How do most rich people get rich?

[AchillesWrathfulLove]

Are there any statistics for this question? I want to be filthy rich and am wondering how I should go about doing it?

I'm kind of leaning towards invention/innovation to make money but I don't know how well that area is good in making money because unless you discover something new and profound then you can't really make anything. More hope lies in innovation of existing products I think. Also I hear that development of applications for mobile phones is really good especially games which you can put advertisements in and if enough people play the game and watch the advertisements you can make some decent money there. So apps are another thing I was thinking about I could work on to get filthy rich by.

So basically how do I get filthy rich, what can science do for me?

 

[S.G. Janssens]

So basically how do I get filthy rich, what can science do for me?

Perhaps don't ask what science can do for you, ask what you can do for science.

The rational answer to your question would probably be: "Spend less than you earn".
Personally, I would recommend striving for something else than getting rich.
Maybe that "else" will make you rich indeed, maybe not, but I hope that it will make you happy and healthy.

 

[Vanadium 50]

How rich is "filthy rich"? A million dollars? A billion dollars?

 

[Borg]

Long-term saving is the way that most do it. Getting rich quickly from an app or the lottery is extremely rare.

"Spend less than you earn"

Exactly! I have known people that, no matter how much they earn, they spend it all and more. Measured by net worth, they usually aren't rich.

 

[Borg]

How rich is "filthy rich"? A million dollars? A billion dollars?

For my wife, it's always the next unit more that we currently have.

 

[AchillesWrathfulLove]

So about saving money - Do some people save money through many family generations and get rich that way?

And for me filthy rich would be 1million + in my bank account

 

[Borg]

So about saving money - Do some people save money through many family generations and get rich that way?

And for me filthy rich would be 1million + in my bank account

You'll have to do the math for your own situation. It really depends on your salary and expenses. When I was in my twenties, I calculated how much I would have to contribute to a 401K each year and attempted to include salary increases in order to figure it out. Depending on your situation, it could take anywhere from 20 to 50 years depending on how much willpower and determination you have.

 

[sandy stone]

And for me filthy rich would be 1million + in my bank account

Many people would consider that barely enough to retire.

 

[pasmith]

Inheritance.

 

[DarMM]

Prove the existence of Yang Mills in four dimensions and demonstrate the existence of a gap in the spectrum. You just need pen and paper and a copy of Glimm and Jaffe.

 

[russ_watters]

Are there any statistics for this question? I want to be filthy rich and am wondering how I should go about doing it?

The general answer is that most rich people are self-made (to the extent you can be), but it does vary based on what your cutoff for "filthy rich" is.

You should peruse lists of billionaires (if that's your cutoff) to see how they got their money.

And for me filthy rich would be 1million + in my bank account.

Really? How old are you? It never would have occurred to me to set a bar so low. Have you considered what you want to do with your money? $1m is not enough money to buy a typical Rich Person Starter Pack, much less live that way. As others have said, it's barely enough to maintain a middle class lifestyle in retirement.

 

[russ_watters]

The rational answer to your question would probably be: "Spend less than you earn".
Personally, I would recommend striving for something else than getting rich.

I would say that's necessary and sufficient for becoming "rich", but not "filthy rich". But again; depends on the criteria.

 

[George Jones]

Prove the existence of Yang Mills in four dimensions and demonstrate the existence of a gap in the spectrum. You just need pen and paper and a copy of Glimm and Jaffe.

"Rich" and "famous"!

(scare quotes used because these are relative terms)

 

[Wrichik Basu]

So basically how do I get filthy rich, what can science do for me?

We do something for science (not the other way round) to gain knowledge and not to earn money. If you want to earn money ONLY, then science is NOT your path.

 

[BWV]

Well, 87.3% of today's billionaires did get their start by asking an Internet discussion board how to get rich, so you are headed in the right direction.

 

[StatGuy2000]

The general answer is that most rich people are self-made (to the extent you can be), but it does vary based on what your cutoff for "filthy rich" is.

