A high-net-worth individual (HNWI) is someone with investable assets worth approximately USD$1 million or more. Investable assets are assets that can be liquified and invested at any given time. They can include cash at the bank and cash equivalents, like bonds and stocks. They don’t include nonliquid assets like real estate, consumables like clothes and handbags, collectibles like antiques, or consumer durables like fridges.
There are three levels of HNWIs. The first level is called the ‘millionaire next door.’ This HNWI has USD$1 million to USD$5 million of investable assets. The next level is the ‘mid-tier millionaire.’ They are also called a ‘very-high-net-worth individual’ (VHNWI) for having USD$5 million to USD$30 million worth of investable assets. Next up is an ultra-high-net-worth individual (UHNWI). This person has USD$30 million or more of investable assets.
Of the three groups, the millionaire-next-door group comprises the most significant percentage of all HNWIs.
To become an HNWI, consider getting financial education and advice from professionals like The McGowan Group or any other similar organization. You can also read through this ultimate guide to gain further insight!
- Consider Your Age And Have Milestones To Help You Achieve Your Goal
A person typically achieves millionaire status in their fifties. Of course, some individuals achieve this benchmark before or after, but that’s the average.
It’s easy to have this sum by the time you’re fifty or sixty because, at that point, chances are high that you’ve had three or four decades of experience working, investing, and saving under your belt. However, hitting it at thirty is more challenging because you’ve probably only been working for a decade.
According to statistics, it’s estimated that there are about 22 million millionaires in America out of the approximate population of 300 million. This shows that few rich people possess a large share of the cumulative wealth, and the rest is distributed among the remaining population.
By looking at the top 10% of individuals of each age bracket based on their wealth, you can know the high-net-worth individuals. Hence, a person may be considered an HNWI without having a seven-figure sum of investments wholly based on your age group. Therefore, the top ten would be considered high-net-worth households.
Viewing net worth from this perspective helps you have a clearer vision and break your big goals into more manageable targets. The figure you set your sights on at any given time may still change, but setting achievable short-term goals can help you achieve your long-term goal: to become an HNWI at a certain age. For example, you can have the following plan:
- Crossing that six-figure mark around your thirtieth birthday
- Hitting somewhere around USD$0.5 million as you turn forty
- Heading toward the millionaire status by the time you’re in your 45–49-year range
If you don’t see yourself achieving your objective with your current income, you can consider expanding your business, improving your skills, or advancing your career to get more lucrative job opportunities.
These small attainable goals will help you focus; within no time, you’ll likely become an HNWI. Most likely, too, by the time you hit your mid-fifties, you might be moving your benchmark to USD$2 million.
- Ensure You Track Your Spending
Personal finance starts with knowing what your money is doing. You have to know how much is coming in each month and how much is going out.
As much as this point seems common sense and obvious, most people don’t know how much they spend on recurring payments. Additionally, approximately 51% of Americans waste money on recurring subscriptions they don’t need or use anymore.
To avoid being a victim of such situations, you must know what is happening with your money. This applies not only to subscriptions but also to every other expense you incur. In this case, you have to track your money by using expense-tracking/budgeting apps or an Excel spreadsheet.
By using these or any other reliable methods, you can track your usage and stay up-to-date about your cash flow. Tracking your spending will help you allocate funds for savings and investments, which is an important step to achieving the goal of being an HNWI.
- Set A Budget
While keeping track of your expenses, it’s also essential to be proactive yet responsible in assigning tasks to your dollars. Compared to spending without a budget, budgeting ensures that if you stick to it, you live within your means and, therefore, do not incur a deficit.
Dedicate specific amounts to each of the following categories:
- Housing
- Transportation
- Discretionary activities
- Savings and investments
- General household expenses
In budgeting, first, you can jot a list of your monthly fixed (e.g., monthly mortgage) and then variable (e.g., discretionary activities) expenses. Then you can set a liberal amount for each of them and then can come back to check whether you’ve stuck to your budget.
Over time, your income and expenses can fluctuate, but your goal is to ensure that your money is going where you want it to. So if you’re smart with budgeting, you can increase the amount of savings as your income rises over time, helping you grow your wealth.
- Ensure You Save And Invest Your Money
You must invest a sizeable percentage of your income to earn the right to be called a high-net-worth individual. In this regard, you need to save and invest at least 20%–25% of your income.
If you want to achieve this seven-figure net worth in your thirties or forties, you might have to save around 40% to 50% of your income.
Just remember, the longer your time horizon, the lesser percentage you can save. The shorter your time horizon, the greater the percentage you have to save.
Note: The amount you save or invest depends on your income. It’s essential to improve your academic skills and qualifications to get better jobs or elated positions with a higher income if you want to save and invest more.
Conclusion
Achieving high-net-worth status may take many years, if not decades. There will be ups and downs, but through it all, you must put your head down and stick to the plan. Ensure you have dollar-cost averaging no matter what the market is doing.
Besides that, ensure you follow all the above tips and others, like finding ways to increase your income to achieve the ultimate goal. With patience and financial discipline, you’ll become an HNWI.
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