Not so long ago, if you had a six-figure salary or a million pounds in the bank, you’d be laughing.
It would have afforded you all the trappings of a wealthy lifestyle – a nice house, a new car every few years, a couple of holidays abroad each year, kids at private school, and a weekly shop at Waitrose.
But an investigation by Money Mail finds that in Britain today, £100,000 would barely touch the sides for a family striving for a ‘wealthy’ lifestyle. So what has gone wrong? And how much do you really need to feel wealthy today?
The magic number
Everyone has their own definition of what wealthy means to them.
For some people, it’s being able to throw whatever they like into their supermarket shopping trolley without keeping track of the cost before they reach the checkout.
Others may not be satisfied until they can indulge in the luxuries of the super-rich – a yacht, homes abroad, the freedom to give up work.
And, of course, many would argue that true wealth can’t be measured in pounds and pence at all, and that good health, spending time with loved ones and doing enjoyable things that give you purpose is the real path to ‘wealth’.
However, researchers at HSBC earlier this year had a go at cutting through the nuance and putting a figure on the income people in the UK believe you need to be wealthy.
The answer? A stonking £213,000 a year, according to its survey. Such an income is the stuff of dreams for all bar a handful of earners – it’s nearly six times the national average salary.
Could Jay Gatsby even afford his flamboyant lifestyle today? Played by Leonardo DiCaprio in the 2013 film The Great Gatsby
For some, being wealthy is about being able to throw whatever they like into their supermarket shopping trolley without keeping track of the cost
Even if you’re income brought you into the top 1 pc of adults in the UK, you could still be well away from £213,000 a year. The top 1 pc (540,000 people) have a pretax income of at least £120,000 a year, according to figures from think-tank the Institute for Fiscal Studies.
The Prime Minister himself falls £46,214 short, earning a total of £166,786.
Perhaps even more telling is the perspective of those who are on a six-figure salary. Of those earning £100,000 or more, only one in ten would describe themselves as ‘wealthy’, the HSBC survey found. That is despite them being among the top 4 pc of earners in the UK. Surely such a finding puts paid to the notion that a six-figure income is the key to feeling wealthy?
Of course, households with two salaries are likely to stand a better chance of achieving a high overall income than those with only one.
However, there is a good chance that they would also have higher outgoings. Two parents working full time will have to pay childcare costs, for example. A family also needs a bigger home than a single high earner.
Surely you don’t need that much?
Money Mail asked Dan Boardman-Weston, chief executive of BRI Wealth Management, to tot up what you would need to earn in order to be able to afford a wealthy lifestyle today.
Again, we’re not talking private jets and polo matches – more mid-week Pizza Express and summer holidays in Portugal.
There are parts of the country where a standard family home would cost you a minimum of £1million, as Dan Boardman-Weston suggests
‘A mortgage on a £1million house could easily set you back £4,500 a month with interest rates at 4 or 5pc – that’s £54,000 a year,’ he says.
‘A couple of nice family holidays a year – that’s around £15,000. Private school fees start at around £15,000 a year – you’re talking a minimum of £30,000 for two children.
‘There’s nearly £100,000 spoken for already – and that’s post-tax. Pre-tax, you’d need to earn £160,000 to £170,000 a year to take home £100,000 a year, if you’re an additional-rate taxpayer.
‘Once you add in living expenses – everyday bills, groceries, going out etc – you’d easily be pushing £200,000.’
What has gone wrong?
So, how did we get to the point where £213,000 is not far off what you need for a wealthy lifestyle? After all, it’s several times more than most of us can ever dream of.
Money Mail has crunched the numbers to see how much more expensive a well-off lifestyle has become over the past five years.
Let’s start with that family home. Although there are parts of the country where a standard family home would cost you a minimum of £1 million, as Dan suggests, we’ve gone for the average price across the UK, which is considerably lower.
Five years ago, a typical semi-detached home in the UK would have set you back £210,729. If you wanted to buy the same home today, you’d have to find an extra £60,271. That’s because the cost of a semi-detached home has risen well above inflation, with the average now hitting £271,000. Had it risen with inflation, it would cost just £255,788.
Now for the mortgage. Let’s say you bought that semi-detached five years ago with a 10 pc deposit on an average two-year fixed-rate mortgage. The average rate then was just 2.43 pc, so your mortgage would be £844 a month.
If you bought that same home today – again with a 10 pc deposit and an average two-year fixed-rate mortgage – your monthly bill would be £1,473. That’s because the property costs more than it did five years ago, and the average mortgage rate has risen to 5.33 pc. Your annual mortgage bill would be £7,548 higher today than in March 2020.
Private school fees start at around £15,000 a year – you’re talking a minimum of £30,000 for two children
Now let’s look at the school fees. Although not all families choose to send their children to a private school, it remains a core aspiration of the wealthy middle classes.
School fees cost an average of £15,000 a year in 2020, according to the Independent Schools Council. By 2024, they had breached £18,000 a year – and that was before VAT at 20 pc became chargeable on school fees. Not all private schools are passing on the VAT charge in the form of higher fees – and few have increased fees by the full amount of 20 pc so far. But even an increase of 10 pc would see fees hit £19,800. That’s £39,600 a year for two children – £9,600 a year more than five years ago.
