Most Americans dream of being rich. But how much does it take to be considered wealthy? A net worth of $2.5 million is what Americans think it takes to earn the moniker “rich,” according to Charles Schwab’s annual Modern Wealth survey.
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That seven-figure amount is up 14% from a year ago, when respondents thought raising $2.2 million was enough.
The good news: You don’t have to be rich to finance a good lifestyle and stay out of financial trouble. Americans say the average net worth needed to be “financially comfortable” is $778,000, according to the Charles Schwab (SCHW) survey.
What is ‘rich’?
When it comes to wealth, Baby Boomers think it takes a net worth of $2.8 million. Gen Xers say $2.7 million. Millennials think it takes $2.2 million to be wealthy. And Gen Z comes in low at $1.2 million.
Where you live can also skew the numbers. People who live in expensive places like San Francisco and New York City say it takes $4.4 million and $2.9 million, respectively, to be considered wealthy. While the magic number drops to $2.3 million for Americans living in Phoenix and $2.2 million for those living in Dallas.
Only 21% of Americans who responded to Schwab’s survey think they will be wealthy in their lifetime.
Of course, these numbers are just guesses. Still, there are benefits to getting an estimate of how big your account balance needs to be to meet your financial goals, says Rob Williams, managing director of financial planning at Charles Schwab.
“When you’re pulling numbers out of thin air, it’s kind of an abstract concept,” Williams said. “A lot of Americans say, ‘I want to be a millionaire.’ Well, let’s tie that to the reality of the financial plan, the investments that you’re making. Let’s apply some discipline to that and take ownership of the steps that are going to take to achieve those goals.”
Plus, the magic number for feeling wealthy or financially comfortable is different for everyone. And not having to worry about money is no guarantee, even for people with a lot of money saved up, says Jason Grover, founder and financial planning specialist at Grover Financial Services in Pittsford, N.Y.
“It’s not how much money you have, it’s how much you spend,” Grover said. “I have clients who can retire comfortably with $200,000 in savings because they have a pension, they’ve saved well and they’re not spendthrifts. And then there are people with $2.5 million who can’t imagine retiring because of their lifestyle.”
There are many sources of wealth. Cash in the bank is only one part of it. There’s also the value of stocks, bonds, mutual funds and ETFs. Equity in a home is also important, as are 401(k) and IRA account balances. Even the antique painting hanging in the living room, the cars and boats in the garage and cryptocurrency count as wealth.
And wealth means different things to different people, Williams says. For some, wealth means financial freedom. For others, wealth is about dollars and what they can buy. Some see the positive side of wealth in the financial confidence it conveys.
What are the building blocks to generate enough money to be among the rich?
Commitment to saving
Saving and investing sounds easy. “But not everyone does it,” Williams said.
It’s all about the basics. Start saving early so your money can grow and benefit from compound interest. “Compound interest can really be a springboard to building wealth,” Grover said.
It’s vital that you also invest in your 401(k) at work or set up an individual retirement account (IRA). And diversify your investments across a broad basket of stocks in a fund or ETF that tracks a broad stock index, such as the S&P 500.
Grow your portfolio
Invest in stocks and growth-oriented assets to continue to grow your wealth. Investing is different from saving. You can’t grow wealth by hiding your money under your mattress and earning 0% interest. You need to invest for growth. That means owning stocks.
“Investing is an act of optimism, an act of ownership in the American economy,” Williams said. “And most of the upside comes from owning stocks. (Historically) stocks have been the most powerful tool for wealth creation.”
Take advantage of your 401(k)
Employer-sponsored retirement accounts are the path to a secure retirement. With traditional pensions all but extinct, taking money from your paycheck and contributing to your 401(k) is an important step toward building wealth and a secure retirement.
“Maximize your 401(k),” Grover says. That means contributing enough of your own money to take advantage of your company’s contribution. And make sure you invest in growth-oriented assets like stocks, as well as fixed-income assets like bonds. Your risk tolerance and pre-retirement time horizon should match.
A big advantage is that new employees today don’t have to do anything to start saving. A growing number of 401(k) plans enroll you on day one with automatic enrollment. “More and more companies are forcing their employees to start saving right away, unless they choose not to save,” Grover says. “That’s a huge advantage for the average person saving for retirement.”
And starting next year, thanks to the Secure Act 2.0, employers will be required to automatically enroll new eligible employees in the 401(k) plan.
Investing in a Roth 401(k), which is funded with dollars already taxed but offers tax-free withdrawals, is a good option for younger workers, who fall into lower tax brackets early in their careers.
Build wealth through home ownership
A home is a place to call home. But it’s also a place to build equity, Williams says. Each mortgage payment pays off a portion of the loan and builds equity.
Homes, like stocks and other assets, can also appreciate in value over time. In the second quarter of 2024, 89% of homes in metered metro areas saw price increases, according to the National Association of Realtors. The national median price for single-family homes was $422,100 at the end of June, up 4.9% from a year ago.
Create a financial plan
You can’t reach your destination if you don’t have a plan to get there.
Only 18 percent of Americans who responded to Schwab’s survey said, “I have my finances in order now.” So savers may want to consider reaching out to a financial advisor for help.
Don’t just live and spend for today, Williams says. It’s important to recognize that you have financial goals for the future. “A financial plan is a living, breathing, ongoing road map” for your financial future, Williams says. Creating a financial plan “helps you take action.”
And unless unforeseen changes occur in your life, such as death, divorce, the birth of a child, or other unexpected events, you should stick to your plan, Grover adds.
“What we do have control over is how much we spend, save and invest. And the financial plan is critical to controlling our emotions,” Grover said. “That’s what a financial plan is really about: protecting ourselves from ourselves.”
Not everyone can save $2.5 million and be considered wealthy. But most people who save regularly can come up with the $778,000 that Americans consider necessary to be financially comfortable, Williams says.
“That may seem like a lot, but it is achievable with relatively simple, clear disciplinary cost-cutting measures,” Williams said.
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