You should peruse lists of billionaires (if that's your cutoff) to see how they got their money.

My understanding is different from yours, as I would suspect that a significant percentage of (if not most) rich people inherited their wealth, although this would depend in what country and what criteria you or the OP (or others) uses to determine who is "rich", let alone "filthy rich".

Really? How old are you? It never would have occurred to me to set a bar so low. Have you considered what you want to do with your money? $1m is not enough money to buy a typical Rich Person Starter Pack, much less live that way. As others have said, it's barely enough to maintain a middle class lifestyle in retirement.

As an aside, that's quite concerning for me, since (for reasons I don't want to get into here -- will require a whole other thread) I have very little savings, and I honestly don't foresee being able to save a million dollars (US or Canadian) before age 65 (I am 43 now, going on 44).

 

[russ_watters]

My understanding is different from yours, as I would suspect that a significant percentage (if not most) rich people inherited their wealth, although this would depend in what country and what criteria you or the OP uses to determine who is "rich", let alone "filthy rich".

Your wording overlaps mine...

A quick google tells me for the US it is about 62%, though it will vary by year and criteria. As my parenthetical indicates, everyone gets something from their parents, so one has to judge the significance of that contribution.

Also, this is indeed different from the pre-PC age, as a great many of the more recent self-made billionaires are in the tech industry. That might be the simplest answer to the OP's question.

Most of the "basic" rich work, though; doctors, lawyers, business exec's, athletes/entertainment people, etc. There's millions of them.

As an aside, that's quite concerning for me, since (for reasons I don't want to get into here -- will require a whole other thread) I have very little savings, and I honestly don't foresee being able to save a million dollars (US or Canadian) before age 65 (I am 43 now, going on 44).

I don't know anything about Canada's Social Security system, but I operate on the assumption the US system will be of little help to me, for a couple of reasons;
1. It will go bankrupt in 15 years; before I retire.
2. It is structured to provide a portion of up to a middle-middle class income and nothing above that.

I do think that's relevant to the question.

 

[StatGuy2000]

Your wording overlaps mine...

A quick google tells me for the US it is about 62%, though it will vary by year and criteria. As my parenthetical indicates, everyone gets something from their parents, so one has to judge the significance of that contribution.

Agreed. And the significance of the contribution from parents (or other relatives) will of course vary.

Also, this is indeed different from the pre-PC age, as a great many of the more recent self-made billionaires are in the tech industry. That might be the simplest answer to the OP's question.

You raise a good point, since the varied path toward wealth generation has certainly changed with the advent of the tech industry over the past 20-30 years.

Most of the "basic" rich work, though; doctors, lawyers, business exec's, athletes/entertainment people, etc. There's millions of them.

I guess I never thought of doctors and lawyers as a group to be necessarily counted among the "basic rich", although they are certainly well-paid and compensated, and there are individual doctors and lawyers who are wealthy by any criteria one cares to choose.

 

[russ_watters]

I guess I never thought of doctors and lawyers as a group to be necessarily counted among the "basic rich", although they are certainly well-paid and compensated, and there are individual doctors and lawyers who are wealthy by any criteria one cares to choose.

See here:
https://archive.nytimes.com/www.nyt...12/0115-one-percent-occupations/?ref=business
Note:
That graphic is occupations of those living in a 1% household. So the teacher wife of a doctor is listed there.

The income cutoff of the 1% is $421,000 per year and it is 1.3 million households, which is fewer than I guessed.

This graphic is for the working 1% only. Non-working rich are a separate group. But for example if the proportion is the same as the non-self made billionaires, there would be another 500,000 of them.

 

[AchillesWrathfulLove]

We do something for science (not the other way round) to gain knowledge and not to earn money. If you want to earn money ONLY, then science is NOT your path.

