow demographic to try to make your point. And nobody said $200k was rich. What if that same family made $250k? They’d have heck of a lot of disposable income. Some might even say they were rich.
The vast, vast majority of Americans, even in expensive areas, would be pretty darn comfortable with $200k plus incomes. According to the wsj, the Manchester-Nashua metro area (where I live) is the 10th wealthiest metro area in the country. I feel like I’m in the upper middle at $140k/year, and I say this as someone with many friends who earn much more.
People in this country need to start caring about the crazy high poverty levels here (much higher than any other developed country). It isn’t all the result of laziness, some of it is caused by those in positions of power taking way too much for themselves. Your website is contributing to the idea that too much is never enough. You’re really just trying to find a moral justification for selfishness.
Interesting comments coming from a TAXPAYER funded, public servant. Of course,you think society (i.e gov’t) “owes” everyone a certain Standard of Living.
Get a grip, your Socialist mindset does not work unless you are on the public dole. This website and others are all advising others to create enough value by providing goods and services for which one can then draw wealth out to whatever degree satisfies them.
Instead of whining about how greedy America is, get down on your knees and thank the TAXPAYING citizens of your town and state for providing YOU and YOUR FAMILY with the nice lifestyle including your pensions. All courtesy of the taxpayer.
Man- I get tired of pompous Union public servants, especially those who are busy brainwashing children with Democrat Socialist myth.
The median price of a home in Manchester is $309,000. The average price of a home in manhattan is $800,000. Expensive is in the mind of the purchaser.
That’s a great point that you make. High cost of living cities are rich in amenities and opportunities. If they don’t add up for you, “get out of Dodge.” Or maybe move to Dodge City where the cost of living is probably very low.
I have a friend who is rather anti-social. I haven’t seen him for years even though he lives 90 minutes from me and 45 minutes from our other friends and work. His house is probably 1/4 the cost of mine. He is quite happy (presumably) living in a more remote area.
His income is slightly lower but his cost of living is a lot lower and his house is bigger. However, since he didn’t kill himself to get a large mortgage like the rest of us, he also has a smaller net worth because of less home appreciation.
Fred – You are not factoring in the cost of kids into your equation. In most places in America, $250K is enough to afford a very nice home in an excellent school district or tuition at the best private schools. In Manhattan, quality childcare (if you can even find it) is going to cost about $50K per year. A 2 bedroom 2 bath 1,200 sq foot condo in a “decent” neighborhood is going to cost about $1.2M. Childcare alone is going to eat up about 40% of your after tax income, and mediocre housing is going to eat away another 40%. Other bills will eat up most if not all of your after tax income. All you’ll save is your max 401k contribution if you are smart.
So on $250K, you are living a similar lifestyle to a lower middle class family everywhere else in the country.
Also, the idea that you are so lucky to live in Manhattan that you never need to go on vacation is ridiculous. Our friends that live in NYC literally travel 15 weekends per year because the city is so crowded, disgusting, and stressful that they feel the need to spend $15K on travel just to retain their sanity. Tiny apartments, horrible weather, insane prices for everything. What a nightmare.
I make $450~$550k/year as a software engineer in silicon valley; single w/o kids. My starting salary was ~$85k less than 10 years ago so I’ve experienced almost every income level described here with comparable living costs.
When I was making between $85k to $150k, I had to be very careful with my spending. I had to constantly worry about how frequently I eat out, what kind of clothes I buy, and whether I own a car or not, etc… I certainly could not shell out a $200 dinner every month.
Then I stopped worrying about price tags on groceries, clothes, etc… when I started making ~$300k/year. At that income level, I didn’t care whether I spent $10 at McDonald’s or $200 at a stake house. I could go on any fancy dinner I want, and I didn’t have to worry about it if I didn’t do it every week.
Once I started making $400k+, I started to feel rich or entitled. I was willing to pay premiums for more luxurious services like airport lounges, and I didn’t mind spending another $1,000 at a different hotel if the hotel room I got in advance was unsatisfactory.
However, I still think your expense estimate is a bit too high. I can assure you that spending $70,000 on rent/mortgage is a financial suicide even at $500k/year income level.
