Are you rich? Raise your hand if you are rich.
23 Aug 2020
Are you rich? Raise your hand if you are rich. Every time I asked this question, rarely does anybody raise their hands. One time I asked this question in front of a group of high school students. They all point to a few students in the crowd, with those few students desperately trying to signal that they are not.
Do you want to get rich? This question reliability generates close to 100% of hands being raised.
Do you have people around you that are rich? Why do you think they are rich? This question generated more answers. Most of the answers are around material possessions.
“I know a guy who has multiple cars. He is rich.”
“A friend of mine lives in this big mansion. They are rich.”
It seems like very few people believe they are rich but they usually can point to someone around them who is rich. We believe these people are rich based on their material possessions. This view is why most of us do not define ourselves as rich because we can always point to someone who has more material possessions than we do.
My answer: If you are reading this, you are most likely rich.
Let me back up. The World Bank classifies the world’s economies in 4 tiers of wealth. Based on per capita income level. The 4 levels are Low Income, Low-Middle Income, Upper-Middle Income, and High Income.
Per capita income per year (in USD) Low Income: Below $1,026 Low-Middle Income: $1,026 - $3,995 Upper-Middle Income: $3,996 - $12,375 High Income: Above $12,375
According to the world bank, ‘rich’ economies are defined by per capita income above $12,375. I am almost certain that you live in a high-income, a.k.a. rich, economy. I am also certain that you make more than $12,375 a year. That’s why I said you are rich. At least on the global stage.
Why would most people living in rich countries not feel rich? Well, that has to do with the local cost of living. If your local cost of living is high, your true buying power may actually be less than someone who makes less money but living in a cheaper location. That means the feeling of rich is a localized phenomenon. To judge your income level in comparison to your area, we will look at median household income at the county level.
The median household income indicates half of the population makes more than this amount and the other half makes less than this amount. This is a pretty good proxy for understanding the local cost of living. The higher the median household income, the higher the local cost of living.
In my opinion, you feel rich if your income is 4 times the median household income of the local area. You make more money than most of your ‘neighbors’, and as a result, you feel rich.
You can look up your local median household income and see for yourself. (If you live outside of the US, a google search of “<your city name> median household income” should get you the answer)
Some people making this level of income still do not feel rich. That has to do with one’s living expenses. If you always maximize your living expenses as your income rises, you will never feel rich. Even if you are rich by an objective standard, the fact that your expenses match your income will forever trap you inside the rat race.
My last point about being rich is to control your expenses. This is counter to how we see people around us being rich. Most of us can point to someone around us being rich based on their material possessions, the car they drive, the house they live in, etc. We believe if someone can effort to spend a lot of money, they must be rich. However, that is not necessarily true. If you keep on buying more cars, bigger houses, you may never feel rich.
The trick of feeling rich is to try not to appear as rich. In order words, live below your means. The sooner you do that, the sooner you feel rich, and the sooner you are financially free.
Are you rich? Do you want to get rich?