What Makes You a Millionaire?
Ask anyone if they wished they were a millionaire, and you will get a resounding: “Yes!”
On the other hand, ask those same people: “What is it that actually makes someone a millionaire?” and your answers are going to be quite different.
Here are some of the answers when you ask someone what is a millionaire:
“When you have a ton of money.”
“When you don’t have to work any more.”
“When you are rich.”
These answers prompted me to dig a little deeper into what actually makes someone a millionaire. Over the years, the term millionaire and rich have always been synonyms.
The actual definition of “What is a millionaire?” is this:
millionaire
|ˌmilyəˈne(ə)r, ˈmilyəˌne(ə)r|
noun, a person whose assets are worth one million dollars or more.
That is absolutely crazy! I find this to be a fairly light definition of the word. After all, that means everyone who had a McMansion during the housing boom could have been a millionaire. They may own a million-dollar house, but they owe 2 million on it. That doesn’t conjure up images of being rich.
Owing more than you own is not my vision of a millionaire.
A Mental Vision of a Millionaire
When I used think of a millionaire, I would think of someone like this:
Then I listened to the Millionaire Next Door, and everything changed. Millionaires weren’t the ones driving around in flashy cars and having fancy showers with money coming out of them.
They were our neighbors. The average people who were just really good at accumulating wealth.
Let’s face it, the definition of a millionaire is outdated.
The more thought I gave on the topic the more I realized there are several levels of being a millionaire.
So to clear up any confusion, allow me to introduce the…
*New* Levels of Millionaire
(Note: This will all refer to net worth, if you need a primer on net worth you can find it here)
Level 1 – Millionaire Light
This first is what I call “Millionaire Light.” By the standard definition, you are a millionaire, but it takes very little to get there.
Going back to our Net Worth Statement, we can see that anyone who buys a million-dollar house would qualify as a millionaire even if they owed more than a million dollars on the house.
By their own definition, you could be a millionaire with a negative net worth (owing more than you own).
This may be the common definition, but it’s not the one I tend to think of when I think of someone who is a “Millionaire.”
Mostly because it’s relatively easy to attain and doesn’t indicate any level of financial awareness. I would imagine that in the first half of the 2000’s when there were more millionaires being made every month since it was largely attributed to people buying expensive houses that they couldn’t afford.
Yes you are a millionaire, but you also can’t make the payments. This is NOT what I would call rich. Still if you are growing your Net Worth incrementally you will most likely hit this point and by definition you can call yourself a millionaire. Another example that I like is at one point Donald Trump was bankrupt but he would have still been a millionaire because his assets were in the millions, even though what he owed on those assets was far above the value of those assets.
Level 2 – Millionaire
This is the level that I commonly think of when I think of a millionaire.
It’s when your net worth is a million dollars or more.
This demonstrates that you have been able to acquire assets while maintaining or decreasing your level of debt. Thereby raising your net worth beyond the million dollar mark. I remember thinking how much a million was then I realized that if we work long enough, we all will earn a million dollars over our lifetime
How much of that million is kept and how much you grow that amount is up to you.
Level 3 – Millionaire Plus
This is when your net worth is over a million dollars, when you EXCLUDE the value of your home.
This is probably a better representation of your overall wealth since you will always need to live somewhere. It should be a logical next step in your millionaire progression.
Level 4 – Millionaire Pro
Millionaire Pro is when you have enough money that you can write a check for $1,000,000 without hindering your life.
This is the next stage of millionaire and it’s where you want to be. Just to be clear, you never have to actually write that check but you have the ability to do so. Either through investments, businesses, cash, or other holdings you have chosen.
Level 5 – Millionaire Extreme
This is when you have a Net Worth in excess of $5,000,000 and you can easily write a check for an amount for anything you could possibly want.
There is more to life than money and most wealthy individuals will tell you that money is more of a way of keeping score once you have enough of it.
There lies the key:until you have enough of it. Until that happens, money and building wealth will take up at least part of your thinking.
