What do you consider rich?

I recently was reading the Economist special report about global readers and it got me thinking about a few different things. One of them is about what the definition of being rich means. It’s a very difficult thing to define and most that give it a try use absolute numbers to do so. Capgemeni, a consultant, defines a rich, or a high net worth individual as being someone with investable assets of $1M or more. By that measure, there are about 10 million rich people on the planet.

My two big problems with that measure are that:

-it does not account for the cost of life (some places such as the US cost many times more to live in than others such as Vietnam)
-only counting investable assets seems tricky. Does an entrepeneur that owns a private company worth millions not qualify? What about someone who owns a $1M house without a mortgage?

Credit Suisse uses net assets of $1M as the criteria which is simple and makes more sense to me. That estimate qualifies more individuals as “rich”: 24.2 million or 0.5% of the world population.

To me, that is a better criteria but it still lacks consideration for some parts of being rich.

Personally, I will consider myself as rich when my monthly passive income will be enough to pay for my expenses. Too simplistic? Not really in my opinion! I do understand that it would be virtually impossible for companies to estimate how many individuals qualify.

So would I exclude a lot of those “standard rich”? Absolutely. In my opinion, having a lot of debt and a very costly lifestyle (expensive cars, etc) may work fine for a number of years, but if you can’t survive a few months after losing that great job, you are far from rich. I guess it could be debated in many different ways but I feel very strongly about it.

Now the irony here might be that having enough money to live off of through passive income requires one, two and often all of these criteria;

#1-a “passive” business or large amount of cash & investments
#2-a reasonable level of spending
#3-a solid and systematic investment methodology

Of course, billionaires will be able to qualify without looking too carefully at their spending but for most of us, reasonable spending become a big key of the ingredient. That is ironic because our society often promotes big spending as the best way to show off how great things have been going.

Do you agree? Do you think that being rich should be defined in another way? I’d love to hear from you about this.?

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