To ask if you are rich, and if so how you made your money?!

[jinglebelly]

I run a small ebay business but after DC 3 starts school I'd either like to retrain/get a degree or start up a larger business... I don't know any very well off people hence why I'm asking on mumsnet!

i think it's well off
not rich

Empire, I agree with your comments re financial literacy. Well over 20 years ago, my school made everyone do a City and Guilds in Life Skills in our final year. I think it carved out an hour a week in our timetables. That had an element of teaching about financial saviness. So understanding what different jobs you could do and how much they paid was one element, understanding the tax system was another plus I have never forgotten being taught to never get a mortgage that involves you paying out more than a third of your net income in mortgage repayments and not to anticipate future income. It never ceases to amaze me how many people I know pay little attention to that rule of thumb. I actually think it was one of rhe most useful courses I ever did, even though at the time I thought it was a giant waste of time.

Is £114k pa rich? Not really. Think about it like this.

To buy a £1 million house (which doesn't get you a mansion in the good areas of London) you need £4-5k per month to service the mortgage= £50-60k pa.

The top London day schools have fees of around £20k pa.

So if you have 2 children, and an income of £114k pa after tax, you've only got £20k left after housing and school fees- less than £2k per month.

I would say that if you live in London, don't have a £1m house and 2 kids in private school, you're not really "rich". You're quite possibly well off, but not rich.

Yes, wealth is, to an extent, relative, and it depends a lot where you live, but given that the people who do earn £100k+ after tax are concentrated in London and the South East, it's easy to see where the money goes.

God I wish there was an edit button!

I should have said "cant afford a £1m house and 2 lots of school fees" because of course, some people choose not to educate privately even though they can afford to. However, in my experience, few people who can afford the fees without sacrificing other things, such as cars or holidays, choose not to.

have just shown DH this thread. after reading the whole thing, his only comment was 'so darling, if you worked then we would be rich' which isnt exactly what i was hoping he would pick up!!!

lol. guess my sabbatical is up............

£200k pa (114k net - high earners pay a lot of tax) is of course hgely better off than most people. £114k is about 5 x the annual average wage. However it does not pay mucho f a mortgage or school fees. We had 5 at private day schools - that costs about £60k+ a year. Or fund three university places. Or even pay a day nanny in the SE so you both can work to earn those sums. Your supposedly rich £114k does not go that far at those levels which is why I suggesting having £10m saved which is not in your bank nor pension might be a reasonable yardstick. 5% interest which you might get roughly on that is only £500kpa which is about £250k after tax if you were going to leave the capital untouched.

In a sense earning a lot and owning your business/working for youself so you cannot be put out to grass at 50 etc secures you better than being a salaried employee.

"Of course £114k pa is rich! FFS! Just because you hang out with even richer people doesn't mean you're not rich"- well said Sybil

As people work their way up the income ladder their expectations of what kind of lifestyle is reasonable increases, especially if they are surrounded by other on the same or higher rung. But just because you have chosen to increase your fixed expenditure and left yourself with what you think is a small amount of disposable income does not mean that you are not rich.

I understand that there is a cost associated with working: clothes, transport, childcare, lunches, professional fees, training, tax etc but most people are still much better off after these costs than if they weren't working.

Just because you are a high earner does not mean you have to live in a £1million house, pay for private school (Paul McCartney didn't), drive new large cars, take exotic holidays, pay high amounts into pensions/investments/insurances etc.

It seems like a lot of these 'super rich' people (top 1%) could do with some money management/budgetary advice.

Yes, £114k net (£200k gross) is 5x what most people earn so of course it's much better off than they are but there is no agreed definition of rich. Some people on £20k probably think those on £50k are rich yet the £20k er might get as much in terms of net income as the 50 ker because of how beneftis, tax, ta credits etc work. However the £114k person even if paying childcare costs will of course be better off than the person without children on £20k a year. No question. I just don't think £114k net means you are "rich" and nor do I think it means if you're on £200k gross and don't feel rich you are over spending your money. Plenty of people on that level don't spend more than they earn.

