In my five year study of the daily habits of the rich and poor (http://richhabits.net/rich-habits-study-background-on-methodology/) I defined rich to mean those individuals who passed a two-part test:
- Gross Income of $160,000 or more and
- Net Liquid Assets of $3,200,000 or more
In reality, being rich is much more complicated. There are many variables that can make one person rich and another person not rich. It’s not a simple financial test as much as it is a lifestyle test. As a result, being rich is very much a subjective matter. Nonetheless, I thought I’d provide some clarity and share with you some of the variables I uncovered from my research that definitively make you rich. If you meet all of these 12 tests, then you are a rich person:
Test #1: You no longer have to work in order to fund your lifestyle. If you work it is because you want to work not because you need to work.
Test #2: The unearned income you generate exceeds your living expenses.
Test #3: You can afford to take the number of vacations you want to take during the year, irrespective of what that number is.
Test #4: Your can afford any and all healthcare or medical costs that may arise for you, your spouse or any family members, including the cost of long-term care inside or outside your home.
Test #5: You can afford to purchase new cars for you and your family without relying on bank loans.
Test #6: Even if you got divorced, it would not require that you or your family alter their lifestyle.
test #7: If you wanted to, you could afford to pay college costs for all of your children or grandchildren without it affecting your lifestyle.
Test #8: You own your home and/or your vacation home outright. You have no mortgages for either.
Test #9: You can afford to meet large, unforeseen expenses, without it affecting your lifestyle.
Test #10: You have no financial constraints on your activities. You can do what you please, when you please, without considering the cost.
Test #11: You have zero debt.
Test #12: You no longer require life insurance, health insurance or long-term care insurance. You can self-fund the costs associated with these types of insurance. If you carry insurance it is either for estate tax planning purposes or to protect the assets you’ve accumulated.