The term millionaire can mean different things depending on how wealth is measured. Learn the four definitions of millionaire status—assets, net worth, income, and passive income—and which one leads to true financial freedom.
What Does It Really Mean to Be a Millionaire?
When someone says they are a millionaire, what does that actually mean? The reality is that being a millionaire is not a one-size-fits-all definition. Depending on how you measure it, being a millionaire can mean very different levels of financial security, freedom, and opportunity.
Here are the four different ways people define millionaire status and what each one really means in terms of wealth.
Millionaire by Total Assets
This is the easiest milestone to hit and also the most misleading. A millionaire by total assets is someone who calculates their wealth by adding up everything they own that has monetary value.
This includes:
- Primary home
- 401(k) or retirement accounts
- Investment accounts
- Cash on hand
- Business equity
- Cars, collectibles, and other assets
While reaching $1 million in total assets sounds impressive, it does not tell the full story. This definition ignores debt. Someone who owns a million-dollar home but still has a $900,000 mortgage might technically call themselves a millionaire, but in reality, they only have $100,000 in home equity.
If a large portion of their wealth is tied up in assets they cannot easily access, their financial position is not as strong as it might seem.
Millionaire by Net Worth
A net worth millionaire calculates their wealth by subtracting debt from assets.
Assets – Liabilities = Net Worth
For example:
- Someone with $2 million in assets but $1.2 million in debt has a net worth of $800,000. They are not a millionaire.
- Someone with $1.5 million in assets and only $400,000 in debt has a net worth of $1.1 million. They are a true net worth millionaire.
This is a better measure of financial health, but it still has its limitations. A large portion of net worth might be tied up in a home, business, or retirement account, making it illiquid. Accessing some of this money could require selling assets or paying taxes and penalties.
Net worth millionaire status is a strong financial milestone, but it does not necessarily mean financial freedom.
Millionaire by Income
This is someone who earns at least $1 million per year through active income. They are high earners, often in fields like finance, law, medicine, or entrepreneurship.
On paper, this person appears to be wealthy. They likely have a great lifestyle with luxury homes, travel, and financial flexibility. But high income does not always lead to long-term wealth.
Many high earners face challenges that impact their financial future:
- High tax burdens can take a significant portion of their earnings
- Lifestyle inflation means they spend nearly everything they make
- If they stop working, their income disappears
Earning a million dollars per year is a great position to be in, but it only leads to lasting wealth if that income is managed wisely.
Millionaire by Passive Income
This is the most financially secure type of millionaire, the ultimate Mailbox Money goal. Someone in this category generates at least $1 million per year from investments, assets, or businesses that require little to no active work.
Sources of passive income include:
- Dividends from stocks
- Real estate rental income
- Profits from a business they own but do not actively manage
- Royalties or intellectual property (Be like Jimmy Buffett!)
This is the ideal version of being a millionaire because it provides financial freedom. The person does not have to work if they choose not to, but they continue making money. They are not concerned with stock market fluctuations or recessions because their income comes from reliable assets that continue to generate cash flow.
Many people who reach this level still work, but they do so because they want to, not because they have to.
Which One Should You Strive For?
Being a millionaire is not just about hitting a number. It is about how you get there and what kind of freedom it gives you. Remember, You Only Need to Get Rich Once!
- A millionaire by total assets may not have true financial security
- A millionaire by net worth is in a better position but may lack liquidity
- A millionaire by income has financial flexibility but must be strategic about long-term wealth
- A millionaire by passive income has true financial independence and control over their time
The goal is to move beyond just being a net worth or income millionaire and focus on building financial freedom through assets that generate wealth over time.
If you had to choose one, which type of millionaire would you want to be? Let’s discuss.