Let’s add energy bills into the mix. In 2020, a typical household spent £1,125 on energy bills, according to figures from the regulator Ofgem.
Today, they pay £1,738 – although this is set to rise to £1,849 for most households from April. However, more affluent households have inevitably seen the amount that they pay rise by far more. This is because they have more rooms to heat and gadgets to power.
As a result, a typical household with five bedrooms and four or five people now pays an eye-watering £2,466 a year for their energy, according to British Gas.
For a wealthy household, all of these costs are often seen as non-negotiable. Short of downsizing and changing your children’s school, there is little you can do about them.
As these core expenses eat into disposable income, it leaves less for treats such as holidays and meals out – in other words, the very things many see as key to feeling wealthy, rather than just having a high income.
And let’s not forget that the cost of these discretionary items has also been surging. If you’ve felt that the price of a mid-week meal out at a High Street chain has been rising, you’re not imagining it.
Money Mail asked consultancy Lumina Intelligence, which tracks menu price inflation for chain restaurants, how much more a typical three-course meal cost last year versus in 2021.
It had increased to £28.44 on average – a 22 pc hike in three years alone. And that same margherita pizza or bowl of udon noodles was 5.1 pc more expensive last year, with an 8.5 pc increase the year before and a 7.5 pc rise in 2022.
Less cash in your pocket
These price increases would matter far less if take-home pay was rising as quickly. But for many families, the opposite is true.
Frozen income tax bands mean that, over time, a greater proportion of your income is taken away in tax. Taxpayers pay higher-rate tax of 40 pc on earnings above £50,271, and 45 pc on earnings above £125,140. But these thresholds have not increased since 2022 – and have been frozen until at least 2028.
Had they risen with inflation, the amount you could earn before being taxed at 40 pc would now be £55,931. You would only become an additional-rate taxpayer, paying 45 pc tax, if you earned more than £139,230.
Faye Church, senior financial planning director at wealth manager Rathbones, points out that that’s not even the worst of it.
‘Once you earn above £100,000, you only take home £40 for every extra £100 that you earn,’ she says. ‘You lose benefits as your earnings increase, which pushes up your tax rate.’ Once you start earning £100,000, your personal allowance is tapered away, so that by the time you earn £125,140 it is completely gone. That means that someone whose pay rose from £100,000 to £125,140 would only take home an extra £9,552.60, Faye’s analysis reveals.
The number of individuals caught in this 60 pc tax trap has risen by 45 pc in just two years.
Parents also lose child benefit if they earn £80,000 or more. That means that someone on a salary of £60,000 would take home £47,570 and enjoy their full child benefit entitlement of £1,331.20 each year for their first child, and £881.40 for each additional child.
Meanwhile, someone on £80,000 would take home £56,957, but have to pay back child benefit. If they had three children, their income would be £53,863 – not much more than someone on £60,000.
What about retired households
Faye says that, a few years ago, ‘for a retired couple in their 70s, a £1 million home and £1 million in the bank would see you right’. But that’s not the case any more – even though these are huge sums and most people get by on far less.
‘Even if retired couples have enough to be comfortable themselves, the financial pressures on their children and grandchildren today are such that they feel they need to step in,’ says Faye.
For a retired couple in their seventies, a £1million home and £1million in the bank would see you right
She adds that growing numbers of well-off retirees are stepping in to pay their grandchildren’s school fees or contribute towards university costs. They are also helping their children get on to the property ladder.
‘They can’t feel truly wealthy unless they can do these things for their families,’ she says.
She adds that, among her clients, those who seem truly comfortable are those who have final salary pensions that guarantee an income for themselves – and often their spouses – for life.
Creating this level of security without that guarantee is expensive. ‘It takes a combination of pensions, Isas and general savings accounts to know you can adapt to whatever life throws at you,’ Faye says.
Take control
Alexandra Loydon, director of advice policy at wealth manager St James’s Place, believes that having a financial plan is key to feeling wealthier.
‘Even if you have a lot of wealth and a high income, if you don’t have a budget and a strategy for your finances then you may not feel wealthy,’ she says.
A survey by the wealth manager supports this. Someone on an income of more than £80,000 who has a financial plan has £698,772 in wealth overall, while someone without one typically has £354,840.
How to feel wealthier
The HSBC report contains another bitter pill to swallow. Those who earn more than £100,000 believe you need £724,000 to be considered wealthy. So could it be that the more you have, the more you think you need to feel comfortable?
A study by NatWest Premier suggests so. Those surveyed who earn up to £26,000 considered earning £50,000 to £75,000 to be the marker of wealth. For those earning between £26,001 and £59,199, the benchmark was an annual income of £75,000 to £100,000. Earners in the £59,200 to £99,999 salary bracket identified ‘wealth’ as earning £150,000 to £250,000 and for those with £100,000 or more the benchmark rose to £250,000 to £500,000.
Feeling wealthy no doubt partly comes down to your state of mind.
Dan Boardman-Weston has clients with wealth of up to £200 million, yet says that people often don’t need a huge income to feel comfortable. ‘Many are happiest drinking £4 pints down at the pub with friends,’ he says. ‘The one thing that is finite and that no amount of money can buy is time.
‘Those who spend their time doing the things that make them happy are those who feel wealthy. And the amount of money needed for this is different for each person.’
What would you need to feel wealthy? moneymail@dailymail.co.uk
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