Net Worth Composition By Levels Of Wealth: Build A Business Already

Your net worth composition will likely change the wealthier you get. The wealthier you get, the generally more conservative your net worth allocation.

For example, my net worth composition in my 40s looks nothing like it did when I was in my 20s. I have a family to take care of don't want to go back to work. As a result, my net worth composition is more conservative with 26% in public equities.

If you're looking for how net worth compositions change by wealth, take a look at the below chart by Visual Capitalist. It highlights how much each asset is as a percentage of net worth from the Federal Reserve of Consumer Finances. After all, if you want to get rich, it's good to study how the rich allocate their money.

Notice how red (primary residence) quickly shrinks the wealthier you get while blue (business interests) quickly grows. The key to creating great wealth is to, therefore, build a business or acquire a significant share of equity in a business.

Net Worth Composition By Levels Of Wealth

Net Worth Composition By Levels Of Wealth

Let's discuss each asset class in a little more detail. I think most Financial Samurai readers or people looking to achieve financial independence are targeting net worth amounts between $500,000 – $10,000,000. Therefore, my commentary is tilted towards this mass affluent net worth range.

Liquid Net Worth

As your net worth grows, you don't need to maintain the same percentage of liquidity to survive through difficult times because the absolute amount of your liquidity increases.

The only reason you would need a large percentage of your net worth in liquid assets is if you are highly leveraged. Shoot for 5% – 10% of your net worth in Liquid assets.

Related: The Need For Liquidity Is Overrated

Primary Residence

Notice how there is no asset category for Rent because Rent is a net worth drag. Everybody needs to figure out the right time to own their Primary Residence to at least stay neutral inflation.

I'm surprised the Primary Residence category doesn't take up an even greater percentage of net worth in the $100,000 and $10,000 net worth levels. During the financial crisis, so many Americans got obliterated because their Primary Residence was such a dominant portion of their net worth.

I'd get your Primary Residence down to 10% – 30% of your net worth using my Primary Residence Net Worth Rule. Live well, but make sure your home doesn't become a drag.

Related: Why Real Estate Will Always Be More Desirable Than Stocks


Like Primary Residence, the Vehicle percentage also declines rapidly as one's net worth grows. Vehicles are the most common net worth killer in my opinion. For some reason, Americans have a love affair with cars and trucks.

Maybe that’s why folks in the $10,000 range have a huge portion of their net worth in Vehicles. The median price of a new car at about $48,000 after tax in 2023. Meanwhile, the typical American is spending the majority of their ~$76,000 gross household income on a car. That's nuts!

For financial freedom, please don't spend more than 1% – 5% of your net worth or 1/10th of your gross income on a car.

Retirement (Pension/IRA/401k)

Only a minority of Americans are now eligible for a pension. But for those who do have a pension, its value is much greater than you might realize. Given the contribution limits to a IRA and 401k, it's hard for Retirement to grow into a significant portion of one's net worth.

What's interesting about the data in the chart is that those with a $1,000,000 net worth have the largest percentage of their net worth in Retirement. Therefore, if you're amenable to finishing work as a “run of the mill millionaire,” you should strive to max out your pre-tax retirement plans for as long as they work and treat it as bonus money once you are eligible to withdraw funds penalty free.

Related: How Much Should I Have In My 401(k) By Age?

Life Insurance

The fact that Life Insurance is one of the designated asset classes in the chart shows its importance in financial security. Many employees get Life Insurance as a default benefit from work. But often the amount is not enough to fully cover all liabilities.

Term Life insurance is cheap before the age of 35 if you are healthy. I highly encourage readers to lock in a long-term policy before a health issue occurs that jacks up your rates. I’m guessing the value of a whole life policy has something to do with this category.

If you want to get competitive life insurance quotes, check out PolicyGenius. PolicyGenius enables you to apply for life insurance in one place and compare the different quotes. If you have dependents and debt, please get life insurance coverage. The coverage should last until the debt is paid off or the kids become independent adults.

During the pandemic, my we realized my wife had half the life insurance coverage as I did. That made no sense since we are equals who both run Financial Samurai and take care of our kids. Through PolicyGenius, she was able to double her life insurance coverage for less!

Mutual Funds

I'm surprised Mutual Funds has the largest weighting for those in the $10,000,000 net worth level. If Mutual Funds are defined as actively run funds with high fees, then digital wealth advisors should channel their efforts towards these high net worth individuals.

Hopefully most investors are invested in index funds instead of actively run mutual funds. For 90% or more of your investable assets, I recommend investing passively.


It's also interesting to see how Stocks increase as a percentage of net worth the wealthier one gets. Perhaps there's a higher level of knowledge or conviction as wealth grows.

But I suspect the real answer is that wealthier individuals have a greater percentage of net worth in their company stock. They are either company founders or senior executives with lots of RSUs or stock options. The net worth composition tends to tilt more heavily towards equity the richer you get.

Related: The Benefits Of Stocks Over Real Estate

Fixed Income

Despite the Fixed Income Market being much larger than the Stock Market, it's surprising to see how little the Fixed Income weighting is across all wealth tiers. However, given interest rates have been coming down since the 1980s, it's understandable that fewer people want to invest in fixed income.

One can make the assumption that Fixed Income is an uninspiring tool to stabilize wealth. It can be considered a Liquidity+ investment. Think about fixed income not so much as a wealth driver, but as a capital preservation tool. It's better to make 2% on your 10-year Treasury bond than lose 20% in a bear market.

