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Ask the average American on the street if they are in favor of raising taxes on “the rich,” and invariably, you’ll receive a “yes” answer. They will cite tax loopholes, fairness concerns, greed of the wealth, a stalled economy, and virtually any other reason to make their case. Of course the rich should pay more in taxes. Wealth is evil and should be punished!
The problem is that no two people are likely to agree with a definition of “rich.” Ask an attorney if he is rich, and he will likely say “no.” Ask the same question of a surgeon, and she will answer in kind. But to a city bus driver, the attorney and the surgeon are rich beyond imagination. And to the widowed mother of three children who works at the local diner, the bus driver is surely living a lavish life!
According to the Washington Post, a Pew Research Center Poll revealed that 54 percent of Americans favor raising taxes on the rich to expand programs for the poor. The problem is that fewer and fewer Americans are able to identify whether they are rich; they think a “rich” person is someone who earns more money than they do.
Side note: I once heard a joke that the ticket to becoming rich is earning more money than your brother-in-law!
The Washington Post provides further intriguing data on the matter straight from the minds of Americans:
According to a 2013 Washington Post survey, people who live in households making less than $50,000 say that an income of $200,000 would make you rich, while people with incomes between $50,000 and $100,000 say you’d need $260,000 to be rich. And people making over $100,000 say they wouldn’t feel rich unless they were making a cool half a million dollars a year — or more.
THE GREAT DIVIDE
Americans are clearly divided on this issue, and perhaps for good reason. After all, a number of factors are at play in the “how much is really rich” discussion, including family size, location, expenses, level of consumer debt obligations, amount of savings and investments, and so on.
Yet the United States tax code is calculated and cold when it comes to many of the aforementioned factors. Barring unforeseen variances, a married couple earning $50,000 will still pay the same amount of federal taxes in Manhattan as they would in rural Tennessee. The primary difference is they might feel rich living in Tennessee.
So is “richness” forever destined to be defined in an ambiguous, subjective manner?
THE GRAND CONFUSION
I vividly recall a family discussion from my childhood regarding the supposed “riches” of a distant family friend. One family member reasoned that this friend, a respected businessman, must be rich due to his sizable income. Another member of the family supported her hypothesis by citing the friend’s large home on the lake, fleet of luxury vehicles, and designer wardrobe.
As I child, I simply nodded my head in agreement and wonder. As an adult, I see the truth.
Income, no matter how high, does not make a person rich. Possessions, no matter how numerous and luxurious, do not make a person rich.
Consider two fictitious people. We’ll call them Charles and Leonard. Chuck earns $100,000 per year, and Lenny earns $150,000. Lenny may appear to be the richer of the two, but his 6 bedroom home, BMW, and multi-millionaire lifestyle comprised of weekend trips to the casino and multiple rounds for the entire bar are sucking him dry. Meanwhile, boring Charlie spends only $45,000 per year, lives in a modest town home, and drives a Toyota Corolla. Now who is rich?
Sadly, most Americans have defined richness in a backwards manner. We put Lenny on a glorified pedestal and lament Chuck’s evident misfortune. In doing so, we have it all wrong.
As Paula Pant is famous for stating, you can afford anything, but not everything. Being rich doesn’t mean having all the things. It means having money and freedom to buy all the things. Richness is not all about how much money you earn; it is about how much you keep. Richness is not all about how much you spend; it is about how you spend it.
HOW TO BE RICH AT ANY INCOME
This isn’t the first piece written about how much money it takes to be rich, and it won’t be the last. But this will be one of the few articles which rejects stating solid income and asset amounts as a threshold for being rich. The simple reason?
I believe anyone can be rich at any income.
At the end of the day, the only person who determines whether you are rich is you. Others can point, gossip, sneer, and conjecture all they wish, but it will only impact you if you allow it.
If you want to be rich, regardless of your income, it’s up to you to set about changing your mindset and actions. Most “rich” people have mastered the act, and you can learn from them.
1. Stop caring what other people think of you
If you care what other people think of you, you will have a difficult time becoming or even feeling rich. A desire to impress others is a sure fire path to financial mediocrity. Be a kind, caring person to the best of your ability, but don’t allow others’ feelings to impact your finances.
2. Think more about what you have and less about what you lack
Are you a glass half-empty or glass half-full person? I aim to be neither. Though it is hard, I try to navigate my life by a “full glass” mindset. Even a glass half-full mindset leaves you wanting more. And the trouble is that even when you do get more, the glass perpetually remains half full. Learn to practice gratitude for what you do possess.
3. Know your most precious asset
Ask the world’s billionaires to pick one asset which they covet most, and I believe most would say “time.” In a world of great inequality, time is the great equalizer. Use time well and you can make a lasting impact; waste time, and it is gone forever.
