Not so long ago, if you had a six-figure salary or a million pounds in the bank, you’d be laughing.
Having £100,000 could have provided you with the luxuries of a comfortable life – a beautiful home, a new car every few years, a few vacations abroad annually, children attending private school, and shopping at high-end grocery stores.
A recent investigation by Money Mail reveals that in present-day Britain, £100,000 would hardly be enough. So, what has caused this shift? And how much money is truly needed to feel affluent in today’s society?
The magic number
Everyone has their own definition of what wealthy means to them.
For many individuals, feeling wealthy means being able to fill up their shopping cart at the supermarket with items they desire without worrying about the total cost at the register.
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 spending time with loved ones and doing enjoyable things that give you purpose is the real way to be ‘wealthy’.
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 HSBC survey. Such an income is the stuff of dreams for all bar a handful of earners
For some being wealthy, is about being able to throw whatever they like into their supermarket shopping trolley without keeping track of the cost
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.
Even if you made it 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 in 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 four 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 £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 comfortable lifestyle?
Money Mail crunched the numbers to see how much more expensive a well-off lifestyle has become over the last 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 £1million, as Dan Boardman-Weston 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 semi-detached homes have 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 10pc deposit on an average two-year fixed rate mortgage. The average rate then was just 2.43pc, so your mortgage would be £844 a month.
If you bought that same home today – again with a 10pc deposit and an average two-year fixed rate mortgage – your monthly bill would be £1,473. That’s because the property costs more than five years ago and the average mortgage rate has risen to 5.33pc. Your mortgage bill would be £7,548 a year higher today than in March 2020.
Now let’s look at the school fees. Not all families choose to send the children to a private school, but the option to do so remains a core aspiration of the wealthy middle classes.
School fees cost an average of £15,000 a year just five years ago, according to the Independent Schools Council. By 2024, they had breached £18,000 a year – and that was before VAT at 20pc became chargeable on school fees.
Not all private schools are passing on the VAT in the form of higher fees – and few are by the full amount so far. But even an increase of 10pc would see fees hit £19,800. That’s £39,600 a year for two children – £9,600 a year more than five years ago.
Private school fees start at around £15,000 a year – you’re talking a minimum of £30,000 for two children
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 from April to £1,849 for most households. 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 and equipment 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, these costs are non-negotiable. Short of downsizing and changing your children’s school, there is little you can do about them.
It is no wonder that those that may have felt well off five years ago are now feeling the pinch as these core expenses simply eat into disposable income and force them to cut back on things like holidays and meals out.
And let’s not forget that the cost of these discretionary items has also been surging. If you’ve felt that the cost of a mid-week meal out at a high street chain has been soaring, you’re not imagining it.
Money Mail asked consultancy Lumina, which tracks menu price inflation for chain restaurants, how much more a typical three-course meal cost last year versus 2021. It was up to £28.44 on average – 22pc hike in three years alone.
And that same margarita pizza or bowl of udon noodles was 5.1pc higher last year, 8.5pc the year before and 7.5pc in 2022.
Less in your pocket
NONE of these prices increases would matter if wealthy families were taking home more money in their pay packets. But the opposite is the case.
Frozen income tax bands mean over time a greater proportion of incomes is taken away in tax.
Taxpayers pay higher rate tax of 40pc on earnings above £50,271, and 45pc 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 40pc would now be £55,931. You would only become an additional rate taxpayer, paying 45pc tax if you earned above £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 £60 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, Church’s analysis reveals.
The number of individuals caught in this 60pc tax trap has risen by 45pc in just two years.
Parents also lose child benefit if they earn £80,000 or over or have a combined income of more than £100,000.
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 per child.
Meanwhile someone on £80,000 would take home £56,957, but lose 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 Church says that a few years ago, ‘for a retired couple in their seventies, a £1million home and £1million in the bank would see you right’. But that’s not the case anymore.
‘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 Church.
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 grandparents are stepping in to pay grandchildren’s school fees or contribute towards university costs. They are also helping their children to get on to the property ladder.
‘They can’t feel truly comfortable unless they can do these things for their families,’ she says.
Church adds that among her clients, those that 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 whatever life throws at you,’ she 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 you may not feel wealthy,’ she says.
A survey by the wealth manager supports this. Someone on an income of over £80,000 typically has overall wealth of £617,577, it found. But someone with a financial plan has £698,772 in wealth overall, while someone without typically has £354,840.
How to feel wealthier
The HSBC report contains another bitter truth. Those who earn over £100,000 believes 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-£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-£100,000. Earners in the £59,200 to £99,999 salary bracket identified ‘wealth’ as earning £150,000-£250,000 and for those with £100,000 or more the benchmark rose to £250,000-£500,000.
An element of feeling wealthy no doubt comes down to state of mind – and prioritising what you value and not comparing yourself to those around you.
Dan Boardman-Weston has clients with wealth up to £200million and that those who are very wealthy 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 that that requires is different for every single person.’