Managed Assets (Trust)

It makes sense that the $10 million and $100 million levels have the highest percentage attributable to Managed Assets. You could pass down all your assets estate tax free up to $12.92 million per person in 2023. This amount is about double the estate tax threshold amount before the Tax Cuts And Jobs Act was passed in 2017.

However, it bears to reason that eventually, the estate tax threshold will go down under a democratic president. Let's see who remains in office in the future.

But everybody should create a revocable living trust. You'll save money and make clear your directors to your beneficiaries.

Real Estate (rentals/vacation properties)

Notice how Real Estate has the largest weighting for those in the $1,000,000 net worth group. However, real estate drops off with higher wealth levels.

In other words, Real Estate is one of the easiest ways to boost wealth to $1,000,000. After that, it becomes less desirable as time goes on due to maintenance, hassle, and ongoing property taxes.

Because you no longer will have the time or desire to deal with tenants and maintenance issues as your wealth increases, investing in real estate crowdfunding platforms such as Fundrise is going to be increasingly popular over time.

I've personally invested $810,000 in real estate crowdfunding to diversify my San Francisco real estate holdings. Further, I believe in the long-term trend of relocating to lower-cost areas of the country. Rents and property prices should be rising.

I'm happy living in a right-sized house while investing excess capital in the heartland of America where rental yields are 4-5X higher. I also believe buying rental properties today makes sense.

The value of rental income is strong due to a relatively low interest rate environment. Below is my private real estate investment dashboard where I've received over $624,000 in distributions and passive income so far. Being able to invest so I don't have to work as much is great!

private real estate investment dashboard

Business Interests Is Huge For High Net Worth People

Finally, we arrive at the key to building a fortune. Even the $10,000 net worth level has a sliver of Business Interests.

When the current CEO of Uber joined, he reportedly got a compensation package of around $200 million. He didn't have to come up with the idea, raise funds, and grind away for years for that type of money. His net worth composition is mostly in company stock.

All he has to do is be a good ambassador until he can sell all his stock after the company goes public. The current CEO of Google just sold stock worth $131 million and is getting another $340 million package.

Instead of becoming an executive, you can go the hard, but extremely satisfying route of creating your own business. The business doesn't have to be based around a revolutionary new product. Instead, you can simply build a business around a lifestyle like Financial Samurai.

You see billionaires borrow from their assets so they don't have to pay taxes. One such strategy is using a Security-Based Line Of Credit, or SBLOC, to tap your equity and avoid paying capital gains taxes. In turn, you pay the lender an interest rate to borrow money.

Owning Private Equity Is A Big Component Of The Richest's Net Worth

Consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

Check out the Innovation Fund, which invests in the following five sectors:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum.

Lifestyle Business Or Big Business

In 2010, I asked myself whether I'd rather own a lifestyle business or a big business. The lifestyle business would one day pump out $250,000 a year in free cash flow with only 3 hours of work a day and minimal stress.

The big business had a 20% chance of getting a $25 million payout by working 14 hour days. I'd have to experience maximum stress for three years. I decided the lifestyle business was the way to go because money doesn't buy happiness.

When you own a business, not only do you collect its profits, you can also sell the business for a multiple of its profits. This is where the illiquid portion of Business Interests comes in.

I've been approached a number of times since 2014 to sell. Each time I pass because I want something to do, especially now that I'm a stay at home dad.

Related: Top 10 Reasons For Starting An Online Business

A Different Mindset To Build Wealth

I was speaking to a very wealthy entrepreneur the other day. He said the greatest skill one can have is figuring out a way to hire talented people willing to dedicate their lives to making YOU rich.

Of course you will have to properly compensate them. However, it is these people who have confidence in themselves, but not enough confidence to make themselves rich through entrepreneurship who you want working for you.

Know your worth. If you are starting to get frustrated with the lack of efficiency at the office or you are beginning to tell yourself you can do it better, then give it a go. Make a better mousetrap.

When I started Financial Samurai in 2009 I found ZERO personal finance blogs written by people who worked in finance. They were all written by people trying to get out of debt. Or, they were written by engineers trying to optimize their content for credit card sign ups. What an opportunity to fill a void!

The people who get really rich are those who ask themselves, “Why not me too?” They believe they deserve to be rich and take action to make it happen.

Related: The Average Net Worth For The Above Average Person

Manage Your Net Worth Composition

Sign up for Empower, the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool. It will show you exactly how much you are paying in fees.

I was paying $1,700 a year in fees I had no idea I was paying. 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.

You can easily analyze your net worth composition and optimize it with Empower. Once you've linked up over $100K in investable assets, you can schedule a free personalize plan and review with a Empower Registered Investment Advisor for free.

Personal Capital Retirement Planner Tool

Invest In Real Estate For Stability And Diversification

A good net worth composition has a solid real estate component. Real estate accounts for roughly 40% of my net worth because it is less volatile, produces income, and provides utility. In an inflationary environment as we're heading into, you want to be long real estate.

I've personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000

Take a look at my two favorite real estate crowdfunding platforms. Bot are free to sign up and explore.

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eREITs. Fundrise has been around since 2012 and manages over $5 billion across multiple funds investing in the Sunbelt region where valuations are lower and yields are higher. For most people, investing in a diversified eREIT is the way to go.

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build your own select real estate portfolio.


For more nuanced personal finance content, join 65,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. Everything is written based off firsthand experience.

76 thoughts on “Net Worth Composition By Levels Of Wealth: Build A Business Already”

  1. In the Vehicles section, you advise: “don’t spend more than 1% – 5% of your net worth or 1/10th of your gross income on a car.” Does this change in retirement? 4% of liquid assets *is* your income.