For me, I’m still careful with my travel budget, drive an entry level luxury car (~$40k), and my rent is ~$2500/month. As a result, I “only” spend ~$85k a year and saved ~$300k (including 401k matches) last year alone.
You’ll enjoy these two posts:
Scraping By On $500,000 A Year
and
When Is It OK To Forsake Stealth Wealth And Live It Up A Little?
Yeah, those were interesting posts to read. I think one big different might be that those of us who work in Silicon Valley tend to have a shorter career cycle & our income tend to be a lot more volatile than those who work in other sectors.
It’s not uncommon for someone fresh out of an undergraduate CS program to hit $300k mark in a matter of a few years. I even heard of a Ph.D. student getting offered $10m worth of company stocks. (The most shocking part of the story is that the guy didn’t accept it!). At the same time, it’s possible for someone comfortably making $350k to get laid off one day, and left unemployed for years if not indefinitely if he hadn’t updated his/her skill set. iOS / Android app development wasn’t even a thing just ten years ago.
I can probably sustain my income level for another couple of years, but I can’t imagine doing so for the next ten years. As such, we’re a lot more conservative in how much we spend. In fact, I know many of my colleagues must have at least 5-10 million dollars in their investment / bank accounts (due to the company stock going up). But some of them still drive a Toyota and live in a rent-controlled apartment.
Also, for many of us in Silicon Valley, the fact we make so much money is almost a side effect. We’re lot more focused on working on an interesting project / product. I honestly don’t know what to do with all the extra money I earn. So in short of throwing my money away or spending on useless things, I just save them to prepare for a layoff or an early retirement.
Damn. I live in the wrong place. Software engineers in the midwest can start around $90K, but top out around $150K mid career and then are pretty stagnant.
To me “rich” means money is no longer an object. You can pretty much do whatever you want when you want, including not working any longer if you so choose. If you don’t have the capital built up to quit working, you aren’t rich no matter how much income you are generating.
For example, if you’ve racked up $200,000 in student loans going to law school or medical school, plus another $100,000 in credit card debt and buy an average house somewhere like San Francisco at $1MM+ you have a ton of overhead you have to carry such that even if you are making $500k per year or more you can’t stop working because you incurred so much debt to get you to where you are. In that example you can’t be rich until you’ve earned enough to pay off those debts and then accumulated a substantial capital base such that you could stop working if you wanted to.
Excellent Point – BTW it is called “F— Y–” Money LOL. As seen in the Movie the Gambler, John Goodman — “That puts you, for the rest of your life, at a level of f— y–. Somebody wants you to do something, f— y–. Boss pisses you off, f— y–!” That number is different for everybody – but it comes down to acquired wealth and unearned income from investments.
You’ll like this post: Once You Have F You Money, It’s Hard To Tell Others To F Off!
Invaluable article ! I loved the details , Does someone know where my business could possibly get access to a sample TX TDLR 043AB version to work with ?
If 50 grand a year is lower middle class then that means being average is no longer middle class. Middle class is suppose to be the average (therefore 50 grand a year). If solidly middle class is 100 grand you need to make double what the average person makes to be middle class. There’s something wrong with this picture.
Someonuser – We pay $50K per year on childcare. Haven’t seen a solid house in a bad neighborhood for less than $350K. $100K is lower middle class maybe even poor.
Hi , guys! Firstly , wanted to thank finsamurai dude )) I really like the article , learned a lot ! Secondly , want to ask you : ” What major I should choose to become rich ? I know doctors , especially neurosergeons , earn a lot , but it’s just not my field … I would love to own a business , maby even more than one , or a company . But I also need to think how I should pay my loans after I graduate .
Basically , I need to choose a major in
business field , so after I am done with paying those loans , it could help me in my own business and it has to be specific major , because , I think , nobody needs a person with business , or economics degree . Tell me if I am wrong , I am flexible and I trust you . Also can I start to earn a lot of money now , not like an average student . And by the way , I am in the 11th grade . And I also thought : “what if I run a landing page ?”
As you see I think about it a lot and I also did a lot of research , but I need an advice of a wealthy man … ! Appreciate any advice !
