What income is considered wealthy?

Understanding what constitutes a wealthy income provide a clearer picture of international wealth benchmarks and what constitutes a wealthy income globally.

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 267.1 million views in recent years.

In the answers below I focused on the following topics and issues:

• What income is considered wealthy? I tackle this misconception that wealth and income are always linked.
• How can you avoid the issues that come with sudden wealth, like an inheritance or lottery win? What makes people who have acquired millions in some cases go broke?
• What is the most accurate test which can determine where you should move as an expat? Which languages you speak, your hobbies and interests or something else?
• Is hustle culture, and “working hard doing something you love”, misleading? I speak about some of the many limitations of hustling, even though working hard isn’t a bad thing.

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What income is considered wealthy?

Source: Quora

It is a great question, as it gets to the heart of one of the biggest misconceptions people have.

As Karlam says below, wealth is not completely dependent on income. Not sure, if you have a lot of income, you are more likely to have wealth.

Yet net worth is a simple equation:

Net income (including from inheritances and unearned income) – expenditures x net investment returns.

Yet net worth is assets – liabilities, but the above will determine that equation for most people:

If you are earning 90k a year and invest 30k, for decades, into well performing assets, you will be extremely wealthy by the time you retire.

We probably all know at least one person in our network who bought assets decades ago, and is now wealthy, despite never earning a lot.

Think about those “house poor” grandmas in places like London and New York, who have seen their house increase in value.

In comparison, if you earn $1m a year but spend $1.1m, you will be in financial problems.

You might assume that isn’t common, but it is. 78% of former NFL stars go broke within five years of retirement, with 68% of basketball players facing the same fate.

Then there are tens of millions in the world who are worth millions in retirement, even if they didn’t even earn 100k in one single year.

The following video from the Khan Academy explains the difference between income and wealth well

Once this difference is understood, it changes your mindset. Most people look at the person driving the super expensive car and think “wow he/she is wealthy”

If you understand the difference between wealth and income, and the average spending habits of wealthy people, you are more likely to think “is this person really wealthy or in fact broke due to their spending habits”.

At least 50% of people in my network who have driven fancy cars have gone broke at some stage in their lives.

How can you avoid some of the mistakes people often make when coming into sudden wealth?

Source: Quora

Studies that have been done on lottery winners show the biggest reason for bankruptcy is bad spending habits.

If we dig down further though, there has to be some root causes of that.

The main ones are

1. Advertising wealth. If somebody does that, some hangers on will want handouts. Only people with high resolve can say no to everybody. A small percentage of people, usually within the person’s circle of trust like so-called friends, will intentionally try to take advantage.
2. Lack of planning. If somebody makes $10million from the lottery, that sounds like a lot of money and indeed is a lot of money for 99.9999% of people. However, that is only about $400,000-$500,000 of yearly income for life if it is invested well. Yes, the stock markets and many other investments have done more than 4%-5% per year, but you also have to factor in inflation and have a conservative buffer in case the assets perform worse than historical averages. That is a maximum of $1,369 a day. That isn’t enough to “live like a king” 365 days a year and never go bust. Now let’s say somebody buys a house and loads of luxury items + gives some money to family, so they are left with $5million. That is $600-$700 a day. A bored lottery winner who has given up work could easily spend that online in an hour. A complacent lottery winner will also assume “why is spending 2k a day excessive when I have millions”?
3. Extremes when it comes to risk. Putting the money in the bank won’t work for many people. We live in an era of 0% interest rates. Inflation will erode the money. You will run out unless you are very frugal as inflation compounds. Getting 0% in the bank when inflation is at 2%-3% per year is an indirect 28%-40% loss to inflation over ten years. Over decades? You could get wiped out if you don’t have fresh money. By the same token, however, ultra risky investments into illiquid assets and friends’ businesses isn’t a good idea either.

So, proper planning + the ability to say no + a realistic attitude to risk = a winning combination.

