How do you know if you’re rich? (2024)

Do you ever think about your finances and wonder whether you’re rich? Beyond gazing at, say, your neighbor’s seemingly nicer house or car or some wish-list couture you saw on Instagram, how do you really know where you stand?

The topic that can be awkward to discuss with others. But, ultimately, levels of “richness” can vary widely. So, it can beggar the question: Rich compared to whom? The same amount of money may make you feel super-rich in one community but dirt-poor in another.

You can gauge whether you’re rich in different ways—how much money you have in the bank, how much you earn, and how much you can buy. While richness is subjective, several types of data can give you some sense of your status.

Measuring your “richness”

The terms “rich” and “wealthy” are often used interchangeably. Rich (or wealthy) people tend to have lots of free cash—and/or borrowing power—which they can spend on more goods and services. They can pay their bills easily, afford health care without worry, and often depend on a financially secure future. Their affluence can have different origins, of course. Maybe they’ve earned and saved steadily. Possibly their wealth was passed down from others. Perhaps they won a lottery (it could happen!).

If you wonder whether you’re rich (or, again, wealthy), you’ll want to measure what you have against others in your community, region, or even country. You can also compare yourself to others in your situation or to those in different situations.

For example, couples with dual incomes and no kids (DINKs) or singles will likely have more available cash than people with similar incomes but with children. Parents generally face more expenses that affect their wealth, like extra clothing, food, and health care costs, not to mention possibly funding college. One recent study showed that depending where you live, the cost of raising a childOpen in new tabto age 18 can top $300,000—and that was before inflation spiked in the wake of the COVID-19 pandemic.

Two key financial measures can help you compare your financial status with others’: your net worth (your assets minus your debt) and your income.

Test 1: Comparing your net worth

One way to define being rich is having a high net worth. To be considered rich, you’ll need to have more assets—and/or fewer liabilities—than others. But how much more? What amount makes you wealthy? And to whom are you comparing yourself? These details make the definition of “rich” subjective. But you can use some common comparisons to see where you fall on a wealth spectrum.

Your net worth

Your net worth is the value of your assets minus your liabilities. Assets may include cash youhave in bank accounts, investments, valuables (like your vehicle and jewelry), and real estate (like your home or a rental property). Liabilities include debt like car loans, credit card balances, student loans, personal loans, and your mortgage.

To illustrate, say your assets include a home, a 401(k) retirement account, a car, and a savings account with a combined value of $400,000. But you also have liabilities: your mortgage, car loan, andother debts total $350,000. After subtracting your liabilities from your assets, the difference is your net worth—in this case, $50,000.

A range of factors can correlate with net worth. These include age, race, education level, and whether you own a business, among many others. For example, Americans’ average and median net worth tends to rise with age as you build wealth. Then it declines in later years, particularly after age 75, as you spend down your savings in retirement. Both the average (a.k.a. mean) and median (midpoint, with an equal number of people above and below) can help you gauge whether you’re rich, but the latter (median) can give you a better idea of where you rank. For example, if you have more than the median amount, you’re in the upper half.

U.S. net worth by age group

Source: U.S. Federal ReservePDF opens in new tab; age data based on head of household

Race may also correlate with net worth. For example, Black wealth in theUnited States increased from 2019 to 2022 but was still below that of other racial groups. In 2022, Black households had a median net worth of about $45,000; Asian American households had $536,000;White households had $285,000; and non-White Hispanic households had about $62,000, according to the Federal Reserve Open in new tab.

Also, people with more education tend to have more wealth. Americans with a college degree had a median net worth of about $464,000 in 2022, compared to just $38,000 for those without a high school diploma.

Finally, business owners tend to do better than most. In 2022, households with no business owners had a median net worth of $156,000. By contrast, the median for those who had a business with five or more employees was $1.25 million. (Keep in mind that these are just a few factors that can be associated with your wealth.)

What is a typical net worth?

While averages can provide important information about wealth, medians may tell the fuller story. Here’s why: In 2022, the FedPDF opens in new tabreports American households’ average net worth was $1,063,700. But that doesn’t mean the typical American was a millionaire. That’s because the average includes millionaires and billionaires, but many more people own very little. So, the average ends up skewing high.

For example, say there are three people in a group; one of them earns $50,000 a year, one makes $100,000, and the third earns $1 million. Their average income—$1.15 million divided by 3—is $383,000. But, clearly, they’re not all in the same financial situation.

That’s why median net worth—the midpoint, with 50% of people below it and 50% above—can provide a more valuable comparison. In the previous example, the median income would be $100,000—one person earns less, one earns more.

By that measure, in 2022, the median U.S. household net worth was $192,900. So, if yours was higher than that, you don’t need a million bucks to consider yourself “richer” than half of Americans.

Test 2: Comparing your income

Another way to gauge whether you’re rich is to see how is your income compared to others’. For example, you may be considered rich if you’re in the nation’s top 1% of earners. In 2022, that group saw an average annual income from wages of $785,968—nearly 19 times higher than the bottom 90%, according to the Economic Policy InstituteOpen in new tab.

Your income

Of course, the top 1% is just a sliver of the population—and it may not even come into play in some locations. To know how you are compared to a broader demographic, look at income statistics.

