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When you think about what it means to be rich, specific images may come to mind. Perhaps you imagine someone on a yacht wearing a Rolex while enjoying champagne and caviar.
But when you try to define what it means to be "rich," the concept becomes more abstract; there's no set dollar amount or single physical asset that definitively makes you rich.
In fact, whether or not you're considered rich is largely relative to the value of your income and assets when compared to the wealth of other people around you. For example, when determining if your salary qualifies as lower or upper income, The Pew Research Center considers how much you earn in comparison to people living in your area with the same family size.
What is considered 'rich' today?
There's no universal definition for what it means to be rich, but there are some commonly understood measures.
If you ask an economist, they might tell you that a person is rich if they own capital, meaning they own physical or financial assets that earn them income, such as investments or business equipment.
For others, we might say a person is rich if their income, net worth, and/or buying power enables them to easily afford all their needs for the full duration of their lifetime.
Still, the amount of money it takes to hit that mark varies widely by location. For example, consider car ownership, which is a function of wealth. In many places, like the United States, owning a car is a necessity for people who want access to high-paying jobs. Yet it's considered a luxury by the majority of the world.
By that standard, most Americans are rich, since the vast majority of us (86%) own cars. However, in some of the other most populated countries in the world, only a small portion of people can afford to own a vehicle. In China, for example, the car ownership rate is 22%. In India, it’s just 3%.
Read more: What is net worth, and why is it important?
What is considered rich in America?
In the United States, there are certainly people who we can consider rich by every conceivable measure (certain tech CEOs may come to mind). According to a survey from Charles Schwab, Americans believe an average net worth of $2.5 million is necessary to be considered rich, a 14% increase over 2023.
However, for most people, being rich is relative to their situation.
For example, let's say you earn a salary of $208,152 per year, which puts you squarely within the top 10% of U.S. wage earners, according to ZipRecruiter.
You might say earning that salary — which is more than three times what the average U.S. worker earns — makes you rich since it allows you to easily afford the median-priced home in most parts of the country. But that salary is still not enough to afford the median-priced home in Massachusetts, Hawaii, or California, according to Realtor.com.
Plus, even if you do earn around $200,000 per year, other factors such as your debt, job security, family size, and medical expenses can determine if you're truly financially stable — not to mention whether or not you're happy.
Speaking of happiness, the amount of money it takes to make us happy varies, too. But it's an easier goal to obtain than being rich. According to a study from the University of Pennsylvania, happiness increases for most people as their income increases, but it plateaus once they reach $100,000 per year.
Read more: The best and worst states for saving money
Best ways to grow your wealth
There's no one road that leads to wealth, but there are basic principles you can follow to make an easier path. Here are some things you can do to kick-start the journey.
Prioritize estate planning
Many people in the U.S. incorrectly believe that their inheritance is too small to fuss over and that estate planning is for the ultra-wealthy. But the truth is that a lack of estate planning among lower-income groups can contribute to ongoing wealth disparities.
One of the main ways to increase your wealth is by strategically planning for the transfer of assets you'll inherit. For one, that inheritance is taxed at a far lower rate than money earned by working or saving. In other words, estate planning can give you a better opportunity to increase your net worth aside from just working.
So if you believe you will have any inheritance at all, talk to a certified financial planner to see how you can avoid unnecessary delays and taxes that will reduce what's transferred to you.
Read more: What is a financial advisor, and what do they do?
Consider relocating
If you want to easily afford all of your needs, it may require a bigger lifestyle change. You may want to consider moving to a location where the cost of living is lower than where you currently reside, but where you can still maintain or even increase your income.
By doing so, you not only have the potential to cut your cost of living by as much as 50% or more, but you can also free up more of your income to invest and earn passive income.
Read more: Best and worst states for saving money
Focus on lifetime income growth
Financial experts often advise people to tighten their budgets in order to improve their finances. But that's not the only way to make improvements. In fact, budgeting can only get you so far if your income is limited.
By contrast, you can often make a much bigger impact if you proactively look for ways to increase your income on a regular and ongoing basis.
How do you do this? Despite what you may have heard, attending college is still one of the best ways to ensure you'll earn the highest income possible.
According to the Bureau of Labor Statistics, people who obtain a bachelor's degree or higher earn significantly more than those who only graduate high school or even those who obtain an associate degree.
After college, you can see a huge difference in your income trajectory if you look for ways to increase your pay annually.
For example, if your first professional role pays $75,000 a year and you receive the average annual pay raise (3%), your income won't keep up with inflation. After five years, your salary will only increase to $86,946.
By comparison, human resources management software and services provider ADP estimates that people who switch jobs increase their income by around 7% (which is low compared to recent years). At that rate, if you were currently earning $75,000 and switched jobs right away, your salary would increase to $80,250 this year. Then, if you negotiated a 5% increase each year thereafter, your income would reach $97,544 in five years.
Avoid high-interest debt
One of the fastest ways to lose money is to use credit cards and take on other high-interest debt. That's because you're unlikely to find any investment that earns higher interest rates than what you're charged on credit card debt; the average credit card APR hovers near 23%, while you can expect to earn roughly 7% to 10% from long-term stock market investments.
Read more: What's more important: Saving money or paying off debt?
Earn passive income
There's a limit to how much you can earn when you exchange your labor for pay, also known as earning active income. If you want to increase your earning power, focus on developing additional, passive forms of income, or income that's earned by putting your assets to work.
Common forms of passive income include:
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Returns on stock investments
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Interest on bank deposits
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Rental income
Start now
The sooner you pay off debt and start investing your money, the more time your money has to grow and multiply.
That's because of a principle called compound interest. With compound interest, you earn money not just on the amount you invest, but also on the interest you've earned to date. So the longer your money is invested, the more its value can grow.
Read more: What is compound interest, and how is it calculated?
Some people take this to mean that there's no point in investing at a later age. On the contrary, it simply means the sooner you start, the better. If you leave your surplus cash in the bank, for example, it won't usually earn enough interest to keep up with inflation. On the other hand, investing in a diverse portfolio of stocks, mutual funds, bonds, and other securities can allow you to beat inflation and grow your net worth, regardless of your age.
