If you want to get rich, you might as well aim to get really rich. Being so-so rich, or mass affluent, where your household earns multiple six figures and has a single-digit million net worth, is not bad. But you'll likely still suffer from continued angst and anxiety, especially if you're a parent.
It's only after you get really rich, where you have a top 0.1% net worth of over $38 million, that you finally start to live the good life. Because once you're really rich, people will start accepting you more for your money rather than for who you really are! (sarcasm)
Let me illustrate the importance of getting really rich with an elite college admissions chart from an Opportunity Insights study. In this case, “elite college” is defined as the eight Ivy League colleges plus MIT, Stanford, Chicago, and Duke.
The Importance Of Getting Really Rich For College Admissions And Life
If you want your children to have a 2.2X higher chance of getting into an elite college, then it's important to get really rich. Look how the NYT chart surges once a household crosses the top 1% income threshold. Kinda nuts!
College Admissions Rate By Household Income
Intuitively, we know the super-rich (and powerful) can provide greater advantages for their children than the rest of us. With their ability to easily donate $10 – $100 million to help buy their children's way into college, college admissions officers are hard-pressed not to admit the children of the top 0.1%.
Academic and Nonacademic Ratings By Household Income
Here are two more charts that show Academic ratings by income (x-axis) and Teacher ratings, Guidance Counselor ratings, and Nonacademic ratings by income.
Just as the Personal Score rating system by race was blatantly biased, these charts show how biased elite colleges are when considering rich kid applications. The surges at the end of the bottom chart are astounding!
Being Part Of The Mass Affluent May Be The Worst Class
The dip in the admissions rate for households starting in the 65th percentile up thru the 95rd percentile demonstrates why you don't want to be part of the mass affluent.
If you are part of the mass affluent, defined in this case as making between $100,000 – $310,000, your children have the toughest time getting into elite colleges.
Even though you're making a healthy income, you're not rich enough to legally donate millions to help your kids get into college. You may struggle to pay for $5,000 SAT prep classes or $16,000 a year for travel soccer. You're also burdened by high living costs.
As I've written in the past, $300,000 is a middle-class income for a family living in a coastal city nowadays. Most of the budget goes toward housing because the best-paying jobs tend to be in the most expensive cities.
Maxing out a 401(k) or two might be the best most $300,000 household income families can do to save for retirement. As a result, the mass affluent class may feel constrained from a lifetime of work and the need to play social status games.
Minimum Income And Wealth Threshold To Be Considered Rich For Elite Colleges
If you or your children want to be viewed more favorably by elite colleges, then shoot to make and accumulate AT LEAST the following:
- $600,000 household income
- $13 million household net worth
A $600,000 household income is the start of a top 1% income. $13 million is the net worth is the start of a 1% net worth. It also so happens to be close to the estate tax threshold of $12.92 million per person.
Ideally, you have both a top 1% income and a top 1% net worth. If not, you should try to have at least one. From the college's perspective, having a top 1% income may be more attractive because tax returns are more readily accessible for review. By comparison, obfuscating one's net worth is easier to do.
As a Financial Samurai who prefers to minimize income taxes and generate more passive investment income, you'd rather have a $13+ million household net worth and a low income. But this is easier to do only after decades of working, saving, and investing.
According to the Opportunity Insights study, about 9% of the students come from the top 1% of the income distribution and didn't get in because of their academic qualifications.
What Happens Once You Get Really Rich
We know that elite colleges have an overrepresentation of kids from rich households. This is the reputation elite colleges have purposefully crafted for themselves. It's also part of the reason why public colleges are now rising up the rankings. The public wants a fairer representation of society.
Although the tide might be turning against being part of the elite, there are some obvious benefits once you get to the top 1% or higher. Here are some of the things you get besides a 2.2X increase in college admissions for your kids.
- People are nicer to you when they shouldn't be
- You get introduced to other rich and powerful people, e.g. government officials
- You get invited to more fundraisers and galas
- Your kids jump the line for hard-to-get sports and music lessons
- You or your kids can make more mistakes or even do bad things without getting punished
- People give you more benefit of the doubt
These are some pretty good benefits, right? I would think most people would like getting the benefits of the really rich.
One Area Of Caution If You Want People To Know You're Rich
Let's say you're all for affirmative action for the really rich. You support the quest by elite colleges to keep things exclusive. No problem. We all like to feel special.
Just be careful coming across as really rich WITHOUT doing anything to deserve your riches.
We respect rich entrepreneurs because they are the ones who created something from nothing. But society doesn't respect trust fund kids who own nice homes, drive fancy cars, and have great jobs thanks to their parents.
Let's say you went to Stanford, worked at a fintech startup, cashed out at age 32 with $2 million before tax, and become a VC, good for you! But if you then turn around and buy a $10 million house in San Francisco. Big mistake! You've just revealed yourself as a rich kid who had a lot of parental help.
People may also start to question whether your parents also helped buy your way into college. Did you get your fintech job through connections too?
Best To Keep Your Riches More Low Key
If you're not OK with people questioning whether you got to where you are based on merit, then it's important to live more congruently within your stand-alone income.
I'm not even talking about stealth wealth here. Instead, I'm talking about not living so far beyond your income that it's obvious you have tremendous financial help from your parents as an adult.
To ward off disdain, one solution is to create a “trust fund job.” You can then tell people you are a Founder and CEO of some random company. It sounds good, even though all it is is an LLC you registered online with no profits.
In conclusion, we must accept that elite colleges prefer rich kids from rich families. Colleges depend on these families to pay full tuition and donate lots of money to keep the system going.
Being so-so rich, or middle-class rich, is not good enough if you want extra benefits. If you plan to get rich, you might as well go for glory! This way, you can own the longest yacht in the marina and let your kids have the easiest life possible.
Reader Questions And Suggestions
Do you think it's not good enough to be mass affluent or middle-class rich? Is getting stuck in the 90% – 95% income percentile a tough place to be? What are some ways you plan to get really rich?
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