Updated on 06.14.07

What Is A Lot Of Money To You?

Trent Hamm

A reader recently posed this question to me, and went on to say:

I’ve heard “I’m making good money at my new job.” Without numbers attached, what does that mean? Well, to someone who just started in fast food it might mean $8.50 and hour, but to an ER physician it could mean $130K/year.

This is an interesting question that falls into two distinct parts (salary and net worth) so let’s view them separately. First, though, we need to clearly define what a lot is. To me, it refers to an amount that is significantly outside of the range of financial accumulation that you and your peer group are familiar with. So, for example, if you and your social circle all make between $8 and $10 an hour, someone making $40,000 a year would have a lot of money, but to that someone making $40,000 a year, it wouldn’t seem like all that much.

What Is A Lot Of Salary?

What I have observed in my own experience is that most of my friends have roughly the same salary that I do, within a reasonable margin. Thus, I consider a range around my own salary to be normal. I was also raised in a rather impoverished household, so I also consider significantly lower salaries to be normal.

Where things begin to shift is at a point about 50% higher than what I make. That point begins to seem like a lot of money to me. For example, if I make $50,000 a year, anyone who makes $75,000 or more a year seems to me to be making a lot of money.

Over time, one tends to shift their perspective. For example, I grew up quite poor and when I was in college, salaries in the $20,000 range seemed normal and $30,000 seemed like a lot of money. My college roommate had parents whose combined salary was north of $150,000 and I actually admitted to him that I believed his family to be rich. He actually laughed at this comment.

However, as I moved into my own employment situation, my first job out of college paid me a salary of $43,000 a year. This seemed like an incredible amount of money to me for the first year or so, but as time wore on, this began to seem normal. What seemed like a lot of salary became normal, and my definition of a lot of salary moved upward.

Right now, some of my side activities are firing on all cylinders, so I currently feel as though I am on the verge of making what I think of as a lot of money. I haven’t felt any shift in my sense of normal yet, though, because I convince myself that this is a short-term boost in income.

In a nutshell, our definition of a lot of salary depends largely on current experience, with past experience playing a small role.

What Is A Lot Of Net Worth?

Net worth, on the other hand, seems to have a strong connection to age. As people get older, I expect them, for the most part, to have a greater net worth than younger people.

For example, looking at people my own age (late twenties), I don’t view having a negative net worth as being abnormal and having a net worth of more than, say, $50,000 is having a lot of money. However, if I look at people who have lived lives similar to mine and are, say, twenty five years older, I view it as normal that they have several hundred thousand dollars in net worth – I don’t gasp at that kind of money if I know they’ve had time to build it up.

Thus, my definition of “a lot” of net worth has a complex relationship with salary and age.

What Value Does This Discussion Have?

For many people, their definitions of “a lot” of money are inherently tied to senses of self-worth. They compare themselves to people that have “a lot,” and feel a strange set of emotions. Some people feel motivated to join that club; others feel guilty and depressed.

What I seem to find over and over again is that people who see “a lot” of money as motivation tend to have sensible personal financial practices, while people who see “a lot” of money as a downer tend to have a lot of issues with debt. Thus, one big step in a healthy direction that you can take is every time you think of “a lot” of money, think of little things you can do to take a step towards getting there. Could you get rid of a large payment in your life? Could you go shopping less? How about paying off those credit cards?

Also, one person’s definition of “a lot” of money doesn’t match another person’s definition. For me, my parents view my income as a lot of money, while I do not. At the same time, there are readers of this site who make what I consider to be a lot of money, but they do not and struggle to get by.

The truth is that it’s all perspective, but you can use perspective to set good goals for yourself. It’s because of this relationship between perspective and goals that I post my monthly financial updates here in percentage form rather than raw dollar form. No matter what your situation, working for an 4% increase in net worth over a month is an incredibly rewarding task and goal.

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  1. GeekMan says:

    This is a great article. I’d like to add that “A Lot Of Money” (ALOM) can also be influenced by where you live. For example, making $60,000 a year in the middle of nowhere Louisiana is a whole lot of money. But make that same amount in San Francisco or New York City, where rents can easily run north of $2,000/month, and suddenly your barely keeping your head above water.

    This brings to mind a similar, tangent thought; In what way do you believe earning what you currently consider to be ALOM will benefit you?

    Most people never consider the inflated cost of living that always seems to follow people as they earn greater and greater salaries. Very, VERY few people are able to increase their earnings without a nearly equal, and sometimes greater, increase in living costs.