  2. Love this post!
    In my opinion the objective of liquidity is not only to survive difficult times. Liquidity also allows you to invest when others are selling low. The level of required liquidity is also determined by how much you are hunting for opportunities (in distressed markets).

  3. “these people who have confidence in themselves, but not enough confidence to make themselves rich through entrepreneurship”

    To use a (very) anachronistic phrase, “chiefs need braves”. Put another way, there are more followers than leaders, and there always will be.

  4. Sam, is you’re site only dedicated to high net worth individuals with a 5 million plus net worth? I get a little shocked when people say that can’t live on 1.5 or 2 million, etc. It would seem, like you, many of your followers are of high net worth and high income earners and seem to believe that if your not living in the bay area or upper east side Manhattan with a $6000+ per month mortgage and with over 5 million invested, you are living in poverty and less desirable areas of the US. I have first hand experience with living in the more breathable and roomier mid-west and we live very well. As a matter of fact, at this point I can’t find another useless material thing to waist money on. I am 53 and have a very nice newer 4 bd+den open floor plan home, 2 older Porsche’s one being a 911, a BMW 3 series, and a 10 year old Acura that has never failed me. My only vise is my watch hobby which I now have 6 Rolex’s and a few Omega’s watches I have collected over the years when prices weren’t so insane. All this means nothing as they are only material things. Freedom from working in early retirement has been the greatest joy ever and I live quite comfortably on $55,000 per year from dividends and interest. 10-12 years from now, I estimate I’ll collect another $2300 per month in social security so I feel very fortunate even though my numbers pale in comparison to many on this site.

    1. Buckeye Broker


      You bring up a really good point & it has caused me to think rather deeply. I find it is almost impossible to find people “like me” to talk to but you sound just like me. I often wonder if Fin Samurai should have a private msg function where like minded people can get together and discuss ideas on what’s working, what’s not etc. This way we can share more & learn more individually than we would be willing to share broadly. I would be delighted to talk shop with someone such as yourself and compare notes. Maybe we call it the 1-5 millionaires club for lack of a better description.

      Quick description of me, I have worked in Finance for 26 years and in real estate part-time for 15. I used the full time job to pay bills & save for retirement while using real estate sales (brokerage) to fund rental property purchases now worth 1 million and generates a similar dividend income as yours annually. I also sell real estate but only dedicate a few hours a week to the endeavor yet make 50-75k a year consistently doing that. My full time job pays around 150k but is in the process of being eliminated over the next 6-18 months. My wife has a good job at 135k a year so here I am, trying to decide if I keep working for other people or try to spend my time enjoying the back half of my life while working towards doubling my current net worth but doing it on MY terms and at the intensity that I decide. I would say I am about 3.6m as it stands today. My primary residence is 12.5% of my net worth and cars are less than 1%. Real Estate is about 40% of my net worth and I have 2m in investible assets 1.3 of which is retirement and the rest is taxable money and 10% cash. I am trying to decide if I can “afford” ,lol, to go from 400k year income cash flow to 200-250 as a family with 1 child but I will say at 400k we have more money than we spend as we live fairly frugally and only owe 78k on our 500k home and only owe 75k debt on 1m in invest properties. Obviously this is how I built the real estate business, with cash flows from working. So I have been thinking I can now leverage the houses to fund more real estate acquisitions or even buy a business but I want to be like Sam. I want to work 20-30 hours a week on my terms and life healthy but enjoying more of my life while I continue to build my net worth and income. I would welcome public thoughts or even a private discussion further as I believe sharing these types of factual examples of successes and failures could be very beneficial when shared with like minded individuals.

      As I mentioned, the investment properties are essentially unlevered. I have also been funneling cash ($190k) into storage unit partnerships with a commercial r/e friend of mine and I own a 33% stake in some industrial land and I’m getting ready to buy into a 12.5% stake in development land we want to develop but as you know, that can take a decade to produce financial gain.

      So anyway…after 26 years on the corporate rat wheel with a cushy job and 5 weeks paid vacay, pension and 401k benefits, I am trying to decide if I take what will ultimately be a 4 month severance and leave the corporate world for good and stop spending 8-10 hours a week fighting traffic to/from downtown.

      Thoughts anyone?

      1. Buckeye,

        2 years and one sort-of-finished-pandemic later, and I hope you did it. I hope you quit for good and are now living the entrepreneur lifestyle and soaking it all up! You only get one life and it goes by fast. I hope you enjoy every second of it, but are still a strong person too and stand up for what’s right when times are tough as they have been the last few years – so many of us have gotten focused on comfort and safety and forgotten what is truly important.

        But yes I hope you are living it up and enjoying.

  5. Nice comments on importance of owning business I 100% agree with.

    But saying your alternate choice was to work 3 years at 14 hours / day for 20% chance to make $25 mm per year is pretty unrealistic. We both know bankers only get paid that much after years and years of relationship building; upside to 3 years as VP/director is low 7 figures at a BB, max. And only if you make it rain big fees for your MD. If your point is that there’s a 20% chance you’d be able to make it to MD to conjure the rainmaking Gods yourself, doesn’t seem fair either.

    Not trolling, but keeping us honest so that others don’t fall into 20% at 25 mm trap. To those considering WS: the only people that make that kind of money will never let you get there. That’s the truth.


    1. Chris, I was talking about building Financial Samurai into a bigger business with funding and so forth, not working three years on Wall Street.


      Years later, I’m happy I just got the lifestyle business as I’m not that far away from that Figureand I can see a path to getting there.

      That said, how long have you worked on Wall Street and what department are you in? I was compensation nowadays?

