What does it mean to be rich?
According to a Schwab survey, Americans believe a personal net worth of $2.3 million or more makes someone rich. Net worth is calculated by adding up the value of assets minus liabilities. So you could have a personal net worth of $2.3 million if you own expensive real estate, have a valuable art collection, have lots of money in the bank or investment accounts, or own other valuable assets.
Most Americans have nowhere close to this much money. In fact, it's more than 20 times the median wealth a U.S. household possesses. But does that mean it's impossible for the average person to amass so much wealth?
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What would it take to get to $2.3 million?
The amount of money you'd need to save and invest to have a net worth of $2.3 million will vary depending on the age when you start acquiring assets and the performance of your investments. If you're trying to amass $2.3 million by putting money into a checking account earning no interest, it's going to be a whole lot harder than if you invest in the market and earn a reasonable rate of return.
Since the stock market usually performs better than most other investments, such as real estate, let's look at how much you'd need to invest to save $2.3 million over time, assuming an 8% return on investment, compounded monthly.
|
If you invest this much per month |
You'd have $2.3 million in this many years |
|---|---|
|
$12,572 |
10 |
|
$6,646 |
15 |
|
$3,905 |
20 |
|
$2,418 |
25 |
|
$1,543 |
30 |
|
$1,002 |
35 |
|
$658 |
40 |
As you can see, it's almost impossible to amass $2.3 million in a short time unless your income is extremely high. But over a longer stretch, it becomes much more achievable.
Median weekly earnings of workers ages 25 to 34 were $858 in the third quarter of 2019, according to the Bureau of Labor Statistics. This amounts to an annual salary of about $44,616. If you saved about 18% of that income, you'd be putting aside about $669 per month, or a little more than you'd need to make your $2.3 million goal in 40 years. You could have the money by the time you're 65 or 70.
While saving 18% of your income may seem hard, remember your income will go up over time. So if you could live on a careful budget early in your career to save $658 per month, it would get easier to maintain this savings rate as your salary gets higher -- and you'd end up with the $2.3 million you need to be considered rich by the average American.
Getting wealthy is possible over time
Unless you have a high income, it would take time to amass enough money to have a net worth that makes you rich. But the good news is, even average Americans can get there if they start early and save diligently.
Of course, you may decide you need less than the $2.3 million your fellow Americans believe it takes to be rich. The same principle applies, though: You can become wealthy over time by being smart about what you do with your money and investing it in assets that will grow your net worth.