  2. Anne says:

    To me having ALOM would be when I would really have to think about what to do with it. My salary at the moment would be ALOM if I weren’t aggressively paying down my debt. If I could pay my monthly bills, max out my 401(k), eat at nice restaurants regularly and go on a 2- or 3-week European vacation every year and I still had a bunch of money left over, that would be ALOM.

  3. BK says:

    the last sentence of this article deserves a separate post of its own. increasing your net worth 4% a month, month over month, is seemingly extremely hard. I am just a couple years younger than you, saving $1400 a month, and that doesn’t equal a 4% increase per month on a $50k net worth, even with a 12% rate of return.

  4. Mary says:

    I agree with GeekMan, and sometimes I find it hard to relate to the advice on this site consideing you live in Iowa. No offense by any means, but where you live really makes a huge, huge difference!!! To live and raise a family there is probably one of the cost effective places to live. Maybe I am wrong………..

  5. Monica says:

    I think it can be helpful to realize that your perspective is skewed by factors like your peer group, and to remember that not everyone lives like you and your peers and not everyone has the same advantages (financial and otherwise).

    I live in a low-income neighbourhood. I know that I make very good money for this neighbourhood, but the presence of these people who make less reminds me a) how fortunate I am, b) that I don’t have to inflate my lifestyle. Most of my co-workers are richer than I am (because they are older and in most cases are from two-income families) and it is good for me to have my low-income neighbourhood to balance this. I don’t want to be one of these people who only associates with others of the same socio-economic status.

    Other commentors have already mentioned the location factor.

    Also, different people have different financial burdens, such as children, stay-at-home spouse, or elderly parents who they must care for.

  6. Moneymonk says:

    As you said “a lot” shifts over time. Depending on age and your needs.

    The household income for the average american family is said to be $45,000 so anything over that is a lot. Because you are able to meet your needs and some of your wants.

    To me over $75K for a single person is a lot because you are classified as upper class.

  7. To me, there are 3 things that affect how much a lot of money is to me.

    1) Peers
    2) Expense Basis
    3) Length of time at current income

    I think I am fairly near the level of ALOM because
    1) I earn more than most friends and family
    2) I earn more than people in similar positions in this area
    3) I have had almost 0% lifestyle inflation since 4 years ago, when I was making 1/2 the salary I do now.
    4) I just got a raise so I’m $4000 a year more than I was used to.

    On the other hand, I think there are many people in my city that make the same or more than me that think they are no where near ALOM

  8. Thought provoking post. I agree with Geekman and Monika. Where you live makes a HUGE difference. I know families of four who lived in 1 bedroom apartments with a value of 600K. On the surface the couple seemed well off because they both earned close to 100K. However, they had to pay a TON of money for a nanny. When people outside areas in LA and NY hear the word nanny they might think that a families who are extremely wealthy. This is not the case. Many upper middle class families pay more than 2K a month for a nanny and basically spend almost one whole salary on childcare. These families earn a lot but are just getting by. There aren’t a lot of good daycare options available in NYC so childcare is very expensive. In LA where I live I make a six figure income but I hardly feel like I have a lot of money as we have one income, an high childcare cost and student loan payments. Compared to certain people I feel well off. However, compared to many of my peers at work or parents in the neighborhood we’re struggling. Technically if a household makes 100K more more they are in the top 5% of population in terms of income. But 100K for a single person or even a couple without kids and/or in a city that is more affordable can make a huge difference in terms of lifestyle and one’s own perceptions.

  9. Mordred says:

    Trent brought up the point of your upbringings – however I have a different twist on it – how you were brought up to understand money. The difference is a slight, but makes all the difference in the world. When you are raised, and you think of everything from a poor angle, you see money as something that is something to obtain to meet a need. Thus you save it and do things to save by necessity. If you were raised that you did not want, but would want to get the things that make you comfortable, and save for other things (ie. delayed gratification), then that helps you learn to scrimp and save for a different reason. I am not saying that this works for everyone, it worked for 2 our 3 kids in our family (my brother cannot save money to save his life).

    My parents were upper middle class but we lived in a smaller house, drove older cars, cut coupons, etc. when they lived with almost $150k a year salaries between the two of them. Why? So they could afford their golden years. They did not pay for us to go to college, we had to earn that on our own, we got a little help when we left school (5k for car insurance and license plates and insurance during college) even though they had a few million stored away. Their whole point was they wanted money for retirement. When my dad had a heart attack at 55 and gave the middle finger to work in favor of retirement, he was able to do so because he never bought the $350K home that he could have so easily afforded. Now they spend their time traveling the world (4 month round the world cruises, etc.) for their retirement and seeing grandkids on a whim. Great story I know .. but it was more to discipline over several decades than to being “lucky”.

