While we no longer answer questions on this blog we continue to receive this one over and over again. We’ll go ahead and answer the question and as always, no one will agree on the definition. But. Lets get started.
Definition: “A rich person is someone who does not have to work and will be happy for the rest of his life.”
The second part of the quote after the and is significantly harder to achieve than the first piece. We’ll start with the easiest part of becoming rich first… Money.
Part 1: Income Related Needs
A Million Isn’t Enough: For most people, this is the reality. While it appears to be a lot of money for a college aged student, a million dollars doesn’t go anywhere if you were successful as an adolescent in the first place. Assuming you wanted to get the most out of your life, living on $40K a year in Flint, Michigan probably isn’t on the to do list. Ambitious people do not enjoy sitting on the beach every single day drinking Mai Thai’s… Watching their body degrade over time. This leads us to the second issue in answering the question… Your location will materially impact your financial needs for being “rich”.
Location or “Locations”: Before someone tries to reach the definition of rich (financially), the primary problem is finding a city or cities where you’ll be happy to live over the next 40+ years. The result of this problem is the need to travel to at least ~40 cities over the course of 10 years (hence no reason to buy a home in your 20s). Even with that backdrop, most find that they will prefer a dual city life living half the year in city 1 and the other half in city 2 (New York and Buenos Aires for example)
Lifestyle Expenses: This is where the math becomes extremely complicated. If you’re only able to cover food, shelter and your utilities, there is no way anyone outside of a Buddhist monk will be happy. With a list of several well off individuals, it seems the baseline is ~3x or more of monthly rent would cover lifestyle/entertainment expenses. Notably, we’re using the phrase rent to refer to the cost of living in a place you may own (IE: at least ~4K/month – multiply by 3x – for a 1 bedroom in soho, even if you own the property outright)
Healthcare/Disaster Recovery: The last real item on the list is a *growing* Healthcare & Disaster Recovery fund that remains untouched. This will make it next to impossible for you to eat into principal (let’s draw the line at ~$500/month minimum or $6K per year per person).
Bachelor: Very likely to describe the vast majority of our readers at this point. We aggressively spam comments and keep the haters off of here so it generally results in a readership similar to the one we’ve tailored to.
The Stats: Low 7 figure net worth. Lets assume $2M (minimum). At 5% returns this is about $100K per year. We’ll assume a 20% tax rate getting us to $80K per year. At this level you can live a great life in 99% of cities in the world (let’s cross off the top 10 or so from an expense perspective) and it would look something like this:
A single guy in Austin, Texas: $6,666 a month income – $1,500 “rent cost” – 3x ($1,500) – $500 healthcare = $166 remaining for wiggle room.
Successful Business: For one reason or another, it seems that most individuals who successfully sell or create a small to medium sized business (SMB) tend to have a family or a spouse. This post is not going to bother giving an answer as to why or if it is a good idea (since there are always exceptions). Instead we’ll just crunch the numbers.
The Stats: A successful business that has been sold should generate a net cash *event* of ~$5M. This brings in $250K in cash flow or $200K in after tax money if we continue with the rough 20% tax rate.
Family in Los Angeles: $16,666 per month – $3,000 rent cost – 3x ($3,000) – $1,500 healthcare. This leaves about $3,100 a month for raising a young boy/girl in a top tier public school (or home schooling).
Summary: In short, the bare-bones minimum to start on the definition of being rich *financially* is around $2M in cash/liquid assets within a 2-4 day settling period. Importantly, as mentioned at the beginning of this post, getting the money is the easiest part of becoming rich. We stated above that being “happy” is the part that most will struggle with. There are many financially well off individuals with nagging wives (looking at you *many* lawyers and bankers) and there are many rich engineers with negative social skills (just to go to a tech city). All of this aside, the second hardest item to obtain is a healthy mind and body which is part two of becoming “rich”.
Part 2: Physical Health Related Needs
Retraining Your Tastes: Unless you were born into a wealthy family (good for you!) chances are your body is used to consuming garbage to put it bluntly. Fast food, boxed microwaveable meals, canned goods, pastas and so on. Many people in the United States (roughly half) are overweight and continue to shorten their lives by consuming garbage on a daily basis. Slowly killing their bodies.
The gut is the second brain because it tells your body if you’re moving in the right direction. In fact, if you’re not well off financially as of today (which is fine) we would suggest *starting with fixing your diet*. You’ll gain more energy and focus than you can possibly imagine by simply fixing what you consume.