Well don't you need some science to be an inventor like with electronics and stuff? Anyway this was mostly a joke thread that's why I wrote "I want to be filthy rich" and included random ideas I had... but good info guys thanks

 

[gleem]

Study the masters. Steven Hawking was worth $20M. How did he do it? See

https://www.newsweek.com/what-was-stephen-hawkings-new-worth-843892

 

[AchillesWrathfulLove]

Study the masters. Steven Hawking was worth $20M. How did he do it? See

https://www.newsweek.com/what-was-stephen-hawkings-new-worth-843892

Does what you are worth mean how much money you have in your bank account? So he had 20M in his bank account or no?

 

[gleem]

It should include any properties, investments as well as cash.

 

[symbolipoint]

Well don't you need some science to be an inventor like with electronics and stuff? Anyway this was mostly a joke thread that's why I wrote "I want to be filthy rich" and included random ideas I had... but good info guys thanks

Engineering is far more important than "Science" for becoming "rich" or "filthy-rich", because rich people at whatever levels gained wealth through (if technical oriented was meant) would need to be able to contributING to services or products which many people will want to use or consume, or possibly NEED to use or consume.

We in best of likelihood did not take your thread-or-topic as any kind of joke. Without some other kind of indication, any stated topic or topic/posted description would be taken exactly as it is stated. "Filthy-rich" might have caught a few members as humorous or joking, but I did not make such an interpretation.

(EDITED for usage and grammatical coherence)

 

[symbolipoint]

Okay the humor MAY be understood by at least a few smart members.

Filthy-Rich wealthy people should have the sense to not waste their money on foolish or grossly unnecessary things.

See here for examples (I am serious, even if this does not seem like it.):

 

[Vanadium 50]

Boy am I glad I asked!

By that definition, 5-6% of American households are "filthy rich". Their age distribution peaks in the late 50's and early 60's, so it is very consistent with the idea that they made their million by saving. At a conservative 5% growth, it takes $8300/year over 40 years to reach a million.

 

[gleem]

By that definition, 5-6% of American households are "filthy rich".

Is that cash or wealth( cash, equity, investments, etc.)

 

[phinds]

Boy am I glad I asked!

By that definition, 5-6% of American households are "filthy rich". Their age distribution peaks in the late 50's and early 60's, so it is very consistent with the idea that they made their million by saving. At a conservative 5% growth, it takes $8300/year over 40 years to reach a million.

Yeah, but that's the nominal amount. People don't think about the fact that when they say "1 million" they are, without stating it, saying "the equivalent of 1 million in today's purchasing power", and that is a LOT different that what 1 million is likely to be worth in 40 years.

With inflation at an average of 2%, your 5% growth on $8300/yr for 40 years will result in about $270,000 in equivalence to today's purchasing power.

 

[Vanadium 50]

Is that cash or wealth( cash, equity, investments, etc.)

I believe it is net worth.

With inflation at an average of 2%, your 5% growth on $8300/yr for 40 years will result in about $270,000 in equivalence to today's purchasing power.

See message #6 in this thread.

 

[russ_watters]

With inflation at an average of 2%, your 5% growth on $8300/yr for 40 years will result in about $270,000 in equivalence to today's purchasing power.

The 5% includes inflation: it's 8% growth - 3% inflation.

The main thing this oversimplifies is the savings rate is not constant for most people. Not a lot of 25 year olds can save $8300 per year. At an entry level post college salary of $50k, that's 17%. Conversely if the same person makes $200k as a 60 year old, that's only a 4% savings rate. In reality, savings rate goes up with age/salary. That 60 year old could have a savings rate of 50% or more.
[again, all adjusted for inflation.]

But it's a good indicator of how relatively easy it should be to save a million dollars.

 

[Vanadium 50]

The main thing this oversimplifies is the savings rate is not constant for most people.

Certainly true. But.

