How do you define rich/wealthy?

[Kaido]

That's not wealthy. That's top .02% Even the richest people are normally concerned with cost. Just while less income people are deciding to buy a new or used car, they are deciding which private jet to buy.

We consider ourselves wealthy at least in terms of where we live compared to those around us. We are by no means rich, and I see them as two different things. If we'd made this much money 10 years ago, I'd say we were rich, but prices of everything have gone up considerably since 2001.

It's funny because most of the "rich" people I know (million+) are very conservative about spending. One family I know own't even let their kids order soda when they go out to eat on vacation. I think you get rich & stay rich by being very careful with your money; I think you lose it by not asking what things cost. Apparently 78% of well-paid NFL players go broke within 5 years:

http://www.munknee.com/78-of-nfl-players-go-bankrupt-within-5-years/

 

[Leyawiin]

My definition of wealthy are those who could pay cash for anything they want (including cars and homes) but choose not to do so because they have more lucrative uses for the money. Also, can easily send their kids to any college without financial aid or loans.

 

[Shlong]

It's funny because most of the "rich" people I know (million+) are very conservative about spending. One family I know own't even let their kids order soda when they go out to eat on vacation. I think you get rich & stay rich by being very careful with your money; I think you lose it by not asking what things cost. Apparently 78% of well-paid NFL players go broke within 5 years:

http://www.munknee.com/78-of-nfl-players-go-bankrupt-within-5-years/

If you're an athlete that makes $5million a year and spend $3million a year or so, then yes you're gonna go broke if your spending habits don't change after you stop making money. If you're a hedge fund manager making $500million a year or founder of some tech startup that went IPO and made you a billionaire on paper (sell stocks around tax time to cover taxes and get extra cash) then you don't have to worry. Some rich people go out and charter private jets (or buy them), buy Ferrari and Bugatti's, buy Patek Philippe watches, charter a yacht for 6 figures a week (or buy them). They can afford that because the income keeps coming in and don't have to worry about going broke.

You get rich by making a lot of money. Someone making $50k/year can't obtain such a lifestyle by just being careful with their money. However, they can be "wealthy" if they don't need such a lifestyle and are careful with their money. If they're happy then that's all that matters.

 

[Tweak155]

It's funny because most of the "rich" people I know (million+) are very conservative about spending. One family I know own't even let their kids order soda when they go out to eat on vacation. I think you get rich & stay rich by being very careful with your money; I think you lose it by not asking what things cost. Apparently 78% of well-paid NFL players go broke within 5 years:

http://www.munknee.com/78-of-nfl-players-go-bankrupt-within-5-years/

That just sounds ridiculous. Why have money if you're not going to spend it? Not even buy soda? That's ludicrous.

And I thought I was a tightwad.

 

[brianmanahan]

Why have money if you're not going to spend it? Not even buy soda? That's ludicrous.

spending money is a good way to get rid of it, even if you have a lot

i dont plan on living a lifestyle greater than 30$k or 40$k per year, regardless of how much money i make. that is how you save money - by making it, and by not spending it.

 

[Kaido]

Yeah this is one thing I cannot explain. I used to be able to live on a few hundred a week. Now that would not be possible.

Although, I always believe if you can't figure out how to live on $30k/yr, you can't figure it out at $130k either. I personally have not had any problems managing finances, but I still wonder how I manage to spend so much sometimes.

I think budgeting is really hard for most people. Math is a talent and most people struggle with it. I didn't start getting a handle on things until I started tracking my daily spending in a spreadsheet, which wasn't really fun, but it reveals exactly where your money is going & starts making you more accountable for what you spend. You don't realize how much you spend on fast food or gas or whatever until the data is right in front of you in black & white.

I think you're right about handling $30k vs. $130k; one of the financial books I read said it didn't matter how much you made - if you only had a dollar, manage that dollar! People tend to look at small amounts of money as non-issues, but small leaks sink big ships. Most people spend thousands if not $10k+ a year on eating out, even just at Dunkin Donuts, Starbucks, McDonalds, and Subway without realizing it. That's fine if it's within your budget, but based on current debt statistics, I don't think most people do a tight level of management on their funds.

 

[Kaido]

If you're an athlete that makes $5million a year and spend $3million a year or so, then yes you're gonna go broke if your spending habits don't change after you stop making money. If you're a hedge fund manager making $500million a year or founder of some tech startup that went IPO and made you a billionaire on paper (sell stocks around tax time to cover taxes and get extra cash) then you don't have to worry. Some rich people go out and charter private jets (or buy them), buy Ferrari and Bugatti's, buy Patek Philippe watches, charter a yacht for 6 figures a week (or buy them). They can afford that because the income keeps coming in and don't have to worry about going broke.

