Wealth 101: Who Is A Millionaire And Who Is Not

Who wants to be a millionaire? Do you really know what that means? If you’re like most people, you don’t.

A lot of people trying to give you the impression that they are millionaires, or outright telling you that they are, are not. This includes everyone from most professional athletes and entertainers to many megachurch pastors, to most entrepreneurs (including those in the network marketing industry) and motivational speakers.

They may not be deliberately trying to deceive you. In fact, they may actually believe they are millionaires, simply because most people are mistaken about exactly what makes a person a millionaire. (Even many journalists get this wrong.) Also, it is not only possible, but fairly common, to floss a millionaire lifestyle and image (or what media and popular culture teach about what that looks like), without being a millionaire.

If gaining wealth is your goal, you need to understand what it is, and how it is measured, including how one becomes a millionaire. Lots of people who look like millionaires, are not. And many, if not most, millionaires, don’t fit your idea of what a millionaire is, because they are not driving their money (cars are depreciating assets) or wearing it on their backs, necks, wrists or feet, nor do they live beyond their means.

To clarify:

Having an annual salary of $1 million (or more) does not make you a millionaire.

Owning a business with $1 million (or more) in gross revenues does not make you a millionaire.

Selling $1 million (or even millions of dollars) worth of a product (such as a record, a book, make-up, cookies, etc.) does not make you a millionaire.

And certainly, living a millionaire lifestyle does not make you a millionaire—in fact, quite the opposite is more likely to be true.

Most of us have been incorrectly taught to believe that wealth is measured by annual income (hence, our fascination with highly-paid athletes and entertainers), when the true measure of wealth is net worth. It is very common for people with high incomes to have a negative net worth.

This is why a person can have a six-figure, solidly middle-class income and still feel financially insecure. Real wealth is about assets, not income. While people with higher incomes do tend to have more wealth than lower- and middle-income people, the size of our paychecks actually explains only about 30% of wealth disparities among households. The rest is primarily determined by two things: savings and investments—in other words, assets. Wealth is not about how much you make, but how much you own.

A millionaire is a person whose net worth (the total value of their assets, or what they own, minus the total value of their liabilities, or what they owe) is $1 million or more. Period.

Even then, there are levels to this. For example, while you could technically be a millionaire according to the above definition, you wouldn’t be if only liquid assets were considered, meaning assets that can be readily converted to cash. That definition would exclude assets such as the home a person lives in. Real estate, in general, is an illiquid asset—unlike, say stocks, which can quickly be converted to cash.