  6. Sam, how do you maintain motivation to work so hard on your business knowing that you are already financially independent and will not need the money? Do you try to trick your brain into thinking it’s necessary?

    1. Hi Conrad, it’s actually hard to stop work at once you spend couple decades working for so long. I went from working from about 5:30 AM until 7 PM after college for 13 years, to a whole bunch of free time starting in 2012.

      But I have to admit, I finally experience some burn out with full-time parent hood, the online business, and high school coaching. But the funny thing is, Now I feel like I have a lot of free time because high school coaching season just ended! So instead of swinging three bats to hit a ball, I’m only swinging with two bats.

      I also think we are genetically wired to try hard for the sake of our little ones once we become parents.

      But does it seem like I’m working a lot to you? If so, I appreciate it!

  7. “Vehicles are the most common net worth killer in my opinion.” <– This! I don't see many of my age bracket peers (millennials) making the giant housing mistakes, but boy howdy, we still love our cars. I enjoy and appreciate nice cars as well but I still try to live by your 1/10th rule when it comes to cars. Spending an exuberant amount of cash on your vehicles is the quickest way to torpedo your net worth and yet everyone, or almost everyone, still does it:(

  8. Sam – great article as always. This one really hit home for me. It sure seems like here in the Bay Area, your best bet to get in the 1-10M range is to work for Facebook for 10 years in a role of relative importance. But that’s not nearly as exciting as building a business. Would it really be a clear cut decision for you on the 250k/year business vs climbing the corporate ladder? Isn’t it possible that while most of the ultra wealthy own business stakes, the average net worth of those who start businesses is lower than those who slog it out licking boots up the corporate ladder?

    1. Hi Alex,

      If I was working at a well paying job, I would first forecast my misery, then I would start a side business without anybody knowing under the comfort of my secure job.

      Creating a side business while having a steady job is like starting a business when you have a trust fund or a Bank of Mom and Dad. It doesn’t matter if you fail many times, you’ll still be alright. But the more you tinker around with a business, the more you will learn. You might get lucky enough to learn some things you will have never thought of before.

      The type of online businesses to build are ENDLESS. I see people living their way every day due to an online business.

      There is no reason why someone in good health can’t wake up at 5am, get to work on their business between 5:30am – 7:30am and then go to their day job. Folks need to stop consuming and start producing. Good things will happen if so.

      Related: If You Produce Nothing, How Do You Expect To Make Any Money?


      1. (Piling on with Sam)

        The security of the six figure Fb job comes with some prestige and a relative guarantee of a good life and a fine retirement (if you do your part and save). But it also fixes you in time and location. You work specific hours in a specific place. You have a certain amount of vacation. You have very limited upside in working harder in the grand scheme.

        To me, it’s the trade in freedom of time that makes the Fb route a hard sell. You basically give up all your time 9-6 and likely have a commute to boot. It makes things like maintaining fitness so much harder.

        I’m curious what careers in the next 40 years will evolve towards. It’s a long way from what my parents expected when it was their turn.

  9. Love the hiring comment: golden! This is so true, many brilliant hard working people simply don’t want to deal with the uncertainty of starting a business. But they’ll gladly take certain salary in an uncertain business, if you paint the vision.

  10. I tend to agree that owning a stake in a business is the only path to certain types and timelines of wealth. That doesn’t make it an easy path. It’s by far the most uncertain as well, but it’s something that I bet most median age, income, and education-level FS readers can manage if they devote the time and effort.

    I set myself a goal regarding business interests 8 years ago. I’m not quite where I wanted to be, but trying for those 8 years surely paid off.

  11. Interesting that your target audience of $500k to $10 million actually appears to be the most diversified across all asset classes.

    The message I take away from this is that building a business (even a small one) is a great way to enhance your broader asset base and wealth. I think when you talk about building a business, too many people focus on the $ billion type levels, which is where many of the ‘inspirational’ wealth building advice focuses. You have a great message to start small with a business, which the mega-millions wealth building stats probably get in the way of. Would make for a great post as you’ve suggested in the comments above.

    Cheers, Frankie

  12. Mr. Rational Buck

    Well, you’ve finally helped me decide to start a blog. I love reading your posts and have considered the idea of adding my little voice to the world of finance for some time now. I may not have much to offer, but I most look forward to learning from others and getting to know those in this wonderful finance-blog community. Thank you!

  13. I try to keep relatively even splits for my current age, life stage, and risk appetite. I’m probably more conservative, and trying to balance out my conservative nature with more stock holding. This year realty is moving disproportionately faster than other asset holdings. It frightens me really as a W2 worker how a dwelling can double in less than 3 years. As a realty class holder, it’s a time to rejoice. As an employee, it is extremely disincentivizing to watch active income erode in value essentially. I don’t even want to think about my coworkers working trying super hard and bringing 5 days of meal prep to work in order to save for their down payment.

  14. Steve Adams

    Remember this is an average of many individuals – not the typical distribution of folks in that space. So maybe 10% have 90% in RE, 10% have sold their business and have 90% in index funds, 70% still own their business and have 90% of their worth in that. A nice modification would show example subgroups. What percentage of the group had more then 70% in which asset class for example.

  15. I think a healthy amount of fear drives us to push harder too. In your case, since you didn’t have a w-2 regular job, there was more motivation to do more on your website which is fantastic. Admittedly I am not putting as much time and effort into my online presence as I can including content creation. I have a regular job and that healthy fear is not there for me to serve as motivation. Instead, I need to find another form of motivation to allow me to not push but blow open the envelope to enhance my online “business”.

