So you're wondering what income level is considered rich. After all, 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 individuals making $400,000 and married couples making $450,000 and above.
Why $400,000 + $400,000 doesn't equal $800,000 before a married couple has 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.
What Is Considered Rich Today?
Today, Joe Biden also believes anybody or any household making over $400,000 is rich. He has promised to raise taxes back to 39.7% from 37% for individuals making over $400,000 and married couples making over $450,000. W2 income-earners pay the most in taxes.
Therefore, if you are constantly stressed out making a lot of money, you might want to consider taking things down a notch. Making over $400,000 while working 80 hours a week is not considered rich. That makes you a time mendicant with minimal freedom to do what you want.
If you are raising children in a big expensive city, your $400,000 income will go quicker given the cost of private school tuition, taxes, healthcare and more expensive housing. Without generational wealth, you will worry about the future of your children, despite a top 2% income. How rich you are depends on where you live and how big your family is!
For background, I worked in investment banking for 13 years at Goldman Sachs and Credit Suisse and made a top 1% income for several years. Then I retired at age 34 in 2012 to be more free. I'm no longer making an income that is considered rich, but I am free. As a result, I feel much richer today than when I did make a lot of money.
Financial Samurai began in 2009 and is the top personal finance today with over one million visitors a month. Everything is written based off firsthand experience.
New Tax Changes Increase The Definition Of Rich
The Trump administration viewed individuals making $500,000 and married couples making $600,000 as rich. Those are the rough income thresholds that now pay the top federal marginal income tax rate of 37%.
Further, the estate tax threshold increases to $13.99 million per individual and $27.98 million per married couple for 2025. That's pretty rich! If you die with more than this, you'll have to pay a 40% tax on your money if it's not properly sheltered.
Income Rich And Capital Rich
There are two aspects of monetary wealth we can focus on: Income and Capital. Some make a lot of income and are considered income rich. But they have only a little amount of capital since they are either starting off in their careers. Or they haven't saved and invested an appropriate amount.
Thankfully, that's not going to happen to you because you read Financial Samurai! You will follow my savings guide to ensure capital accumulation over the long run.
Meanwhile, there are those with a tremendous amount of Capital, with little income given. They may have inherited their wealth, won the lottery, landed a big settlement, and, therefore, have no income generating skills.
Capital-rich people may have also 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-rich category. It's not a bad place to be at all.
Ideally, to be rich, 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.
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. If we do, we can translate the figures 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 2024 is about $101,000. After contributing a healthy $23,000 to your tax-deferred 401(k), you are left with $78,000 in gross income to live. High inflation is eating away at the earnings power of all individuals.
If you live in a state like California, you'll have about $57,000 left after state and federal taxes. That may be 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.
Let's say you contribute $23,000 to your tax-exempt 401k, leaving you with $77,000 a year in gross income, and ~$57,750 net income based on a 25% total effective tax rate. The income limit where you can no longer contribute to an IRA for deductions is $87,000 for 2024. It's too bad the government puts income caps on certain retirement programs given everyone should improve their finances.
In 2024, to be able to contribute to a Roth IRA, the income phase-out range for single filers is $146,000 to $161,000. For married couples filing jointly, it's $230,000 and $240,000. Hence, with $100,000, you should try to contribute to both a 401(k) and a Roth IRA. I regret not contributing to a Roth IRA when I was younger.
Earning $100,000 a year is definitely not considered rich. Only if you are under the age of 25 and live in the MidWest would earning $100,000 be considered well-off.
Loading ...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 $23,000 in retirement contributions to your 401(k), you are left with $177,000 in gross income, leaving you with roughly $123,900 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. Depending on your family size and circumstances, maybe you'll have $10,000-50,000 left 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 living a upper middle class lifestyle in an expensive coastal city. In a heartland or southern city, earning $350,000 a year is considered rich. After $23,000 in 401(k) retirement contributions, you're left with $327,000 in gross income, or roughly $228,900 in after tax income using a 30% effective tax rate. In 2025, the maximum 401(k) employee contribution is $23,500 per person.
With a 30% after-tax savings rate, you guys have ~$160,000 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. The family is comfortable, but not rich.
Personally, our family is shooting to consistently generate over $300,000 a year in passive investment income so we can be stay at home parents. We feel $300,000 is enough to provide my family of four a pleasant lifestyle.
