What Is A High Net Worth Individual (HNWI)?

High net worth individuals, or HNWIs, are people who have at least $1 million in liquid assets. Being a HNWI individual allows for special privileges and financial advantages not open to everyone, including wealth management. Banks and financial institutions offer these privileges because of the level of involvement this amount of wealth requires.

HNWIs are incredibly rare, with only 1.2% of the global population falling into this category. The United States has the most HNWIs (63%), with Japan, Germany, China and France making up the rest of the top 5. While HNWIs are rare, there are steps you can take to inch closer to that status.

High Net Worth Individual Qualifications

Ironically, determining who is or isn’t a “high net worth individual” is not based on a person’s actual net worth. A person is only classified as a HNWI when they have at least $1 million in investable assets. Investable assets, also called liquid assets, refer to anything of value you have that can be quickly and easily turned into cash.

There are three main types of HNWIs:

• High Net Worth Individuals (HNWIs) who have between $1 million and $5 million in liquid assets
• Very High Net Worth Individuals (VHNWIs) who have between $5 million and $30 million in liquid assets
• Ultra High Net worth Individuals (UHNWIs) who have more than $30 million in liquid assets.

How To Calculate Net Worth

A person’s net worth is the value of everything they own subtracted from everything they owe other people and institutions. To find out what your net worth is, you need to subtract the value of your assets from your liabilities.

Net Worth = Assets - Liabilities

A financial asset is anything you own that has a financial value. This can mean anything from your house to your savings account to your new computer.

The term liability refers to any money that you owe another person or institution. Some common examples would be student loans or mortgages. So, to find your net worth, you would take the value of everything you own (your assets) and subtract the money you owe other people (your liabilities). 

Let’s look at a simplified example to practice calculating net worth:

Pretend that Lisa, who has just paying off her mortgage, now has $300,000 in assets between her house, her savings account, her possessions and her investment portfolio.

Lisa has two liabilities. Though she just finished her mortgage payments on her house, she just took out a $40,000 loan to buy a new car. She also owes $1,000 in credit card debt. To find Lisa’s total net worth we would subtract the value of her assets from her liabilities.

Assets: $300,000

Liabilities: $40,000 + $1,000 = $41,000

$300,000 - $41,000 = $259,000

Thus, Lisa’s net worth would be $259,000.

Which Assets Can Be Factored Into Net Worth?

Any asset you have can be factored into your overall net worth. Remember, an asset is anything you own that has value. Thus, assets include things like your house, car and savings account. Your possessions can also be taken into account, so things like jewelry, electronics and appliances can also be factored into your net worth.

Instead of being defined by their actual net worth, HNWIs are defined by their liquid assets. Most banks and financial institutions have specific rules about who can qualify as a HNWI, but generally, anyone with at least $1 million in liquid assets is treated as a HNWI.

Liquid assets are not just a measure of wealth for HNWIs, but they’re also an indicator of financial security. Knowing what your liquid assets are helps you understand the amount of money you could theoretically have on hand if you suddenly needed it. Having more liquid assets allows a person to have more financial freedom and flexibility in the face of unexpected life events.

Remember, liquid assets are things that can easily be converted to cash. Some examples of liquid assets are:

• Cash
• U.S. Treasury Bills and Notes
• Certificates of Deposit
• Money Market Accounts
• Savings Accounts
• Checking Accounts
• Stocks
• Bonds
• Mutual Funds
• Others

Illiquid assets add value to your total net worth, but you can’t easily turn them into cash. This includes things like:

• Houses
• Cars
• Land and Real Estate Investments
• Electronics
• Jewelry
• Antiques
• Appliances
• Others

Benefits Of Having A High Net Worth

The more money a person or household has, the more business they bring to any banks or financial institutions they work with. This is why a lot of banks and financial institutions really want to work with HNWIs. To encourage HNWIs to partner with their institution, banks will offer them special financial services and advantages. While these benefits vary by institution, they generally allow for more financial flexibility and freedom. HNWIs may get many financial services with discounts, reduced fees and special rates not available to the general public. They may also have increased access to services and financial advisors on off hours like evenings or weekends.