I know this sounds cliche, but it’s 100% true: Choose a major (or any form of education) that will help you start and run a successful business (of any form). Very few people become rich being wage earners (the typical lawyer, doctor, tradesman, path). And the ones that do, are the ones that have their own firm or business. As long as you are a salary / hourly wage earner, there is a cap as to what you can earn (i.e. there is only one of you and only so many hours in the day). Your time is a finite 24 hours per day, but once your money works for you, that time becomes infinite. Owning a business allows you to make your money work for you, instead of you working for your money.
HOWEVER, If you are completely set on getting a typical degree (law, medical, etc) at least make sure your end goal is to own your own firm or practice. Or invest the money you earn from your 9-5 into creating a business. And don’t stop there. Make sure you’re not a slave to your business. Invest in people that know more than you and pay them to run the business. It sounds difficult, but it’s actually a very easy model.
This is why you see a lot of people recommend real estate as a way to get rich (I personally am not a fan because you are limited on how good your credit is). But either way, the concept is the same in any business, whether you’re a real estate investor or otherwise: your money is making you money, YOU aren’t making you money. Once that concept sinks in, your revenue cap basically becomes pretty limitless.
This is coming from someone that works a few hours a week, and owns a multi-7-figure per year business. And I’m not a money genius – I’m actually just a regular 35 yr old man with an average IQ that followed a simple plan – and refused to give up at the first sign of trouble.
Thank you very much for your advice !Very good point !
If you are not conventionally or academically smart you may have a better chance of getting rich through business and entrepreneurship.
I banking, private equity, finance recruit top students from top universities. Getting into med school is no chip shot, and getting into neurosurgery or plastic surgery residency is another level of selection. Same with being a google engineer.
On the other hand my friend who I know academically has no chance of getting into med school is worth about $8 million at age 40. He’s a real estate agent specializing in apartments. Each apartment he broker can bring him close to 100k. He also invest in real estate.
Another older nurse is worth about 20-30 million. She’s been flipping houses for 3 decades. No way she could have gotten into an Ivy or med school. Maybe if she tried really hard, but only top doctors make over 1 millions. Most make $200k.
You said making over 500000 a year is considerd rich. I strongly disagree with that!!
It is all relative to life style,If your making more then 500000 a year, your expected to live a certain lifestyle. Let’s just say I make 800000 a year with 5 kids after taxes that 800000 becomes 432000. Am a religious jew so I have to give another 10% of what I make to charity after taxes, with is another 43000 with leaves me with 389000.between schools and camps that cost me another 90000 that leads me with 300000. I live in brooklyn ny between my house and house bills 60000, that leavs me with 240000.between health,dental, car insuranche ,2 cars and a cell a phone bill that’s another 50000, that leaves me with 190000. Food for 7 people another 50000,that leavs me with a 140000, there is other expenses am not thinking about as a right this message but when all is said and done am left with 60k at the end of the year and that’s if know sudden things come into play like hurricane so u tell me if that’s considerd rich!!! I am not talking reactive to other people it might be called financhel stable but not rich,
Complaining about 90k in private school tuition won’t get a lot of sympathy. Neither will being left with $240k after “house and house bills”.
432k a year after taxes = rich. Not wealthy, because of your expenses, but rich. Seems like you’re blinded by those who aren’t donating 43k to charity and raising 5 children.
Can you do the $200,000 and higher salaries for single individuals? For instance for people who are studying medicine and do not see themselves getting married until they are in their late 30s, but will be making a at least $200,000 ten years prior to that.
Thanks, love the content!
Chicago, IL
I used to be poor. I used to think like you guys until I started my sm business and when it took off and I reached this level of income. It was exciting, I’ve never seen such big numbers but for some reason I couldn’t bring myself to spend (what if the bottom drops out right)? Well it did in a way. It’s not about high income, it’s how much you get to keep. After my taxes were done and I was told how much I felt kicked in the stomach. I was SHOCKED at the taxes. If I had spent the money I would have been in serious trouble. It was a real lesson.
After that I saw income very differently and learned that just because someone has a high income does not mean they are rich. I still feel kicked around each quarter, but I now save and invest to build my wealth. When we have enough wealth that it throws off enough income to support me and my family even if I don’t work (passive income) then I am truly rich.
I no longer have the drive or want to take on more responsibility to grow my company or increase my income and instead my drive is to increase my wealth to create passive income.
