What Does It Mean To Be Wealthy?

What does it mean to be wealthy? There’s no shortage of answers, and frankly, it means different things to different people. High net worth retirement planning not only encompasses investments and money but it also includes less tangible factors such as life experiences, charity, and legacy.

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Money as a Marker of Wealth

One definition of wealth is the amount of money one has. But even there, definitions vary. Another measure of wealth could conceivably be a person's annual income. According to USA Today, the top 1 percent of earners in the United States have incomes above $500,000 annually.

But is that a true measure of wealth? Frankly, it may not be, because earnings are intimately tied to expenses. It’s quite possible to earn that amount and much more, and still be cash-strapped. 

An individual with that income or much more could have several homes in areas where real estate prices are high, steep private school expenses for children, expensive cars and high debts – and more; these are just some examples. 

In short, you have to look at the checkbook for high-earning individuals to see if they are wealthy or not.

The truer measure of wealth may be net worth. How high a net worth does one need to be wealthy? According to an article by ThinkAdvisor, being wealthy is defined as a net worth of $2.3 million or more.

Here, too, though, definitions vary. High net worth (HNW) is defined by various criteria, including net assets. Some advisors define HNW individuals as those with assets of $5 million or above.

Measuring by assets may provide a much more useful definition of wealthy. HNW individuals clearly own significant assets. As a result, wealthy people often need tax, estate, and wealth management strategies that people with lower net assets may not have. 

The wealthy may also invest in a broader array of vehicles than people with average means. Stocks and bonds, yes, just as people with average net worth. But HNW individuals also invest in real estate, commodities, precious metals, private market investments, and hedge funds, to name just a few potential vehicles. Some investments may be open to wealthy people but not to those with assets below a certain threshold.

But the wealthy as measured by net worth do not necessarily have a high degree of spending capacity. Their net worth can be placed in vehicles inaccessible to them, such as trusts, or investments that aren’t liquid, such as real estate or businesses. 

This leads to one more definition of wealthy. By nearly universal agreement, wealth means the ability to save and invest money – in whatever asset you choose. It does not necessarily mean spending on luxuries (although the wealthy may have the means to do so). The wealthy save and invest their money, making it work for them and their heirs if they choose.

Other Markers of Wealth

Yet intriguingly, when people are asked “what does it mean to be wealthy?” the answers often don’t center around income or assets. They center around what money can buy – and how it makes people feel.

Many people polled in surveys, for example, cite ordering food or meal delivery as something that makes them feel wealthy – 41 percent, to be precise. One-third cite subscriptions to streaming services (such as Netflix or Hulu) as a boost to their feelings of wealth. 

Yet we all know that these don’t require high expenditures or, certainly, high net assets. Why, then, do people associate them with feeling wealthy?

Because they provide experiences or convey qualities that people associate with wealth. Delivered or provided meals, for instance, may give people the gift of time and care. Having more time to yourself and freedom from duties like cooking or cleaning are qualities many people associate with wealth. Similarly, streaming services may provide a sense of luxurious choice, prestige viewing, and ease. 

In short, many people associate the word “wealth” with 

• Having more free time or time to oneself
• Freedom from work
• Luxurious trappings
• Prestige 
• Enjoyable activities
• Increased comfort

But these qualities often can be conveyed with items that don’t cost much at all.

Putting It All Together

Given so many definitions of wealth, and such differing conceptions of what wealth means, what are we to make of the question “what does it mean to be wealthy?”

Well, there actually is one overarching potential answer. Financial advisors work with people to save and grow their wealth. In that sense, everyone they work with is either wealthy or potentially wealthy, regardless of net asset value or income, because wealthy people save and invest. 

But part of that is making sure that their financial plan is firmly linked to their personal goals. Achievement of personal goals, whether that’s a second home, a family, extensive vacations, or more, can provide the qualities people associate with wealth, such as more time, luxuries, comfort, and so on.

So in short, what it means to be wealthy is to save and invest your money for an enjoyable life and a comfortable retirement, while providing for the kind of life that makes you happy and comfortable according to your personal goals. That’s what a comprehensive financial plan is all about.

A comprehensive financial plan covers the following areas:

• Cash flow (your income versus your expenditures)
• Income Tax Planning
• Investments
• Retirement
• Educational savings for children
• Risk management (insurance for your assets and income)
• Estate planning (wills and powers of attorney)
• Executive compensation
• Gifting strategies to family and charities

Everyone should have a comprehensive financial plan, regardless of current income or net assets. Otherwise, your wealth – in every sense of the term – is potentially at risk.

Now, the wealthy, as measured by income or assets, may have slightly different requirements in terms of estate planning, taxation, and investment vehicles. But the basic principles are the same. 

For that reason, it’s a good idea to work with financial advisors who have a proven track record of working with individuals whose financial situation is close to your own. HNW individuals need financial advisors whose clientele is also HNW, as they will have relevant experience and targeted advice. 

When in the market for a financial advisor, people should ask questions about their experience, including ascertaining their experience level with HNW individuals, a wide variety of potential investment vehicles, and more. 

Managing HNW portfolios presents both opportunities and challenges. At Financial Freedom Fee-Only Wealth Management, we have over 30 years of experience working with high-net-worth individuals and couples. We are a fee-only, fiduciary, wealth management firm dedicated to helping our clients protect, grow, and maximize their wealth.

Contact us today for a complimentary consultation, and find out if we are the right fit for your needs.