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‘Experts’ Say Consider Yourself Rich if You Have $5 Million

By JLP | August 26, 2008

In light of our discussion last week on the definitions of “rich” and “fair,” I thought I’d share this article by Bard Hem and L.M. Sixel that I read over the weekend in the Houston Chronicle:

For some it might be $100,000. Others might say it’s $1 million, $5 million or even $100 million.

Or maybe it’s simply having a happy family.

Never mind the back-and-forth squabbling between presidential candidates John McCain and Barack Obama over who owns what and how much, there doesn’t seem to be a magic number that universally defines “rich.”

I really like this quote (emphasis mine):

“It’s really in the eye of the beholder,” said Mike Kreach, chief investment officer at Houston-based Amegy Bank. “Basically, the less money you have, the less money you think you need to become rich. The more money you have, the more money you think you need.

That is so true. I remember when I was a kid, I felt ‘rich’ when I had a $10 bill in my pocket. Granted, I was a kid and didn’t know any better. I remember when my wife and I first got married, ‘rich’ to me meant a lot less money than it does now. Bottom line: wealth is relative.

Finally, think about this: An income $47,500 in the U.S. puts you in the top 1% globally.

Topics: Miscellaneous, Net Worth | 23 Comments »


23 Responses to “‘Experts’ Say Consider Yourself Rich if You Have $5 Million”

  1. Miguel Says:
    August 26th, 2008 at 12:41 pm

    I think it generally true: The more you have, the more you think you need. Much depends on your peer group, what luxuries yuo feel you must have in order to feel rich, and also cost of living varies greatly by geography.

    I was talking politics with a 30-something friend the other day, who earns over $200k, and stands to earn much more over his career. He owns a nice home and drives a big Benz. And he was complaining about how the middle class is getting squeezed and the rich should pay more taxes.

    I stopped him and said “Hold on a second, are you telling me you think you’re middle class???” Turns out, he thinks he’s operating under the notion that he’s solidly middle-class – to which I could not stop laughing for a few minutes (he is pretty good sport and a great friend). My friend is obviously suffering from comparison with his NYC lawyer/banker/acct exec peers, many of whom may in fact earn more, have bigger houses, drive more expensive cars, etc.

    In the U.S., we always seem to look up the ladder when comparing our relative position, which prevents us from truly appreciating where we stand. “Rich” is always the next guy up the rung.

    By the way, having $5mm money in the bank is a very different proposition than having $5mm net worth. You can have the latter and not necessarily “feel” rich.

  2. JLP Says:
    August 26th, 2008 at 12:47 pm

    Miguel wrote:

    “By the way, having $5mm money in the bank is a very different proposition than having $5mm net worth. You can have the latter and not necessarily “feel” rich.”

    That’s very true—especially if your net worth is tied up in the value of a small business or an asset like a house, which can be expensive to keep up and pay taxes on.

  3. terry Says:
    August 26th, 2008 at 3:40 pm

    $47,500 in the U.S. puts you in the top 1% globally.

    Unfortunately, the cost of living is a lot higher in the U.S. than in most of the globe.

    Does anyone seriously believe an annual income of $47,500 puts an American in the top 1% globally of standard of living?

  4. terry Says:
    August 26th, 2008 at 3:42 pm

    Bottom line: wealth is relative.

    And poverty is relative, contrary to the conservative spinmeisters who suggest otherwise.

  5. JLP Says:
    August 26th, 2008 at 3:48 pm

    Terry wrote:

    “And poverty is relative, contrary to the conservative spinmeisters who suggest otherwise.”

    What do you mean by that? I’m not following you.

    Let me ask you something: you have stated before in other posts that you are poor. What do you think the government should do to help you?

  6. Bozo Says:
    August 26th, 2008 at 3:51 pm

    It’s still an insane world out there, folks. The people who own the property just behind us have it listed for $2.145 million (that’s not a typo). It’s just shy of 2 acres, has stables and room for four horses, and a pool. Mind you, even assuming you could come up with the half million dollar down payment, you’d have to have horses to justify the acquisition. Horses are not cheap. If they get sick, you can’t just throw them in the trunk and take them to the vet.

    OK, once beyond the down payment and the horses, the monthly payment (P+I), with taxes and insurance would run, what, over $15,000/month?

    That’s $180,000 a year for a house (not including utilities, garbage, you know, things that make the house “work”.) Oh, and hope nothing breaks (read: maintenance).

    Why do I think this house may be hard to sell?