How About Earning $500,000+? Does Half A Million Dollars Feel Rich?
With a $500,000+ income, you are considered rich, wherever you live! According to the IRS, any household who makes over $500,000 a year in 2023 is considered a top 1% income earner. Of course, some parts of the country require a higher income level to be in the top 1% income, e.g. Connecticut at $580,000.
With $477,000 in gross income after contributing $23,000 to your 401(k), you have about $315,000 in after tax income (effective at 34%, which includes 10% state). That's right, you are paying around $162,000 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 $110,250, leaving you with $204,750. Subtract $70,000 for annual mortgage/property tax leaves you with $134,750. Then subtract another $40,000 in tuition for two.
With around $7,900 a month in money available for travel, food, entertainment, goods, gifts, you are sitting pretty, especially since you are putting away away over $133,000 a year in savings. That said, there are couples still struggling to get by on $500,000 a year!
Rich Income Levels By Age
Another way to know if you are considered rich is if you earn the top one percent income level for your age. After all, it's not fair to compare a 25-year-old's income to a 45-year-old's income.
Below is a great chart that shows the top income by age based on 2015 numbers. The income numbers are roughly 15% higher today.
For example, if you make at least $116,000 at age 25, you are considered rich. If you make at least $173,000 at age 30, you re considered rich. At age 35, if you make at least $291,000 you are considered rich. And if you make at least $388,000 a year at age 40, you are also considered rich.
Another interesting thing to understand is that most of the rich didn't get rich by working W2 jobs and investing in passive index funds. Instead, they invested in active funds that searched for home runs. The ultra rich, the highest form of rich, got rich by building equity in their businesses and other businesses.
So you if you want to get rich, then you must take greater risks to try to outperform the masses.
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 financially independent, you just need to have enough investment income to cover your desired daily living expenses. This is the definition of FIRE, a movement I helped start in 2009.
If you are super frugal, then becoming rich is much easier. You're rich if your living expenses are only $24,000 a year but your investments generate $25,000 a year after taxes. 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 active income, 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.
Build Passive Income To Be Rich
At the end of 2019 we were also blessed with a baby girl. Therefore, we've been 100% focused on building more passive income. Our ultimate goal is to regularly earn over $300,000 in passive income consistently every year to provide for a family of four.
Below is our latest non-401(k) retirement portfolio income streams. Although $300,000 only provides for a middle-class lifestyle in expensive San Francisco, we feel very rich because we have time freedom. We disliked commuting and sitting in meetings all day. It is a blessing to be full-time parents.
Here is our latest estimated passive income breakdown. Being able to earn six-figures in passive income is considered rich in my book. Ultimately, we have a goal of earning a top 1% income, but passively.
Unfortunately, this means earning at least $330,000 a year more in passive income! To do so would likely require another 20 years, by which time, the goal post will have moved again. Hence, to feel rich, I need to be happier with what I already have.
As a father of two young children, I feel a tremendous amount of satisfaction climbing to the top of the property ladder. The best time to own the nicest house you can afford is when your children are living at home with you. Even though I blew up my passive income by ~$150,000, I feel great as a father with a strong Provider's Clock.
Favorite Passive Income Investment
My favorite 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 in 2017.
Now we don't have to deal with maintenance and tenant hassles, while earning a much higher cap rate. If you're interested in diversifying into real estate, check out Fundrise. It is my favorite private real estate investing platform if you want a diversified, low volatility portfolio.
I've personally invested $954,000 in private real estate 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.
Financial Samurai is a six-figure investor in Fundrise funds and Fundrise is a long-time sponsor of Financial Samurai.
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.
I found my amazing partner in college. I knew she was the one when she woke up at 5 am to make sure I'd get up by 5:30 am to make it to my first interview at 6 am on Wall Street!
Shoot For A Net Worth Target
Now that you know what income level is considered rich, it's time to focus on building your net worth. 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. As a shortcut, people will just severely restrict their spending to try to get to 25X.
By focusing on 20X income, you force yourself to continue saving and investing more the more you make. I know too many people with big incomes who spend everything they make. As a result, their net worth is below average.