  16. Brian McMan

    The $300 bucks or less for three years to start a website is a high hurdle, it is what stops me.

    I’ve also noticed that as my networth increases the percentage of earnings producing assets I have (stocks) increases, while the percentage of fixed assets such as cars or house or cash decreases. It is like saying people are rich because they have money.

    About making someone else rich instead of myself, I expect whoever I work for to give me what I want after I give them what they want. That’s how scratching backs works.

    1. > …earnings producing assets I have (stocks)…

      Do you participate in the decision making process in the companies whose stocks you have?

      It seems that too many companies in the USA have underperforming (overvalued) CEOs if you compare them to, say, Elon Musk. Is it because of faulty immigration policy? What do you think, guys?

      1. Brian McMan

        No I don’t participate in the decision making process.

        With regards to underperforming CEO’s and immigration policy, I’m a fan of Charlie Munger when he says that you should never be thinking of anything else when you should be thinking of incentives.

  17. I was curious about the web property as well. I assume you mean this site and how its basically a cash cow for you right? Do you have other sites making income as well?

    My little blog still generates anywhere from $200 to $500 per month. Its not much but its essentially equivalent to the income one of my rental properties make. So its a “web property” if you will. :)

    Im a bit over the half way mark of becoming a millionaire and I definitely think that it will be real estate that crosses me over that line. I havent really thought about what and how to grow it after that but the idea of starting a business seems like way too much work.

    As long as my passive income eventually gets to the point where it covers all my monthly expenses plus travel funds, then I wont really care about growing my net worth anymore.

    We will see what happens though, im still years away unfortunately. The good news is im still in my 30s. But not for much longer!!! :)

    1. $200 – $500 a month from your site is FANTASTIC! Think about it this way. Your annual income is $2,400 – $6,000. At a 3% rate of return, you’ve built yourself a $80,000 – $200,000 asset.

      It’s hard for people to see the bigger picture because they don’t appreciate the beginning small numbers. So maybe I should write a post about it.

  18. Yes, it’s cheap and easy to build an online business, but it is definitely NOT easy to build one that is profitable. Not a Debbie Downer here. You might be overly optimistic…or just biased based on your own success in the field. I think people should definitely try to build an online business because of the low barriers of entry and potential ROI. But with a full time job and/or family responsibilities, it isn’t that easy. I remember awhile back when some journalists were laid off from some online publication and you tweeted to them…oh why don’t they just start an online business…it’s so easy (I’m paraphrasing). Come on Sam…I enjoy your content but if it were that easy, everyone would do it. And it seems many are as it’s getting pretty saturated in the blogging arena!

    1. Nobody said building anything good is easy. But I think so many people don’t even TRY because they mentally defeat themselves BEFORE they even get started! What I’ve noticed working with young people these past two years is that adults/parents can do a lot to help instill in them the belief that they too, are deserving to achieve.

      Who is unreasonable enough to believe they deserve everything without having to put in the hard work? Nobody.

      One of the greatest ironies I see is that people who hate their jobs start a website. But if they had dedicated even half as much time to their website as they did to their jobs, their website would have grown in size and revenue far beyond their hated jobs!

      Here’s a related post that captures some of this issue: Sweet (Sweat) Dreams Of Becoming A Millionaire Again

      1. You’re absolutely right. I agree with that. Many people don’t even try and make excuses as to why they can’t do it. Of course it’s unreasonable to believe you can attain success without hard work. But even with hard work, I don’t think success building an online business or any business is assured. Like Alex in the comment below, I think I’m going with real estate to help me on that path as there seems to be less variables involved in attain success compared to an online business.

  19. Just because these are the prevalent allocations does not mean they are necessarily the best. Yes perhaps at the centi-million or billion level they are near optimal because you can hire not one but seven financial samurais to manage your wealth, but at the 1-10M level there are a lot of do it yourself FIs making rookie mistakes.

  20. “I used to think Real Estate was the best asset class on Earth until I discovered web properties.”
    What’s a web property? RealtyMogal and other crowd funding RE sites?

    My busisness is real estate and it has propelled me well past the 1M Mark both supporting and refuting the observation…

  21. Why would the research count life insurance as a asset class? Maybe it is considering the value of a Whole Life policy? I understand that Term Life Insurance (especially if kids are still at home) and Long-term Healthcare Insurance are important to protect one’s finances, but should they be considered part of net worth?

  22. Building a business is difficult but the payoff can be huge. My problem was coming from a very tiny family with zero safety net. I kinda wanted to be an entrepreneur but I knew if I failed and went into debt there was no one to help me. My family has zero money. Now that I’m financially independent and have semi-retired to half time at my job I have some time and a nice big safety net that I built myself to start something. It’s much less stressful that way.

  23. Thanks for sharing, this is incredibly interesting, what are next steps to building a web business to go beyond the $1M net worth range? Can you recommend blogs, coaches, or advisors that are proven or vetted? There are a lot out there!

  24. 6 years later, and you’re still pushing the idea that you shouldn’t spend 1/10th of your gross income on a car?

    I still that 1/10-rule article is the most controversial one you’ve ever published.

    1. Why of course. The 1/10th rule is probably more important than ever before because of the emergence of cheaper transportation options thanks to ridesharing, a bull market which makes opportunity cost higher, a rise in new car prices, and a relative stagnation in household income and wealth.

      1/10th rule for life!

      1. Christopher

        I took this advice to heart(1/10th rule) when i was building my business. I was making well into the six figures and had a really really old car, almost as old as me. I took the money i was making and invested into my self and business assets. I caught a lot of flack from friends, many girls definitely saw it and I didnt have second dates. a lot my friends made substantially less than I did yet had cars that were probably multiples of their net worth. I never understood how the average car in america costs somewhere in the 30k range yet the average american is “struggling”.

