A lot of people like to Cosplay Rich but the data proves otherwise. The Median American household bank balance is just $5,300. It doesn’t mean that half of American homes are poor but that’s close to Broke, no matter how you flip the charts.

How is it possible?

We have gadgets, clothes, and a lifestyle; why doesn’t it all translate to wealth? In 2021, the average budget for entertainment went up by 21%. And that’s during the pandemic. Well, the answer is simple.

Debt – a lot of it.

US household debt hit a record $16.9 trillion in Q4 2022. Although the final tally isn’t in, the average household debt for 2022 is estimated at $102,153 (up 6% from 2021). According to Experian, the average total consumer debt in 2021 was $96,371 (up 4% from 2020, $92,727).

The salary doesn’t make you rich. It helps.

While earning more money can make it easier to pay the bills, there are caveats to building wealth. If you aren’t managing your cash flow to acquire more assets while decreasing your liability, you are playing the game backward.

Why is this important to note?

Well, it turns out that the share of Americans living paycheck to paycheck rose to 63%.

“Americans are cash-strapped and their everyday spending continues to outpace their income, which is impacting their ability to save and plan,” said Anuj Nayar, LendingClub’s financial health officer. We are playing off of borrowed time.

Your salary does help with access to upward mobility but it won’t make you rich, per se.

To be considered rich or wealthy in America depends on several factors. Most of this comes down to where you live, what type of job you have, the quality of your social interactions, how much you save and/or invest, and finally, how you typically spend your money. Although wealth is sweat equity, it’s also chance encounters that change access and future opportunity.

While most are caught up in the material display of wealth, a wealthy person shifts toward a monopoly grab of assets, accreditations, and networks. Social spending might give you an ego boost, it’s typically fleeting.

As such, the infinite hedonic treadmill doesn’t add to your bottom line.

Being Income Rich or Asset-Rich in a period of socioeconomic erosion

The wealth gap is growing. Look at the small picture below.

According to the most recent IRS data available for the fiscal year 2019, an income of $540,009 per year puts you in the top 1% category.

The Economic Policy Institute (EPI) uses a different baseline to determine who constitutes the top 1% and the top 5%.

For 2021, you’re in the top 1% if you earn $819,324 or more each year. The top 5% of income earners make $335,891 per year.

If you’re going by the IRS standard, then you’d need to make approximately $45,000 a month to be rich.

On the other hand, if you’re aiming for the top 1% as measured by the EPI, you’d need a monthly income of $68,277. That’s a lot of money to spend. The median home brings in anywhere from $3,500 to $6,000 per month.

Because of this, wealth is subjective and by composition.

To further understand the difference between being asset-rich, look no further than the composition of wealth and how it’s expressed through the socioeconomic classes.

If you never heard of the term, there are roughly six social classes in the US.

They include Upper Class, the Rich, The Messy Middle Class, the Service Class, the Struggling aka Working Poor, and the Financially Unstable aka the Unbanked. Classically, you can also group them by Poor, Middle, and Rich.

Between the Upper Class and the Rich who make up the majority of the top 20% of the US, they own nearly 86% of the nation’s wealth. To put it in context, to be considered in the top 20% in the US you would need north of $558,189 in net worth in 2022.

How is this achieved?

Through good old nepotism, inheritances, or the classic way, wealth composition diversification.

For example, the Messy Middle class has nearly 62% of their net worth in their principal residence compared to just 7.6% for the Ultra-rich. While Upper-income class has over 22.4% in their pension accounts, the middle class has nearly 17%. These subtle differences can drastically change the wealth equation.

Considering that the Ultra-rich carry almost 50% in Business equity and another real estate, you find that wealth grows unequally. In the end, who benefits from an economic downturn and who loses looks completely different.

To make matters worse, those who lose economic ground are often those who spend most of their dollars on fixed and discretionary expenses.

Well enough about the already rich, where does the median fall?

Based on the Bureau of Labor Statistics, the median US household income was nearly $88,000 in 2021. That’s an average of $130,545 per year. For context, the top 20% earns nearly double that amount.

Because wealth changes by location, being rich is highly subjective.

Someone making $250,000 a year, for example, would be considered a top 1% millennial. But if that person is staying in New York City, it won’t go as far as Mobile, Alabama. The cost of living is a major factor when it comes to being income rich versus being assets rich.