Ideally, you want to be so rich you have F You Money, where you can tell people off who are bothering you. You likely won't, as I've discovered over the years. But it's nice to know you can!
Net Worth Is Richer Than Income
Income is great, but it is taxed the most aggressively. Therefore, it's also a good idea to ultimately focus on building a large net worth to be considered rich. Once you have a large amount of capital, focus on capital preservation. The last thing you want to do is lose a lot of money in a bear market, which ultimately takes away your freedom!
Here are the net worth thresholds to be considered rich by city. Overall, a net worth of at least $1.2 million is required to be considered rich in America today. Although, the net worth amounts are much larger in more expensive cities.
Loading ...Invest In Private Growth Companies
The way many of the richest people in America have gotten rich is by building great companies and investing in private companies. 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.
One of the most interesting areas I'm allocating new capital toward is in Fundrise venture. It invests in:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 90% is invested in artificial intelligence in some fashion, 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!
To provide some perspective on venture capital, most traditional VC funds have $250,000+ minimums and require capital commitment upfront before they launch or reveal current holdings.
Fundrise, on the other hand, has revolutionized the way everyday investors can gain exposure to venture capital. For starters, the Fundrise investment minimum is only $10. They also provide a lot of transparency and let you see what you'd be investing in before you become a shareholder.
Fundrise is a sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise funds.
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 Empower. It is the web's #1 free wealth management tool to get a better handle on your finances. You can use Empower 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.
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What Income Level Is Considered Rich was originally published back in 2012. It has been updated post pandemic. It now takes over $500,000 to be a top 1% income earner. If you disagree with what income level is considered rich, at least you can try to feel rich.
To subscribe to my free newsletter, join 65,000+ others and click here. I've been writing about achieving financial independence since 2009. In the newsletter, you learn a lot more nuanced personal finance tips as well. What Income Is Considered Rich is a Financial Samurai original post. Thanks to inflation, what is considered rich keeps on going up!
Hey Financial Samurai, great breakdown on income levels and what’s considered rich! It’s so true that the definition of “rich” can vary widely depending on factors like location, family size, and lifestyle choices. I appreciate your detailed analysis for different income brackets and the cost of living in various areas.
I particularly resonate with the idea that being rich isn’t just about income but also involves building a solid net worth. Your emphasis on saving and investing for the long term is spot on. Achieving financial independence and having the freedom to make choices beyond just working for a living is a powerful goal.
Your personal journey and insights into passive income are inspiring. It’s fantastic that you’ve been able to achieve a balance between financial success and time freedom. Your advice on finding a mentor, being frugal without sacrificing happiness, and the importance of a loving partner adds a personal touch to the financial discussion.
The breakdown of net worth targets by age and income is helpful for setting realistic goals. It’s a reminder that wealth is not just about making money but also about preserving and growing it wisely. Thanks for sharing your experiences and providing valuable insights for those of us navigating the journey to financial well-being!
This blog really got me thinking about what it means to be “rich.” It’s crazy how the definition can vary depending on where you live and your lifestyle. The breakdown of income levels, especially in expensive cities, is eye-opening. The advice on building wealth, having a good balance of income and capital, makes a lot of sense.
The real-life budget examples hit close to home, especially when considering family and kids. The idea of financial independence and passive income is something I’ve been thinking about, and this post has given me some practical insights.
Overall, a solid read that makes you reflect on your own financial goals and what being “rich” really means.
Haha, you will be in a much better position if you stop wasting money on Charity, it’s just not meant for people who is not in the top 1% tier.
It’s always nice to give time and money to things you care about.
See: The Average Amount Donated To Charity Can Improve
Donor-Advised Funds: Tax-Efficient Way To Give
Ever been kicked in the balls? This is what traitor biden did to every taxpaying American with his communist policies to crush hard working Americans and give the spoils to our enemies. Transferring American wealth by stifling our energy independence closing down the oil industry, pushing stupid “unsustainable” green energy nonsense and promoting the climate change farce and spending our nation into oblivion with idiotic pot filled money laundering and unnecessary eternal spending has driven the American citizens future to fiscal suicide. Stock up on food and ammo it won’t be long now for you to Get ready for the collapse.
Have you thought about taking this brilliant insight to someplace more appropriate, like OANN or Truth Social?