    I am out of school now and make a nice buck, but I don’t have the flashiest car, don’t have the biggest house (1600 sq ft, 2br), and am a single father (12 year old boy). Now I know I make ALOM, but it is also a matter that I compare myself to others that are at a different level. I compare myself to 32 year olds, not just 32 year olds with Masters degrees and work for a technology company. So that is what keeps me humble. I look at other 32 year olds and realize that I don’t have to keep up with the Jones’s to keep me happy. I have air conditioning, a decent TV, and a few (older) computers. I am on the way to retirement myself (another article on this site) to hopefully retire by 45. It all has to do with the amount you are willing to sacrifice now .. for that delayed gratification.

  10. Mark says:

    It seems to me the real answer to ALOM what is a lot of cash flow? The dollar amount is immaterial because of too many fluctuating factors such as one income, two income, or even three income, low and high cost of living areas, size of household. Based on personal experience, I would say ALOM is really a cash flow equal to 50 percent or more of net income after expenses.

    As far as net worth goes, again this is immaterial due to too many fluctuating factors, for example if the majority of your money is in stock market investments, then your net worth will gyrate wildly from month to month, although year to year is more reliable of an indicator. Neverless, it is still a “risky” net worth because of the inherent factor of market crashes. Home ownership will not count because of the cycle of appreciation and depreciation. However, real estate assets which generate a monthly cash flow would count for more stability due to a long term predictabilty in regards to growth of “net worth”.

    Just my two cents. Love the article though. Trent always provides a good topic to think about.

  11. Mark says:

    Note to Moneymonk

    You stated “To me over $75K for a single person is a lot because you are classified as upper class.”

    I digress. I grew up in a high-priced neighborhood where the average house in my hometown sells for 800,000 dollars. 75K a year is not upper-class. Try 25K a month, and let me know if you still see it the same way for a single person. I can point you to at least 10 thousand single people who make at least this much.

  12. Tess says:

    Sounds like Mark lives in the bay area :)

  13. Rachel says:

    Here is what I am thinking reading Trent’s article and all the comments posted: We tend to live more by habit than anyhting. Every week I spend $60-$60 at the grocery store. I clip coupons, shop the sales and pride myself on feeding a family of three on this amout of money. I went grocery shopping yesterday, spent the $60 out of my weekly obligation, but we actually could have eaten another week if I had only bought 2 gallons of milk and a dozen eggs. Our freezers are full. So is the pantry. I made a list of things we were out of, bay leaves, pasta, maybe a couple of other things, but we had rice, a few potatoes and some boxed mac n cheese as well as plenty of canned and frozen veggies. Today at work one of my co workers mentioned that she had 50 cents to spend on a canned drink at lunch, and that was all the money she had. I told her she was welcome to have half of the sandwich I had brought, as I felt that half and my peach would be enough. She told me that no, she would be getting off at 2:00 anyway, and was going straight to her mother in laws house to pick up her kids. She said “I know she has plenty of food in her house.” It wasn’t until much later that what she said sunk in. The implication was that she did not have any food in hers. In the same situation I would have replied “No thanks, I’ll make a sanwich when I get to my mother-in-laws.” I’m sure that things she has mentioned in the past have led me to conclude that it is rough for them financially. Another of my co-workers rides a bike to work. He carries a back pack, and is sometimes at the store even when he is not scheduled to work. I have seem him in the break room open his back pack, take out a loaf of bread and sliced cheese and then eat one sandwich after another. This guy is hungry. I also believe that he may be homeless. So in conclusion, here is what I am trying to say. My $50-$60 a week at the grocery seems like a tight, frugal budget to me, but to someone with no grocery money it is a lot! I have a friend who grew up very, very poor in rural Alabama. She is now considered middle class, and she once told me that most of the times when she goes grocerey shopping there is already more food in her house than there ever was when she was growing up. So yes, it is all where you are coming from.

  14. Steve says:

    There was a time when I made a lot of money. I blew it all away. That was the only time I felt like I was making a lot of money. More like there is an endless pit I could get my money from… Fast forward a couple of years, I was broke, and anybody who made enough money to live by seemed to make a lot of money. Today, with financial disciplining… I really don’t think about a lot of money. I just have goals that need to be accomplished. For example, I would like to have a decent emergency fund, buy a house, buy my next car with a check (Thanks for the ideas, Trent!), have some investments… and not worry about money. When I reach a point when I don’t ‘worry’ about money… I would say I have a lot of money. Most likely, I will establish a foundation or trust to educate people about money for free. I guess I digressed a little here. But once you are past the “enough” point – you are making a lot of money whether you like it or not.

