Sep 16, 2024
While “rich” may be a feeling for many Americans — whether it’s the security of money in the bank or the flexibility to seize opportunities when they present — the IRS can tell you exactly what it takes to fall into this category in the U.S.
Based on analysis of all 154 million-plus returns filed in 2019, it takes an annual income of $151,935 to fall into the top 10% of American earners. To be in the 1%, you have to be raking in a whopping $540,009 annually.
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Of course, only a small percentage of Americans bring in that amount. The median income for the whole country is just $43,614, according to the tax agency. That being said, it doesn’t take a six-figure salary to set yourself up with a net worth that down the line will rival even the best-paid of Americans.
Here are three things you shouldn’t do — unless you happen to be very rich — because they could be holding you back from building your wealth.
1. Don’t fake it ’til you make it
Have you ever wondered how certain friends or family members always seem to have the latest designer clothes, dine out every weekend and go on luxury vacations — even though it would appear their job can’t support that lifestyle? It’s likely they can’t support it.
This can be blamed, in part, to the influence of social media and the “fake rich” trend. There’s pressure to curate a “perfect” lifestyle on social media, driving many to live beyond their means and overspend on luxury items they can’t afford.
Americans are more in debt than ever: Household debt reached $17.80 trillion in the second quarter, according to data from the Federal Reserve Bank of New York. And credit card balances increased to $1.14 trillion — which is 5.8% higher than the same period last year.
That means many Americans are living paycheck to paycheck or going into credit card debt to fund their fake rich lifestyle. If you want to truly build wealth, don’t live beyond your means — instead, spend less than you earn and invest your extra cash.
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2. Don’t overspend on vehicles
You might need a car to commute to work, but do you really need a luxury vehicle that loses its value the second you drive it off the lot? Transportation is one of the highest household expenditures in the U.S. at $12,295 annually (as of 2023), according to the U.S. Department of Transportation.
And nearly one-quarter of the American population has three or more vehicles. While the average auto loan payment is $655 (as of June), according to data from Experian, one out of every 24 drivers is paying $1,000 or more on monthly car payments.
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Between car payments, insurance, maintenance and gas, costs add up quickly. Plus, vehicles are depreciating assets; most vehicles lose 20% of their value within the first year of purchase.
At the same time, maintenance costs increase as a vehicle ages. Then there’s the issue of practicality: Do you really need an off-road vehicle or pick-up truck if you use it to commute to an office job? Do you really need a luxury convertible if you live in a cold-weather climate?
If you’re looking to build wealth, consider a more practical, affordable vehicle — one that’s also fuel-efficient — and, again, use your extra money for investments that don’t depreciate.
3. Don’t take shortcuts
If a get-rich-quick scheme sounds too good to be true, it probably is. Hitting the jackpot with single-stock investing (or playing the lottery) is a rarity, and there’s no “secret” investment strategy that will make you rich overnight.
Ramsey Solutions’ The National Study of Millionaires found that most millionaires got to where they are by consistent saving, smart spending and debt avoidance. Of the 10,000 millionaires surveyed, 75% attributed their success to regular, consistent investing over a long period of time — and not to single-stock investing. So it appears even the super-rich don’t take shortcuts, which could be why they continue to build wealth.
At the same time, “wealth” doesn’t mean the same thing to everybody. For one person, wealth might mean owning a Lamborghini. For another, wealth might mean financial freedom that gives them more quality time with loved ones. And they may not need to be a millionaire to attain their version of wealth.
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Vawn Himmelsbach is a veteran journalist who has been covering tech, business, finance and travel for the past three decades. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, Metro News, Canadian Geographic, Zoomer, CAA Magazine, Travelweek, Explore Magazine, Flare and Consumer Reports, to name a few.
