How Much Money Do You Need to be “Wealthy”?

$1.9 million.

Four years ago, if that was your net worth, most Americans considered you wealthy. This year, it’s jumped to $2.3 million.

Every year, the Charles Schwab investment firm asks adults between the ages of 21 and 75, “What does it take to be wealthy?” The results are revealing.

For instance, last year, you’d need $2.5 million to be considered wealthy. Why did it drop this year? Although pollsters didn't ask, the answer is obvious: Inflation is lower. You see, wealth isn’t really a number. It’s a feeling. Do you feel wealthy? In other words, do you have enough money that you don’t worry about money?

The other side of the coin – literally

Debt is also a feeling. A bad one.

That’s the wrinkle in this annual poll. Debt isn’t stressed enough.

The definition of “net worth” is simple math: subtract your total liabilities – your debt – from your total assets. That can include the value of your home, cars, even artwork.

The problem arises when most adults consider net worth as a static number. Let’s say you have $3 million in assets and $1 million in debt. Your net worth is…$2 million. That’s simple.

Here’s where it gets complicated. What if half of that debt were balances you carried on a few dozen credit cards charging the average interest rate? That’s $500,000 at 20%. So every month, you’re handing over an eye-watering $100,000 to your credit card issuers.

Easy, you say. “I’ll pay that off with some of the $2 million I have!”

But that $2 million isn’t necessarily in cash. It’s your net value. Numerous studies over the years show that most millionaires have less than 30% of their net value in cash or its equivalent. Some have only 10%. Which means most of their value is tied up in their home, cars, or other valuables. They’d have to sell those to acquire the money to pay off their high-interest debt.

As you might know, either from experience or the news media, selling a home or a car is a tricky thing. Not only does it take a while, you might not get full value for it.

Meanwhile, if you didn’t pay down that high-interest debt, your net worth would start shrinking drastically over just a couple of years. You’d actually be better off with a lower net worth if it came with debt at a lower interest rate – say, a mortgage at 5%.

Debt-free is wealthy

Obviously, the annual Charles Schwab poll can’t dive into this kind of detail. But I’m guessing most people who responded to the poll don’t fully grasp the debt side of the wealth equation. Here’s another question the poll asked: “Do you think you’re on track to be wealthy?” Exactly 35% said yes.

That doesn’t jive with Census figures showing the average household income is around $80,000 – and

Federal Reserve figures showing the average household debt is $105,000 in mortgages, student loans, auto loans, credit card debt, and other loans.

That’s not a formula for wealth.

This is why I often say that debt is more important than income. It’s just not that easy to make more money. Getting a raise isn’t up to you, and working a second or third job means you have less time for family. Believe it or not, it’s easier to get out of debt than it is to earn more income.

That’s because you can enlist the help of a debt-solutions company like Debt.com. We increase your net worth by decreasing your debt. That can be through a Debt Management Program, which can reduce your total credit card payments by up to 50%, or Debt Settlement, where you pay back less than you owe.

So now you understand why I tell people the fastest way to being wealthy is to deal with your debt first.