  15. Mark says:

    Tess – Not quite the bay area, try 3000 miles away on the other side of the country. The prices are higher where I grew up than the bay area because of more stability (less earthquakes :) )

  16. Craig says:

    I doubt that there’s a single reader of this blog who isn’t making a lot of money relative to the vast majority of the world population, myself included. It’s all a matter of perspective.

  17. Brendan says:

    For me personally ALOM is when my amount of money doesn’t restrict the things I want to do in life. A good example is a house. When I can comfortably afford a house payment, and also buy all the other things I may want here and there, then have some left over for investments and savings…That is ALOM in my opinion.

  18. Jaime says:

    ALOM is relative. Everyone seems to have a different opinion. I think it does matter how much you make, but it also matters on how much debt you have.

    I remember my first job in college making 13 bucks an hour and I thought that was HUGE. Then I got promoted to 19 an hour, which was great, except we bought a new car and a house. Then it felt even more tight than before my raise! So your standard of living makes a big difference.

    When I got out of college I started making 46 dollars per hour (a very stressful job traveling around the US). So at 22 years old and making almost 96k a year that SOUNDS like a lot of money. But to get that job I moved near Boston which cost a LOT more money. We had bought cars, had student loans and a large mortgage. Even though we made great money (~$130k together) it never felt like a lot of money because there still wasn’t a ton left over! But since paying off all of my debt (except the 1st mortgage!), I feel like I have more money! I even quit my job and we make only about $60k per year, but gosh it feels great! I can live on what we make because we work from home together most of the time, and we can do what we want.

    So even though we made 130k a year and it didn’t seem like a lot of money then, it sure sounds like a lot now! If I could keep my current lifestyle and make 130k I would be golden!

  19. Mike says:

    perspective is the key word here,

    With most people, No mater what your net worth or station in life, you can figure there are at least two people in the world, who if they could change places with you, the one would think ‘they had died and gone to heaven, life is so good now!’ , the other would be considering ‘suicide’ because their station in life had sunk so low………….:)

  20. miguel says:

    I see ALOM as a moving window. It’s strictly a matter of perception. For example, I one year I managed to increase my income by about $30K. I was really happy. We were putting lots of money away for savings, and retirement. Now, I am looking at how to increase my yearly income again, including side projects, by another $20K. I know I should be happy with what I make, but I’m always hungry.

  21. plonkee says:

    I consider a lot of money to be more than about twice what I make now.
    On the other hand, if I got a new job, I would be earning a lot more money if I was being paid greater than 20% more than what I earn now.

  22. Lisa says:

    Reading Your Money or Your Life was life defining for me. Living with The Tightwad Gazette and the bible also are what keep me grounded in a society full of want (and percieved scarcity) and peer pressure to acquire those wants. Whats enough? When do you have it? Thinking your next degree or doodad is going to make you happy long term may end up disappointing you. ALOM is all in your expectations. I feel like I have plenty of money but probably not alot for my area.

  23. Matt says:

    I’ve always felt like I make a lot of money because my salary has always been high enough that I couldn’t spend all of it even if I tried. Even when I was making $33,000 at my first job out of college, I was living on far less than that so it seemed like a fortune. My salary has gone up significantly since then and it has always exceeded my expenses, so I feel like I make a lot of money even though many of the people I work with make quite a bit more than I do.

    Because I’ve always been able to save, my net worth is high for someone my age. However, I don’t feel like it’s high enough. I won’t think my net worth is high enough until I can live off of it. So, even though my net worth is high for my age and income and is probably higher than many people who make more than I do, I’m not satisfied yet.

  24. Tyler says:

    If you chase money, you’ll end up drowning. The pursuit of money is a path that will doom us all if we are not careful with it.

  25. My wife and I are in our mid 20s and we’re surrounded by people of mostly the same age. Most everyone makes around 60K a year. My wife and I make 120K a year. Our salaries are way above the norm of our group. Whoopppie!

    But, if you look at our networth, it’s -145K. Waaaaay below the norm of our friends who have maybe 10K in debt. Our low net is due to school loans. I’m estimating it’ll be at 0 within 2 to 3 years.

    My point is that it’s all relative like many of the posters said.

  26. Mikko says:

    I have to agree with people who mention the ‘cost/quality of living’ factor in this. For example, I live in a very expensive city, Washington DC. Average rent is easily

  27. Ted Valentine says:

    Sounds to me like Mark also knows a lot of Yertle the Turtles.