– It’s not how much you make, it’s how much you are allowed to keep,
– It’s not how much income you make, it’s the type of income, the best is passive income
– W2 income is the worst.
People need to get a real understanding between high income and wealth.
Very well said.
Erayp, not having to work at all is a great goal. I’m single, 31, no plans for kids, and make $90k in Charlotte, NC. While I do have a fixed-rate 30 year mortgage, I’m happy that I have my very own new 3 bedroom house…room for my Lego hobby! :) I’m able to save some and still have “fun” money left over each month.
I’ll probably never get an indoor pool, elevator, or Lincoln SUVA…but my car is paid off, student loan gone this year, and I’m lucky to work from home for a virtual company so there’s no rush hour or dressing up and I can sleep later.
I could never start a business. I’m too anxious/cautious, not a salesperson/extrovert type, paranoid about getting sued by customers/vendors, and dealing with the IRS once a year is enough for me!
My point is that it takes a certain type of person to start a business. I think the key for everyone though is getting an education, caring about your job/business enough so you won’t hate it and maybe even enjoy it, saving for retirement, and living within your means regardless of income level. No one is safe from death/accidents/cancer or even making silly money mistakes sometimes. We should all strive for more, but free time with good health and a stable living situation is probably more important than tax bracket for most people.
As several others have said, your numbers are way too high. “Upper middle class” and above is generally considered to be “the rich”, broadly speaking. In most places, a single person earning over $100‚000 a year would be considered “upper middle class” to some degree or another.
Jay Wolfe – Most people don’t live in most places, lol. The majority of people now live within an hour of a high cost of living area. NYC has more people than most states. Also, most $100K jobs are located in very expensive areas. In the past year, I’ve heard “you can only make $200K doing that” at least a dozen times. $200K is the new $100K. $100K will get you a townhouse in a stabby neighborhood with three meals of rice and beans.
Sadly you aren’t wrong – Net income about $315k, I live in Northern Va/edge of D.C. in a $600k 3 bedroom townhouse and there are subsidized and “stabby areas” all around me – as well as multi-million dollar homes. Weird area! Anyway, I agree and I’m sure FS has posted on this before; $200k is the new $100k.
Louis Richards is absolutely correct. It doesn’t take a great financial background or a top flight education to know that 200k-300k is wealthy. It’s quite ironic actually. The person blessed enough to have all of this is probably going to be the same person that doesn’t realize how wealthy that is. I have the utmost respect for the people that earn their success and more times than not it IS earned. However one of the biggest issues in the world today is that we actually have people whose reality tells them that anything under 200k isn’t wealthy while there are people who would love just the opportunity to make a quarter of that. I grew up “poor” according to this article. I can safely say that I will have a fair amount of success as I continue my career and will certainly make over 100k a year. One of the most important things that I hope to remember is what a blessing it really is. I absolutely have earned everything I’ve gotten. Yet, I could never EVER claim to have done anything that someone else couldn’t do with the same opportunities that I’ve fallen on. I would have to assume that you are extremely wealthy. You’ve earned it. However, there is a whole world out there beyond the San Francisco’s.
$200-$250K per year here and nope, we are not rich. We live in a moderately priced market in California (3 bed 2 ba 1900 SF home). Have two incomes, two kids in day care, and after maxing out our 401Ks and maintaining the 6 months cash reserves balance, we have very little left over. We don’t eat out much at all. We don’t drive expensive cars (I have a company car and wife’s car is paid off and has 120K miles on it). We don’t go on lavish vacations, or even spend much on gifts and other forms of entertainment. Also, we have no debt, we never consider touching our home’s equity, and save the amount needed to pay for two year old twins attending college at the same time in the future (1200 per month when you use financial calculators and the growing cost of college). So what’s left over after groceries and bills are paid? Not a heck of a lot. I consider our family “comfortable middle” class but definitely not rich. Come over for dinner and I’ll show you!
You are still in the top 5%, believe it or not. That does not make you middle class, although in your area, it would put you in the middle of the demographic. So, yeah, it can be difficult to live on that when you’re expenses are high (I’m in the SAME boat), but we can’t argue that we are middle class! We just live like it – while enjoying what the 5% can – like living in that elite area.
