How Much Money Does It Take to Be 'Rich'? Here's What the Numbers Say

There are lots of ways to define the word "rich." To some, it might mean earning six figures or having $1 million in the bank.

However, you're not what I'd call "rich" if you:

• Earn $200,000 a year but spend $250,000 a year.
• Have $1 million in savings but owe just as much to lenders.

A high income or a big savings balance doesn't mean you're on sound financial footing.

That's why I think a better measurement of wealth is your net worth. Net worth is the value of everything you own minus the amount of money you owe.

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Let's look at the net worth of the top 25% of Americans, as well as how you can figure out your own.

The net worth of the "richest" Americans

Americans in the 75th to 89.9th percentile by net worth had an average net worth of $1.1 million as of 2022, according to the Federal Reserve. Americans in the top 10% had an average net worth of $7.8 million.

Those numbers include a lot more than cash and expensive homes. The wealthiest Americans are more likely to own things such as:

• Large stock portfolios
• Real estate investments
• High-value life insurance policies
• Business equity

All of these assets add to someone's net worth.

Americans in the middle 50% had average net worths ranging from $99,000 to $374,000.

How to find your own net worth

Start by adding up the value of all your assets, such as:

• Cash in checking, savings, and CDs
• Investments like stocks and bonds
• Homes
• Vehicles

Then add up your liabilities, i.e., your debts. These may include:

• Mortgage
• Auto loan
• Student loan
• Credit card debt

As an example, let's say you have $20,000 in cash, $200,000 in a retirement account, a home worth $350,000, a car worth $20,000, and a baseball card collection worth $10,000 (all your property counts, even if it's not an "investment"!).

Your assets would add up to $600,000.

Now let's say you owe $200,000 on your house, $20,000 in student loans, and $5,000 in credit card debt.

Your liabilities would total $225,000.

That means your net worth is $600,000 - $225,000 = $375,000.

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Why net worth matters

Your net worth is a decent gauge of your financial health. A high net worth is an indication that you're financially secure and on track to retire in comfort (and maybe even early!).

A low net worth can be a sign that your finances are shaky. For example:

• You may not have enough money in savings and checking accounts to pay for an emergency expense. That means you may have to turn to credit cards or a loan.
• You may not be on track to save enough money for retirement.
• You're at greater risk of being "underwater," i.e., owing more than you own. This can drain your income, hurt your credit score, and even lead to home foreclosure, auto repossession, or bankruptcy.

But don't panic if your net worth is lower than average. If you have little to no debt and very low expenses, then you may be in better shape than your net worth suggests. And keep in mind that net worth varies greatly by age. The average net worth of Americans aged 65 to 74 is almost 10 times higher than that of Americans under 35.

If you want to improve your net worth, then focus on:

• Paying off debt, starting with the debt with the highest interest rate
• Increasing your income so you can save and invest more
• Cutting expenses so you can save a bigger percentage of your income

Above all, don't obsess over "beating" your peers. Comparing yourself to others will only stress you out. Focus on yourself and take things one step at a time.