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Comment by jedberg | Hacker News Reader

My measure of rich is "Can I live my current lifestyle without regular income from a job?". If the answer is yes, then you are rich. The trick here is to make sure to keep your lifestyle costs in line with your salary when you first start out, so that as your income grows you can save.

So yeah, if you want a big house and nice cars and nice vacations, you wouldn't consider yourself rich compared to people who don't have those things and don't want them.

But at some point, no matter how you live your life, you get to a point where my initial statement is true, usually around a few tens of millions, which is why we can draw a definitive line around there and call everyone above it rich.

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Warren Buffet had an interesting take on "being rich". He defined it as being able to withstand economic, medical, etc catastrophe and still being able to maintain your standard of living and be able to rebuild your wealth in a reasonable amount of time. I think he set "rich" as having $25 million of liquid assets. He said have that amount of liquid assets will shelter you from a few medical or economic disasters and leave you enough to rebuild your wealth without affecting your standard of living.

If you had $3 million, a medical crisis or a business failure could wipe it all out and it would affect our standard of living and make it difficult to rebuild your wealth. $25 million cushions you against catastrophes. Of course he noted that it doesn't shield you from self-afflicted disasters like drug or gambling problems.

If you have $3m, sure, a business crisis could wipe you out, but if a medical one does, it's your own fault. Health plans can't even have maximum lifetime payouts in the US anymore. They will have to pay for everything over your out of pocket max.

There are plenty of exclusions in the fine print for out of pocket max in most policies though. It seems more cut and dry than it is.

I agree with you. For example, if I had 100 times my current yearly income in savings/investments/etc, I could live my current lifestyle indefinitely (barring eg, a market crash) because even with zero interest, the money would last 100 years, and with minimal effort (ie index funds) the money would grow over the long term at a rate greater than 1%.

Of course, that would require persisting in my current lifestyle in the face of a massive increase in wealth, which takes nontrivial self-discipline.

> Of course, that would require persisting in my current lifestyle in the face of a massive increase in wealth, which takes nontrivial self-discipline.

And you must maintain that self-discipline in a world where you are constantly bombarded with messages to "spoil yourself" because "you're worth it" and "you can afford it". It's not easy.

Also, you better never have children.

In my case, my current income provides a comfortable lifestyle for my family of five. But yes, if you have kids, your expenses are definitely going to go up.

Look up the 4% rule and firecalc.com to learn how this 100x multiple is a lot less, more like 25x realistically.

A lot of people are irrationally intolerant of risk. Try not to let fear dominate your intuition about investing.

That 4% is empirically derived from data covering the 20th century and is appropriate for earlyish retirement. There's two reasons to be more conservative:

1) We may be in a low-yield world for a long time.

2) Those studies were based on earlier retirement, not on people leaving the workforce in their 20s and 30s, the way that some very lucky HN readers may do.

To follow up with your first point, there's been some analysis suggesting that financial markets today are more efficient than they were in the 20th century, which means that price discovery happens more quickly. Historically, the markets returned 8-10% for people invested in indices. I've heard that the market returns today are closer to 3-4%, so even with FIRE you'd realistically need to budget for 1-2% to accommodate for market fluctuations.

I'm not sure that the cited figure of 3-4% return today is truly representative of recent years.

For example, for the popular pick VTSAX (Vanguard's Total Stock Market Index Fund), if you look at the average total return % for recent windows of time:

- YTD: 16.23%

- 1-Year: 4.43%

- 3-Year: 13.28%

- 5-Year: 9.97%

- 10-Year: 14.15%

- 15-Year: 8.91%

The 1-year number is just skewed by the late 2018 market correction in the short term.

Source: https://www.morningstar.com/funds/xnas/vtsax/betaquote.html

Although on the flip side, the number also assumes you have no flexibility and don't change your spending according to how much you have left.

It's a tricky one to work out, and 4% is (as you say) definitely not a number you can easily use for retiring in your 30s.

Definitely. If you're willing to constrain consumption when required and work again if you have to, things change. Especially if you continue to work just enough in your professional field during early retirement that you can go back to earning an appreciable fraction of your previous earnings on a temporary basis if/when required.

What is so special about "current" in "my current lifestyle"? I am not saying it's a bad definition, but it highlites the choices that one can make, and so subverts the whole concept of "rich".

