For example, suppose you have assets totaling $1,400,000 ($1.4 million) and liabilities totaling $200,000. In that case, your net worth would be $1.2 million, meaning that you fit the definition of a millionaire.
How Being a Millionaire Works
When considering whether someone is a millionaire, in most cases, you consider their net worth. According to a Spectrem Group Market Insights Report, there were 11.8 million Americans with a net worth of at least $1 million in 2019. A person’s net worth is like a summary of the total financial value of their balance sheet. This concept represents a person’s financial assets minus their liabilities. In other words, net worth is what they own minus what they owe. However, net worth includes the appraised value of all non-liquid assets, which are harder to liquidate (or sell) if needed. For this reason, there is some debate about whether the term “millionaire” should apply to people with total assets over $1 million or only to those with liquid assets in excess of $1 million.
Where the Term “Millionaire” Originates
The term “millionaire” comes from French and was first used in 1786. It was used to describe the men who became rich off of speculative investments in North America. By the standards of the 18th century, a millionaire was someone who had amassed an unimaginable amount of wealth. In the wake of more than a century of inflation, $1 million hasn’t retained the exceptional buying power it had in 1900. In 2022 dollars, it would be equivalent to about $34.8 million.
A Millionaire’s Profile
By looking at a person’s balance sheet and considering their assets and debts, we can figure out whether they have a net worth of at least $1 million. Suppose that John Doe has the following assets:
House: $350,000Car: $10,000Retirement fund: $600,000Stocks: $80,000Mutual funds: $100,000Resale value of other non-liquid assets: $20,000Cash: $10,000Total assets: $1,170,000
Also suppose that John Doe has these liabilities:
Mortgage: $120,000Car loan: $5,000Total liabilities: $125,000
According to the formula for calculating net worth—what you own minus what you owe—John Doe is a millionaire. The value of John’s assets equals $1.17 million, and his liabilities total $125,000. That means his total net worth (assets minus liabilities) is $1,045,000. Thus, John is a millionaire.
An Alternative Definition of Millionaire: Liquid Assets
Despite these numbers, some people may reject John’s classification as a millionaire. Using an alternative approach to wealth classification and analysis, they argue that liquid assets (such as his cash, stocks, and mutual funds) are the one true qualification for millionaire status. According to this definition, the value of John’s home, car, and personal belongings (such as antiques) should not count toward his millionaire status because John would be unlikely or unable to liquidate, or sell, all his assets for cash, even if he wanted to do so. Even if they were to go to market, John’s antiques may fetch unpredictable resale prices, and valuable artwork and collectibles are difficult to sell quickly. Of course, John can have these assets appraised and can use them to finance a big purchase, but he doesn’t have the liquid assets necessary to be called a millionaire by this definition. Some people would also exclude the value of John’s retirement account from consideration. That’s because those assets are protected from bankruptcy filings. If his retirement savings are left out of the equation, John would not be considered a millionaire.
Multi-Millionaire vs. Millionaire
The difference between a multi-millionaire and a millionaire comes down to the numbers. A multi-millionaire would be someone who has several million USD when their net worth is considered. A decamillionaire, more specifically, is someone who has between $10 million and $99.99 million.
The Bottom Line
John Doe may or may not be a millionaire, depending on which definition you use to evaluate his financial situation. However, no matter how you consider his net worth, it’s significantly higher than that of the median American family. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
