Although the title of “millionaire” may not be as important as it was several decades ago, seven figures of wealth is an important accomplishment that indicates success and stability. Affluent individuals, with their robust but accessible wealth, provide a vital economic backbone in the United States, while high net worth individuals (HNWIs) wield more influence over markets. Exploring the nuanced characteristics and strategies of these groups can help propel you toward a brighter financial future. HNWIs have more assets than those who are affluent, but represent a smaller portion of the population.
If you’re wondering how to grow or protect your net worth, consider talk to a financial advisor.
Who are the wealthy individuals?
Wealthy individuals have between $100,000 and $1 million in liquid assets and an annual household income greater than $75,000. Although these individuals have fewer financial resources than wealthy individuals, they represent approximately 26% of the U.S. population. They are also the second largest economic subclass of consumers in the country, living an upper-middle-class lifestyle and holding significant liquid assets (as opposed to illiquid assets, such as real estate).
The determining factor for wealthy individuals is the combination of income and assets. As a result, people who fit part of the definition (either income over $75,000 or assets over $100,000) are not affluent individuals.
Who are the wealthy people?
A high net worth individual (HNWI) is a person who has at least $1 million in liquid assets, excluding assets like a primary residence or collectibles. Because definitions of individual wealth in the United States have moved well beyond the million-dollar mark, HNWIs fall into three subgroups:
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High-net-worth individuals (HNWIs) have liquid assets of between $1 million and $5 million.
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High-net-worth individuals (VHNWI) have liquid assets between $5 million and $30 million.
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Ultra-high net worth individuals (UHNWI) have over $30 million in liquid assets.
Due to their important assetshigh-net-worth households often require specialized services from financial advisors and wealth managers, including investment management, tax advice, assistance with trusts and estates, and access to hedge funds and to private equity companies.
HNWIs play a crucial role in the economy as they often invest in businesses, real estate and financial markets, which can drive economic growth, create jobs and drive innovation. Likewise, due to their financial situation, HNWIs often have access to exclusive investment opportunities, private equity deals, and premium financial products and services that may not be available to the general public.
Finally, HNWIs generally favor multigenerational wealth. They work with estate planners and financial advisors to ensure a smooth transition of assets to heirs or beneficiaries. As a result, they typically arrange living trusts and create wills to ensure that their wishes regarding their wealth are carried out in detail.
Affluent and wealthy individuals
Here are three key differences between affluent individuals and HNWIs:
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Liquid assets: Wealthy individuals have less wealth than HNWIs. More specifically, their wealth is between $100,000 and $1 million in liquid assets. Additionally, affluent individuals, by definition, have an annual income of at least $75,000, while HNWIs have no income threshold in their categorization. Instead, HNWIs only have liquidity of more than $1 million. Additionally, HNWIs divide into distinct groups as the amount of their assets increases.
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Population size: The affluent category encompasses approximately 26% of the U.S. population (a total of 32.3 million households). In contrast, HNWIs represent 10% of the population (12.1 million households). As a result, affluent individuals represent a broader slice of the country’s demographics. HNWIs are a smaller segment, indicating a greater concentration of wealth among a smaller number of households.
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Distinctive features: Both groups also have sets of defining characteristics. For example, 40% of wealthy individuals are Baby boomers. Additionally, they are typically (but not exclusively) white-collar and married. Conversely, HNWIs gravitate toward entrepreneurial activity and have typically started and sold a business during their lifetime.
How to calculate your net worth
To see which category you belong to, you can calculate your net worth with a simple formula. To do this, you will subtract your liabilities (especially any significant debt you carry) from your assets. Remember that although wealthy individuals and HNWIs do not count their primary residence when calculating their net worth, by counting your primary residence in your net value if you do not belong to one of these categories, you will be able to see your full financial capacity.
Here is an example : Let’s say your house is worth $500,000 and you have $300,000 left on your mortgage. You own two cars worth a total of $15,000. Additionally, you have $10,000 in your bank account and $50,000 in your retirement account. You also have $20,000 in student debt remaining and $25,000 in car loans.
So your total assets are: $500,000 + $15,000 + $10,000 + $50,000 = $575,000
And your total liabilities are: $300,000 + $20,000 + $25,000 = $345,000
Therefore, $575,000 – $345,000 = a net worth of $230,000.
How to increase your net worth
Increasing your net worth is realistic even if you are not a wealthy person or an HNWI. Here are three proven strategies to increase your net worth:
Use compound interest
Compound interest is a powerful financial concept that involves earning interest not only on the initial amount you invest (or save), but also on the interest that accumulates over time. This way, your money grows at an accelerated rate.
Therefore, start investing or saving as early as possible. The longer your money has to accumulate, the greater the growth will be over time. Additionally, instead of withdrawing your winnings, reinvest them in your investments or savings. This tactic reinforces the cumulative effect.
Invest consistently
Successful investing requires contributing to your portfolio regularly, regardless of market conditions. Remember, the stock market has provided an average annualized return of over 10% over the past 50 years. So, a monthly deposit into your investment account during economic booms and busts will help you go further than trying to time the market or throwing all your money into a savings account.
Investing in a fund that spreads your capital between different asset classes helps diversify your portfolio, maximizing opportunities in the market. Finally, it is essential to periodically review your investment strategy and adjust it based on your financial goals, risk tolerance and market conditions.
Minimize debt
Minimize debt involves managing and reducing liabilities, such as credit card debt, mortgages and loans. This reduces the interest you pay and frees up more of your income for savings and investments. Specifically, by focusing on paying off high-interest debt first, you to save money over time. This rule can also apply to carryover investments prioritize debt. For example, a $10,000 credit card balance with a 20% interest rate will result in more debt in the form of interest than a retirement account growing at 7% per year.
Conclusion
Understanding the distinctions between affluent individuals and HNWIs provides valuable information for navigating America’s diverse financial landscape. Affluent individuals, who make up a significant portion of the population, have significant liquid assets ranging from $100,000 to $1 million, with an annual household income above $75,000. In contrast, HNWIs have a net worth of more than 1 million dollars. At the individual level, calculating net worth by subtracting liabilities from assets provides a clear perspective of your financial well-being. Implementing the right strategies promotes financial growth, stability and security, paving the way for a more prosperous future.
Advice for the wealthy and wealthy
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Building wealth can be difficult due to debt problems or lack of investment knowledge. Additionally, retirement planning raises questions about tax obligations, lifestyle choices and risk preferences. Fortunately, a financial advisor can help you clarify these questions and move forward with a personalized financial plan. Finding a financial advisor doesn’t have to be difficult. The free SmartAsset tool connects you with up to three licensed financial advisors who serve your area, and you can have a free introductory call with your advisor to decide which one seems best for you. If you are ready to find an advisor who can help you achieve your financial goals, start now.
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For a more detailed guide to achieving higher economic status, here is seven ways to increase your net worth.
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