Being in the top 1% for net wealth depends on where you live. In ritzy Monaco, you’d need $7.9 million, according to the Knight Frank 2021 Wealth Report , In Switzerland, you’d need a net wealth of $5.1 million.
In the U.S.—the third highest on the list—it takes a net worth of $4.4 million to land you in that elite group.
For most people, the 1% might seem like a pipe dream or a headline in the news. Or perhaps it’s not as steep as you’d imagined, considering the spate of billionaires who occupy the highest net worth percentiles (more like the top 0.01%).
In early 2021, Amazon founder Jeff Bezos held the title of the richest man in the world, with a net worth of $185 billion.
What Does it Mean to be in the Top 1%?
While many people might think “top 1%” and immediately imagine a CEO whose salary is in the tens of millions, the top 1% in terms of net worth aren’t necessarily the people who earn the most.
Net worth refers to the value of the assets a person owns (which includes checking and savings account balances, the value of securities such as stocks or bonds, real property value, the market value of automobiles, etc), minus the liabilities (or debt, like mortgages,loans, credit card balances) they owe.
A deeper view of the top 1% indicates that this wealth accumulation is spurred by more than one source: Income, investments, tax breaks that help the wealthiest keep more of their money, property, and more. All of these help make up the resources a household or individual has socked away as net worth.
Recommended: What’s the Difference Between Income and Net Worth?
The Income and Savings of the 1%
Income and wealth do correlate, although researchers say it’s not as close a correlation in the U.S. as it may be in other countries.
Earning more may mean you can spend more or live a more lavish lifestyle—but it can also contribute to saving more. The top 1% of wage earners in the US earned on average $758,434 in 2019, according to the Economic Policy Institute .
The same year, the average US income was $57,535. The top 1% of wage earners brought in just over 13 times as much as the average American household.
The average savings rate in the US hovers around 7.7%. (The saving rate shot up to 33% in April 2020 due to the pandemic, but is now trending back down toward pre-pandemic levels) If the average American saves just under 8% of their income and earns, on average, $57,535, they are putting away about $4,400 per year.
If the top 1% of wage earners saved at the same rate, they would sock away about $58,400 annually—more than the average worker earns in a year.
But research shows that the top 1% of earners save, on average, a whopping 38% of their income–an astounding $288,200 per year.
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Is There a Formula for Becoming Part of the 1%?
There’s no one formula for joining the 1%, but several factors appear to play a role in the rise of many one-percenters. These include:
• Saving. Many people who save through traditional 401(k)s and other vehicles tend to save up to, say, a match from an employer. That can be as little as 3% or 4%. Saving more—the max allowed in a 401k and additional after-tax contributions—builds net worth faster.
• Starting early. The earlier you start saving and investing, the more you stand to gain due to compound earnings, which is when any returns you earn are reinvested to earn additional returns. This “interest on interest” can help your wealth snowball over time.
• Income consistency and growth. Imagine graduating from college and earning $200,000 per year—not including bonus or incentive pay—from the start? That’s not uncommon at tech firms. Or, consider investment banks, which pay first-year analysts
$150,000 to $170,000 (including bonuses)—with earnings potential that rises exponentially over the years. The more you earn and the more that grows over time, the more likely your household will be to enter the top 1% of wage earnings.
• Frugality. You’ve heard that Warren Buffett wears outdated suits and lives in a house he paid $31,500 for in 1958. He’s worth $96.6 billion. He also buys reduced-price cars, doesn’t spend big on expensive hobbies and he even clips coupons. Not all 1% are spending lavishly on yachts and third and fourth homes. If you want to be a part of the 1% and you didn’t invent the best thing since sliced bread, it may be helpful to prioritize saving money overspending.
• Family history/Luck. Having a head start can certainly help. However, research indicates more than 60 percent of 1%-ers are self-made. Finding the right solution for a big problem at the right moment can lead to a big windfall in a new company, or, starting the next Facebook or Amazon is a little bit luck, a little bit skill.
Recommended: Investing vs. Saving: How to Best Grow Your Money
Moving Towards the 1%
Thomas Stanley, author of The Millionaire Next Door, identified the seven characteristics of people who become big accumulators of wealth—and thus have a chance to build the wealth it takes to be in the top 1%. These common traits include:
1. They live below their means.
2. They allocate their money, energy, and time in ways that contribute to building wealth.
3. They believe that financial independence itself is more important than appearing to have a high social status.
4. Their parents did not provide money for their basics in adulthood.
5. Their adult children are self-sufficient economically.
6. They understand how to target economic opportunities.
7. They choose the right occupation.
Not all of these are factors one can fully control—and not everyone has a knack for targeting economic opportunities. In addition, many people choose an occupation around a passion, not around wealth-building. That doesn’t mean you can’t get there—or get close.
The Takeaway
Being part of the 1% appears to take a combination of luck, talent, hard work, and determination. Being diligent about saving is also a key way to grow your net worth over time. The more you can sock away, the better off you will likely be in the future.
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