I guess reading stories about how frequently these “riches to rags” stories are, can motivate people.

All too often people assume these stories are just 1% of the total, which isn’t the case at all.

Most studies show that at least 30% of lottery winners go broke, with some indicating over 50%.

Former sports stars are even more likely to go broke by middle age.

What is the most accurate test on where one should move to?

Source: Quora

Firstly, ask yourself what you really want. Society, your friends or family can’t answer this question for you.

Some people want money, others want prestige, whilst some want an easy life.

Take money and prestige. Saying “I work in Silicon Valley as the VP of marketing”, sounds “better” to many people than “i work remotely from Thailand selling candles”!

That doesn’t mean that selling candles remotely is automatically less well paid, nor has a worse lifestyle.

It just sounds less prestigious, especially to many shallow people, who are best ignored anyway.

After you understand what you really want ask these questions

1. Which countries, or cities, are most likely to allow me to get what I want? For example, if you want “an experience”, a small town in a country where few people speak English might be best. If you want money and work in oil & gas, getting sent to a place which is considered a hardship location (like a war zone where you have to stay on base) would be best.
2. Which languages can you speak.
3. In terms of culture, are there some countries which interest you.
4. Travel and living in a country aren’t the same thing. Nevertheless, if you have visited many countries, which did you like the most? If you have actually studies abroad, or had a long trip overseas, this is a better question than if you have only had a one-week visit.
5. What are your hobbies?
6. What sorts of climates and food do you like?

Honestly, though, nothing beats actually living in numerous places and then picking one.

Of course, this option isn’t available to most people. Only newly retired people, students and a few remote workers can do this.

If you can spend at least 2–3 months in multiple places, it will help you understand which you prefer.

It isn’t perfect, because places change over time, but it is the best guide.

I definitely wouldn’t “research” every destination before living there, assuming you will be influenced by what you read.

I have lost count of the number of people who are pleasantly surprised, or alienated, when they live in a new country.

It is far better to arrive with realistic expectations.

Is hustle culture damaging?

Source: Quora

I was watching a great episode of the “high performance podcast” yesterday.

On the show, Grace Beverley criticized hustle culture, and also admitted that she, like many other social media influencers, has contributed to it.

Working hard is good. Hustling isn’t, in itself, a bad thing, In fact, it can be a good thing.

But we also live in the digital age. Working hard and smart is much more important than working hard on the wrong things.

We also need to take care of our mental and physical health, by getting enough sleep.

Hustle culture is part of a wider trend, where people say things which sound politically correct like “do what you love”

For example, she pointed out, that if you want to be a doctor, you might have to go through modules at university you find boring.

I also personally know the following people

1. Those who now make more money from outsourcing to people and technology, and working less hard but smarter. Granted, most of these people start off by “hustling”, and then get “strong enough” where they can work fewer hours but earn more. You might not agree with all aspects of Tim Ferris’ book the four-hour work week. I certainly don’t. However, he is right about one thing. In the digital age, most people could work much smarter. That book was written more than a decade ago. Since then, it has become even easier to outsource and leverage technology.
2. People who make money from selling alcohol who don’t drink. Some don’t drink because they don’t like the taste.
3. People who make money from gambling who don’t gamble
4. Loads of people who have just invested for decades and got rich slowly. It often takes 20–30 minutes to set up an investment account. The decision to start young, and begin the compounding process, doesn’t cost you much time but can make you millions. 100% of people who have invested $500 a month for their working lives have become wealthy investing, if they have linked it to the indexes like the S&P500. That doesn’t mean this is guaranteed in the future. The point is, hours worked, and end results aren’t the only component to material success.

There are many routes to success, even though some are more tried and tested than others.

There are many ways to skim a cat as the old expression goes:

Working hard, hustling, is just one component of success, and one way.

Many social media influences just make a lot of money by promoting this as the only way to succeed.

So, hustle culture itself isn’t damaging. What is damaging is people believing that “the hustle”, and “hustling doing what you love” is the only route.