The USA has the largest economy in the world. We outperform every other nation. And we act like we are the wealthiest nation on the planet. But if you take away the top 1% of Americans suddenly we look a lot less wealthy. If you ignore the top 20% of American households we look even more poor.
According to economic data compiled by experts, 80% of American households earn less than $80,000 per year. Those same statistics show that the median net worth of those 80% of families is less than $250,000. And the majority of that 80% have less than $100,000 in net worth. If you ignore the value of every homeowner’s house, median and total net worth drop even more.
In other words, we Americans have a lot of debt and very little cash in the bank. And where is all that money? Well, a small number of corporations have stashed trillions of dollars in overseas bank accounts. They don’t want to invest that money in better-paying jobs, more jobs, or new equipment. They just want to avoid paying taxes. What is even more shameful is that the stockholders who own shares in those companies are not demanding that they pay dividends or buy back stocks with that capital. The money just sits in overseas accounts, wasted, doing nothing.
What you can take away from this information is the fact that no one is going to help you grow your personal wealth. Maybe your parents will help you a little. Maybe your friends and small business partners will help you a little. What you collect in wealth will come from your own efforts.
We Have to Think about Growing Our Wealth
This is the most important part of the current economic climate. We Americans are not ready for the next recession. With any luck that is still 2-3 years away but you know it’s coming. How much money will you have saved up when you’re unemployed? $1000? $6000? The average American household would need at least $3000 per month for six months, and you’ll probably fall behind on your bills.
Fortunately there is good advice available for how to grow your wealth. You don’t have to buy any books. You don’t have to attend any seminars. The information is free on the Internet. The advice is rock solid.
The most important financial advice you will ever hear can be summarized in two points:
- Spend less than you earn.
- Contribute to savings before you spend any money.
That’s so simple you’d think everyone would be doing it. Spending less than you earn takes discipline. Every extra dollar coming in seems to be preallocated to some “necessary” expense. But how much fast food do you eat? How much time do you waste sitting in traffic when you could take faster routes (just because you don’t think about how to get around heavy traffic)?
We spend money in a lot of ways without even thinking about it. By recording what we spend and thinking about why we spend that money, we’ll make better decisions in the end.
Setting Priorities Is Important
The last thing I want to do is start writing checklists and filling out worksheets. Don’t you hate those financial planning books that tell you to do just that? You might go through the exercise once but after that you just get tired of all the tedious work and stop doing it.
Instead, we should simplify our priorities so that we keep them in mind. My priority is to save money by not spending it. The less money I spend the happier I am.
And I have a second priority, too. I want to stop buying things on credit. If I cannot pay in cash I ask myself how badly I really need something. It turns out, I don’t need nearly as much junk as I once thought I did.
It’s true that if you have a family you still spend a lot of money. But we’re working on that. I hope to teach my kids to be more fiscally responsible than I ever was.
Maybe they’ll make better decisions about their finances than I did when I started out as an adult. Meanwhile, it’s not too late for me to change my spending and saving habits.
