Does A $100,000 Salary And $1 Million Saved Make You Rich? - InvestingChannel

Does A $100,000 Salary And $1 Million Saved Make You Rich?

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Does A $100,000 Salary And $1 Million Saved Make You Rich?

In September of this year alone, Jensen Huang, the head of Nvidia (NVDA), exercised employee stock options generating proceeds of more than $83.2 million. On September 1st, Microsoft’s (MSFT) CEO, Satya Nadella, sold 38,234 shares of the company’s stock, ringing the register for just under $12.6 million. 

While most mere money mortals fight to dollar cost average into the top five most searched stocks in Trackstar, the CEOs and other employees at these (and other) companies routinely extract fortunes. 

From time to time, we like to gawk at insider transactions. It’s akin to scrolling social media. It gives us a rush until it depresses us. Then we stop and get back to work. 

As these zillionaires make more money in one transaction than the rest of us will in a lifetime, we set our sights considerably lower.

If you’re as old as us (!), you likely remember the days of—

Six figures. A $100,000-plus annual salary.

Seven figures. $1 million-plus saved over a lifetime, preferably accumulated in a retirement or some other nest egg.

These used to be the going psychological thresholds. The rites of personal finance passage. No longer. Times have changed, as everything in life has gotten more expensive, outpacing the income growth of large swaths of the population. 

Because we have been thinking about this lately in association with persistently high inflation, stubbornly high mortgage interest rates and pretty much back-to-record home prices, The Juice took a survey of the landscape. 

  • Charles Schwab’s 2023 Modern Wealth Survey showed that Americans think they need $2.2 million to be wealthy. 
  • However, the 48% of respondents who say they “feel wealthy” actually have an average net worth of $460,000. 

This disconnect tells us that (a) the headlines on economic issues such as inflation and housing are scary and (b) more than a few people live this fear on the ground. They make decent or better money, but struggle to get by or, at least, meaningfully save, inflating the numbers on what they think they need to be well off. 

  • In the same Schwab survey, more respondents (40%) cited “well-being” as an indicator of wealth than any other factor. Money (32%) and assets (26%) came in second and third. 
  • Similarly, 61% of Americans think having time is more important than having money, led by baby boomers at 67%.  

This tidbit tells us that stress, the pandemic and a general shift in attitude, across age groups, has resulted in less emphasis on making money. However, as much as it’s about lifestyle choices, we think some of this is forced choice. In other words, the everything is more expensive reality might lead people to throw their hands up in the air, then shrug their shoulders and decide to make due with less. 

While this might end up a smart lifestyle choice, in some cases, it borders on apathy, which, obviously, isn’t good. To that end, Schwab found that 65% of Americans have no formal financial plan and 40% have only “thought a bit” about their goals, but have yet to put anything down on paper

Moving on to income. 

  • A recent Bankrate survey revealed that, on average, Americans feel like they need to make $233,000 annually “to be secure or comfortable” with their finances. 
  • To consider themselves “rich” or “financially free,” that number increases to an average of $483,000. 
  • According to the most recent government data, the average weekly earnings for all employees on private, non-farm payrolls was $1,163.41 in August, 2023. This works out to $4,653.64 a month, or just over $55,843 a year. 

In many, if not most parts of the country, $56,000 isn’t going to take you very far. Heck, take taxes out of a $100,000 annual salary and, in California, you’re looking at monthly take home pay of roughly $6,000 a month. 

Not terrible, however with a median home price in the state in the neighborhood of $750,000, you’d eat up most of that on your mortgage payment alone. Even taking it down to the national median of roughly $435,000, your monthly payment of $3,364 (after 10% down and a 7% interest rate) eats up more than half of your after-tax income. 

So, yeah, things are tough out there for a lot of people. And the days of a $100,000 salary being cause for celebration are pretty much gone in many parts of the country. 

The Bottom Line: With all of this said, no matter your situation it never hurts to go back to basics. If you’re lucky you still have that personal financial switch you can toggle between cost of living, income and savings. 

As you lower your cost of living, you generally require less income to meet your needs. As overhead drops, maybe you can save more. And just as dollar cost averaging into stocks as an investment strategy makes sense for all investors, particularly those with limited amounts of cash, saving just a little bit every week or month adds up. 

$25 or $50 here and there can turn into hundreds, then thousands in short order. 

There’s nothing wrong with starting small because you have to start somewhere.

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