Your 25-year old is probably paying back student loans. The average rate is 4.8% and the average payment is $400/month. In terms of increasing net worth (which is, in this case, likely to mean "making it less negative"), this is equivalent to depositing it in a risk-free investment that returns 4.8%. I would not consider financial advice like "Pay back the student loans as quickly as you can, and once paid for, invest what used to be your monthly payment" terrible. It's not for everybody, I understand, but I don't think it's intrinsically terrible.

I wouldn't call saving a million dollars "easy" (although I have done it, more than once) because many people don't manage to do it. (About 20% of the 65-69 bracket have $1M) But I would say that it is the way most people who have a million dollars get it/ (It's almost a tautology)

 

[Choppy]

While I don't necessarily endorse everything Dave Ramsay says, if you're interested in how to get out of debt, learning how to manage your money, and the long game of accumulating wealth you might want to give him a listen.

 

[George Jones]

About 20% of the 65-69 bracket have $1M

Do you mean a net worth of 1 million, or, e.g., paid-off house and 1 million in other funds?

 

[Vanadium 50]

Do you mean a net worth of 1 million, or, e.g., paid-off house and 1 million in other funds?

I believe it is net worth.

 

[Vanadium 50]

Dave Ramsey has a bit of a bad rep with me, in party because of a particular forum member who would ascribe all sorts of idiotic statements to him. By now if he told me my mother loved me, I'd look for confirmation.

I don't like the idea of financial gurus in general, but if you must have one, I'd go with Thomas J. Stanley. He doesn't say "do this" and "don't do that". He researches decisions that affluent people have made and decisions people who have not become affluent have made. In short, he describes what has worked in the past.

Mostly he covers spending rather than investing. People who spend more than they make have a hard time investing anyway.

 

[kyphysics]

As others have said, it's barely enough to maintain a middle class lifestyle in retirement.

Location matters, but in an average run-of-the-mill American city (say, Toledo, Ohio, Athens, Georgia, Richmond, Virginia, Orlando, Florida, etc.), would $1M really be that tough to live off of for a mc lifestyle??

assuming you had house and student loans all paid off

And assuming a $40,000/year investment portfolio withdrawal rate.

The 5% includes inflation: it's 8% growth - 3% inflation.

Why is it 8% and not 10% growth?

 

[russ_watters]

Location matters, but in an average run-of-the-mill American city (say, Toledo, Ohio, Athens, Georgia, Richmond, Virginia, Orlando, Florida, etc.), would $1M really be that tough to live off of for a mc lifestyle??

assuming you had house and student loans all paid off

And assuming a $40,000/year investment portfolio withdrawal rate.

Depending on the tax implications and other benefits like social security, that's below the median income in the US, which is $63k. So as I said, barely middle class.

And given that peoples' incomes rise as they advance their careers, for most people that is way below a 65 year old's expected trajectory. The peak median household income is $84k for people between 45 and 54. So if you're at that level and then having to drop to less than half, that's a big drop.

Also, I'm not sure if we said whether this is household or individual income, but I usually talk about household income. And more to the point, I'm not sure what we're after here anymore. This started (months ago) with $1M as a really sub-par definition of "filthy rich", but now we seem to be discussing if it is passable as middle class.

Why is it 8% and not 10% growth?

I didn't pick the number, @Vanadium 50 did, and as he said it's intended to be conservative. I think it's fine. I have the majority of my savings in an S&P index fund and other broad type funds, and the 100 year average is 10% before and 7% after inflation. But people who are in retirement need more stability, so they mix in bonds and have a lower average rate of return.

 

[jtbell]

Location matters, but in an average run-of-the-mill American city (say, Toledo, Ohio, Athens, Georgia, Richmond, Virginia, Orlando, Florida, etc.), would $1M really be that tough to live off of for a mc lifestyle??

assuming you had house and student loans all paid off

And assuming a $40,000/year investment portfolio withdrawal rate.

In my small town in the South, $40K per year would probably work fine in retirement for one person with a paid-off house. Even better for a married couple, if the second spouse also contributes something.

