Money makes the world go round, as they always say – and, as we all know, the more you have, the better things tend to go. That is why most of us strive to be HNWIs or high net worth individuals.
But what is the true HNWI definition? What qualifies you to become an HNWI, and how can you get on track to becoming one? Is it all about making more money or simply being smart about your savings and investments?
If you’ve got designs on that millionaire net worth lifestyle, now’s the time to brush up on what is considered high net worth and how you can get there feasibly.
What is a high net worth individual?
Generally speaking, someone is considered a high net worth individual, or HNWI, when they have at least $1 million in liquid assets.
That is to say, someone who has at least $1 million in cash, or owns investments that can easily be converted to cash.
What’s the minimum amount of net worth to use private wealth management?
Generally speaking, there is no set minimum amount of net worth to use private wealth management. Each private wealth management provider will determine their own minimum amount expected to provide their services.
Private wealth managers help those who fit the HNWI definition manage their:
- Portfolio investments
- Estate planning
- Retirement planning
- Taxation concerns
What are the different types of HNWI?
High-net-worth individuals are generally categorized into three main types:
- Very high HNWI
- Ultra-high HNWI
Someone with less than $1 million in liquid financial assets but over at least $100,000 is considered to be a sub-HNWI. This group may also be often referred to as mass affluent.
A very-high-net-worth individual, meanwhile, typically has at least $5 million in liquid or investable assets.
Individuals with at least $30 million of investable or liquid assets are considered ultra-high-net-worth individuals.
How do I calculate my net worth?
You can calculate your net worth by subtracting all the liabilities from your assets – that’s anything you own with monetary value. Your liabilities, meanwhile, are the things that deplete or reduce your available money, for example, loan repayments and agreed expenses.
Typically, only your liquid assets should be considered part of your net worth.
For example, if including all of your liquid assets, your household (including vehicles, current bank account balances, collectible objects, investment accounts, and your home) is worth $500,000, and you subtract your liabilities at $125,000, your household’s net worth would be $375,000.
What benefits do HNWIs receive?
Being an HNWI doesn’t just mean having access to a lot of liquid cash! In many cases, high net worth individuals qualify for investment, private banking, and multiple financial services at reduced fees or even special rates.
They can also invest in hedge funds, private equity, and venture capital funds, which are not typically open and available to members of the public.
Many HNWIs also invest in real estate that is not available to the general public, such as commercial assets and businesses.
Of course, these benefits differ between financial institutions, countries, and regions. It’s always a good idea to speak to a wealth manager if you’re unsure of the benefits you might be entitled to!
Where do most HNWIs live?
At the time of writing, New York City, NY is the area with the most concentrated number of HNWIs. The city is home to reportedly 340,000 millionaires and 58 billionaires. There are also over 700 centi-millionaires living in the city.
Given that more than 720 billionaires live in the US at the time of writing, it seems living in the Big Apple certainly offers you your best shot at claiming that HNWI status!
Just fewer than eight million HNWIs are living in North America at the time of writing, with 7.2 million in Asia-Pacific.
Quick tips on how to become an HNWI
Who doesn’t dream of becoming financially free? It’s in the name of our site, after all – and there are plenty of tips and tricks HNWIs have shared with us over the years to help us realize our financial dreams.
That said, making enough money to reach HNWI status is no mean feat. Here are a few quick ideas you might want to implement, but don’t assume you’ll become a billionaire overnight. It’s a good idea to consider setting up a strong savings plan and a retirement system if you intend to be a HNWI yourself before too long.
If there’s one thing the richest people in the US agree on, it’s that investments are key to cultivating the HNWI status.
Investing means more than simply putting money aside in a savings account. You’ll need to consider a disciplined approach – that is, investing money regularly in a portfolio, regardless of how little.
For example, it might be prudent to invest money monthly in a Roth IRA, or via your 401k, to reach HMWI status by 65. That’s even possible in your late 30s – but now really is the time to start if you haven’t already.
There’s no way to become a HNWI with debt unless your assets and/or liquid cash are astronomical!
Focus on paying back your loans and spending less to increase your liquid assets. The golden rule for building wealth and saving generally is eliminating debt first and then investing your cash.
Therefore, even if you only owe a few hundred on a loan or you’re close to paying off your mortgage, get it all clear before you start chasing high net worth status.
Diversify your investments
High net worth individuals know that keeping all of their money in one or two funds or stocks simply isn’t going to grow their cash. By diversifying their portfolios, they ensure returns from multiple sources – meaning if one investment fails, they have several others to fall back on.
Diversification isn’t easy face-on. It’s worth using a trading app with a robo advisor if you’re unsure how to balance your portfolio effectively and to seek broker advice if you’re new to chasing HNWI status.