Earlier this month, the Federal Reserve reported that U.S. household net worth – the total value of assets (like stocks, bonds and real estate) minus liabilities (like mortgages, auto loans and credit card debt) – hit a record $100.8 trillion.
In March, Spectrem Group reported that the number of U.S. households with a net worth between $1 million and $5 million, excluding primary residences, grew by nearly 600,000 in 2017 to a record 9.98 million.
(Another 1.3 million households hit the “Ultra High Net Worth” level: $5 million to $25 million. And a further 172,000 households had a net worth of more than $25 million.)
In total, there are 11.5 million households in this country with at least a seven-figure net worth. If you include home equity, there are millions more.
How did all these people become affluent?
Some had big inheritances, great genes, fantastic connections or incredible luck. But most earned it the old-fashioned way: by maximizing their income, keeping a sharp eye on monthly expenses, and religiously saving, investing and reinvesting the difference.
(If you disagree, check out my last three columns on the subject.)
We should celebrate the fact that so many in this country have done so well financially. We are the richest nation on earth.
But we should also lament that millions more have not participated… especially when the road to financial freedom is available to almost everyone.
It starts with saving, something not enough folks do and many never even attempt. Tens of millions of Americans today live paycheck to paycheck.
Some earn too little to save and deserve the social safety net that our affluent society offers.
But tens of millions more don’t save because they’re trying to keep up with the Joneses. (Or the Kardashians.)
They’re spending money they don’t have to buy things they don’t need to impress people they don’t like.
That’s a recipe for disaster.
As my friend Rick Rule – Chairman of Sprott Global Resource Investments Ltd. – likes to say, “When your outgo exceeds your income, your upkeep becomes your downfall.”
When you’re young and starting out in life, saving may not be a priority… or even possible. When you get older, you may have kids or elderly parents to support – saving can be tough then, too.
But most of us could get by – by hook or by crook – on at least 10% less than what we’re living on. If we pay ourselves that 10% first, it makes a world of difference 10, 20 or 30 years down the road.
It isn’t hard times that keep most Americans from saving what they should. It’s a lack of discipline, something that used to be a specialty of mine.
For example, 33 years ago, after working various low-paying jobs, I took a position as a stockbroker at a local firm. Turned out I was good at it – and soon became the firm’s top producer.
Before long I had the spanking new lakefront house, the ski boat, the Jag… and all the other toys.
When my friends came over for parties – which were frequent – most of them assumed I was rich. I was nothing of the sort.
Wealth is not the same thing as income. If you earn a lot of money and blow it every year, you’re not rich. You’re just living high.
Wealth is what you accumulate, not what you earn. And it certainly can’t be measured by what you spend.
Save $500 a month, compound it at a reasonable 10% a year… and you’ll have more than a million dollars in less than 30 years. Can’t save that much? $250 a month turns into a half a million over the same period.
Don’t have that much time left? Then here are your choices:
- Save more
- Earn a higher rate of return
- Or both.
Saving is just the beginning, of course. The next step is to decide how to safely grow your investment capital.
Successfully managing risk means generating high returns while keeping volatility – and occasional losses – to an absolute minimum.
That’s the subject of my next column.