        Sam, this single piece of advice has made me well into the 6 figures, probably more. Thank you so much. That initial snowball when you’re building your base of assets is critical.

        I no longer have a car because I travel quite a bit and find myself in places that are walkable and when I do need to travel long distances I just use uber.

        1. So awesome to hear! This momentum you mention is so important. And accepting the benefits of giving up short term pleasure for a life of long term gain is huge. Congrats!

    2. Maybe he means 1/10th of your income over the entire purchase period of the car/on an ongoing basis…

      So, if you buy a 30k but pay it off with a loan over the period of 5 years, you’re paying 6k or so a year. In that case, 1/10th is certainly reasonable. Obviously it is going to be very difficult to pay 1/10th of your household income and buy a car outright, but I think the total ownership cost is what people should be looking at.

      1. I wish that were the case, and it would make a lot more sense because it would be an apples-to-apples comparison with ride-sharing. Amortization was brought up several times in the previous 2012 thread, but the majority of replies from FS suggest he meant the one-time purchase price of the car, which I find rather short-sighted.

        The main problem was that the original article didn’t take into account yearly maintenance/gas/fees or amortization, causing the ensuing chaos in the comment thread. Some assumed that he meant average yearly costs (which would make a lot more sense), but most replies suggested otherwise. Ride-sharing and public transit (which are ridiculously expensive outside of dense cities) weren’t even considered until later in the comment thread.

        1. Most of the things you mention are smoke screens and not relevant to equation. They will be there whether car is old/new; cheap/expensive.

          Even gas mileage is mostly a fake issue in terms of a pure $ play. I drive a 2002 F150 with big V8. It gets 14 mpg. At 20,000 miles/yr and $3/gal; annual fuel costs are approx $4000 year.

          A newer vehicle may get 28 mpg. That would “save” me $2000/yr but would cost $25-30K upfront. Not a wise investment is it?

          Truck is worth almost nothing, and thus little carrying cost. As long as it remains reliable, why would I throw away $ for something else?

          We’ve never spent more that $15K on a car, never bought new and drive them into the ground. Neither of us have ever felt like we missed out on anything.

          NW is north of 3M and for several years, vehicles make up around .5% or something like that.

          1. That’s a different aspect of the topic. I was simply replying to Andy’s comment.

            This is what I meant:

            $15K car
            Gas: $6K/yr
            Maintenance: $400/yr
            Vehicle fees & insurance: $1.5K/yr
            – 1st year cost w/extras: $23K; Required salary for 10%: $230K
            – Amortized over 25 years w/extras: $8.5K/yr; Required salary for 10%: $85K
            – 1st year cost w/o extras: $15K; Required salary for 10%: $150K
            – Amortized over 25 years w/o extras: $1.2K/yr; Required salary for 10%: $12K

            $5K car
            Gas: $6K/yr
            Vehicle fees & insurance: $1.2K/yr
            Maintenance: $600/yr
            – 1st year cost w/extras: $13K; Required salary for 10%: $130K
            – Amortized over 8 years w/extras: $8.4K/yr; Required salary for 10%: $84K
            – 1st year cost w/o extras: $5K; Required salary for 10%: $50K
            – Amortized over 8 years w/o extras: $.63K/yr; Required salary for 10%: $6.3K

            Here’s the question that caused a lot of confusion: If you’re driving a $5K car, do you need to make $6.3K, 50K, $84K, or $130K? From the 2012 thread, it sounded like FS meant $50K, which is somewhat reasonable. But if you’re using that formula, you’d need a $150K salary to afford a $15K car, which is just ridiculous. I’d feel sorry for all the 6-figure-income moms who couldn’t afford a used minivan for her family. And only the top 1% salary-wise could afford a $30K car.

            A more logical and practical way to measure costs would’ve been using amortized costs with extras over the lifetime of the car. Other vehicle-related costs easily dwarf the initial purchase price of the car. Over the lifetime of the car, the annual cost difference between the $5K car (lasting a generous 8 years) and a $30K car (lasting 25 years) is ~10%.

            Lastly, it incorrectly treats cars as investments. Cars are used for transportation, lifestyle, hobbies, entertainment, sleeping quarters for a midday nap, 2ndary housing during travel … basically anything but an investment. Americans spend an average of 1.7 hours in the car per day, and they want to enjoy those 2 hours of their daily lives. Telling them they can’t get the particular car they want is like telling them they shouldn’t eat anything but canned spam from the clearance section of grocery store is cheaper.

  25. Building a business is difficult. That’s probably why most people prefer to a regular job.
    Our net worth tracks the same general direction, but it’s a bit different than the graph.
    The big difference I see when I look at our net worth is our primary residence. It’s worth about 5% of our net worth. My business interest is also pretty low at 3% of net worth.

    It’s interesting that they put retirement and stocks/bonds in different category. Retirement accounts are mostly invested in stocks/bonds.

  26. Fantastic points! My assets and income streams have diversified a lot as I’ve gotten older snd grown more wealth. When I was right out of college it never even occurred to me that I could do anything else besides working for someone else. Time, experience, research, positive influences, and watching others like you helped me start to believe there’s unlimited possibilities outside “the box.” I love that reference to “why not me too.”