Of course, this is just my humble way of looking at things. I like to know where I am at, and it’s always good to have something to shoot for. When climbing the Net Worth Ladder, you need to know what the next step will be so that you have something to aim for. Before you can get to the various levels of a millionaire, you will need to climb the Net Worth Ladder.
What do you think of the definition of being a millionaire? Do you think it’s right, or should it be change?
Good observations. We have fortunately move through each of these benchmarks. I am currently counting down my last few months in the office. Over the last year, we have banked every one of our paychecks to give away for philanthropic purposes in early retirement. It is our way of giving back at the end of our careers.
That is so good of you guys. Especially being gable to give back. It must be such good feeling to be able to do that. What was you motivation?
I’m aiming for Millionaire PLUS.. lol, not sure if I’ll get there. So much of my net worth is tied up in the house, but I agree that “millionaire” doesn’t mean much these days. Our city has seen some rampant house price inflation, anyone who owns their own home is almost millionaire by the old definition.
That’s just it! With a “standard definition” you can be a millionaire with a million dollar home and 2 million dollar mortgage. So a negative net worth and still considered a millionaire. It’s crazy! Good goal aiming for Millionaire Plus! Keep me posted on the progress.
I like the specifics, Andrew! I’m also aiming for the Millionaire PLUS level. With any luck and lots of inflation, I should be able to get there someday. 🙂
Hope you’re well!
Thanks Michael! I can’t wait for you to hit that marker. What a great accomplishment that would be!
Great idea, and really appreciate the thoughts Just this year (2017) I reached Level 2, and as I read the article I thought I may be higher, but am not sure. I have 5 rental properties, so since I have no home (I currently rent an apartment), am I a Level 3?
The Level 4 definition seems too rigid… I could write a check with no affect on my daily life TODAY if I cashed out my investments (401K, IRA, etc) sold my properties (and pay off the mortgages)… does that make me a Level 4?, or does one need $1,000,000.00 USD in a checking account to be a level 4?
Appreciate any feedback and comments, again great article, glad I found it!
You raise a good point about level 4 Wolf. I just think that the million dollar cheque is a nice way to see things as arriving at a new level. But I’m open for interpretations and suggestions. Personally I always looked at being able to write a cheque for 1,000,000 the true definition of a millionaire
Interesting. I like the definitions, though Level 4 seems a little vague. I might clarify it to define what you mean by “hindering your life.” So for example, if it wouldn’t affect where you live, your current and future retirement income, your job, your monthly cash flow, etc.
My wife and I are 28 and have a net worth of $250k, which consists of our home, two rental properties, 401k’s, and cash. Only debt on our balance sheet is the real estate. She just quit working to stay home with our newborn and grow a side business. Our goal is to hit $1 million net worth by 38. What are your thoughts on how to walk the line between saving/investing and enjoying the money as we go? I’ve always been very aggressive on the saving/investing but have wondered if we should slow down a bit to enjoy ourselves more along the way. Personally I find it’s a hard balance to strike.
Retired at 50, but love the Grandchildren have 2 million plus in investments. A nice home and vacation home with property. Still shop at Target and dress down. Have 10 yr old car but other ones too. I don’t look at price tags but not a shopaholic. Believe in enjoying dividends and growth on principle. When is enough saved. When your happy and comfortable and your family needs are met. Be kind and give when you can.
Nice summary and I agree for the most part. I might argue that Pro and Extreme are almost the same, though. At your Pro level you need to be able to write a check for $1M and not feel it. To me, that requires a net worth of >$5M. When I think about having $5M and writing a check for $1M, that’s spending 20% of your wealth. Even at $5M wealth – I bet you would still feel it.
Thanks for the article.
(already Millionaire Light, close to net worth Millionaire)
I’m a millionaire level two. Once I sell my personal home in California, (when I retire next year at 60) and move into my awesome rental property in Florida, I’ll be a millionaire plus. Can’t. wait!
Way to go Lynn! That is awesome!!!