The guy is more right than wrong about Biden, and we’re on the verge of nuclear annihilation, thanks to the people who keep voting in these moronic politicians, over, and over, and over again, while complaining about them. That’s the definition of insanity.
Actually….I think Obama did an even better job with kicking the balls. That 3.8% NIIT tax is unfair. Why hasn’t the 250K threshold been increased? It’s unfair that it never goes up. That has had a permanent effect. That’s Obama’s doing.
Agreed. A lot of the SE is extremely affordable, even in cities like Charlotte and Raleigh.
Some things I also just don’t think people put that much pen to paper on value. Take $20k for pre-school and just try to teach them some things yourself for free, meanwhile put the $20k into the stock market in your kids name and it’ll be worth $320k when they are 40 or over $2m if they receive when they retire. Is the pre-school really worth that much? For an overwhelming majority of folks, the answer is no. Same is true for private school – except multiple the above stats by however many years you pay for it.
I am curious about the crowdfunding passive income portion in your totals. I threw some money into Fundrise after reading one of your previous articles about them just to see what they were about. The main thing that worries me about those crowdfunding platforms is that the rental income returns are relatively miniscule while the bulk of the returns are listed as ” Valuation increases.” What I don’t know is how they determine this and it still appears to be increasing even as values across the country are decreasing.
I am a bit hesitant to throw in more as I wonder if the valuations will be readjusted at some point or if they will just be on paper. Are the monthly income amounts you list above including the valuation or is it just the Rental income generation? Owning rental property myself I am a bit skeptical on value and am more interested in Cash flow.
Sure. Combo of physical rental properties rental income, distribution from Five plus, and individual private real estate investments.
I’m guessing you put the 200k and 350k household budgets together at different times? It looks like the 350k household spends less on car expenses than the 200k household! And the same on vacations. Probably need to add a few hundred a month each for those categories to the 350k household’s budget (maybe more). I’d say 15k annual for vacations and about $1200/month for car expenses (payment, insurance, gas). If you’re earning that much, you’re going to be in a stressful job and will want to vacation in nice places where everything is taken care of.
Gosh, what can be considered rich is so subjective and a lot depends on where you live and your lifestyle.
I live in an expensive city (NYC) and I would say $250,000 income minimum to pass off as rich. More than that is required in the more expensive parts of the city.
I lean towards the R. Buckminster Fuller definition of rich: Wealth is a person’s ability to survive X number of days forward (without physically working).
Thus, passive income plays the most important role along with net worth. The freedom to use your limited time on this earth as you see fit is the mark of richness.
This is an awesome post! Thanks for sharing. :)
I love seeing this type of content right now, considering how things have shaken out over the last couple of years.
I will say that $100,000 can be considered upper middle class in more than just the Midwest. Throughout much of the Southeast, even in some of the more expensive areas, $100,000 easily fits the bill for a household of 2-4. Of course, it can start feeling like you’re more middling if your family grows much more than that…
I’m from one of the more expensive parts of NC, and people making $200,000 or more around here have it made. Early retirement, their children’s college paid, and so on – of course, a lot of people still mismanage it and end up in just as bad of a situation as those who make a quarter of that. In the end it’s all about learning to manage your money and not falling prey to lifestyle creep.
Great write-up, thank you for updating it for current $$ amounts in 2022. Some really good advice here.
Healthcare/dental/vision costs seem to be totally missing from this article (which is where a healthy % of my income goes to a 4 child 2 parent situation). With a little googling, it seems that in 2019-2020 healthcare costs overall are nearing 20% of GDP. That’s got to be worth mentioning here… right?
What percentage of your income goes to these costs?
When people have their jobs, they tend not to see these costs or feel these costs as much given they are highly subsidized by their employers.
But as a fake retiree, we pay 100% unsubsidized healthcare premiums of $2300 a month. The only good thing is that we treated as a business expense, so we have a discount.
So much depends on where you live of course, but when I was working in CA, getting to $100k was a huge goal. It took a long time to get there, but when I finally got my base to six-figures I really felt like I’d made it. I had a huge weight off my shoulders financially and felt solidly independent. I didn’t feel like I had money to burn, but I did feel “rich” and comfortable in meeting my living expenses with enough disposable income leftover after savings.