HNWIs also may have access to investment options that aren’t open to most people. Some of these opportunities include things like early access to initial public offerings (IPOs) and the ability to invest in reputable hedge funds and private equity funds. They may also have the opportunity to invest in real estate and other things that are not available to non-HNWIs.

In addition to the benefits that come from financial institutions wanting to work with you, there are also social benefits associated with HNWIs. Namely, they may receive special invitations to conferences or events.

High Net Worth Wealth Management

In addition to the services described above, banks and financial institutions may also offer wealth management for HNWIs. Wealth management is a service that helps affluent clients manage their finances. Based on the client’s preferences and goals, wealth managers come up with a personalized strategy for maintaining and growing their wealth.

Because the goal of wealth management is to maintain and grow a client’s funds, wealth management spans a broad range of topics. This includes things like:

• Investments: As discussed above, HNWIs have numerous investment opportunities that can diversify their portfolio. Wealth management can help keep track of the HNWI’s current investments while considering new ones.
• Tax and accounting services: Wealth managers can help save HNWIs money on their tax bill by maximizing tax deductions and practicing other tax reduction techniques.
• Estate planning: Dispersing money after a person’s death can be complicated, especially managing the taxes and legal stipulations that come with wills. Wealth managers can help HNWIs minimize the effort and taxes associated with handling the assets of an estate.
• Retirement planning: Wealth management also works with HNWIs to find the right retirement accounts for them.
• Philanthropy: Giving money to charity, while fulfilling in its own right, can be deducted on tax returns. Wealth management can keep track of the records needed to verify these donations.

Wealth management is not something the everyday individual will use. Most people, when looking to shore up their finances, will use a financial planner. Financial planners help their clients with things like investments, basic retirement planning and broad financial planning. Though there is some overlap, a financial planner is going to be more focused on the everyday expenses of a family and things like their household income, rather than a wealth manager who is more focused on the HNWI’s investment and assets.

HNWI Statistics

For a better understanding of the space HNWIs occupy in the economy, here are some statistics:

• In 2021, there were around 22.5 million HNWIs on the planet with a total wealth of $87 trillion
• The top 5 countries with the most HNWIs in 2021 were: the United States, China, Japan, the United Kingdom and France
• The United States also has the most UHNWIs
• Some well-known UHNWIs include: Jeffrey Bezos, Warren Buffet, Bill Gates, Mark Zuckerberg and Elon Musk

How To Become A HNWI

Becoming a high net worth individual is extremely uncommon. So, while it’s possible for a person to become a HNWI, it’s not particularly likely. Some people get lucky and join this exclusive group overnight, like people who win the lottery. But for most, the road to becoming a HNWI is less direct, though not impossible. Below is a list of tips that could help you become a high net worth individual.

• Develop a financial plan: Having a dream of becoming a HNWI isn’t enough. You need to have a plan with concrete steps for how you’re going to achieve your financial goals.
• Create a budget: Budgets make you aware of your spending habits and keep you on track to meet your goals. Your budget should include things like your necessities, wants, savings and investments.
• Make saving a priority: Saving is more than just putting money into a savings account, it means limiting unnecessary expenses like fancy cars or exotic vacations. It also means starting an emergency fund and trying to continuously save towards long term goals.
• Reduce your debt: To reduce your debt you could try and consolidate your debt into one personal loan. Another tactic is the snowball method, where you try to pay off the debt with the lowest balance first. There is also the avalanche method, where you try to pay off the debt with the highest interest rate first.
• Get professional advice: Even though you might be motivated to make a financial change, you might not have all the answers. Meeting with a financial planner or other professional can help you take stock of your finances and identify which options are best for you.
• Invest: Investing allows you to accumulate wealth more rapidly than just placing it in a savings account. While investing can be risky, a key way to lower some of that risk is to diversify your investments.
• Start a side hustle: If you have spare time and the ability to take on extra work, a side hustle can bring in additional income that could help you reach your financial goals faster.

The Bottom Line

High net worth individuals occupy a rare position in society that allows them to enjoy special benefits from financial institutions. These perks help them maintain their wealth while opening them up for new opportunities to grow it. While being a HNWI is not common, you can take steps toward that goal by automating your budget and setting financial goals with Rocket Money^SM.

Sign up for Rocket Money today to take a look at your finances and start making the changes in your budget that will allow you to achieve your financial goals.