The purpose of "current" is to ground you and give you a baseline. If you're relatively happy with your current lifestyle, can you lock it in now and stop working? If yes, then rich, if no, then keep saving/investing/growing your income.

My overall point is that there is an upper limit to that number, after which no lifestyle (barring crazy outliers like buying a yacht a week) would require you to keep working.

You are converting (like many of us do) something tangible - let's say money, to something less tangible, let's say happines. To simplify things it's like reducing a fraction where you focus on numerator and I am saying that denominator has a role in the overall result as well.

You can work on achieving the desired numerator or consider that reducing the denominator can result in increased "happines" too.

> You are converting (like many of us do) something tangible - let's say money, to something less tangible, let's say happines.

I'm converting in the other direction, which is a big difference. I'm saying first reach happiness, then take that amount of money to set your baseline.

I think a better way to say this is, are you a capitalist or not. Most people are NOT capitalists (don't own capital) that they live off of.

I guess I should have added a caveat that "my current lifestyle" needs to meet basic needs and make you at least relatively happy.

That also makes those with a truly extravagant lifestyle part of not-rich - I think you'd need to be in the billions to rich a level that you truly could maintain without working - one can always rack up an extraordinary bill buying a new personal jet or private yacht every week.

My definition throws away extreme outliers of people who buy a new yacht each week. But even if you include them, I suspect someone with that much money has figured out to set aside enough to eat and have very comfortable clothing and shelter.

> "Can I live my current lifestyle without regular income from a job?". If the answer is yes, then you are rich. The trick here is to make sure to keep your lifestyle costs in line with your salary when you first start out, so that as your income grows you can save.

My argument was that that initial statement isn't true - the incredibly rich can live lifestyles that don't hit that criteria.

That makes rich relative though?

If you're into fast cars and faster women but you're only earning $1million a year you aren't rich, whereas if you live like me, you're rich because you have $1million in the bank.

While I don't think your definition is bad per se, if you start mixing with people who define wealth as $10 in the bank, you aren't going to have a very useful conversation, so I think you at least need a different term.

BTW this guy spent nearly £10million in 4 years, I don't think he could ever be rich by your definition. https://en.m.wikipedia.org/wiki/Michael_Carroll_(lottery_win...

Edit: Also this only takes account of assets, not income. If you're earning $1million a year in a safe steady job you are rich, even if you don't yet have enough to retire.

> That makes rich relative though?

Yes, that was my main point. But my other point was that there is an upper limit, probably in the tens of millions, where no matter what your lifestyle is you can afford it without work.

I don't think there's an upper bound on spending though.

There will always be some subset of people that will spend everything, as my example attempted to show.

That situation would be better described as “independently wealthy” rather than rich. Independently wealthy is specifically the scenario where your investments are your major source of income and you can maintain your lifestyle without extra income.

Rich for me is about current liquid assets, and doesn’t relate to income. Rich vs wealthy is cash pool versus cash generation.

A cleaner who wins the lottery is rich. A homeless person with enough investment income to cover food and transport is wealthy.

>My measure of rich is "Can I live my current lifestyle without regular income from a job?"

I would say that's wealthy. Rich, to me, is if you have the means to buy and do what you want for a reasonable set of desires. In other words, you can buy a nice house in a nice area, drive a new luxuryish (i.e. BMW level) car, go on vacations, and buy stuff like a big TV without worrying. Somewhere between 150k and 300k salary depending on the area.

So then if you lose your job you're no longer rich? Are you then poor? The problem, to me, in differentiating rich vs wealthy based on how you get your money is that it makes things too fluid.

But to me (at least) how you get your money is the fundamental difference. The rich guy has to go to work - the wealthy guy has to do whatever he wants.

>So then if you lose your job you're no longer rich?

A rich person will have enough of a buffer to still spend like a rich person until they find their next job. If you can't find one then yeah eventually you slide down from rich.

That's wealthy, not rich. Rich people live off income, wealthy people live off net worth.

Everyone lives off income, it's just that some people get that income from their investments (ie. net worth) and some work for it (and business owners do both). And some people still work when they don't need to anymore. But still, being rich means not needing to work (in my mind).

My measure is can I buy whatever toys interest me. This will probably never be the case so I'll never be rich. I have plenty to eat and a lot of toys and a great savings: my world standards I'm doing very well, but I will always have to be careful.

I don't think anyone makes rich by my definition: there is always a nicer boat...

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