In fact an interesting bit on this thread from lots of those of us who earn quite a lot is that we specifically aren't extragavant whether it is I with only drinking tap water, old car etc etc or others whatever. The interesting bit of the thread was how people made their money and kept it and financially protected themselves whilst also working hard and taking some risks.

Will be bumping the "live of 50 a week thread soon" having set myself a challenge to do Thursday to Thursday on 55.00 .

Just because you are a high earner does not mean you have to live in a £1million house, pay for private school (Paul McCartney didn't), drive new large cars, take exotic holidays, pay high amounts into pensions/investments/insurances etc.

So what's the point of having it then?

Money is nothing in itself. It's only value is what it can buy you.

And the most important thing it can buy is security, education and choice but you tend not get that if you spend it all.

'The top London day schools have fees of around £20k pa.'

yes, because they are schools for rich people's kids.

Yes, but my point is that by my calcs, you cant afford those fees for 2 kids on £200k pa before tax (£114pa after tax), so on that basis, £200kpa = not rich.

but those calcs would say to me that you can, given that you can live on less than 2k a month after housing and indeed most people do.
if you've chosen a mega-expensive school for your dcs you can always pay less on the mortgage for the time when you have 2 at school. Many people do that.

Or move to where top private school are under £10k pa.

'Normal' people would expect to have to make some sacrifices on outgoings to send their kids private. It is the fact that you can do private and pay for all the other stuff too that makes you rich.

I think what this thread shows is that "rich" is a relative term depending on your perspective. There are lots of studies that have been done that conclude that many people think that being "rich" is the next economic level above their current level and when asked how much it takes to be rich, they always give a number that?s twice their current net worth or income i.e. those with £20,000 of income say £40,000 (so being a 40% tax rate payer), those with £100,000 in income say £200,000 (so being a 50% tax rate payer), while those worth £5 million say £10 million.

A net worth of $1.4 million will put you in the top 5% of Americans but a few years ago when a survey asked US households with liquid assets of $500,000 or more how much it takes to be rich, 45% said $5 million or more, 25% said $25 million or more, and 8% said $100 million. Only 22% said $1 million (i.e. what would put you in the top 5% of US households) is enough to be rich. I think that conclusion is similar to the debate that we have been having on this thread for the last few days.

Despite being well off in relative terms (hmc's link earlier was a bit of a revelation!), I would only consider myself to be "rich" if I had enough money to do whatever I choose, without any regard to cost. I don't think it's a bad thing to have that definition of "rich" in my mind and doesn't mean that I spend more than I have (in fact quite the opposite). Perhaps on reflection it's the fact that I don't sit back and say, right, I am at the top of my profession and this has made me "rich" so I don't need to bother anymore is what not only keeps me ambitious and driven in my job. I also think that just because higher earners don't run around thinking "I am rich" doesn't mean that they're not sensitive to what the realities of life is like for the vast majority of people.

I think that the idea that you can be in the top 1% (or less) of earners and yet not count as rich is insane. Especially if what you are earning is not far off 10 times what the people in the middle are earning.

seriously, if you were looking at people in another country, or another era, and were not personally involved, would you really not count that top 1% as rich?

of course it is relative but you can step back and say 'what would I think if I were not that person?'

Sybil, obviously if you're in the top 1% of earners then you're better off than 99% of the population. However if my definition of being rich is being able to spend money with wild abandon and not worry about the consequences then I don't feel rich no matter what the stats say. If that 1% can't see that they are relatively well off then that's what I would call insane rather than the fact that they don't "feel" rich!

You can spend with wild abandon if you shop in charity shops.

Just dont do it in Tiffany's.

But that, by definition, is not spending with wild abandon.

I have to disagree with thetideishigh. Thank God that I never believed wealth was acquired through being in the right place at the right time, being born into it, or plain luck. I didn't have any of the above.

I do agree with others who have stated that financial literacy is key. I highly recommend the book " Rich Dad, Poor Dad" and "the Richest Man in Babylon" as those two books has a massive influence on my life.