You get rich by making a lot of money. Someone making $50k/year can't obtain such a lifestyle by just being careful with their money. However, they can be "wealthy" if they don't need such a lifestyle and are careful with their money. If they're happy then that's all that matters.

And that's exactly where it gets difficult to define wealth - if you have $5 million dollars and don't spend it, are you wealthy? Because if you blow it all, then you won't be rich anymore. So maybe wealth means having a nestegg that you can use to either live on in the event of a job loss, or being able to buy whatever you want whenever you want, but being extremely selective about it so as not to blow your savings.

 

[phucheneh]

As a renter with roommates, and having a 20 year old car which I can work on myself, I might be rich then. A few months ago my timing belt broke, so I bought an $80 belt + water pump and put it on myself in the parking lot. The cost of keeping it running is practically nil. I stay 6 months ahead of my rent, and can afford to eat out several nights a week. I'm accruing debt through the cost of my tuition (parents aren't obligated to give their offspring cars or pay for their college) but from a certain perspective, that's a very safe investment of the money.

I'm just saying that most people in the position drive an expensive car also live in an expensive house, and if they can afford to comfortably live their lifestyle without much worry of sudden unexpected expenses, they are probably pretty 'wealthy.'

But there's wiggle room to go either way. I.e. they can barely pay for their expensive house and expensive car, and needing a major home or auto repair is a huge speedbump if not entirely financially crippling. Or, someone can be happy to pay for a new air conditioner for their house or some such, because hey, the house and car are paid for and I set lots of my modest income aside.

The latter is certainly a rare case at all income levels these days.

 

[JEDI]

My wife and I were having a discussion about what wealth is, and I found my ideas (which I think are relatively "normal" for a lower middle class American) challenged. I tend to think about wealth in terms of income brackets with some modification from the time-freedom one has. Someone who makes $150,000 per year will often live very comfortably but I wouldn't consider them wealthy if they have no savings. I'd peg them in the "upper middle class - decent spending power but still likely a slave to the wage".

Her thoughts on the topic are a bit different: Wealth to her is a much more relative measure. The poor are those who are unable to provide for their own basic needs. Those who are wealthy have security such that very few life crises could take away their ability to provide for themselves (notable exceptions being things like debilitating illness, etc.). The middle class are those who can provide for their needs, but don't have great security. Going by this system, someone with an income of $15,000 per year could be wealthy, by having several years' needs covered by savings, by being educated enough to have a good chance of being able to find income again before money became an issue, and living in an area where the cost of living is low. Wealth, to her, has nothing to do with smartphones or cars or vacations.

I asked (paraphrasing), "Don't you think you're setting the bar a bit low for 'wealthy'?" to which she responded, "Why do you say that? What's really different between someone with a hundred thousand dollars in the bank, and someone with a billion? Where they can vacation?" Another area where I disagreed was a lack of terms for someone who is wealthy enough to not need to work, either due to savings, luck, or inheritance. Her response was to point out that the amount of savings to live on, without needing to work, is actually quite low if you avoid lifestyle inflation, and that lifestyle inflation has no real upper bound.

So, Anandtech OT, what are your thoughts?

yup, its not by tax bracket.
I don't consider someone making $250k/yr wealthy is he's living paycheck to paycheck.
bought too many houses/cars/mistresses/divorce payments/etc

rich = don't have to work EVER. he chooses to work.
wealthy = well off = have a few yrs salary in the bank.
middle class = have 6months expenses in the bank

 

[Kaido]

That just sounds ridiculous. Why have money if you're not going to spend it? Not even buy soda? That's ludicrous.

And I thought I was a tightwad.

I think it all depends on what you budget for. As mentioned, small leaks sink big ships - you constantly have to watch your bottom line so that you're not just draining money out slowly. You have to draw the line in the sand somewhere; in their case, they had a really nice home, nice cars for each of the kids, college covered for each of the kids, and a couple nice vacations per year. But I always thought it was weird that my parents would let me buy soda and theirs wouldn't. But then again, they stayed rich, so obviously they knew more about financial management than I did :biggrin:

 

[IronWing]

the official atot definition of wealthy is "anyone who makes more money than me"

True, but only when discussing tax policy. :biggrin:

 

[Yuriman]

My definition of wealthy are those who could pay cash for anything they want (including cars and homes) but choose not to do so because they have more lucrative uses for the money. Also, can easily send their kids to any college without financial aid or loans.