For example, your income can go beyond your salary. You might receive money from, say, side gigs or businesses, Social Security, sales commissions, tips, inheritances, profits on home or investment sales, or alimony. You could also earn dividends from stocks, interest from bonds and savings accounts, rent from properties, and other kinds of “passive” income. (Your “gross” income is what you earn from all sources before taxes. It can provide a good metric to compare against others. If you file a 1040 with the IRS, your gross income is on line 9.)

For its part, your “net” income is what you have after subtracting taxes. It may be less useful in gauging wealth because different people’s tax bills can vary widely.

What is a typical income?

In a country with more than 330 million people and huge differences in living costs, national averages can only tell you so much. For example, annual income of $100,000 might make you “rich” in Ardmore, Okla., where the median home value was recently about $184,000, reports RedfinOpen in new tab. But you may struggle to afford living in Palo Alto, Calif., where themedian home pricetopped$3 millionOpen in new tab.

Similarly, in 2022 the median U.S. household income, before taxes, was $70,260. But the average, $141,390, was more than twice as high.

Test 3: Comparing your savings

Having ample savings can significantly impact your wealth. This can include money in retirement accounts, taxable investment accounts,and savings accounts.

Retirement accounts

Tax-advantaged retirement accounts like IRAs and 401(k)s can help you build wealth. Depending on the account type (“traditional” or Roth), they offer tax breaks on contributions or withdrawals later (presumably in retirement).

Americans held a median (midpoint) of $87,000 in their retirement accounts in 2022, according to the Fed. (The average balance was nearly four times higher.) However, even if you have a modest nest egg, you may be better off than many Americans—just over half (54.4%) had any retirement savings in 2022.

Investment accounts

When you invest through a traditional brokerage account, you may not get the same tax advantages as with retirement accounts. (One exception: municipal bonds, whose income can be federal, state, and even local tax-free, depending on where you live.) But you can use taxable accounts to build wealth outside retirement savings or if you’ve maxed outOpen in new tabon your retirement account contributions.

For example, the Fed reports, as of 2022, about one in five American familiesOpen in new tabowned individual stocks (the median investment: $15,000; average balance: $404,000). About 6.4% held savings bonds, with a median value of $2,000 (the average, of course, was far higher, at $35,600).

Finally, about 16% of families held permanent life insurancepolicies, with a median cash value of $9,700. Investments can include other asset types as well, like commodities, other types of bonds, real estate, and collectibles.

With any investment, it’s important to understand your risk tolerance, investing horizon, and financial goals. No matter your wealth, consider working with a financial advisor to find the right mix of investments for your situation.

Savings accounts

Savings accounts and certificates of deposit (CDs) are designed to protect your money while providing modest returns. You can use a savings account, for example, to save for major expenses or as an emergency fund.

An emergency fund is money you set aside to cover unexpected major expenses like car repairs, medical bills, or necessities if you lose your job. (One rule of thumb is to have at least six to 12 months’ worth of expenses socked away, just in case.) This money can help you stay on financial track instead of taking on debt. Indeed, while the number of Americans with savings has increased, last year less than half (44%) said they could cover an emergency expense above $1,000 without borrowing, according to BankrateOpen in new tab.

How to protect your wealth

No matter how rich you are, you can take steps to protect your wealth. Among them:

Avoid overspending

If you go into debt to fund your lifestyle, you could damage your credit—and your financial future. And the more you owe, the longer it could take to pay off your debt. More of your money will go to interest instead of building wealth.

You can avoid overspending by budgeting well. Track what you spend each month and compare your total expenses to your monthly income. If you have “negative” cash flow—you spend more than you take in—look for ways to earn more, cut back, or both.

Invest according to your situation

Everyone’s finances—and appetite for risk—are different. Allocate your investment portfolio according to your goals, “time horizon” (when you’ll need your money), and risk tolerance. For example, if you’re close to retirement, you may want to focus more on lower-risk assets like bonds to help protect your wealth against short-term market shocks. If you’re younger, you may be willing to take on greater risk (to seek potentially greater returns) because you have more time to recover from market declines.

Take advantage of insurance

Insurance can help protect your assets by covering the costs related to unexpected events. With the right amount of coverage, you can avoid paying out of pocket for, say, the full cost of repairs or replacements following losses.

For example, homeowners’ insurance can cover the costs of damage caused to your home in a storm, and car insurance can pay for repairs due to an accident. Your coverage and cost will vary based on the plan you choose, where you live, and other factors.

Find taxbreaks

Reducing your tax bill will save you money, which can increase your wealth. So, consider contributing to tax-advantaged retirement accounts like IRAs and 401(k)s, and, if you’re in a high-deductible health plan (HDHP), health savings accounts(HSAs). For taxable accounts, you might look at municipal (muni) bonds or funds that hold them, which can provide tax-free income.

You can also take strategic financial steps toward long-term goals to maximize tax benefits. For example, you can gift your heirs their inheritance in smaller sums before you die. Or you can open a trust, which will protect your assets from creditors.

Use a financial advisor

A financial advisorcan tailor guidance to your goals and needs. You can also get suggestions for maximizing your wealth and protecting your assets with the right insurance coverage.

Author details

Sarah Li-Cain is an Accredited Financial Counselor^® whose work has appeared in Fortune, USA Today Blueprint, CNBC Select, the Seattle Times, and many others.

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