That Guy – $250K household here is that definitely not rich. We max our retirement account, send two kids to pre-k, share 1 leased mazda and live in a 1,200 sq ft apartment. We live on bananas, eggs, and rice and beans. Shop at costco and discount stores. Virtually nothing left at the end of each month. If we made any less we’d have to move to a low income neighborhood and stop saving for retirement.
$100K per person in your household is rich ($400K), $75K is upper middle($300K), $50K per person is middle class($200K). $25K per person is lower middle($100K), <$25K per person is poor. A household of 4 earning less than $100K is definitely poor.
I am sorry, but you are way off. I totally disagree. I am not sure what circles of friends you hang around with. Nor do I know what your personal income level is as well as any of your friends.
But this much I can ASSURE you. Saying $200,000- $350,000 a year is “middle-class” at ANY level is simply an INSANE statement. Comments like that normally come from Rich people… Because that much money is nothing to them and they can only equate it to terms of middle class they are so rich.
I am 54, and I am a working-class man. I am self-employed and do quite well in life. I have been, since I own a service business, into thousands of people’s houses and have talked to thousands of people. I have friends that range from crack addicts to CEOs.
There’s one thing I can assure you, there is absolutely nothing about that income range that equals middle class. The vast majority of people in the United States do not have jobs that pay anywhere NEAR that income level. I don’t know where you are getting these figures at, but they are way off-base.
Not too many people make $300,000 a year my friend. It’s pretty much limited to doctors and attorneys and those type people. The vast majority of this country’s citizens work in the service industry. They are waiters and waitresses, cooks, electricians and plumbers, carpenters and real estate agents, auto mechanics and landscape people. They simply don’t make that income level!
Anybody making a 1/4 million a year in salary? Is Middle class? GET A GRIP. I absolutely guarantee you they are considered WEALTHY in the US of A. And once again, annual income level is a joke anyway. Someone who makes $300,000 a year and lives in a three quarter of a million dollar home, who has no disposable income, doesn’t have much. Somebody like me, that makes $150,000 a year, with $30,000 a year in bills, has much more disposable income and is much more wealthy. Not income anyway, but savings account balances and how much free money they have yearly is the ultimate clue of wealth. I know many rich people, living in million-dollar homes, can’t scrape together $1,000.
I would gather to say, without being too sarcastic, you my friend are a millionaire. Because only rich people could possibly think that income level is middle-class. Talk to anybody who truly is middle-class, and they would kill to earn that much money.
Is your reality more real than my reality?
The median price home in Manhattan and SF is around $1 – 1.2M. That is 4-6X a $200,000 – $300,000 household income.
Take any area in the country, and divide the median home price by 4-6, and I would say that is pretty middle class e.g. $300,000 home = $50,000 – $72,000 household income.
Yes, you are rich, and others are poor. Are you sure you’re not out of touch with reality?
Read my latest posts:
Spoiled Or Clueless: Try Working Minimum Wage Jobs As An Adult
Living In An Expensive City Can Make You Richer, Happier, and More Diplomatic
How To Make Six Figures A Year And Still Feel Middle Class
Are you actually trying to equate income levels with median price home sales??? Listing as an example no yet, two of the most expensive markets in America? That’s what your information is based upon? No wonder it is askew. You want to say for people who live in San Francisco, that is the middle class range, fine, whatever, conversation over.
But using an income level that adheres to a vary narrow and specific market, than using it as a blanket calculation over all of citizenship in America, is not only inaccurate math, but frankly, a very bizarre math.
Have you factored in places like Kansas, Wyoming, Tennessee, Kentucky, areas where there are many other median home prices, or just the two most expensive in the nation?
Of course. Income and home sales are tied. Using ratios let’s you realize that just because someone makes $250,000, doesn’t mean they are rich if it takes 4-6X that level to buy a home. Ratios helps readers who visit from all over America with different cost of living standards. It helps factor in places like “Kansas, Wyoming, Tennessee, Kentucky, etc” as you ask.
May I ask how old you are, and some of your financial and educational background?
So, let me put it this way. I own a 14-year-old, updated home in a fantastic, suburban area. 3br, 2ba, about 1470 sqft on a 14,000 sqft lot in a cul-de-sac. $223,000 with ~$2000 annual property tax.