$100,000 a year income is a great goal. And you are right, it does feel awesome once you get there. You have more breathing room to save and invest for your future.
The thing with living in high cost of living areas is that at least there are more higher income opportunities. The upside tends to be much greater, which is why I like to stay in a high cost of living area.
Is there an age/income formula as to when to switch from Roth 401K to Traditional 401K? Considering potential for future tax hikes/income growth? I looked for content on this with no luck….
In general, the break even point is about once you get to a 25% marginal income tax bracket or higher, the Roth decision becomes a push.
Then once you get to the top marginal income tax brackets, the Roth doesn’t make sense anymore.
See: https://www.financialsamurai.com/roth-ira-conversion/
“With an effective tax rate of about 15% [on $72k/year], you have about $51,000 left after taxes.”
Have you written an article on the average effective tax rates by income? I would love to see where I stand. With an assortment of deductions and credits, I’m usually around 13% with $145k/year mostly W-2 income.
I have all sorts of budget posts. With different effective tax rates.
I welcome I guess post from you on the topic if you would like to share your situation.
I’d love to take you up on that offer, though tax strategies are not my expertise. I know you have an article on how to pay as little income tax as possible, but some of those items go against my personal strategy (namely, contributing to Roth instead of traditional IRA, which is a tax now vs. tax later situation anyway). Maybe that’s what I’ll write about.
Let me do some research and get back to you.
Sam,
Very interesting topic, and great analyses!
You used 25% as the effective tax rate for someone with income of $100k. I beg to differ. 24% is the tax bracket for a single, only for the portion of her income between $86k – $165k. So realistically, the effective tax rate tends to be lower than 25%. I would use any value between 15% – 20%.
I’m adding in state taxes as well. But yes, I am more aggressive in that one example.
I am rich since I was 49 years old and before that I was 1/2 rich only working part time from 24 years to 49. I served my country from 19-23 so I wasn’t rich just someone who gave back.
Now my rent is free my healthcare is free and I get tax free money inflation protected income for life at over 60K a year and have over 100k as a back up.
Thank you for serving our country! I hope your pension stay strong for the rest of your life.
On the topic of net worth as a multiple of income or expenses as discussed in this article…. how do you factor in a defined benefit pensions and VA disability benefits (both with annual COLAs for inflation) and that you already receive?
I’m 50 my $67K military pension (No FICA but taxable)+ $45K VA disability (all tax free) currently generates around $100K net income after healthcare cost, survivor benefit, and taxes are deducted.
How do I factor in this additional $100K passive net income into to my net worth?
The value of your pension is very valuable actually. Here’s how to calculate it: https://www.financialsamurai.com/how-do-i-calculate-the-value-of-my-pension/
Why is no one saving for college in your scenarios? College costs a minimum of $100k per kid for a state school. I’m mid-40s, gross just over $200k ($132k salary, $75k mil pension) in D.C., married with four kids, and this is my monthly budget:
$3000 retail purchases only my wife can explain (mostly clothes for the kids)
$2500 mortgage ($500k @ 2.25%)
$2300 taxes (state, fed, FICA)
$2000 groceries (beef, fish, chicken (rarely nuggets or hotdogs), eat at home 6 days a week)
$1700 401k contributions (1 account)
$1200 529 contributions (4 accounts)
$1000 IRA contributions (2 accounts)
$800 car payment (1 new Audi, 3 other vehicles paid off)
$400 phone cable internet
$300 cell phones (6)
$300 dining out
$200 electricity (more in summer)
$200 gasoline (I’m mostly teleworking)
$200 booze
$200 FSA
$150 car insurance
$150 natural gas (heat and hot water, less in summer)
$100 water & sewer
$80 trash pickup
$60 vision and dental
$54 medical care for family (yes $54, thanks TRICARE)
$50 streaming stuff
$0 child care (stay home mom)
Monthly leftover: enough for a ham sandwich
Annual savings: $46k + interest/appreciation
Chris,
College tuition varies greatly across the country. State universities in FL are about only $6,500 for annual tuition. Unless, a parent plans to board their kid in their own condo, college is not $100K per kid. A smarter way is to buy a 3-bedroom condo and rent the other 2 rooms to other students to cover the mortgage.
Then there is the argument that you don’t owe your kids a 100% paid for education.