If you make $60,000 per year in South Carolina and have $600,000 in invested assets, you are rich-rich. I can guarantee you that this person is wealthier than someone making $125,000 per year while spending $100,000 per year.

The Rich, the Wealthy, and the Financially Free

Being rich is one thing, but being wealthy is all about how you spend. However, being truly financially free is top tier.

Someone whose income rich may have cash available to spend on liabilities and the occasional luxury item.

However, wealthy person increases their net worth by buying assets and investing for the long term. Wealth provides the opportunity to live a life devoid of financial instability and counting change.

Beyond that, there is yet another left. Financial Freedom cements your wealth and has it working for you, more than you ever could. When you have gathered enough high-quality assets to successfully cover your liabilities, you reached checkmate.

While the average American sees $774,000 as a sufficient net worth to be financially comfortable, experts know it’s not enough.

The average American should be shooting for a net worth of +$2.2 million to be wealthy, according to Schwab.

So How Do You Become Wealthy and Free?

If you’d like to reach multi-millionaire status, you’ll need a financial plan that incorporates tax planning, investing, and wealth preservation. In the end, the strategy you use is only worthwhile if it’s effective and reaches your desired goal.

Especially since we can’t physically beat the rich, that’s wrong. The next best thing is to BE wealthier than the rich. While the wealth gap is nigh impossible to close, you can however improve your financial social mobility.

The first part is your mindset, followed by education, and finally ownership. The old manifest and work your ass off destiny.

Here are some of the steps that can get you there:

Increase Your Earnings to Get Rich Quickly

Unfortunately, you can just budget your way to wealth. At some point, you can only cut so much. Increasing your income will help you save, invest and pay down debt more quickly. This will rocket your net worth beyond your peers.

You can do so through higher quality of work, certification, pay raises, and additional employment. If you are 20-30, grabbing a weekend gig won’t hurt you. It will set you up for a better future. Seasonal employment is also a great idea for any household.

Get active and energized in recouping more dollars for your household.

Hey Don’t Skip the Budget

While budgeting isn’t the panacea to wealth, it’s still a prerequisite course.

Learn to cut what you don’t need and double down on what you do. That’s the power of a good budget, it helps you decide where your money is going so you don’t have to wonder where it all went.

First Reduce the Critical Debt and also Invest to Go beyond being Rich

Your net worth is calculated based on your assets minus your liabilities.

Your credit card debt and bad habits are your liability. Paying down debt can help. But you have to be way more strategic about it.

Investing and saving money are both important. Save money for a rainy debt and for liquidity but try to avoid keeping too much money in the bank savings account at 0.01%. These high-interest savings accounts are where you can earn more than 3.8%. Although they aren’t as liquid, it’s better than 0.01%. That’s a non-existing percentage.

By investing, you’re putting your money into the stock market where it has the potential to earn much higher returns. Generally, around 8% is the historical average, however, there have been years where stocks landed north of 20%.

The easiest way to get started with investing is to contribute to your retirement plan at work. Always grab the match, even $3,000 per year can become over $150,000 during a full-40-year career. After that, you can dabble in Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs).

Finally, If it’s Jumbled Get Some Certified Fee-Only Professional Advice

If you can’t be a nepo-baby, you can always seek help. Talking to an expert within the financial field pays dividends over time.

A certified and qualified financial advisor can help you formulate a financial plan for saving and investing in order to build wealth. A financial counselor can also guide you through the basics of making a budget and creating a workable debt payoff plan. While Certified Public Accountants and Tax Planning experts can help you where it matters most; wealth efficiency.

Pick an advisor and right your financial ship. And after that, try to seek a new American Dream.

Rich, Wealthy, or Even Financially Independent

In terms of what income is considered rich, it ultimately doesn’t matter in the grand scheme.

How you define being rich for yourself can depend on the amount of money you need to feel financially comfortable. For some people that might be making enough to cover their expenses. For others, that might be living off of $100,000 per year.

No matter what you perceive as financial happiness, see to be financially free and independent. It’s a whole other experience. Use your time wisely to bring in income to purchase assets and live off the dividends.

Once you define what rich or wealthy means to you, build a lifestyle plan that works for you.

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