Most people would benefit from the eye-opening experience of charting their time in fifteen minute blocks for an entire week. I have done so for a few days in the past, and the results were humbling. The ways you choose to spend your time indicate what is most important to you.
By building habits, routines, and structures into your daily life, it is possible to unlock the full potential of the time which is available to you.
4. Save first, spend what is left
While the first three action steps reside in your psyche, the final step is as practical as they come: rather than spending first and saving whatever money is left, save first and allow yourself to only spend what remains. This is a sure fire way to grow the gap between the two most important numbers for financial success: your net income and your net expenses.
THE HEART OF THE ISSUE
French designer Coco Chanel said, “There are people who have money and there are people who are rich.” According to Benjamin Franklin, “Content makes poor men rich; discontent makes rich men poor.” These two anecdotes strike a powerful chord. They speak to the power of the human mind and spirit. Ultimately, it is up to individual to change her mindset and take action to build a rich life.
What does it mean to be “rich” in today’s world? How do you define it?
Jon @ Be Net Worthy says
October 21, 2016 at 11:42 AMNice article FS and it is truly subjective. I would say that if you are financially independent, i.e. making enough off your investments to live comfortably, then you are rich.
The tricky part is that some people need to be significantly more comfortable than others in order to live comfortably! The mindset piece is huge.
Mr FOB says
October 22, 2016 at 9:13 AMIndeed, FIRE status is a rich status. Mindset is what counts
FinanciaLibre says
October 21, 2016 at 12:08 PMThis is a really good post, Hero.
“Dissatisfaction” is an interesting concept. It’s a driver of advancement and achievement. But it carries a hefty cost.
A working (financially-geared) definition of “rich” for me is: You’re rich when you don’t worry about money.
Nice work here.
Physician on FIRE says
October 21, 2016 at 12:18 PMThe correct answer has been further confounded by our federal government, which has insisted on making sure “the rich” pay their fair share. The rich, of course, being families with at least $250,000 in household income. This is not a statement on taxation, but on how people at all levels misdiagnose true wealth.
Most young physicians are labeled as “rich” despite a negative net worth. It took a long time for my wealth to catch up to my income. Now, I feel rich not because of the cars I drive (’06 Chevy, ’08 Chrysler, each with 130,000 miles) but based on having achieved financial independence and living a life rich with great experiences.
Cheers!
-PoF
Financial Panther says
October 21, 2016 at 5:22 PMHow rich you feel definitely is about how much stuff you need. If you’re the type of person who needs a ton of stuff (big house, fancy car, nice clothes, etc), you’ll never feel rich. The thing about income, there’ll always be someone else who makes more than you. No matter what you do, you’ll always feel like someone else is “richer” than you.
Agree with PoF about how it takes a long time for high income professions (such as doctors) to actually be “rich.” Most everyone assumed I was “rich” because I was a big city lawyah. And even though my income put me in the upper percentiles of income for my age, I wasn’t actually rich. I had a negative net worth! It took me a while to get out of that whole.
Mrs Groovy says
October 21, 2016 at 9:03 PMVery thoughtful post FS. Time is definitely our most precious asset. And good health (and love of/from family and friends). Caring too much about what others think is the easiest way of feeling poor and unhappy. And making comparisons. Facebook is a huge negative contributor to this. There should be a national holiday called Facebook-free Month.
Vicki@Make Smarter Decisions says
October 22, 2016 at 8:23 AMI agree with the others about FI being my description of being rich. I have never really cared about what others think – which has certainly accelerated my path. But the death sudden death of a vibrant and energetic colleague (who was my age) a year ago today has totally changed my focus on time and what is important. Time and experiences matter to me most now – if I have those and enough money to not work, I’m rich. Great post!
AustralianDividendInvestor says
October 22, 2016 at 9:21 PM“Stop caring about what others think” is the key I think, but its way more difficult than it sounds. Watch you acquaintances start looking at you strange when they realise you are happy driving an older care to make sure you don’t have to work until you are 70!
Save first and spend whats left is the one piece of advice I give to people who have no idea where to start. It lets people spend on little luxuries while slowly building a financial fortress.
Cool post!
TheMoneyMine says
October 22, 2016 at 9:57 PMRich by salary is not rich by income, as spending 90% of it doesn’t really help being rich. It helps feeling or appearing rich however.
Anyone achieving FI is definitely rich, but still the answer is very personal. If all my friends and family have net worth above 10M$, I won’t feel rich unless I have at least as much. Fortunately (or unfortunately), it’s not the case so I’ll feel rich when I get to FI.
Finance Solver says
October 24, 2016 at 9:44 PMI definitely don’t believe that the rich should pay more taxes. They pay more taxes (though not in % terms, in absolute dollar terms) than everyone else already. They shouldn’t have to pay for something that they earned.
I love this post that it highlights being rich can be attained at any income! Too many people think that income will solve everything but lottery winners are fantastic at becoming bankrupt in a record amount of time.