  27. DareToDream

    Great post. I look forward to comparing the allocations to mine. it reinforces something my tax accountant told me several years ago when I was complaining about state and federal taxes (in one of hiighest taxes states in US) : “hard to build wealth with W-2 income, it’s your business equity that makes you rich”. I am fortunate to have built 2 businesses and while they aren’t Jeff Bezos values or even close, the tax free compounding of value as they organically grow combined with the satisfaction and pleasure of leading them without a boss, makes me a strong proponent of being a business owner vs an employee.

  28. Sam, another blockbuster. How many bloggers make as much as you do? In personal finance, the average quality is low. I would say you are in the tiny top few that are worth reading. This post is great as it presents actual stats on net worth break down and, as usual, lights an interesting discussion.

    I agree, starting a business is the way get beyond the $1-10 M category. I admire people who do it, but having worked for entreprenours in my career, it is crazy hard work and risky.

    Businesses are generally very hard work, very risky, and hard to liquidate. So if you are looking for passive income it’s not the way to go. Successful businesses are often hard to sell when you retire and many just close down. For many it is can be a trap that keeps you slaving away well into your 60’s and 70’s hoping to sell because you have no other assets. The trick is to sell at the right time, age 45-50, and also put some business profits into real estate and stocks along the way so that you can retire even if you can’t or don’t sell the business. Usually, it is the second generation that does that. Dad starts it, one of the sons inherits, builds it up, sells, retires to Florida. Women are not usually in the equation. Most of these businesses are not in any kind of glamour field and most of these people live far from the excitement of a great city.

    I am between 1M and 10M, divided among principal residence 45%, pension 25%, stocks 20%. Principal residence is worth 3.5 times what I paid for it after 13 years, and is largely illiquid but I can rent out two units for some cash flow and to cover the mortgage. Stocks also grew over the last 13 years about 3.5 times. Still growing and providing good income for travel. My point is that I don’t have to work at all (other than put rent cheques in the bank, and check my stocks every day, and maybe buy and sell a few stocks a couple of times a year. I had a free-lance business (writing related) but once I didn’t need the cash flow, I found it too confining even working a few months a year. I am free to travel as much as I want (usually about half the year). I am at the comfort level of income that you recommend as optimal and yes, it has bought me happiness and a very stimulating low stress lifestyle.

    I love full retirement, never bored, but envy your lifestyle blogging business. I contemplating blogging but decided it was far too much work compared to focussing on investments.

    1. Wow, 3.5X higher after your home purchase just 13 years ago? Please remind me again where this house is? Are you talking the cash you put down or the actual value of the house. If the value of the house, that’s even better than then crazy places like Vancouver and Aukland, let alone SF.

      The goal of the lifestyle business is to keep yourself mentally stimulated, have a purpose, and support a lifestyle that you specifically want. As soon as the business starts hurting your lifestyle, as it did for me in 2017 as I got too busy being a dad, you have to cut back, as I’ve tried to do.

      I don’t think people realize that you can literally spend 1 hour typing up anything online once a week, put Google Adsense on, and start making a buck a day after a month. It’s when you keep going where momentum really starts building.

      1. Ms. Conviviality

        “I don’t think people realize that you can literally spend 1 hour typing up anything online once a week, put Google Adsense on, and start making a buck a day after a month.”

        I’m going to put that statement to the test. I have a website to advertise my floral design business (it’s a side business at the moment) but don’t do any blogging for it. I oftentimes have questions about certain floral designs such as which flowers work best for specific applications or techniques to construct floral arrangements but don’t find good articles so I end up having to test my own methods and seeing if it works before the client’s event. I’ll give blogging a try and will report back in one year.

        1. OK, sounds good! If you write the answers you are searching for, you will be certain to attract other people with the same questions.

          The real magic I found is consistent publishing 2 to 3 times a week for one year. If you can do that, I am pretty sure that good things will happen. It’s just that too many people quit before then for some reason.

  29. Sam — As always, your takes are spot on and highly informative. And of course very personal to most of us. The asset allocation in making the leap from $1M to $10M couldn’t be more accurate. I was fairly content in the $2M range, mainly on retirement funds, ETF’s, and a couple of houses. But I’m now involved in a super-cool startup that could result in that “gap up” to $10M or more. Funny thing is, I love it just for the sense of adventure and to help create something great. A financial payoff would validate this, but how great it is getting back in the game just for the satisfaction of it. Anyway, I digress. The main point is confirmed in your chart, that logarithmic increases in net worth usually come from owning a stake in a business. Even with great investing prowess, my $1M in stocks would be worth maybe $2M, but never ten times that …

    1. Your 1M in stock would be worth maybe 2M but never 10 times that because you’ve already stated that you are content with ETFs and retirement funds. You are safely content with the averages that those will bring and have no potential opportunity of potentially having your own above average portfolio.

    2. Excellent insights. My personal experiences and my observations of a large cohort of others support these observations.

    3. That is very cool you could make big bucks from the startup and seem to enjoy the process. And if it doesn’t work out, at least you gave it a go! I never want to regret having never tried. But I also wanted to find some more balance, hence the decision to go a lifestyle business.

  30. Are you saying you had a shot at getting a $25mm payout? Curious how you believe that to be the case.

  31. Good golly your entire real estate paragraph was a summary of our 2017-2018 year. “Real Estate is one of the easiest ways to boost wealth to $1,000,000, but becomes less desirable as time goes on due to maintenance, hassle, and ongoing property taxes.” Yup! If we were at the half way point, we would have kept our rental and pushed on.

  32. They always tell us 1 in 5 Americans have 0 or negative networth but they never tell us how many business have 0 or negative networth. These guys in the high end of the chart you posted are the outliers.

