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Am I rich? It's all relative.

Am I rich? It's all relative.

The definition of rich is all relative.

The other day, I was trolling through some of the personal finance sub-Reddits and I saw an interesting post asking a seemingly simple question: “Am I rich”? The more I thought about it, the more complex the question became.. What exactly is the definition of rich? Is it a certain amount of money? The ability to do anything you want? Is it a certain income level? Or, is it just financial independence?

Obviously, rich is relative. Nearly everyone in the US is unimaginably rich compared to people in Mozambique or Bhutan. At the same time, I think we can agree that there is a big difference between someone making $7.50 an hour and Donald Trump.

In my mind, there really is no set number for being “rich”, but that doesn’t mean that we can’t get a comparative measure of wealth by looking at some data.

Net worth percentiles from 2013 to 2016

The chart below from DQYDJ gives a general idea of where a certain net worth lands as a percentile, and how those percentiles have changed from 2013 to 2016.

The first thing that strikes me is that the bottom 10% has a negative net worth. I suppose that isn’t too surprising, given the prevalence of student loans and consumer credit, but it is a little depressing. You can also see that moving up the chart, the numbers get big really fast. $350,000 is 75th percentile, but the 90th percentile is $2.4m and the top 1% is over $10m. Those are some big numbers.

So, if we are going by numbers alone, I think we can develop a ranking for wealth that lines up with the data.

The RFG logarithmic relative scale of wealth based on net worth.

See where you stand below. If you aren’t sure what your net worth is, you can use Personal Capital for free to connect all of your accounts (even your mortgage and house) to get a good idea of your net worth.

  • $10,000 - Not rich. But, you’re richer than 25% of Americans!

  • $100,000 - Cash in your pocket rich. You’re richer than 50% of Americans.

  • $1,000,000 - Kinda rich. You’re definitely not poor, but you’re not buying a private island either. Richer than 90% of Americans.

  • $10,000,000 - Rich. You could easily retire and take it easy in comfort for the rest of your life… if your expenses are under control. Richer than 99% of Americans.

  • $100,000,000 - Really rich. Richer than 99.9% of Americans.

  • $1,000,000,000 - Plutocrat rich. You can influence governments type of rich. Richer than 99.99% of Americans.

  • $10,000,000,000 - Ridiculously rich. Maybe give some of it away?

  • $100,000,000,000 - Bezos rich. Planning interplanetary travel and world domination. You’re richer than everyone.

As you can imagine from the scale, each power of ten that you move up in wealth significantly changes your life (or has the power to, anyway).

Still, I am not sure if absolute wealth is the best measure of whether you are rich or not. Although attaining more wealth has the capacity to change your life, it doesn’t necessarily change your level of happiness or contentment with life.

It’s all relative: Every step up the ladder feels the same

Chances are as you looked at the chart above you had two thoughts (or at least I did). First, I found my position on the chart to figure out what percentile I was. Second, I started to wonder what it would be like to move up a couple of quadrants to the 90th, or 99th percentile. It’s only natural. The funniest thing is that there are people reading this who are in the 10th percentile, and there are people reading it who are in the 90th and everyone wondered what it would be like to be a litttttle higher.

No matter where I stand, I know I will always want more. It’s a natural human impulse.. We always tend to spend more than we can, and want more than we already have. Oddly enough, this becomes even more true the more money you have.

When I used to work at a wealth management company, we had a family that we worked with that I will call the Jones’s.

In a lot of ways, they were very "normal", in the stereotypical American sense. Dad had started a company and built it brick by brick. Mom raised the kids, and pulled double duty as COO at the business. The kids went to public schools, then college, then graduate studies and eventually decent jobs outside of the family business. But, after 40 years running the business, Dad and Mom decided to sell out and that's when their spending started to catch my attention.

They had had money for a long time, but the sale of the company immediately catapulted their liquid assets from $8m to almost $300m. Dad had given each child $10m. $100m went to Mom for her share of the business, leaving himself a little over $150m.  For context, that means that the kids were “rich” in the 99th percentile, and Mom and Dad were “really rich” in the 99.9 percentile.

The kids had good jobs, earning well into six figures on their own. Their $10m gifts paid them each $10k a month in addition to their own income. Over the course of two years, I watched as they pulled money out every-single-month on top of their $10k allowance. House remodels, new cars, extravagant travel: you name it, they spent it. Slowly - or actually frighteningly quickly when you think about it- I watched both of the kid's accounts dwindle past $9m, and $8m, and $7m. I didn't stay long enough to see how their story ends, but we can safely extrapolate. And keep in mind, these people are “rich”, using the RFG logarithmic sliding scale of wealth above.

Sound bad? Mom was worse. Instead of $10k a month, she had closer to $100k per month. To put it more bluntly, her monthly discretionary spending money was more than most American households make in a year. But every month she blew past it. She shopped, traveled and threw extravagant parties with 6 figure tabs for the entertainment alone. To be fair, she did live closer to her means than the rest of the family, and she managed to keep her net worth about even at $100m. But, every month she went over her allowance and I couldn't stop wondering how.

That was nothing compared to Dad. Even with a $150k monthly allowance, he would always find new and ingenious ways to spend money. My personal favorite (as an aviation fan), was when he needed to buy a $5m Beech King Air because he couldn't land his $10m Gulfstream III at his favorite ski resort. I mean... if that isn't a 1% problem I have no idea what is. In addition to his outrageous aviation expenses, his real estate purchases were insane. Ski mansions in Aspen and Tahoe, beach houses in San Diego and Hawaii, and numerous condos in major cities across the country. Although most of the things that he bought were assets of some kind, it was still amazing to watch someone burn through almost $30m in cash within a couple year span. 

In some ways, it sounds like a dream: to have more money than you could ever spend. But, in reality, it had sent the entire family into an endless hedonic treadmill with no hope of ever permanently finding happiness or contentment with their new found fortune. Worse still, as they spent and spent, they spent less time with one another, jet-setting across one another's paths as they ran on their own personal treadmill.

As I watched this unfold, I realized that I was inherently the same as them. If I had money to spend, I generally spent it. If I had come into a massive lump sum, I probably would have spent that too. We always want more, it's what makes us human. It drives the amazing things that we build, and the horrible messes we make for ourselves as well. 

Are you rich?

You’re the only one that can answer the question. Are you content? Do you have what you need? Then, in many ways, yes you are rich. Although I may not be top 1%, I can tell you that I feel rich, and although I am always looking to improve, I will try to be content and remember the lesson from the Jones’s. We’ll always want to move up the scale but it doesn’t always make our lives better if we aren’t already happy with what we have.

Ready to move up to the next percentile?

If, like me, you are looking to optimize your investments, manage your saving, and create the best strategy for the future of your money, then the first step is getting a good picture of where you stand with Personal Capital. Its free tools can help you to get a comprehensive view of all your investments, real estate, and other accounts, along with free investment advice and planning.

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