  28. Dan says:

    It all depends on whether you define it according to gross income or net income. To me, the schoolteacher who makes $40K a year yet manages to live frugally and invest $5K a year is a lot wealthier than the lawyer who makes $200K yet manages to increase his credit card debt by $5K each year.

  29. Dan says:

    Also, for those who mention cost of living…bear in mind that standard of living is not only a related factor but is always a choice. I can’t tell you how many people I know who complain about how they’re struggling to pay the bills each month despite how much they’re making, yet they have two expensive leased cars in the garage of their overly large house in one of the most expensive neighborhoods in town, filled with all the latest electronic gadgets.

  30. beloml says:

    The richest I’ve ever felt was in 1989, five years out of college, when a job change meant my salary went from $16K to $24K.

  31. MC says:

    I agree with many of the posters who say it is relative. For example, a lot of people mentioned that ALOM is 50% or 100% more than what they are making now. The problem is that when you are making that much, it doesn’t seem like ALOM anymore.

    I have been extremely fortunate, getting more than 100% in raises in the last 4 years since graduating form college without increasing my costs much. It was great, I am maxing out my 401k, bought a condo, but then….

    I got a girlfriend, and it is no longer ALOM :).

  32. Rob in Madrid says:

    I still remember (some 20 years ago now) when I went from part time non union to full time union gettting and getting my first paycheque. It was almost double the previouis weeks pay. it was very unexpected because I hadn’t expected to join the unionized payroll for a week or two. Of course it didn’t take long before the new pay cheque wasn’t enough.

    Earning big bucks is meanless if you don’t manage your money well.

  33. Will says:

    I have been told that the smaller the figure you see as a lot of money, the less money you will actually make. I’m not sure if this is true, but the idea is that someone like me that lives fairly simply and does not have a passion to make as much as possible, will always be less financially secure than someone who is more motivated by the dollars.

    On the other hand, we have all heard what people facing the final chapter of their lives say about what was important in the end…..

  34. E.D. says:

    I think ALOM is whatever it would take to

    1. pay all bills, including credit card bills OTIF
    2. save 10-15% for retirement
    3. have mortgage as your only debt
    4. be able to pay for large, planned expenses (used car, renovations) in cash

    Right now, my husband and I have #1 and #2 taken care of. We’re almost there on #3, but #4 will take some doing since saving up for a decent used car takes time.

    Once he gets a job and leaves his postdoc, we should be able to do all four easily, at least until we have kids.

  35. LC says:

    In terms of salary, I think somewhere around $80,000 is a lot of money.

    In terms of everyday purchases, anything over $50 is a lot of money (i.e. a single item that costs that much, a grocery trip that exceeds that amount)

    In terms of net worth, I think that $500,000 is a lot of money. That approaches the point of financial independence.

  36. Schwamie says:

    This is seriously an individual’s decision and is relative to their own situation. I fully agree that net worth is driven by age (with the exception of having received a large inheritance), a lot of money is something that cannot be nailed down to even a group of individuals in the same situation. If you ask a group of 20 somethings what a lot of money is and what is a lot of money to a group of 30 somethings (even with them being in the same “group” of friends), I can guarantee that their response will be varied. From a personal level, I would say that as time has passed, my figure for “a lot of money” has definitely increased. That said, I recently resigned from a well paying position to take a job that pays less but gives me more time with my family. That to me is significantly mroe important than having “a lot of money”!

  37. Yatouhi says:

    Well….I am a farmer, I am 28 and have just over $3000 in the bank. No 401k or IRA. But I eat some of the best and freshest food on earth. I breath fresh air and get plenty of exercise. I dirve a truck from the 1980s and don’t own a TV. To me, getting a computer and being able to connect to the internet was ALOM. Granted if I made 125K a year I would retire in two years. I think there are checks and balances for everyone. Love all the comments!

  38. Mr X says:

    Wow great article. I am at the point in my life where I question what is a lot of money. I am single and live in the SF bay area and I make about 62,000 a year and it does not seem like a whole lot of money at all. I am a decent saver but even so it seems like an eternity before my bank shows any worthwhile increase in savings. Could be that I’m almost 30 and realize 62k a year isn’t going to get me a house and what not that’s for sure. If I leave the bay area my salary is going to be tough to get since I work in the high tech industry, though living here I just don’t see a happy fulfilling living in the long run. Wish I knew what to do? Money makes me feel pretty blah and I have about 40k saved in the bank. What a joke, 40k, lol. Takes years to save and could be gone in a flash. There must be more to this life, I really hope so.

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