I agree. I make above the definition of rich, but I am eating what I kill.
I have a $2M home that is pathetically simple because of where I live, and the problem with my scenario is if I lose my job or die, my family can’t keep up with the $10K mortgage and $70K/year private school. My entire life is dependent upon a company that would lay me off at the first sign of trouble.
To me, “Rich” means not having to depend on someone else for money….not how much money you earn right now.
In fact, With the Work-From-Anywhere policy becoming commonplace, I’d be smart to sell (or rent) this simple house and move to another part of the country, where I could get me “one of ‘em circular driveways.”
Rich is what you keep, not what you earn.
Anyone who can afford to pay $24,000/year to preschool is rich!! It’s interesting reading but not anywhere close to real life. You can’t claim
a person isn’t rich because they spend money on things only rich people can afford to. If you can put $40,000 into savings every year, you are rich. If you can spend $8,000/year on 3 weeks of vacation, you are rich. If you can afford $4000/ month mortgage on a 1.8 MILLION dollar home, you are rich. You could use this method going up to any income and claim its not rich.
I’ll do it. If you make 5 million a year you are not rich. Cost or private plane (maintenance, fuel, pilots,) $500,000/ year. Mortgage on 22,000 square foot mansion: $500,000/ year. Taxes: 2 million a year. Cost of private yacht (maintenance, crew, fuel) $500,000/ year. Insurance on plane, yacht, house, and 2 million dollars of cars: $250,000/ year. 401k savings: $250,000/ year. Yearly cost of new armani suits, Rolex watches, shoes, gambling in vegas: $250,000/ year. Cost for full staff of 24/7/365 full security for entire family $250,000/ year. Money left: zero. So 5 million a year isn’t rich.
I’m curious to know how much you spend for preschool a year? Being rich or not partly has to do with the cost of living in your area. I hope more people take that into consideration as they judge other people spending.
Here’s a real budget for a $300,000 a year income earner: https://www.financialsamurai.com/living-a-middle-class-lifestyle-on-300000-year-expensive-city/
Mike is right. Deducting rich lifestyle expenses and then saying you have no money left does not mean you aren’t rich.
And of course if relative if you feel rich. But there is only one person that has not got someone richer than them.
Stop complaining that you or high incomes pay taxes.
You pay taxes becaus you can shoulder it.
If it bothers you that much earn less and spend less.
1000$ a month on food for 3 people? Learn to cook bloody hell.
You’ll enjoy this post:
https://www.financialsamurai.com/are-you-a-henry-high-earners-not-rich-yet/
1.5M for a home? Making 300k per year does not afford that much house. Maybe in coastal cities, but the down payment alone would be a huge deterrent to purchasing a home of that magnitude. In all non coastal cities, a 1.5M home is a literal mansion. A realistic budget for most people earning 300k would not include a 1.5M home.
Full Disclosure, I have not read your entire article because my husband I both are exactly who you are talking to “rich” and working 80 hours a week SUDDENLY from home while raising six kids…. The pandemic started over a year ago and this is the first time I have read anything I can relate to… Thank you!
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 can answer with one word Amazon
My wife and I make in the 50/yr mark each we aren’t rich, we aren’t hurting for money. It is all about living within your means and not taking on more debt or spending than you can feasibly pay back. Like we are saving to purchase a better family vehicle because we have a new child and need something newer and bigger and have set a goal to save 20k as a down payment on something so that we don’t have to tighten the purse strings too much for fun stuff and we are more than half way to our goal. We plan on buying in the spring if we can keep to our budget and savings. It is all about perspective you don’t need to buy a 2million dollar home or have the new phone every 6 months. I’m on year 2 with my iphone xr with a cracked screen and live in a smaller home because we can afford it on one income if needed. If you cut the fat smartly the middle class wouldn’t struggle as much as it does quit pitting yourselves against those who have the fun shit and lots of trips eat you aldi food and spend wisely. The wise man buys a the expensive leather boots once that will last him years instead of the cheap rubber ones that last maybe a year. Be smart in your purchasing and budget for what you want don’t create more debt than you can handle.
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.
In saying that a couple have less expenses than a single person, you are making a lot of assumptions on how they live. If a person is working hard for the money, why do they have to pay more in tax just because they are married?