We bought the house in 2011. I’m in my early 30’s make about $160,000 a year and have been at this income level for about 7 years (I was at about $70k before that), and my wife is a stay-at-home mom (she was a minimum wage earning college student when before the birth of our daughter). It took us about 3 years to pay the mortgage off entirely. We also own outright a 2012 Maxima and a 2014 Honda Fit. Our home is fully decorated, our fridge, freezer, and pantry always well-stocked, and my wife has an impressive collection of shoes and clothing. We take extended (~2 week) trips annually, either overseas or to some other part of the US, and generally splurge but already have just shy of $70k in savings (and growing) not counting my old 403b I rolled over into an IRA and my 401k from my current employer . My wife also just began studying to be a pharmacy tech, which will earn us an additional 30K annually.
We don’t ever worry about money, especially since we don’t have a mortgage or car payments. We knew how to be frugal when we needed to, but that hasn’t been necessary for years, in any way. That said, I certainly don’t consider myself rich, but upper-middle class? Absolutely. We’ve had our eyes on potentially upgrading to a 4-5br 3-4ba, 3000+sqft home in the foothills for some time now, which run about $450,000-$500,000 in our area. Since moving into our home, the value has gone from $223k to over $300K, so it would be a simple matter to use our equity to trade-up and up with a mortgage smaller than $100k.
The house we have now is one that I would consider to be fairly standard suburban middle class, but the houses we’ve been looking at are upper-middle class by any definition.
I don’t care how much these houses would cost in San Francisco, Beverly Hills, or New York City. That is absolutely irrelevant. I don’t live in either of those places, or have any desire to. I love the city I live in, and I have a very comfortable life.
I would absolutely consider myself upper-middle class. I honestly don’t know what my net worth is, really, but I have zero debt, decent savings, a healthy retirement account, and enough disposable income that I don’t even really pay attention to it anymore.
I apologize, but I think this article is grossly out of touch for anybody who doesn’t live in the most expensive parts of the US.
We’re talking about what is considered RICH, not upper middle class.
Sorry, I feel I should clarify – my point is that rich is relative, and ill defined, but that this article also does a pretty miserable job of adequately defining it. I am certain that by the definitions of many, I would qualify as rich. I pay about as much in income tax as my wife is expecting to earn when she starts working her job making well over minimum wage. When I was younger, I would have said that a rich person is someone who doesn’t worry about money anymore, and I’m at that point. At this point, while I don’t consider myself “rich”, I’m not even sure what that means anymore.
Why is $500,000 the bottom range for “rich”? Why not $1,000,000? Why not $1,000,000,000? Even my own definition is arbitrary at best. I’m well into the top 10% income bracket. I make three times as much as the average American, but I don’t like to consider myself rich for stupid reasons like, “Well, I couldn’t really afford a private jet or a 30 meter yacht, so I guess I’m not rich”, while my wife occasionally shops at Agent Provocateur for $300 bras.
Honestly, though, if I don’t consider myself rich at my current income level, I doubt I would at $500k, either.
It’s because you aren’t rich, but middle class, which is something to be proud of. I wouldn’t waste time envying the rich. But to stick to the facts of the article, if you do not believe in the governments definition of rich, the IRS definition of rich, my definition of rich that is fine. But at least try to add some value and define what you think is rich instead of renting against this article. Otherwise you’re just wasting everybody’s time. Come on, step up and provide some value and academic rigor behind the definition of rich.
What I define as rich is largely irrelevant. What I’m trying to get at is that when I was at an income level that was closer to the US average, I would have considered my current income and lifestyle to be “rich”, especially if I lived in one of the houses that we are considering buying (landing squarely in the “Executive Home” or mansionette category.
I believe this perception is common among people in that income category (that is, the majority of Americans). Seriously – ask someone who makes $55k to look at someone with a three year old luxury sedan and a well-decorated, $500k, 3500sqft home, and have them tell you if they consider that person rich. They would almost certainly say yes. I make more money than any of my family or close friends, and I’ve had this debate with them before.
The fact that I still feel that it is debatable is the entire point. Maybe it means I’m out of touch – but my friends and family would argue that I am “rich”, and I would argue from my current perspective that I am not. A decade ago, I would have agreed with them.