    If you think I’m kidding about this, I’ll give you the address.

    Yours,

    Bozo

  7. JLP Says:
    August 26th, 2008 at 4:00 pm

    Bozo,

    I see stuff like this all the time in the Houston Chronicle. They advertise houses all the time that look nice but are also $1.2 million or more. Yes, they are probably in the nicer areas of Houston, but geez.

    Heck I thought the $89,000 we paid for our house was too much! No, that’s not a misprint! $89,000 for a nearly 2300 square foot home in an AWESOME neighborhood. Of course we bought it over 9 years ago.

  8. Miguel Says:
    August 26th, 2008 at 4:25 pm

    I own property in the $2-$3mm price range, but this is NYC, and there are enough high income and wealthy people here (and who invest here even if they don’t live here) to support these kinds of prices. Also, NYC has very tight supply and limited room to build. The most desirable locations cannot be replicated, so in boom times, they get bid up insanely due to to scarcity.

    What really throws me off is when I see developments outside NYC asking this kind of money. There is no scarcity – the developers will break ground on yet another golf course community before they’ve even sold out the one they’re hawking.

    Other than a few select coastal communities, resort areas, and insulated economic pockets like Silicon Valley, its hard for me to believe there are enough “rich” folks to support these kinds of prices in every city, large and small in the U.S.

  9. Bozo Says:
    August 26th, 2008 at 4:31 pm

    JLP:

    My wife and I had a nice chuckle over the listing price while munching on breakfast Sunday. While we wish them all the success in the world (they are, after all our neighbors), it does seem a tad idiotic to price a home 25% over what Zillow claims to be the fair value.

    Someone ought to tell them it’s really, really, tough to pay $15,000/month for a house (not to mention the other things noted above).

  10. Bozo Says:
    August 26th, 2008 at 4:41 pm

    Miguel:

    I hear you. We own a modest condo in maui. The tax assessor apparently thinks it’s worth $1.8 million. My joke (to my wife): “yah, right, it’s worth $1.8 million cuz then they can collect $16,000/year in property taxes.” Anything strike you as remarkably similar between Maui and NYC?

  11. terry Says:
    August 26th, 2008 at 8:01 pm

    JLP said:

    What do you mean by that? I’m not following you.

    Maybe I read too many blogs and such, but I often encounter the notion that the “poor” in the U.S. are really quite affluent by global standards

    For example, by global standards, the “poor” in this country live in mansions.

    But the American poor do not necessarily live in these “mansions” by their own choice. The poor live under high housing conditions imposed by middle class code standards.

    If it were up to me, I would prefer to spend less on housing so that I could spend more on other things and also save and invest some of my income.

    The homeownership rate of the working poor is close to zero, which mitigates against long-term stabilization of housing costs and the accumulation of wealth.

    The greatest thing government could do for the poor in this country is to lower the barriers to low-income homeownership it imposes.

  12. Jason Says:
    August 26th, 2008 at 8:27 pm

    Give me $5,000,000.00 and I know *I’ll* feel rich:-).

    As for absurd house prices, well, I’ve heard of houses in Hollywood that go for tens of millions. I figure if you’re buying in that range, you’re probably not taking out a mortgage.

  13. Jimmy Says:
    August 27th, 2008 at 7:18 am

    “… An income $47,500 in the U.S. puts you in the top 1% globally.” I am really sorry you put this garbage in. It means nothing. I am sick and tired of people crying about how poor the rest of the world is because they live on ??? dollars per day. Not only is wealth relative, but so are these stupid dollar comparisons. These numbers are never put into context. If it costs $1 a day to buy the necessities of life, then these people are doing fine. If the world wants to get rich, then people need to stop having children they can’t afford to feed, clothe, and educate.

  14. JLP Says:
    August 27th, 2008 at 7:25 am

    Jimmy,

    I have no opinion on the $47,500 income part of the article. I just found it interesting.

  15. Jimmy Says:
    August 27th, 2008 at 7:36 am

    Terry,
    Are you saying you deserve a house because you want one, no matter what your financial situation is? So if you make stupid financial choices and have children you can’t afford, a car you can’t afford, a TV you can’t afford, etc, the government should still give you house?

    This country was supposedly founded on the idea that people are given the freedom to “Life, Liberty, and the pursuit of Happiness”. Happiness is not guaranteed, neither is a house.

