Controversial but consummately successful podcaster Joe Rogan once said he felt like he’d “made it” financially when he had enough money to eat at a restaurant at night without feeling guilty and stressed about what it cost the following day.
Rogan’s net worth is now estimated at $120 million, which is all the money in the world — unless you’re Elon Musk. Then $120 million is less than 0.05% of your $257 billion fortune.
The point is that wealth is subjective.
“Being ‘rich’ means something different to everyone,” said Kendall Meade, certified financial planner at SoFi. “For some, this may just mean being able to comfortably afford their lifestyle. For others, it may be a specific target salary or savings amount. For others, it may be having the freedom to change careers or leave the workforce completely.”
In a country where more than half of all six-figure earners reportedly live paycheck to paycheck, how do you know if you’re rich? Or, how can you tell if you’re even doing better than most?
Salary and Savings: Money as the Measure of Wealth
What do you earn and what do you have in the bank? In the concept’s simplest form, the answers to those two questions will determine your comparative wealth.
By Definition, You’re Richer Than Most If You Make More Than the Median Earner
Your salary, of course, plays a significant role in your ability to accumulate wealth and has a lot to do with how you measure up to the masses.
“The median household income in the U.S. is around $75,000,” said Joel Ohman, certified financial planner and CEO of Clearsurance. “So, if you make more than that, your income is higher than half the people in the country. Of course, how far $75,000 takes you will depend on where you live. For example, you have a lot more buying power with $75,000 a year in Glendive, Montana, than you would in Orange County, California.”
Since the cost of living varies so dramatically from one place to the next, area median income (AMI) is a more accurate yardstick to measure your comparative wealth.
HUD Loans by commercial property financing firm Janover offers a state-by-state AMI breakdown with metro, non-metro and total AMI variants. Fannie Mae has a map-based AMI lookup tool that allows for much more granular and local detail.
You’re Wealthier Than Most If You’ve Met the Standard Saving Milestones
Even the most impressive income is no indication of wealth if you spend more of it than you make, which so many high earners seem to do. The more accurate barometer, then, is how much you have in the bank.
“If you’re making higher than an average salary and have saved four times your annual income, and you’re in your 20s, you’re doing very well,” said Ohman.
Ohman’s benchmark is exceptionally high. The standard guideline is to have the equivalent of your annual salary saved by age 30, three times your salary by 40, six times by 50, eight times by 60 and 10 times by 67.
Several studies have shown that more than half the country is behind on those milestones, so even being on par with your decade’s goal lands you a spot among the more affluent half.
Wealth as a Philosophy, Lifestyle and State of Mind
The two most measurable indicators that you’re wealthier than most Americans are that you earn more than 50% of them and have more money saved than 50%.
But as previously stated, wealth is subjective, and some indicators that you might be richer than you think aren’t as easy to quantify.
The following six soft indicators of wealth join the previous two hard ones as signs that you’re living a richer life than most:
- You’re not drowning in outstanding financial obligations: Ben Richardson, financial expert, capital markets consultant and director of Acuity Training, feels that you’re richer than you think if, “You do not have debt or exorbitant bills weighing you down that need to be paid.”
- You’re not desperate for your next paycheck: “In the current state of the economy, coupled with inflation, many families are surviving from paycheck to paycheck and have to anticipate when the next one is due to alleviate financial burdens,” said Richardson.
- You have a healthy cash cushion: “You already have a sufficient amount contributed towards your retirement, and an emergency fund is not a concern or has already hit its target,” said Richardson.
- A vacation is within reach: “Going on vacation can be considered a luxury, especially if you are traveling internationally,” said Richardson.
- You can occasionally splurge on impulse: You might be wealthier than you think, “When you don’t have to save up for a luxury item and can afford it easily,” said Richardson. Like Joe Rogan said, even being able to go to dinner without stressing about the bill can make you feel rich even if you’re not.
- You have money left over to invest: “Some people work two jobs to make ends meet, but it is different when you have money readily available to invest or put toward a passive income stream,” said Richardson.