I actually just asked my brother about this, in response to this conversation, and I mentioned the houses we were looking at. His feedback was that the fact that the controversial issue keeping us from simply buying one of these houses (which he straight up considers to be mansions) right now is that, if we waited a couple years, we could pay cash, means that we are rich. “Middle class people don’t pay cash for their homes. Only rich people do.” was his general conclusion.
Again, my former definition of a rich person would have been “A person who makes enough money that, given their chosen lifestyle, makes active accounting of their finances unnecessary to accrue savings.” People who live the life they want and don’t worry about money.
My bar for that has moved, though, like I said. Now I would say that anyone who is truly financially independent would be considered rich. If I could retire right now and continue my current lifestyle for the rest of my life, then I would consider that rich.
Again, though, I don’t live in Manhattan or San Francisco. I have a 2500sqft home in Richland, WA. If I lived in San Francisco, I would have to live much, much more simply.
I think that most people in America would agree that what Obama defines as rich is, in fact, rich, especially for people not living in the most experience areas in the country.
You, on the other hand, haven’t actually explained why you consider $500k rich, as opposed to $400k, either. We can throw numbers around all we want, but nothing we can throw around is going to be true for all people.
If we use the dictionary definition of rich as “having abundant possessions and especially material wealth” then we still don’t have a specific answer. What one person considers abundant is spare to another. That will never change.
$500k is my definition of rich based off what I’ve written in the post. I have made anywhere from $15,000 a year and close to $1M a year and based on my experience, $500K is an appropriate income cut off. What has your income earning range been and number of years worked? Have you been chronicling your personal finance journey for the past 7 years?
Another great definition of rich is not having to work for money because your passive income or multiple passive income streams cover your costs completely.
Read this post: https://www.financialsamurai.com/how-to-build-passive-income-for-financial-independence/ and let me know if you agree.
Louis Richards – Most people that earn $200K-$300K are painfully middle class. The reason is the majority of the people in that income bracket are living in incredibly expense metro areas. Middle class= modest house (3bd, 2bth) home in a decent school district, can afford 2 vacations per year and still save 10%-20% of income. That defines my $250K household exactly. The problem is childcare, housing, and inflated costs of basic services.
Rich implies an absolute abundance of everything you need without having to budget. My household is living in a world of scarcity in every way imaginable just like the stereotypical middle class family.
Wealth is determined by net worth, not income. Many high income earners often do not save or invest. Live below your means, no matter your income. Wealth is having choices. Learn to cook and make choices about what is worth a splurge. Pick a good spouse and invest in your marriage if you get married. Divorce is expensive. Do not be follower. Don’t worry about impressing others, most are in debt and don’t know what wealth is. Don’t spend, invest your time and money in worthwhile pursuits. Diversify. Take care of your health. Do not equate your value as a human to your wealth. Some of the richest people don’t have a lot of money. Also, never take advice from people who have not achieved what they advise about.
I agree. Check out these two posts:
The Average Net Worth For The Above Average Person
The Rise Of Stealth Way To Stay Invisible From Society
I have trouble believing some of the figures that you mention regarding tax and all of that stuff. I make approximately 450k and I my effective tax rate is around 76% or 106k. So how is that someone making 500k pays close 200k in taxes?
76% x $450,000 is what?
$106,000 in total tax
Sorry I was made an error my effective tax rate is 25-27 % and obviously in the 39.6% marginal income tax bracket. Sorry for the confusion
Look at the bright side. You are making huge money without needing tax math!
What do you do to make so much?
Physician
Really?
You earn $450,000…….
Nvm, ignore my comment :)
From what location did you determine these numbers? I only ask because you made reference to a Californian city to equate spending power of a certain salary.
I am from Alabama, a generally rural state with one of the lowest cost of livings. Southern living is fairly affordable. For example, a 3 br 2 ba, 1500 Sq foot home in San Diego runs about $499,000 vs in Alabama cities it might run you $123,000. Affordible on a $50-$60,000 per year salary and certaibly NOT lower middle class.
But I certainly understand how in NY, CA, or even certain cities in TX and FL may find that salary difficult to achieve a comfortable living.
In live in SF bay area and a 3 bed 2 bathroom house in a nice (but not amazing) suburban area cost at least 1 million. A 3 bedroom 2 bathroom house in sf city in a nice area would cost at least 2 million.