    Here are some numbers we do know from scouring the Internet. We do know that there are 30 million small businesses in the US. We also know, there are 23 sole proprietor businesses in the US. We also know 50 percent fail within 5 years. 33 percent last beyond 10 years. 30 percent of small business owners take no salary. 90 percent take a salary below 100k. We do know that there is about is about a 1 to 1 ratio of new businesses opening to businesses closing. I’m just trying to put some numbers behind the constant, if you only start a business then you’ll become Jeff Bezos rhetoric often times thrown around by many. :)

    1. I love Debbie Downers to balance out optimism. Thank you. I take it that you won’t be starting a business anytime soon?

      I wonder if it is the comparison of starting a business to the wealthiest man in the world that actually keeps people from never taking action? In other words, people think there’s no way they can be as wealthy as Jeff Bezos, whom I don’t mention in the article, so they don’t even bother to try.

      Even my example of deciding between a lifestyle business and a huge mega million dollar business doesn’t seem to make a difference.

      You’ve given me an idea to help people focus on just making $10 a week or $100 a month. An amount easily possible to help people get started. After all, every business starts small and works its way up.

      1. I’ll start one when I’m ready. It’s okay to learn from my employer and accumulate wealth simultaneously. I actually do think it’s possible to become very wealthy and it happens in a fairly short amount of time.

        I click on the links of some of the commenters and look at their blogs. Some of them are making a nice living but others will never see even the $10 a week.

        1. Doctor Nancy

          How old are you? Would help to get context for your viewpoint of why it’s so difficult to run a business. Thx

          1. I’m around 40. Yes it is difficult to run a business. I probably look like the bad guy in my response. The outliers make it seem easy to run a business. Again, taking blogging as an example. A vast “majority” of bloggers can blog for 40 hours a week and they will never make $10 a week. They will never drive enough traffic to their blog to make even $10 a week. They will make sub minimum wage from their blogging efforts despite trying very hard every single week. Yet outliers will make it seem as though it’s easy and anyone can do it. Telling the vast majority of people that they should quit their job and become a full time blogger is basically directing them to work for sub minimum wage. The same is true for other businesses ventures. We have vast majority of kids in inner cities that want to be rappers or nba stars because the outliers that have done it make it seem as though anyone can do it. The reality is that it’s far easier to become an engineer or some other profession than is to be one of these outliers. One can choose a good profession, never hold a management position, never own a business or be at the bottom of any org chart that they have ever been on and still become a multimillionaire. All one has to do is consistently invest and make a decent living. This is a fact. I can even argue that one can make it to above 10 million or without ever owning a business. That person though would be an outlier too.

            1. In my first year of running my own business, I’m already over 6x the best earnings that I ever had as a military officer, with much better hours.

              Count me as a believer. That said, this thing is built on the back of a skill set that required those years to cultivate.

              Every truly wealthy person in the community I live in right now is a business owner or a high-income earner like a surgeon.

            2. I hear you Mike. I’m not anti business owner. All I’m saying is there are other ways. Also, business ownership isn’t for everyone and everyone isn’t successful at it. I spend significant time on my investments and earn a W2. I believe my investment return average is above average and will stick along that track for now. Others think the market is expensive and have been saying so for years now, I don’t. I’m just going to go the route I’m going for now. Once, I decide to create a business, I will do very well. I could then spend the next 20 years on that business, if i’d like or not.

              1. One of the things about business if you’re able to even create even a profitable small one, is that you will wish you started years ago. The benefits of running a business are hard to realize until one does it. I just have a problem describing the benefits in a catchy way because I don’t want to create envy or a “look at me” type theme on this site.

        2. An online blog that you want to operate as a business requires a lot of work, posting at least 2 times a week and creating high-quality content is just the start.
          You will have to learn a bit of everything, about hosting, domains names, servers, how to change themes how to increase the CTR of your posts and how to get better at retaining your visitors.

          Marketing is another factor that you have to learn, even SEO simple steps will take a while to get used to it if you have no background.

          So, a blogging business is not quite an easy task to master if you want to earn money from it.

        3. I’m a finance blogger but don’t do it for the money today. I blog to teach others and help them on their journey. I also find that it helps hold me accountable to my goals and values.

          You should never start a blog because you think it will make you rich. Very few pull this off.

          However, if you want to be in the top 0.01%, being a business owner is much more likely to get you there than a salaried position.

      2. I think AAB’s line of questioning is perfectly reasonable. Do people who start their own businesses actually make more money and build more wealth on average? Do they actually have more control over their time, or are they buried in obligations and stress?

        The chart in this article suffers from obvious selection bias. Of course very wealthy people generally control businesses, but that doesn’t mean controlling a business is likely to make you wealthy.

        This isn’t about optimism vs pessimism. By determining who succeeds, who fails, who’s making money, and who’s putting in endless hours with nothing to show for it, you can set yourself up for success and avoid common pitfalls.

        It would be interesting to start with your own “industry”. What’s the average hourly compensation of internet bloggers? Of those who make a serious go of it, how many can support themselves, let alone become wealthy? Is there a way to determine whether you have an editorial voice and knowledge base that draws people in before spinning your wheels for months or years?

        I like your idea of a tutorial on how to start small; on how to plant some low commitment seeds and see what they grow into.

    1. I noticed that too, and was surprised that Business Interests still had a sliver in the $10,000 net worth level. But America is made up of small business owners. Perhaps they’re just getting started, or perhaps there are many businesses that aren’t very valuable at all.

      Good to see people try at all levels though.

  33. Very interesting- great post Sam. Isn’t life insurance a way to transfer wealth to your kids if you are high net worth?

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