Sometimes I get embarrassed when I invite people to my apartment. I’m in my 30s and make a good salary, but I live in a one bedroom unit in a building shared with a lot of students. In fact, its the cheapest dog friendly unit I could find. Why do I choose to live here, when my monthly paycheck says I could live somewhere nicer? Because I’m on a mission to build wealth. Wealthy versus rich is a common misconception. Often the people with the most lavish lifestyles have the deepest debt.
It might appear on the surface that being rich and being wealthy are the same, but there are key differences. Being rich really refers to having a high income. I tend to think of being rich in terms of spending. Rich people spend a lot of money.
In this day and age, spending a lot of money doesn’t always mean you make a lot of money. As of September 2022, the average American holds almost $100,000 in debt.
While plenty of this can be attributed to student debt, it also goes to housing that people can’t actually afford, nicer cars than are by any means necessary, and things and experiences that go straight on the credit card.
Money has been cheap for a long time, and it’s fun to spend. But living beyond one’s means, living rich, is the exact opposite of wealth.
What is Wealth?
Wealth on the other hand means security. It’s how much you have in assets versus how much you spend- in finance jargon, your liabilities.
Yes, you have to spend money to buy assets, but those assets in turn make money. These income generating assets, like investing in the stock market and real estate, are the passive income streams that create a secure future.
In 2019 I took a job that I thought was exactly what I wanted for my career and ended up being a nightmare of misogyny, man spreading, terrible leadership, and really bizarre emotional outbursts from the founders. I knew three months in that I needed to get out, but I couldn’t leave. I was too scared for my financial wellness.
Building wealth to me, means never having to stay in a shitty situation. That can mean being able to peace out from a toxic work environment, or something as small as not worrying about the cost of an Uber if I’m ready to go home while the party is still going.
How Wealth Is Built
For example, let’s say you buy a Tesla. According to a quick Google search, these days a Model Y will run you about $65K. Another quick Google search shows that after three years your new baby goes for about $45k. That sexy new car of yours is a liability that’s costing you some serious cash.
On the other hand, assets earn you money. The stock market has historically averaged increases of roughly 10% in value every year. Homes in the US have averaged almost 5% increase in value every year for the last 30 years.
Buying assets instead of liabilities is how you build wealth. If you want to know how to measure your own worth, check out this article on net worth.
How Wealth Is Lost: Being Rich
As mentioned, the best way to let any dreams of wealth shit the bed is to spend money on liabilities – cars, clothes, high rent prices… There are endless ways to throw away money.
And no matter how much money you have, you still have to take care of it. Ok, maybe not if you’re a billionaire, but if you are, well, strong possibility you suck as a human.
Look What Happened to MC Hammer
If you’re a fellow millennial, chances are you, like me, know exactly how to finger dance to “2 Legit 2 Quit”. I also spent many an evening with my sister in garbage bags where we cut holes for our feet and called them our Hammer Pants.
In the early 90s, MC Hammer was on top of the world, amassing a net worth of $70M. Then he had some fun, buying a private jet, luxury vehicles, racehorses, installing a private bowling alley in his home, and staffing up to 200 people to help take care of it all.
Within 5 years, MC Hammer filed for bankruptcy. Clearly, this is a cautionary tale, that no matter what you earn, there’s always a way for you to burn through it quickly. However, it’s not a tragedy, MC Hammer made a comeback as an investor and today reports he would do it all again and not change one thing.
What does it look like to have Wealth?
Wealth is not necessarily a hard and fast fact. What it means to be wealthy, to be secure for life, is very dependent on your lifestyle. There are points in the road where you become definitively wealthy. Read below to learn more about what it looks like to have 6,7,8, or 9 figures of net worth.
Wealth: What 6 Figures Means
Technically speaking, if you have amassed a net worth in the six figures, it means that you have somewhere between $100,000 and $999,999.
If you’re a fellow millennial and have a net worth of 6 figures, congratulations, you’re well ahead of your peers. The median net worth for people under 35 as of 2019 was $13,900.
While it’s frightening that our generation is not prepared for retirement, most of them through no fault of their own, if you can get ahead, do.
If you have six figures saved and you’re under 35, again congratulations. But this isn’t retirement money. According to Wealthcare Financial, millennials, and gen-zers alike are going to need $3M to retire comfortably. $3M was pinpointed as the number needed to live on $150K per year for 20 years. And by the time we are at retirement, $150K isn’t going to look like the best salary in the world.
Wealth: What 7 Figures Means
If you have a 7 figure net worth then that puts you in an elite position called millionaire. You’re in the top 10% of wealth in the United States and one of 62.5 million millionaires globally.
To have 7 figures means to have between $1,000,000 and $9,999,999. And according to Kiplinger’s, most Americans consider having over $2.2M to be wealthy in 2022.
Depending on where one lands in six figures, their life and lifestyle could be very different. With $1M, you have a lot of financial freedom, but you probably shouldn’t quit your day job just yet if you want to make sure you’re set for old age.
On the other end of the spectrum, at $9,999,999, I’d suggest you quit your job and live your dreams. Don’t forget to make some solid donations along the way.
Wealth: What 8 Figures Means
Ah, 8 figures. Welcome to the 1%. You are hated by many. Having between $10,000,000 and $99,999,999 is, well, a metric shit ton of money.
There are only 1.5M people in the United States who fall into an 8 figure net worth. At this level you have above and beyond what is the final stage of financial independence – you have abundance. Your finances allow you to live freely and mainly do whatever you want.
If you’re on the higher end of this spectrum, you start to enter into the territory of owning things like private jets and yachts. Hopefully you follow in Bill Gates footsteps and try to do some good work with all of that cash.
Wealth: What 9 Figures Means
Ok ok, you’re rich. At 9 figures, you pretty much make your own rules. Unfortunately, it doesn’t seem like you make those rules with the greater good in mind.
Personally, I don’t believe that anyone should have 9 figures of net worth. We way over inflate what people will be motivated by. If someone is motivated by the idea of getting up to $90M in net worth and living however they please for the rest of their lives… well that’s on them.
Apparently having over $100M is called being “super wealthy”. And thanks to policy in the United States that helps the rich get richer, there are more here then the next top four countries combined.
I doubt anyone reading this blog is goaling to become one of the elite super wealthy. But hopefully you’re focusing on building wealth rather than showcasing richness.
Better to have wealth vs be rich. There’s more security and fewer bankruptcy claims.