How much is considered rich?

When you think about what it means to have money, certain images may come to mind. Maybe you imagine someone wearing a Rolex on a yacht while enjoying champagne and caviar.

However, when you try to define what “affluent” means, the concept becomes more abstract. There is no set dollar amount or single physical asset that can make you rich.

In reality, whether you feel wealthy is relative to the value of your income and assets compared to others around you. For example, when determining whether your salary qualifies as lower or higher income, the Pew Research Center considers how much income you earn compared to someone living in a similar-sized household.

There is no universal definition of what affluence means, but there are some commonly understood measures.

If you ask an economist, they'll probably tell you that if a person owns capital, it means they own physical or financial assets that earn income, such as investments or business equipment.

For others, we might say that a person is wealthy if their income, net worth, and/or purchasing power allows them to easily afford all their needs over the course of their lifetime .

Still, the amount required to reach the mark varies by location. For example, consider car ownership as a function of wealth. In many places, such as the United States, owning a car is a necessity for people who need to obtain well-paying jobs. However, most of the world considers it a luxury.

By this measure, most Americans are wealthy because the vast majority of us (86 percent) own our cars. However, in some of the world's other most populous countries, only a small percentage of the population can afford to own a vehicle. For example, in China, the car ownership rate is 22%. In India, it’s only 3%.

Read more: What is net worth and why is it important?

There are certainly people in the United States who could consider every conceivable measure of affluence (some tech CEOs might think of it). Americans have an average net worth of $2.5 million to be considered wealthy, a 14% increase from 2023, according to a Charles Schwab survey.

However, for most people, wealth is relative to their circumstances.

For example, let's say your annual salary is $208,152, which puts you squarely in the top 10% of U.S. wage earners.

You might say, earning a paycheck – which is more than three times what the average American worker earns – makes you rich because it allows you to easily afford the median prices in most areas of the country. But that salary is still not enough to afford the median home in Massachusetts, Hawaii or California, according to Realtor.com.

Plus, even if you're making around $200,000 a year, other factors like your debt, job security, family size, and medical expenses can determine whether you're truly financially stable, let alone whether you're satisfied.

When it comes to happiness, the amount that makes us happy also varies. But this is an easier goal than getting rich. According to a University of Pennsylvania study, most people's happiness increases as their income increases, but once they hit a plateau of $100,000 per year.

Read more: The best and worst states to save money

No one path will lead to wealth, but there are some basic principles you can follow to make an easier path. There are a few things you can do to get started on your journey.

Many people in America mistakenly believe that their inheritances are too small to make a fuss about, and that estate plans are geared toward the ultra-wealthy. But the fact is that a lack of estate planning among low-income groups can lead to persistent wealth disparities.

One of the main ways to grow your wealth is to strategically plan the transfer of assets you will inherit. First, that inheritance is taxed at a much lower rate than money earned from working or saving. In other words, estate planning can provide you with a better opportunity to increase your net worth in addition to a job.

So if you think you will have any inheritance, talk to a certified financial planner to learn how to avoid unnecessary delays and taxes so you can reduce what is transferred to you.

Read more: What are financial advisors and what do they do?

If you want to easily afford all your needs, you may need to make bigger lifestyle changes. You may want to consider moving to a location where the cost of living is lower than where you currently live, but where you can still maintain or even increase your income.

By doing this, you not only have the potential to cut your living costs by as much as 50% or more, but you also free up more income to invest and earn passive income.

Read more: The best and worst states to save money

Financial experts often advise people to tighten their budgets to improve their financial situation. But that's not the only way to make improvements. In reality, budgeting can only get you so far if you have a limited income.

In contrast, if you actively look for ways to generate regular and consistent income, you will usually have a greater impact.

How do you do it? Despite what you may have heard, going to college is still one of the best ways to ensure you earn the highest possible income.

According to the Bureau of Labor Statistics, people who earn a bachelor's degree or higher earn more than those who just graduated high school or even earned an associate's degree.

After college, your income trajectory can make a big difference if you look for ways to increase your salary each year.

For example, if your first professional position pays $75,000 per year and you receive the average annual salary increase (3%), your income will not be able to keep up with inflation. After five years, your salary will only increase to $86,946.

By comparison, ADP, a provider of human resources management software and services, estimates that people who switch jobs boost their earnings by about 7% (which is low compared with recent years). At this rate, if you were currently making $75,000 and switched jobs immediately, your salary would increase to $80,250 this year. Then, if you increase it by 5% each year thereafter, your income will be $97,544 in five years.

One of the fastest ways to lose money is by using credit cards and taking on other high-interest debt. That's because you're unlikely to find investments that offer a higher investment rate than what you charge on credit card debt; the average credit card APR hovers close to 23%, while you can expect to earn about 7% to 10% from long-term stock market investments .

Read more: What's more important: saving money or paying off debt?

There are limits to how much you can earn (also called active earnings) when you trade your labor for a salary. If you want to increase your earning capacity, focus on developing additional passive forms of income or income earned by putting your assets to work.

Common forms of passive income include:

The sooner you pay down your debt and start investing your money, the more time your money has to grow and multiply.

This is because the principle is called compound interest. With compound interest, you earn not only the amount you invest, but also the interest you have earned to date. Therefore, the longer your money is invested, the more its value will grow.

Read more: What is compound interest and how is it calculated?

Some people think this means investing later is pointless. Rather, it just means that the sooner you start, the better. For example, if you leave leftover cash in the bank, you typically won't earn enough interest to keep up with inflation. On the other hand, investing in a portfolio of stocks, mutual funds, bonds, and other securities can enable you to beat inflation and grow your net worth, regardless of your age.