How Much Money Do You Need to Be Rich in Hawai‘i?

Take our survey to help us understand what being “rich” means to you.

By Meghan Thibault

Photo: Courtesy of Tracy Allen

The U.S. Department of Housing and Urban Development (HUD) sets income limits each year to determine who qualifies for housing assistance across the country. According to HUD’s report in 2018, a family of four in urban Honolulu earning less than $93,300 is considered low income. For a single person, earnings less than $63,350 meet the definition. The report also noted that the median family income was $96,000 in Honolulu County, as compared to $88,300 statewide.

Even Honolulu residents accustomed to the high cost of living on O‘ahu were shocked by these results. If earning close to $100,000 per year is “low income,” how much do you need to earn to be (or feel) “rich” in Honolulu? A million dollars? More? We set out to examine the definition of rich in our expensive city. First stop—our readers. We want to know what you think it means to be rich. Take our reader poll below and share your thoughts with us on this topic, then read on to find out what a local expert had to say.

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What, exactly, are the markers of wealth? Can it be measured by net worth, annual or disposable income, liquid assets, or some combination of these? And what about lifestyle factors like freedom, comfort and security? What are the metrics around being rich? To learn more, we consulted an expert at First Hawaiian Bank (FHB).

Defining “rich” is quite subjective, says Jodie Duvall, a wealth advisor and certified financial planner for FHB. “If we were to survey our clients, the answer would always be different. For some, it means paying off their house. It really depends on the financial goals of the family,” Duvall says.

Becoming A Millionaire—Or Multi-Millionaire

Hawai‘i boasts one of the highest concentrations of millionaires in the country—the fourth-highest in the nation, with 36,903 resident millionaires in 2016. Millionaire is defined as someone with one million dollars in liquid assets. That means the equity in a home or retirement assets aren’t included in that assessment.

By that definition, more than seven percent of Hawai‘i households are “millionaires,” and the vast majority of these (almost 65 percent) reside in Honolulu. About eight percent of Honolulu County residents are “rich” by this measure.

So, is a millionaire by this definition really a rich person in Hawai‘i?

“For some clients, having a million dollars in the bank is their definition of success,” says Duvall. However, she stressed that it really depends on these key factors: your financial goals, your priorities, and your “time horizon”—meaning your age and how many good earning years you realistically have remaining.

“If you’re a person who thinks they can live on $40,000 per year, then you’d need $963,922 to last you for the next 30 years, with an investment yield of seven percent and accounting for inflation,” Duvall says. “I do have clients that ask that. It’s really a matter of their perspective. For some of our clients, that’s enough. They are ready to retire, downsize and live a simple life.”

With a median income of $96,000, it would take 11 years or more to “make a million dollars”—even if you saved every single cent. If you’re an “average” family, with an income that hovers around that median, how can you begin to build wealth through investments, rather than earnings? “Building wealth comes from disciplined saving and investing, and always paying yourself first,” Duvall says. For those looking to become a millionaire, FHB’s website provides an online calculator to help you work backwards from that goal.

Almost 3,500 of those “millionaire” households in Honolulu have more $5 million in investable assets. Does being a multi-millionaire mean that you’re rich? “The first thing we look at is our client’s goals. We look at their age—their time horizon—and whether we should be focusing on taking care of their retirement or for some, their legacy.”

Duvall pointed to three stages in a person’s financial life: accumulating, building and protecting wealth. At every stage and for every person, the tactics are likely to be unique. But in the first two phases of life, she did offer a universal truth based on the tried and true formula of time plus compound interest. “Always pay yourself first and invest in a 401K for your retirement.”

Photo: Nicolai Berntsen

Paying Off Your Mortgage

Does getting your mortgage paid off mean you’ve finally made it? It really depends on your goals and priorities. “Our clients are weighing both the emotional and financial impact of paying off a mortgage. They may feel a sense of accomplishment.” But, Duvall added, having a mortgage at a low interest rate can be beneficial, providing tax benefits, among other advantages. Ultimately, you should talk to your tax advisor, she told us.

Setting Goals and Priorities

For those families challenged to stay ahead of basic expenses like housing and utilities, Duvall says some clients get creative, pointing to the common Hawai‘i practice of multi-generations living together under one roof. She conceded that it’s not for everyone. “A lot of customers are handling these higher expenses by prioritizing their goals and spending on what’s most important to them. Our customers are making choices,” Duvall said.

What can the average person do to get ahead? “The smart investors spend time looking at where their money is going. For those trying to prioritize saving, I highly recommend that they review a summary of their spending over the past 12 months. It can be very surprising,” said Duvall, adding that her customers who’ve engaged in this exercise come away with a better perspective, and a clear understanding of their “lifestyle maintenance” costs. “Identify the things that you don’t want to compromise on, and what they mean to your budget.”

Tips from an Expert

Ultimately, when it comes to investment strategies, advisors deal in tailored solutions versus one-size-fits-all advice. However, Duvall provided some helpful tips. She recommends always keeping a reserve that’s equivalent to three-to-six months of your take-home pay, in case of emergencies.

Once you’ve prioritized a list of things you spend your money on, determine how much disposable income you have for each week. If you’re trying to prioritize saving money, take out your weekly limit in cash, and once it’s spent, don’t revisit the ATM or swipe your credit cards again that week. “Spending cash has a different feeling than swiping your card,” Duvall noted. “The other thing I like to do is to keep a daily log of what I’m spending money on. It keeps you accountable,” she said.

Duvall also recommends reassessing your situation yearly, and more often if your life has brought significant changes like marriage or starting a family. “I’m a strong believer that the more a person becomes engaged with their financial plan and what’s important to them, the more invested they are with the results,” said Duvall. Since change is a constant in our lives, she said, “The process is ongoing and constantly evolving.”

For those trying to create a discipline while simultaneously living a joyful life, she recommends scaling back rather than eliminating priorities entirely. “If travel is important to you, maybe you take a trip to the neighbor islands, instead of abroad. Ask yourself: ‘Am I doing what I want to do, or am I too constricted?’ It’s an exercise that helps you take ownership."

Finally, she recommends FHB’s many interactive online tools that help customers get a comprehensive view of their finances, or consult with one of their experts. “We have branches all across the state. We would be happy to talk to anybody who wants to learn about reaching their financial goals. This is what we really love to do,” says Duvall. “A real person can provide so much more than a calculator, and number one is empathy. Our advisors have a lot of empathy to give, in addition to advice.”

For more information, visit fhb.com or visit a branch to speak with a client service representative.