What Does “Wealthy” Mean to You?
June 9, 2008 by Miranda Marquit
Filed under Finance
Now that Barack Obama is the presumptive Democratic nominee, he’s seriously talking about what he intends to do for the economy if he wins. One of those things is repealing tax breaks for the “wealthy.” For Obama, the wealthy is the 2% (according to BusinessWeek) of Americans that make more than $250,000 a year.
But some are saying that $250,000 doesn’t constitute wealth. Some of those who make money in the $250,000 to $300,000 range are complaining that costs are rising just as much for them (even though others would argue that they are better able to absorb the costs). Plus, some say, with $2,000 to $3,000 mortgage payments and other costs in that vein, $250,000 just doesn’t go as far as it used to.
But, in general, I am more inclined to agree with this assessment of the situation, from the BusinessWeek Debate Room:
But if you look at the total income spread of working Americans, those making more than $250,000 are indeed wealthy—at least statistically. It’s easy to forget what the average person really makes amid big-money talk of billion-dollar writedowns and executive pay packages in the millions. But in 2006, the median household income in the U.S. amounted to just over $48,000. Even if you take out those just starting their careers and only count workers older than 25, the median household income is still about $53,000. That’s the true middle of the spectrum.
For me, a wealthy income would be one that grossed me about $20,000 more per year than what I am making. Right now, I feel fairly comfortable with how things are going (although sometimes I feel a little squeezed). But even if I achieved my personal definition of a wealthy yearly income, I would still be making well below $250,000.
But if you take things out of a strictly comparative level, to me wealth is living a lifestyle that allows you relative financial freedom. Can you buy all of the things you need and most of the things you want? Are you mostly unencumbered by debt? Are you able to save for your future financial freedom in addition to your present freedom?
When you look at things in that light, perhaps there are those that make $250,000 and more that aren’t technically “wealthy.” But they still have more possibilities than the average American.
What is your definition of wealthy?
image credit: sxc.hu
Although the idea of wealth is relative I agree that the stats should define it.
I find that there are two distinct definitions of wealthy—
1. Can I supply my needs and indulge most of my wants?
2. How do I compare/surpass my neighbor /colleague/sibling?
Rarely do people who depend on their paycheck consider themselves wealthy.
I would add that the definition of wealthy includes the ability not tothink about the cost of things you want/need. Someone once said, “If you have to ask the cost of that yacht, you can’t afford it.”
Wealth is an accumulation, not a monthly/annual income. think of it as a pond, into which the stream of income goes. The bigger the pond, the more wealth. So to be wealthy means that the pond would never get drained, no matter how long you lived.
jean
Thanks you two, for chiming in!
Jean is ably demonstrating the difference between a budget mentality and a net worth mentality. The net worth mentality is more likely to result in wealth.
I agree that there are different definitions. I do like the idea of looking at the stats. Someone who only makes $48,000 a year is going to take a bigger hit from 4% inflation than someone who makes $250,000.
Gas is a good example. If it costs $800 more per year to fill up your gas tank, it costs that much for everyone. For the $48,000 a year income, thought, that is 1.76% of one’s yearly income. For the person who makes $250,000, it’s only 0.32% of the yearly income. If you make more, you are better able to absorb the costs.
I basically agree with you, that you are wealthy if you are able to allocate a chunk of your income into savings or investments, rather than living paycheck to paycheck.
I wrote about the same article recently. I don’t think it’s easy to say that $250k a year in income is wealthy. It does depend on where people live. Here in the Silicon Valley wealthy is really really wealthy. Most people are just middle class. My parents made over $300k last year, but half of that was taken by taxes. Are they wealthy? Not really because they are immigrants that just started working here 10 years ago. Compared to people who made $60k a year for 40 years and saved all that money, my parents aren’t wealthy because their high income is fairly recent. So I think Obama should really split the difference between wealth and income.
You make a good point. Sometimes, how long you have had your income can make a big difference — as well as where you live. $250,000 doesn’t really go that far in California, but it can go extremely far in the Mountain West.
I think, with personal finances, the goal should be to live within your means and work on building wealth.
The marginal rates will rise and affect the wealthy by 15% and the social stratum climber by 50% just watch. I disagree that $250,000 to $350,000 is wealthy if you live in many parts of California it is just getting a leg up after your expenses to finally start putting something away for a child’s education and retirement. The perfect storm is coming and if Liberalism has its way, it will take 8 or more years to purge the horrific effects of it.
Wealthy to me is having earning assets that provide an income stream that:
can meet all your obligations
pay for some luxury
has leftover surplus to increase earning assets
i.e., your assets working for you rather than you working to earn income.
I agree that, depending on where you live, wealth has different meanings. And it should probably be taken into account with the different plans out there — which of course results in more bureaucratic red tape. At any rate, we are just seeing the horrific effects of an economy based on debt and the delusion that growth must always be significant and sustainable at hight rates.
I agree with Ren that having your assets work for you is a hallmark of wealth.