Daily Exercise: There should be *no thinking* involved when it comes to walking to the gym. Similar to brushing your teeth you should be doing something physical every single day (more likely some form of exercise twice a day! Yoga and lifting for example). Building your body is literally no different from building a Company. If you put in the work every single day when you are older you will continue to reap the benefits even as your body slows down. Muscle memory is absolutely real.
You do not need to be 5% body fat and lifting a new personal record every month. However. You need to feel energetic. You should be bouncing off of walls relative to your age suggesting health and vitality.
Recovery: This section is *not* for people under the age of 25. If you are under 25 your body can take an immense amount of punishment. Those that are under 25 should continue to push as hard as they possibly can because the tank refills so quickly there is practically no such thing as “over training” or “over working”.
Once you surpass the age of 25 you should *know* your limits. If you don’t know what your limits are at this point then you did not bother working hard when you were under 25. This is “mean”. This is also true. Eventually you find your breaking point on when it is 1) time to step away from the computer, 2) time to avoid that extra rep and 3) time to stop chasing that sales lead. This is simply called experience.
We don’t know what the breaking point is for you. It is probably much later than ours to be honest, which gives you a competitive advantage. But. Some breaking point signs include: 1) Discombobulation: Where you are suddenly leaving items in the wrong places and using things incorrectly. A great example is putting items in the freezer instead of the refrigerator because your head is not in the right place. Another basic example is placing your keys into an obscure drawer or thrown on a piece of furniture instead of your usual designated area. 2) Pinches or Buckling: if you are exercising hard and feel a “pinch” or you sporadically buckle… You are done. There is no reason to push past a pinch or buckling as a tear or strain will set you back several weeks or months. Stop. Move slowly. Relax. Ice and… Go Home.
Male in His Mid-Twenties: This is a great spot, an inflection point for most. If you’re more of an Ectomorph it means your primary activity is eating a bit more and making sure you fill out your frame. Your goal is to find your physical breaking point and where your body simply feels “too heavy” since the primary goal is putting on muscle mass. Opposite of this would be an Endomorph, where you’re constantly trying to cut body fat down with intermittent fasting, more high intensity training etc.
Simply put a person in his mid-twenties has plenty of time to constantly exercise (5-7 days a week) and find his ideal weight to wake up invigorated every single day.
Male in His Thirties: Here you’ve moved on. You already know where your body feels best and it is usually a tad lighter than you were in your early twenties (notice professional athletes tend to lean out a tad as they reach 30) to prevent your heart from over working. That said you have a few set routines and know your body extremely well. You can prioritize rest and recovery a bit more since your work outs are extremely focused (4-6 days a week) and the diet piece is on track.
On a side note, you’re stretching, foam rolling and loosening up your body consistently. Something you didn’t worry about a decade ago.
Summary: Staying healthy is significantly harder than obtaining money. There is no comparison. Generally, the individuals who are healthy but not wealthy are unable to condense their exercise efficiently. Spending 3 hours in a gym per day (unless a college or professional athlete) is an utter waste of time. The real trick is being *consistent*. If you are able to remain in near tip-top shape with 5-6 hours dedicated to your health per week, you will have enough energy to push aggressively towards your financial goals.
Finally, we’re moving onto the most complicated piece of being happy which is your relationships and view of your own life. We don’t know if there ever will be an answer but we’ll attempt to make the grey area of life make sense.
Part 3: Personal Relationships
A person is rich ($2M+ minimum). A person is healthy (extremely energetic). A person is not happy.
This person still fails our definition of being “rich”. Being financially well off and with all of the energy in the world is simply not enough if they are unhappy. A cheesy line is “you’re not rich if you have no one to share your life with”. That is a bit far fetched as many people may prefer being alone (they would be happy) but the point shines through. A person with money, 9% body fat and depression is not a rich man.
Friends: We have a few posts scattered on here regarding this topic and instead this will be a condensed version. If we had to summarize it in a sentence it would be this: “most people are not worth your time”. Hopefully, that caught some attention given the more soft spoken paragraph above. Most people will be perfectly fine earning a middling wage of $100K a year and giving life advice based on their non-success. Most people will not understand why you become irate when a person who makes a fraction of what you make gives you advice. A homeless man giving advice to person who makes $100K a year is *exactly the same* as a unhappy man who makes $100K a year giving advice to a happy go lucky multi-millionaire. We repeat. There is no difference!