(Note: all figures are in "today's dollars". Adjust them upwards for inflation, including the $1M savings / $40K withdrawal targets, as time goes on.)

The largest single expense for most people is housing. Our house is a modest 2000 sq. ft. 3 bed, 2 baths, 50 years old, on a smallish lot for our neighborhood. It would probably sell for about $150K. (Zillow bounces it between about $140K and $160K.) Utilities are about $5K per year, insurance and taxes about $2K. Mortgage is paid off. So, as a starting point, even though one person doesn't need 3 bedrooms and 2 bathrooms:

$7K housing (not counting occasional major expenses like a new roof)
$2.5K food
$4K car ($20K capital cost spread over 10 years + $1K gas+repairs + $1K tax+insurance)
$4K Medicare + dental, assuming good health
$17.5K total "basic" expenses before taxes

Assuming all the $40K income is withdrawn from an IRA or 401K, it's taxable as ordinary income. I figure maybe $4.5K Federal tax. If state tax is 5%, that's another $2K.

This gives a grand total of $24K expenses for one person. Out of $40K, $16K remains as a cushion for tweaking expenses upwards, e.g. housing in a ritzy place like Toledo, Ohio. ;-)

For a couple, expenses are higher, but probably not doubled overall, because you're sharing the housing costs and maybe the car. If the spouse contributes income, taxable income is higher. The overall tax rate is probably lower (compare tax rates for single versus married filing jointly). Overall the couple comes out ahead, unless the spouse is "dead weight" financially.

Finally, someone who can save up $1M has probably also contributed enough to Social Security to be eligible for at least $25K at age 65, less if you start collecting earlier, more if you delay up to age 70. Reduce it by maybe 25% if you think Congress won't get its act together before the Social Security trust fund runs dry around 2032-2034.

 

[kyphysics]

Depending on the tax implications and other benefits like social security, that's below the median income in the US, which is $63k. So as I said, barely middle class.

I totally get how $63K household income would be struggling middle-class for a working person today.

But, what I was thinking was that the working person would likely have big bills like a mortgage and student loans to pay off that made things so tough. Whereas, a 68 y/o with the same $1M, but a paid off house and paid off loans, could easily get by in an average American city on a middle-class lifestyle (granted, this is subjective) with $40K.

The key for me is no big bills! Just smaller stuff like insurance, food, utilities, and travel. I think with senior discounts on so many things, you could save a lot there too.

Entirely possible I'm also more optimistic, b/c I live a spartan lifestyle. I like minimalism and don't own much "stuff."

So, yeah, there's some subjectivity to what mc means too, I suppose.

And more to the point, I'm not sure what we're after here anymore. This started (months ago) with $1M as a really sub-par definition of "filthy rich", but now we seem to be discussing if it is passable as middle class.

Yeah, sorry about that. Was definitely NOT suggesting $1M would be filthy rich!

Again, subjective here, but I'd personally think you'd need $20M+ to be able to live a luxurious lifestyle.

Agree people should set the bar much higher than $1M. (even if that $1M does not sound that bad at all to me, personally)

I didn't pick the number, @Vanadium 50 did, and as he said it's intended to be conservative. I think it's fine. I have the majority of my savings in an S&P index fund and other broad type funds, and the 100 year average is 10% before and 7% after inflation. But people who are in retirement need more stability, so they mix in bonds and have a lower average rate of return.

Gotcha. Makes sense.

 

[kyphysics]

$17.5K total "basic" expenses before taxes

Assuming all the $40K income is withdrawn from an IRA or 401K, it's taxable as ordinary income. I figure maybe $4.5K Federal tax. If state tax is 5%, that's another $2K.

This gives a grand total of $24K expenses for one person. Out of $40K, $16K remains as a cushion for tweaking expenses upwards, e.g. housing in a ritzy place like Toledo, Ohio. ;-)

For a couple, expenses are higher, but probably not doubled overall, because you're sharing the housing costs and maybe the car. If the spouse contributes income, taxable income is higher. The overall tax rate is probably lower (compare tax rates for single versus married filing jointly). Overall the couple comes out ahead, unless the spouse is "dead weight" financially.