My best friend lived in the back of a van with his (single) mother for a few years when growing up. She started a plumbing company from her van and lived with a bare minimum of expenses. Her company now has a net worth of several million dollars, and she takes home $70,000 per year. She's shrewd with her finances, and although she could pay for her son's college in cash, she chooses to let him take out loans (keeps him responsible) while only paying the interest on them. She drives her cars until the wheels fall off, pays cash for new ones, and lives in a small house with a minimal rent. She also spends 2-3 months per year out of the country touring Asia, cruising around the Antarctic, backpacking in South America, but flies economy and eats fast food while traveling.

With her income and lifestyle, I expect her savings are increasing dramatically while still seeming rather extravagant to me (I've never left the country).

Does wealth really have to do with the type of lifestyle one wishes to pursue, or is the choice of lifestyle independent of one's wealth?

 

[Kaido]

yup, its not by tax bracket.
I don't consider someone making $250k/yr wealthy is he's living paycheck to paycheck.
bought too many houses/cars/mistresses/divorce payments/etc

rich = don't have to work EVER. he chooses to work.
wealthy = well off = have a few yrs salary in the bank.
middle class = have 6months expenses in the bank

Hmm that's an interesting viewpoint, rich vs. wealthy. And you're right about living paycheck to paycheck...I know plenty of people who are rolling in it and are constantly out of money because they max out their paycheck. I knew one guy making like $90k a year and would regularly run out of gas on the way to work and need someone to cover him. I don't necessarily blame those people 100% because again, I think math & financial management is a lot more of a talent than a skill and most people don't get the proper training they need when they are young & are stuck with bad habits, so it's not so much them just being complete idiots as it is a cultural thing. I mean yes, they can choose to manage it, but if you struggle with numbers and self-discipline (which most people seem to), then it can be a real chore to manage.

 

[HamburgerBoy]

the official atot definition of wealthy is "anyone who makes more money than me"

This is how all the rich people I know define it.

 

[Yuriman]

yup, its not by tax bracket.
I don't consider someone making $250k/yr wealthy is he's living paycheck to paycheck.
bought too many houses/cars/mistresses/divorce payments/etc

rich = don't have to work EVER. he chooses to work.
wealthy = well off = have a few yrs salary in the bank.
middle class = have 6months expenses in the bank

So by that same token, someone with a 20 million dollar per year income, who manages to blow it as quickly as it comes in, is also not wealthy? Even if it's due to extravagance and (financially speaking) poor choices?

 

[JEDI]

Seems like there's a better middle ground in there. Money's worthless if you don't spend it. Maybe he had grander plans for the future, but I don't see much point in hoarding money. If I were in that position, and completely happy, I'd give the money away.

I agree up to a certain point.
have a safety net in place first (12months expenses in bank, max out 401k/roth) then spend the rest.

or for the lottery winner- set aside enuf $ to last 2 lifetimes. spend the rest

 

[ImpulsE69]

My wife and I have been having this discussion too lately. She is a spender, I'm a saver. Her main argument is you can't spend it when your dead, so enjoy it while you can. Having been through the double lay off in the past, I'm gun shy about spending outside of our means. We survived it once, I don't want to go through it again.

However, she has a point. Honestly....with my family history, I don't plan on living into my golden years (dark I know, but I'm a realist). Does it make sense to pour all your money into savings for retirement when you may or may not even be able to enjoy it, or enjoy it now while you are young and able?

Granted - I would assume if we even have to have this discussion, we aren't wealthy, but I can see this for anyone no matter where you are in the money department.

 

[Yuriman]

My wife and I have been having this discussion too lately. She is a spender, I'm a saver. Her main argument is you can't spend it when your dead, so enjoy it while you can. Having been through the double lay off in the past, I'm gun shy about spending outside of our means. We survived it once, I don't want to go through it again.

However, she has a point. Honestly....with my family history, I don't plan on living into my golden years (dark I know, but I'm a realist). Does it make sense to pour all your money into savings for retirement when you may or may not even be able to enjoy it, or enjoy it now while you are young and able?

Granted - I would assume if we even have to have this discussion, we aren't wealthy, but I can see this for anyone no matter where you are in the money department.

I think your middle ground would be to have enough savings to retire as soon as possible with the minimum lifestyle you'd be happy with, but continuing to work so you can provide yourselves with luxuries.

 

[Kaido]

My best friend lived in the back of a van with his (single) mother for a few years when growing up. She started a plumbing company from her van and lived with a bare minimum of expenses. Her company now has a net worth of several million dollars, and she takes home $70,000 per year. She's shrewd with her finances, and although she could pay for her son's college in cash, she chooses to let him take out loans (keeps him responsible) while only paying the interest on them. She drives her cars until the wheels fall off, pays cash for new ones, and lives in a small house with a minimal rent. She also spends 2-3 months per year out of the country touring Asia, cruising around the Antarctic, backpacking in South America, but flies economy and eats fast food while traveling.

