Saturday, April 27, 2013

My Comparative Study

Now while I’m not one for direct financial comparisons, I do like to occasionally go in for a checkup to see how I’m faring statistically against the rest of the country. Everyone’s circumstances are different so any comparisons I have made, make and will make are entirely taken with a grain of salt. Some people have a larger income than me, others make less. Some came out of college with more debt than I and others never went to college and never had student debt. But nevertheless when studies come out that take a temperature gauge of American households, attention is definitely steered in that direction.

A study recently came out by the Pew Research Center that analyzed Census Bureau data. The study centered on statistics related to American household wealth from 2009 to 2011. Here are a few highlights from the study:

  • The richest 7% of families saw their net worth rise by 28%
    • Of those 7% their net worth rose from an average of $2.48 million to $3.17 million
  • The remaining 93% of families saw their net worth drop by 4%
    • Of those 93%, only 13% owned stocks and bonds and their net worth fell from an average of $139,896 to $133,817
  • 6 out of 10 households with a net worth of $500,000 or more owned stocks and mutual funds

The conclusion of the study was that the majority of US households have the bulk of their net worth tied up in the value of their homes. And as a result the majority of US households miss out on the magic carpet ride that is the historically growing equities market.  Like Dave Ramsey, I believe in home ownership as a solid piece of every financial game plan. My biggest beef with it lies in mortgages. When little to nothing is put down in real estate and you move in with additional debt, no emergency fund and no personal plan for retirement, then you leave yourself susceptible to being on the receiving end of financial ruin. My game plan is to pay 100% cash for our first home and have our emergency fund intact, contributing 15% towards retirement and be entirely debt free. That way we can take on taxes, home maintenance & insurance costs and an increase in utilities and not break a sweat if home values rapidly decrease during a short term time horizon.

But back on point, how did I fare financially from 2009 through 2011? Here are a few highlights.

  • Our net worth grew from *I started keeping tally of my net worth in Q3 2009* $143,260.42 to $223,229.88
    • An increase of 56%, or as I like to lovingly put it: my net worth grew by an average of 21% per year 

I’ve heard it said that mimicry is the best form of flattery. So in the last few years I guess you could say that my wife and I have been working and investing our tails off so that one day we can live off our investment income rather than earned income.  So we’ve held off on buying real estate and have funneled our money to mutual funds in our retirement and taxable investment accounts.

So we have happily been a part of the market downfall and rise over the last few years. The payoff has been that we are on a strong financial foundation as we move towards our hopes and dreams. Whether the market drops sharply or continues its steady ascent we plan to buy and hold ourselves into riding the long term proven growth of the equities market. We plan for real estate to be a piece of our portfolio, but not in that we are overweight in it.

So while it’s nice to know that by comparison we have weathered the storm of the Great Recession a little better than unscathed, we are still keeping our eyes on the prize and moving like a turtle: with consistency and intent over long periods of time. And yes I firmly believe that you too can get these exact same results, if not better, following Dave Ramsey's principles.

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