Is a small net worth your goal? Not many Americans enter the workforce with a goal of retiring with little to no savings or a low net worth. However, the reality in America is that the majority of working Americans do not feel they will be financially prepared for retirement.
Net Worth Statistics
2. 62% of those who reach age 65 have less than $25,000 in retirement
3. An additional 35% of those who reach 65 have less than $100,000 in retirement savings.
4. That means only 3% of working Americans have over $100,000 in retirement savings at age 65.
Now, it is probably safe to assume that most Americans want to retire comfortably. Why then do so few do it? Of course, there are a myriad of reasons that one could argue, but one argument that cannot be made is that the average American simply does not earn enough money. That is not a valid argument. The average American will earn well over $1,000,000 in the course of her career; the problem is not that Americans, in general, do not make enough money. Instead, the problem lies in not properly managing the money that we do make.
Our Debt-Based Economy
The United States economy is structured in such a way that the average American is constantly encouraged to engage in less than desirable purchasing and savings habits. For example, during the current economic crisis that has rattled the forex and stock markets over the last 2 years, the Federal Reserve and U.S. government are doing everything they can to stimulate economic growth. In other words, they want us to spend money.
When Americans spend money on retail goods and services, the economy will do well. When we do not, the economy will stagnate. Cash for Clunkers and other government programs have attempted to get Americans borrowing and spending again like they were before the Crisis of 2008. These measures are having limited effect, as Americans, by and large, are hesitant to begin spending at the same pace they were a few years ago. Savings rates are at all-time HI’s that we have not seen since World War 2.
How To Build Net Worth
The best way to build substantial net worth is simple. Eliminate liabilities and buy assets. Your net worth is basically the measurement of your assets minus your liabilities. Therefore, the game of money management basically amounts to eliminating liabilities and buying assets. However, due to a lack of financial education, many people spend their adult lives accumulating liabilities and not buying assets. Liabilities are things like credit card loans, car loans, mortgages, credit lines, etc. The first step to building substantial net worth is to focus on eliminating the liabilities.
The best way to do this is sit down and list out all of your liabilities and the dollar amount owed on each. Then, track all of your expenses for one month. At the end of the month, take an honest inventory of where you are spending your money and determine to cut back all unnecessary expenses. Then, funnel this extra cash each month toward paying down your liabilities.
Once you have extra cash flow each month, you can begin directing it toward purchasing assets, such as rental properties, business investments, and other investment opportunities. There is no shortcut to building substantial net worth. It requires a resilience and determination to not incur liabilities, and to focus on building assets.