Last week I read an article on CNN talking about how the wealth of the average 1% household has increased to over $16.4 million from “only” $9.6 million in 1983. In the same time period the wealth of median household has decreased from $73k to $57k. The article goes on to talk about how this is an example of the rich getting richer and that the wealthy were not hurt as badly as the lower and middle class during the “great recession”. I came away from this article thinking to myself “hmm, very interesting… but SO WHAT?”
I wasn’t alive in 1983, and today my wife and I have a net worth of almost triple the 2010 number. We have worked hard to get to where we are today and have avoided the fancy new cars, the huge McMansions, and the other trappings that drain your savings accounts and make it difficult to increase your net worth. The article states that one of the main contributors to the decrease in median household wealth is due to decreasing housing prices, which I think is crazy. I think the biggest reason that the average American’s wealth decreased is because as a country, we don’t like to save. While you can spend everything you earn, that’s no way to build wealth for you or your family. On the other hand, if you look at the top 1%, they lived on less (which you’ll argue is easy to do when you are worth almost $10 million) and invested the rest, which is how they increased their wealth.
If you actually dig into the rate at which the 1% increased their wealth, it’s pretty pathetic – it’s just barely over 2% a year – so they weren’t investing in crazy hedge funds or interest rate swaps to earn all this extra wealth. No, they were probably just earning more and saving a greater percentage by avoiding lifestyle inflation wherever possible. If you aspire to be financially independent then you need to be saving as much of your income as possible. My wife and I save over 60% of our post-tax income right now. Is it always easy? Hell no, but financial independence and location independence are goals of ours, and if you want to get there – you should be saving like crazy.
I think the main point is not to buy into the negative spin that the media seems to crap out every few days. Yes, the economy has been better, but that doesn’t really matter. What matters is YOUR ECONOMY and what you’re doing to improve it. Are you maximizing your earning potential? Are you maximizing your savings potential? My wife and I could spend a lot more money and it would still be in line with a couple making over $100k a year – but we would prefer to prepare for the future and not have to worry about statistics that we see on CNN. Hopefully you’re looking at these stats and doing the same! So get out there, make some money, and save as much as you can!!
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