6/1/2011 1:21 PM ET|
What it takes to get really rich
Think a $1 million portfolio will make you feel secure? About 4 in 10 millionaires say they'd need $7.5 million in the bank to feel rich. What would it take you to get there?
The American Dream is dying. By that, I mean the idea that fortunes can be made by smart, hardworking folks of modest means. Oh, it's still possible -- but it doesn't seem attainable.
It wasn't always this way. During the Internet boom and the housing boom, rising asset prices fueled by cheap money acted as a substitute source of spending power. People barely blinked at the thought of needing $1 million or more for retirement. Americans believed they were wealthier than they actually were, and they spent and borrowed accordingly.
This masked a stark truth: The gap between the rich and poor was growing, to levels not seen since the 1920s. And that gap was getting harder and harder to cross. Wages, which more than doubled between 1947 and 1973, have stagnated. The poverty rate has returned to 50-year highs. A record number of Americans rely on the government to help to feed their families.
The only sure way to survive seems to be getting rich, but what's rich? A recent survey of millionaires put the number at $7.5 million, which may sound like lottery money. There is a way there -- and yes, it's very hard.
The lottery economy
A lot of us dream of success based on talent and a lightning strike of luck. That's the classic rags to riches story -- the cornerstone of America's promise to the downtrodden and hardworking. That's why shows like "American Idol" and "Who Wants to be a Millionaire?" have become hits, tickling our fantasies just as Horatio Alger novels did in the late 1800s.
According to research by Anna Cristina d'Addio at the Organisation for Economic Co-operation and Development, the rich world's economic watchdog, the United States is slipping behind in the rankings of "intergenerational earnings elasticity" -- the probability that your children will earn more than you did. The United States is just ahead of Italy and Britain but well behind the likes of Australia, Denmark and Norway.
I believe this gets to the heart of the mixed emotions most have about the economy.
We're an optimistic people: While only 2% of people in a 2003 Gallup poll described themselves as "rich," 31% though it very or somewhat likely that they would be someday. A majority of young Americans believe they'll hit the big time eventually.
This could be one reason we think something is fundamentally wrong with the economy. A majority thinks we're in the midst of a recession or a depression.
But apart from winning the lottery, it's hard to see how we'll get rich.
The $7.5 million question
You can't get there, of course, until you decide exactly what constitutes "rich." It's a relative term.
That Gallup poll found the median definition of rich in the United States was an annual household income of $122,000 -- which is still close to the threshold income for being in the top 10% of households. To be honest though, you're just squeaking by if you make that much in high-cost areas like New York City or San Francisco.
Narrowing the focus to the top 2% of households -- to match the 2% of people that self-identify as rich in the Gallup poll -- puts the income threshold at $360,435, according to an analysis by the Tax Policy Center.
But a newer definition that might work better. Four in 10 millionaires recently surveyed by Fidelity said they still do not feel wealthy but would feel that way with $7.5 million in the bank. I'm sure many would feel that way with a lot less -- and the majority of millionaires in the survey said they started feeling rich at $1.75 million in investible assets. But for the sake of argument, let's call $7.5 million "really rich."
So what would it take to put $7.5 million in the bank?
Earning it in your paycheck
One way would be to climb the corporate ladder, join a high-powered law firm or become a high-traffic private-practice doctor. Of the 160 million households in the country, the Tax Policy Center estimates that some 433,000 earn $1 million or more per year -- just 0.3% of the total. Over a couple of decades, given the cost of fine suits, cars and the like, they might put away the $7.5 million to make them really rich.
Joining this upper echelon of wage earners is more difficult and less likely than most realize. Thomas DiPrete of Columbia University, who has written frequently about income inequality, took a look at the chances of becoming rich by digging into the data from the Panel Study of Income Dynamics, which has been measuring the incomes of American families since 1968. He used a number of thresholds, including a $300,000 limit that is close to the 2% concept described above.
The results were startling, showing that the likelihood that someone will become rich depends very much on where he or she starts. The overall chance that those under 30 will achieve an income of more than $300,000 a year within 30 years is between 2% and 3%. For those starting in the top 25% of household incomes (above $80,000 or so) the chances increase to 12% to 17%.
VIDEO ON MSN MONEY
Here is how it is done!
2.SAVE YOUR MONEY! ! !
One can save a lot of money by not living with the unnecessary things one has come accustom to living with. I have tried this for a year and the results are quite rewarding.
Sorry, but hard work doesn't always get you there. There are plenty of hard working Americans who will never see a million or anywhere close to it. Luck, timing, family, location, etc. all factor in. Yes, it can be done, but your life shouldn't revolve around the notion because it is quite unlikely for most Americans.
You can still have a good retirement and fulfilling life without a million.
PS. pocketprotector, congratulations on your success.
I was raised by older parents who lived during the Great Depression. They taught me the old cliche, 'Take care of your pennies and the dollars will take care of themselves. Mom said, 'A steady drip will wear away great stones'. Meaning to keep steadily paying debt and it will be gone.
I know a woman who is always broke, but she doesn't realize it is her own fault. She is always saying, 'It is only $10.' Too many people fritter their money away. They laugh about taking care of their pennies. They don't even take care of their dollars.
Almost everything can be done in a less expensive way. When my husband retired, we gave up the second car, that helped by saving on car insurance, upkeep, tags and personal property taxes. That was the easy part. Going through the monthly expenses we cut some expenses out and changed services on some things. I still do that about once a year.
If a person can save $20 a week that is over a $1000 a year. A steady drip wears away great stones.
By watching what we spent, we managed to save for retirement and we have a nice home paid for. We are not rich by today's standards, but I feel rich knowing we have rat holed enough to pay our property taxes and for emergencies.
It is a shame that our government doesn't do more about the cost of medicine. I have to take two drugs that are patented. There are no generics for them. They cost $650 a month in the donut hole. This year they will have a 50% discount. Knowing how small amounts add up, it is horrible to pay even that much. I didn't save in order to enrich big pharmacy and the health industry. I saved money for my children to inherit, to help them.
We bought the best Medical and prescription coverage we could find. We pay a lot for those. Now the republicans want to change the supplemental insurance so retirees have to pay more co-pays.
What does it take to be rich? L O V E
That's it. I am a person who by the worlds standards, am poor. But when I look around me at all that I have; SALVATION being first, which is the LOVE of God. I have the LOVE of and for family and friends. I have the ability to see and hear and walk which allows me to enjoy the beauty around me. I have a roof over my head and clothes on my back.
Would I like to have more money, and not struggle every month to pay my bills and put food on the table? Sure. But would I trade what I have for more money? ABSOLUTELY NOT.
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