  16. JEFF Says:
    August 27th, 2008 at 6:23 pm

    i make 175k and hardly feel rich…in fact, i’ve never felt more middle class as i do today….$4.10 per gallon for my car, $4.50 for a gallon of milk…I go food shopping on Saturday, coupons in hand, and still spend $160 for my family of 5…I’m at the supermarket during the week for another $60….that, coupled with my housecleaner, pool guy, landscaper, son’s guitar teacher….on and on….

  17. Matt Says:
    August 27th, 2008 at 9:13 pm

    I agree that rich is entirely relative and you’re totally right that if you had a net worth of 5MM you might not feel rich its all relative to the situation that you find yourself in. I think a very significant factor in that situation is your take on it; your attitude towards it will really make a huge difference. If you had 5 million dollars but thought you needed 10 million for your ‘needs’ then you might feel like you’re struggling but conversely if you had 100K but felt like you didn’t need much then you’d say you were rich.

    This is an abstract point where everyone’s opinion is valid and there should really never be and clear consensus because each persons situation is unique.

  18. Miguel Says:
    August 28th, 2008 at 10:40 am

    @JEFF – “…coupled with my housecleaner, pool guy, landscaper, son’s guitar teacher….on and on….”

    Were you intending to be ironic or did it just happen accidentally? If you’ve got a housekeeper and a pool then you aren’t doing so bad now are you. I just find it weird that no matter how much money people have or make, EVERYBODY thinks they are middle class. There is some sort of cognitive disconnect, I think its called hedonic adjustment.

    Maybe its because the terms Upper Middle Class or Upper Class jus don’t feel right anymore. There must be something in between middle class and rich that works. Marketers like the word “affluent”. It kinda says you’ve got an above-average income and enough to spend some on the finer things in life, but you still need to keep your job in order to keep up the lifestyle.

    I don’t feel rich either – certainly not compared to some of the jetset folks I know. I do try to keep it all in perspective. I know I’m not middle class either, certainly not according to the tax man.

  19. akb Says:
    August 29th, 2008 at 2:03 pm

    @JEFF

    According to the 2005 Census numbers a $175K household income puts you in the top 5% in the US. Congrats! You are rich.

  20. Kitty Says:
    August 29th, 2008 at 6:24 pm

    I earn 107K+awards, so it usually comes up to about 113K and I am single. I don’t think I am rich. Maybe comfortable, but not rich. I do have savings, but a serious illness with insurance refusing to cover major items could probably wipe me out. Another reason people with higher incomes don’t consider themselves rich is that income comes from a job. Something happens with a job – here goes your income.

    I also think that poverty is relative. Maybe it is because I am an immigrant, but to me there is a difference between not being able to buy a wide screen TV or to afford to buy a house (which is not a necessity – one can rent or buy a co-op or condo) and between not being able to put food on the table; between not being able to buy designer clothes and not being able to buy any warm clothes to survive the winter. Certainly, $1 can buy more in poorest places, but not everywhere. When my mother took a tour of Acapulco that went beyond tourist area, she saw houses that looked like grass roof on beams with no walls. With several kids under these roofs. She told me she’d never seen such poverty, even though she survived 2nd World War in Russia.

    Also, there are some places in this world where cost of living is comparable to that in the US but salaries are much smaller. For example, Moscow is considered the most expensive city in the world or St Petersburg (Russia) is also among 10 most expensive cities. Yet my engineer-with-PhD cousin in St Petersburg earns $500 a months on a job in a government research lab. Yes, some food in stores – like potatoes and bread – is cheaper than in the US. Some meat produce is comparable or maybe half as expensive. But certainly not proportional to difference in salaries. Yet my cousin doesn’t consider herself poor.

  21. Dollar dude Says:
    September 16th, 2008 at 8:05 am

    I think I can’t become rich at all because my annual income is not over $20,000 per year…

  22. Chris Says:
    April 3rd, 2009 at 12:10 pm

    Rich is definitely relative. I remember how proud my brother was landing a 100k salary.. That number just sounds awesome, doesn’t it? He lives in Mountain View, CA and just closed on a trailer house in a crap neighborhood because that’s all he can afford to buy.

    I’ll take my 50k in the Midwest any day…

  23. Gord Says:
    February 13th, 2010 at 1:36 pm

    Rich is absolutely relative and yes there can be substantial differences in ones perceived wealth between two individuals that have similar or the same net worth. There’s a substanital difference between one having a net worth consisting of a high value principal residence versus someone with a greater percentage of their net worth in truelly investible assets.

    The actual make up of your net worth is an important determinate in whether you actually feel wealthy.

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