I graduated university with around 11k in debt, and by following the principles in the books I paid the debt off within 18 months on a salary of 11k for the first 4 months and then 18k for the next 11 months and then 27k for the rest. I lived in London in a flat share and didn't get a single penny of help. Yet many graduates I knew at the time were earning similar or more than me and taking 5+ years to repay their debts.

Years later I used the same principles to buy a large 2 bed flat in London and repaid the mortgage in full (as a 2 income household with experienced professional salaries in the 40% tax band but still 5 figures only) within 3.5 years. I admit, luck helped when interest rates plummeted, but the whole country had that same stroke of luck on their side.. I built myself a rather thorough spreadsheet to achieve that.

So here I am, in my early 30s, mortgage free, with an extra property that I rent out as an investment... A bit of well managed 'good debt', a nice comfy salary, a few investments, a reasonable pension being built up, enough cash in the bank that I can have an over the top spluge now and again etc etc but I'm probably not much different than most people except perhaps that I'd consider myself to be quite financially savvy and I never worry about money. And I truly believe that anyone who wants that life can have it.

Disposable income of £20k per year (minus a few bills) sounds pretty good to me.

"you've only got £20k left after housing and school fees- less than £2k per month"

1. Agree with Transat. We stretched ourselves, paid off debt, didn't over spend and that was one reason we did well. At university I didn't spend much at all.

1. It doesn't really matter what the definition of rich is. I would say I was reasonably well off but not rich but someone else might disagree. Just because you might think living on £114k (£200k gross) doesn't make you rich if you pay

3 sets of school fees even at "only" £12k each a year and have a large mortgage and perhaps pay for childcare doesn't mean others don't. I am sure there will be many abroad who live on a dollar a day who think the life of someone on state benefits in the UK is a life of incredible richness. To have enough food to eat could be someone else's idea of rich.

1. novice is right that those studies show people think rich is the next tier up but rarely them although most of us who have reasonable amount of money are sympathetic to those who haven't and can understand those difficulties. I had one period of feeling well off before our divorce and I'm sure that is achieveable in the end if I can pay off the divorce debts

1. Plenty of people who have done quite well carry on working because they like what they do as the earlier bits of the thread show and I am sure that is the case for me. I can't think of much else today I would have rather done than the work I have done which is interesting, challenging and engrossing or at least other things I do are no better - scrubbing a floor, playing with the children, reading the papers - they are all on a par (except the floor bit I suppose).

I'm aghast at the number of posters claiming that a net annual salary of 114 THOUSAND POUNDS does not make someone rich.

Erm, it does.

Yes, private schooling is expensive, but it's not compulsory you know!

Some people are a little embarrassed by their wealth maybe?

Haven't read the entire thread (got half way!). DH and I are not "rich" as such but are well off, especially for our ages.

Compared to our friends who are earning similar salaries, on paper we are better off than they are (have more savings and own our flat whereas they rent because they can't afford to buy). This is purely down to how we spend the money we earn (especially as our friends had leg-ups from family which neither DH nor I had).

So, we have one nice holiday a year plus a couple of weekends away. Our friends have 3 holidays a year plus a weekend away every month.

We eat out in a restaurant a few times a year, they eat out 4 times a week (I'm not exagerating) and at least once a month in a michelin star restaurant.

We will go for a nice walk then come home and have a drink on our balcony. Our friends will go out for a walk, stop off at a cafe for drinks, followed by another cafe a bit later on for more drinks/ice cream etc.

We buy all our clothes in the sales and don't care about brand names. They buy clothes every month or so, often designer gear.

We look for deals in supermarkets, make lists of the meals we will make and buy own brand food. They just throw anything and everything into the trolley, and have admitted to throwing food away that they don't get around to eating.

We put money into savings at the beginning of the month then make do with what remains. They put money into savings at the end of the month IF and only IF there is any left.

Now our "lifestyle" is not for everyone. I know some people will look at how we live compared to our friends and find our way "boring". But we've chosen to spend our money this way so that we can save money and buy our flat. Which soon we will sell and buy a larger flat. Our friends are unable to get on the property ladder and can't understand why we can when we earn the same amounts!