If you wish to obtain friends you really need to find three things and three things only: 1) soft touch relationships, 2) no overlap in business or finances – no need for each other and 3) similar view of the world around you.
Those three items are incredibly difficult to find in any single person. We recommend searching far and wide from the gym you attend to internet bloggers you enjoy reading. There is no way you will find 5-10 people who fit the above three items in your day to day life. It just won’t happen.
We do not have a formula for finding them. Again. We do not have a formula for finding them. If you’re lucky enough to find five you will be one of the happiest people in your city. Just remember. If you break one of the three items, you’re putting the friendship in jeopardy. A good friend is always busy doing something but has time to visit when you’re around sporadically. He does not need you for money and you don’t argue about useless topics such as politics.
Dating: This is much of the same. We really do not care if you want to get married we simply believe it is not an intelligent move financially. Just give her the ring (a nice one if you like) give her the wedding, but do *not* sign a contract giving the government control over your life.
The saddest people we know treat dating like a sport. They expect their partner (girl) to actually live up to their own standards! We’ll break the bad news now and tell you that if you are a multi-millionaire, physically in shape and have a load of real friends… No one is going to match you eye for an eye.
You absolutely *must* have high standards. But. Your personal standards will never actually be met.
Why? Women always date up.
If she didn’t look up to you in the first place (IE: think you’re one of the best catches of her life) then there is no way she would have gone on a date in the first place. Instead of expecting an equal partner, you should find out exactly what matters to you the most and look for those 3-5 qualities instead of a laundry list of items that simply won’t be found. Reiteration. Your equal will have no interest in dating you. This goes for all of the authors here as well. Reality.
Mental Up Keep: The final item on the list will come as a shock to regular people (we think we’ve finally banned them all!). Even if you have everything above from money to health to friends to a great dating life… You’re still not going to be happy. You will need to find something to build, grow and improve upon. For us this is simply business and finance. For others it may be art and a family. Who knows.
What we do know though, is that if you meet all of the criteria laid out above, you will *not do anything you do not want to do*. People will not understand your decisions because you are living a much more fulfilling life. Maybe you take the first contract that pays less than the second contract option. Why? Easy you didn’t want to do the other task and didn’t think it would be fun!
In short, once you’re happy and your decisions no longer make “rational sense” to the common man (IE: lazy slob) you’re no longer touchable.
Summary of the Post:
- From a pure financial perspective the bare minimum to be considered rich in the United States as of 2015 is about $2M for a single person and about $4M for a person considering having a family
- Finding a city where you hope to spend the majority of your life is incredibly difficult. There are literally thousands of options and you must find a few that fit your needs
- Financially savvy individuals never touch their principal and always have a slush fund that is increasing to prevent disasters from eating into the pyramid they have built
- Before bothering with money, health is *always* more important than wealth. We realize how funny that looks given the name of this blog but we’ve said it many many times before. Health >wealth. You only have one body and one mind. Find your breaking points before it actually breaks on you
- If you have five friends that meet our criteria: 1) constantly busy, soft touch relationship, 2) does not need you financially and 3) sees the world in a *similar* manner as you… You’re an extremely rich man from a friendship perspective. Look far and wide for these individuals, there are no tricks as less than 5% of the human population will meet this criteria
- Women date up. This is not a politically correct comment but it is true. Find what you want in a female and do not expect to meet your equal because your equal is always looking for a different man to look up to. Reality check.
- If you are rich, healthy, have friends (or a family)… You’re still going to build something or perhaps work for money. Your life will not make sense to normal people and your decisions will be made to maximize general happiness. However. If you’re working because you *have to* then your incentives cannot possibly be in the correct place.
Are You On Track to Get Rich? Everyone defines being rich differently and those that track their cash flow and net worth diligently are best prepared to succeed, with that we strongly recommend Personal Capital. The Company offers *free* software tools with the following four key features: 1) ability to avoid losing money by tracking all fees associated with an investment product allowing you to choose the best possible fund for your future, 2) portfolio analysis where your risk profile is stacked up against your current age and retirement goals, 3) in addition to these free tools, you can also track your net worth and path to becoming a millionaire and 4) when you hit $100K in networth you’ll receive a free one time consultation with an investment professional at Personal Capital. After linking up all of your accounts you’ll be able to sit back and watch as your net worth goes up and your fees remain minimal over the next several years. We strongly believe that Personal Capital is the premier personal finance software tool when compared to its competitors such as Mint.