Determining what income level constitutes being "rich" can be a complex and subjective matter. Various institutions and studies offer different benchmarks. According to the IRS, an annual income of $540,009 places you in the top 1% of earners for the fiscal year 2019.
By this standard, earning $500,000 or more annually would categorize you as rich. However, the Economic Policy Institute (EPI) sets the threshold for the top 1% at $819,324 per year, while the top 5% earn $335,891 annually.
When looking at monthly income, according to the IRS, around $45,000 per month is considered rich. The EPI's metric raises this figure to $68,277 per month. Typically, such income levels are achieved by successful business owners, celebrities, athletes, and online influencers or content creators, rather than traditional 9-to-5 jobs.
Geographical Variations and Subjectivity in Wealth
The definition of being rich can also vary geographically. For instance, a SmartAsset study found that in San Francisco, you'd need an annual income of $250,000 to be in the top 20% of earners, while in Detroit, an income of $70,444 would suffice.
Additionally, the perception of wealth is subjective. For example, someone earning $250,000 a year might be considered rich if they're saving and investing effectively, especially in an area with a lower cost of living.
Steps to Achieving Wealth
Becoming rich, especially for those not relying on inheritance or a lottery win, involves deliberate planning and action.
Here are key steps to consider: Increase Your Income: More income translates to greater capacity for saving, investing, and debt repayment, all of which can increase your net worth. This might involve negotiating higher pay, seeking better-paying roles, taking on additional jobs, or starting a profitable business or side hustle.
Budgeting: Effective budgeting allows you to allocate your income towards your financial goals, making it easier to save and grow your net worth. Reducing Debt: Lowering debt can free up resources for savings and investments.
Strategies include debt consolidation, refinancing, or balance transfers to lower interest rates. Investing: Unlike saving, which usually involves low-risk, low-return bank accounts, investing puts your money into the market with potential for higher returns.
Starting with a retirement plan at work, like a 401(k), or investing in an IRA or a taxable brokerage account are good steps. Seek Professional Advice: A financial advisor can provide guidance on budgeting, debt management, and investment strategies to help build wealth.