Finally, someone who can save up $1M has probably also contributed enough to Social Security to be eligible for at least $25K at age 65, less if you start collecting earlier, more if you delay up to age 70. Reduce it by maybe 25% if you think Congress won't get its act together before the Social Security trust fund runs dry around 2032-2034.

Very detailed analysis, jtbell. Thanks for the exercise. And, are you serious about Toledo having ritzy housing? I thought it was a working-class steel and manufacturing type of town!

Question on Social Security:

If you become "rich" or even if you just have like the $1M in investment assets we're assuming, does Social Security give you less? In other words, is it like Medicaid, where it is income and needs-based or would it be a guarantee? If a guarantee, is it taxable? I know I can Google these things. Just asking because I'm lazy right now and figured it might benefit the thread discussion (and in case I run across any bad or misunderstood facts).

 

[jtbell]

are you serious about Toledo having ritzy housing?

For some reason, PF's smilies weren't working for me last night, so I had to improvise. Maybe it wasn't recognizable.

I actually grew up in an industrial city in that region, like Toledo, but smaller. I just looked up my old neighborhood on Zillow. The houses on my street (including the one my parents built in the early 1960s) are in the $80K-$100K range. They're slightly smaller than the one I live in now. Our old house still looked pretty good the last time I drove past it a couple of years ago. Actually better than when we lived there, because my parents never got around to doing much landscaping. And there's now a patio or deck in the back, which we never had. I wouldn't mind living there again, if I didn't have to deal with the snow. That's why my parents moved to Florida when they retired!

is [Social Security] like Medicaid, where it is income and needs-based or would it be a guarantee? If a guarantee, is it taxable?

No, it's not needs-based. Your SS benefit is based on how much you (and your employers) contribute to the system via the SS payroll tax (FICA). The calculation is complicated, but you can find descriptions online, including on the official SS web site.

If your only income is from SS, it's almost certainly not taxable. If you have other income above a certain amount, part of your SS becomes taxable, up to a maximum of 85%. (That's not the actual tax rate, it's the percent of your SS that is subject to whatever your tax rate is.) According to this calculator, our hypothetical single person with $40K IRA withdrawals and $25K SS would have 81% of his SS taxable, i.e. close to the maximum. The total Federal tax would be $4450. (Looks like my previous guess without SS was on the high side!)

Many states, like mine, don't tax SS at all, and exempt various amounts of other retirement income (e.g. IRA withdrawals) so you can get a break there.

 

[kyphysics]

No, it's not needs-based. Your SS benefit is based on how much you (and your employers) contribute to the system via the SS payroll tax (FICA). The calculation is complicated, but you can find descriptions online, including on the official SS web site.

If your only income is from SS, it's almost certainly not taxable. If you have other income above a certain amount, part of your SS becomes taxable, up to a maximum of 85%. (That's not the actual tax rate, it's the percent of your SS that is subject to whatever your tax rate is.) According to this calculator, our hypothetical single person with $40K IRA withdrawals and $25K SS would have 81% of his SS taxable, i.e. close to the maximum. The total Federal tax would be $4450. (Looks like my previous guess without SS was on the high side!)

Many states, like mine, don't tax SS at all, and exempt various amounts of other retirement income (e.g. IRA withdrawals) so you can get a break there.

Thanks again, jtbell.

Yeah, that would increase the mc "live-ability," then, of that $1M.

Again, still subjective, but to me, if you're getting $40K from withdrawals and, say, $10K from SS, that seems pretty decent for a place like Memphis, TN, Baltimore, MD, and such "average" American cities.

Also, keep in mind that most Americans nearing retirement age don't have anything near $1M in investments. So, by that standard, maybe OP's $1M is, in fact, "filthy rich" (relative to others). Americans are broke nowadays!