Are You Rich or 'Really' Rich? Here's the Extreme Difference Between the Two Levels of Wealth

When you hear the word "rich," your mind probably conjures images of luxury – sleek cars, sprawling mansions, and a life of indulgence. But being rich on paper doesn't always mean you're really rich. You can have a high income or flashy assets but still not be considered truly wealthy.

In the U.S., defining the difference between being "rich" and "really rich" (aka "wealthy") is far from straightforward. The numbers are important, but the mindset and lifestyle that come with them are just as critical.

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Rich vs. Really Rich: The Key Difference

Simply put, being rich usually means you have a high income, but being really rich or wealthy means you've accumulated enough assets and net worth to sustain your lifestyle without relying on your job. In short, wealth is about long-term financial security, while being rich is often just about current cash flow.

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How Much Money Do You Need to Be Rich?

According to Charles Schwab's 2024 Modern Wealth Survey, the average American thinks you need a net worth of around $2.5 million to be considered wealthy. That's up from $2.2 million in previous years.

But of course, this number can vary wildly depending on where you live. If you're in San Francisco, people think you need a cool $4.4 million to be considered wealthy, thanks to sky-high living costs. On the other hand, New Yorkers set their threshold at $2.9 million. Your ZIP code plays a big role in how people define wealth.

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High Income vs. High Net Worth

While net worth is one way to measure wealth, the IRS focuses on income when defining who is rich. They say earning about $45,000 per month – or $540,000 annually – puts you in the "wealthy" category. But to hit the upper echelon, you'd need to rake in closer to $68,277 per month, according to the Economic Policy Institute, which defines the top 1% of earners.

The Wealth Spectrum

If you're curious about where most Americans fall, the U.S. Census Bureau provides more insight. The top 20% of earners make around $130,545 per year, nearly double the median household income of $71,000. So, while that might seem pretty solid, it's not enough to be in the top 1%.

For those wondering about net worth, it's another story. To land in the top 1% in America by net worth, you need about $11.6 million, according to The Kickass Entrepreneur. If you're in the top 5%, you're looking at $1.17 million. So, there's a big gap between being well-off and truly wealthy.

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Rich vs. Wealthy: What's the Difference?

Here's where things get interesting: being "rich" and "wealthy" aren't quite the same. Rich usually refers to having a high income, which means you can spend freely on luxury and lifestyle. But that doesn't mean you're secure for the long haul. As the saying goes, "You can be rich, but still living paycheck to paycheck."

Conversely, wealth is more about net worth – the total of your assets minus your debts. It's not just about having money but enough to give you long-term financial freedom. 

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Personal Finance Is Personal

Ultimately, the idea of being rich or wealthy comes down to personal perspective. Some people might prioritize security over big earnings, focusing more on financial comfort than hitting a specific number. Others might dream of a retirement spent traveling the world or having enough freedom to pursue passions without worrying about the next paycheck.

Financial well-being isn't a one-size-fits-all. Consulting a financial advisor can help you develop a strategy that aligns with your goals, whether building wealth, securing a comfortable retirement, or simply finding peace of mind.

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