With her income and lifestyle, I expect her savings are increasing dramatically while still seeming rather extravagant to me (I've never left the country).

Does wealth really have to do with the type of lifestyle one wishes to pursue, or is the choice of lifestyle independent of one's wealth?

Wow, amazing story. Living in a van must have been a real struggle with a kid. It's neat that she's being smart with her current financial state!

I am a big fan of the "where there's a will, there's a way" mentality. Most people need permission to feel that they can do something - they need a personal trainer to get in shape, they need someone to tell them that they can do a job or hobby or activity, someone to inspire them along the way. But if you decide you're going to go after something & are persistent at it, it usually works out. I have a buddy who decided he didn't want the typical 9 to 5 job, so he dropped everything and became a traveling photographer. He now travels the world, is fairly well-known, and is able to provide for his growing family.

I think that wealth does open up a lot of doors, but it's like we discussed earlier - if you can't manage $30k, then you're sure as heck not going to be able to manage $130k...so if you're not wealthy now, being wealthy isn't typically going to magically motivate you to pursue a specific lifestyle. If you're serious about something, then you'll stop focusing on the obstacles & start focusing on making progress towards your goal. Being rich does make it easier, but it's the same concept of buying an exercise machine...how many millions of stationary bikes & Bowflexes are now premium coatracks in people's homes because they thought having an exercise machine in their home would motivate them to get in shape? It has to become an internal thing if you want to stick with it, I think.

 

[DrPizza]

Rich: do not have to work (though may) to maintain a life of luxury.

 

[ponyo]

Everyone has their vice. Even the rich. They have a family. If they're not spending it, someone in their family is. The difference is they're so rich it doesn't matter.

Then you have old money and new money.

Annual salary plays no role. If you're concerned and talking about how much salary they make in a year, then that person is not truly rich. Annual salary is kind of meaningless number to the rich.

 

[Yuriman]

Everyone has their vice. Even the rich. They have a family. If they're not spending it, someone in their family is. The difference is they're so rich it doesn't matter.

Then you have old money and new money.

Annual salary plays no role. If you're concerned and talking about how much salary they make in a year, then that person is not truly rich. Annual salary is kind of meaningless number to the rich.

Where would you define the boundary between rich and middle class (or not rich)? By one's family's inability to spend one's wealth? That's a pretty vague definition.

 

[Kaido]

My wife and I have been having this discussion too lately. She is a spender, I'm a saver. Her main argument is you can't spend it when your dead, so enjoy it while you can. Having been through the double lay off in the past, I'm gun shy about spending outside of our means. We survived it once, I don't want to go through it again.

However, she has a point. Honestly....with my family history, I don't plan on living into my golden years (dark I know, but I'm a realist). Does it make sense to pour all your money into savings for retirement when you may or may not even be able to enjoy it, or enjoy it now while you are young and able?

Granted - I would assume if we even have to have this discussion, we aren't wealthy, but I can see this for anyone no matter where you are in the money department.

I think it boils down to balance. Saving it all forever is kind of pointless because yes, eventually you will die. Spending it all means you have no safety net for a layoff, injury, or whatever crazy random thing comes along to throw your plans off. I think saving should be the priority, but if you have enough to meet your needs for say a year, have all of your debts paid off, and can responsibly afford the luxuries you desire, then why not? That's being an adult about things.

You also have to decide what is important to you. If you become a millionaire, can you responsibly buy a $250,000 car? Sure, but if you could be happy with a $50,000 BMW instead, that remaining $200,000 could sponsor an awful lot of struggling local kids to go to a $2,000-per-semester community college. But it really depends on what you want to do with your life - if buying a $250k car makes you happy & won't put you in financial ruin, then more power to you. But you could also positively impact the lives of a lot of people around you, which is an awesome thing to do.

 

[Kaido]

Rich: do not have to work (though may) to maintain a life of luxury.

Ah, but what do you define as luxury?

 

[Kaido]

Everyone has their vice. Even the rich. They have a family. If they're not spending it, someone in their family is. The difference is they're so rich it doesn't matter.

Then you have old money and new money.

Annual salary plays no role. If you're concerned and talking about how much salary they make in a year, then that person is not truly rich. Annual salary is kind of meaningless number to the rich.

I remember watching a show about people who came into wealth. The lady sold her company and netted $10 million of personal money from it. She called up her super-rich clients and asked what one thing she should splurge on before she invested & saved the rest. What she soon realized was how many different levels of "rich" there were - a lot of her clients were worth over $100 million, so they recommended things like 2-week yacht cruises that cost $1 million a pop, which was 1/10th of her new net worth - it made her realize that you have to be very careful about what you choose to spend your money on because it can disappear no matter what level of wealth you have.