Myth About Becoming Wealthy

One of the reasons I started this website was to help people regarding personal finance and investing.  One misconception that is popularized by politicians and reinforced by media is that it’s impossible to become wealthy, that the deck is stacked against the little guy.  In my view, this couldn’t be further from the truth.

The following table shows investing returns starting with $1 in your account at a historical stock market return of 10% over a 40 year working career.

Savings Per month                           Total

$50.00                                                   $277,562.67

$100.00                                                 $555,080.67

$200.00                                                 $1,110,114.89

$300.00                                                 $1,665,149.70

$400.00                                                 $2,220,184.52

$500.00                                                 $2,775,219.33

Now let’s take a look at the latest data on Net Worth in the United States.  The following is from the 2016 Federal Reserve Study of Consumer Finances broken down by percentile.  This is a study done by our central banking system every three years.  This shows what Americans are worth by adding up their assets and subtracting their liabilities. 

Net Worth Percentile                     Net Worth

10%                                                        -$962.66

20%                                                        $4,798.06

30%                                                        $18,753.84

40%                                                        $49,132.21

50%                                                        $97,225.55

60%                                                        $169,550.64

70%                                                        $279,594.27

80%                                                        $499,263.50

90%                                                        $1,182,390.36

So, if you can manage to save just $100.00 per month it would put you ahead of 80% of all Americans.  This probably is a surprise to many people.  One has a high probability of achieving this by simply investing in a low-cost total stock market index fund and staying the course, in other words by not selling out and continuing to save every month through the good and bad of market volatility.  It really is that simple.  Better yet, invest the money within a retirement plan and either have taxes deferred in a tradition individual retirement account (IRA) or no taxes at all on the gains with a Roth IRA. 

Another tax advantage that many people don’t realize is when you invest with the total stock market index in a non-retirement account you don’t pay taxes on unrealized gains, meaning you aren’t taxed on appreciation until you sell the fund.  Unfortunately, you are taxed each year on dividends paid to you, but the non-taxation of unrealized gains is still a great deal.  This is available to anyone regardless of their wealth and is an incredible advantage in building wealth.  Currently tax law even favors low-income earners.  If you sell the funds in your non-retirement account and are in the lowest two tax brackets you pay no tax on capital gains.

Investing in the total stock market index can done through a variety of companies including Vanguard, Schwab, Fidelity, and many others.  Currently Schwab doesn’t even have a minimum investment. 

Further research shows that the average millionaire is well, average.  In Chris Hogan’s book Everyday Millionaires, Mr. Hogan shows through surveys of over 10,000 millionaires that most of them work common jobs at average salaries.  This was also shown over 20 years ago in Thomas Stanley and William Danko’s book The Millionaire Next Door.  They saved and invested and didn’t buy into the consumer culture.  They invest simply and live simply and are very satisfied with their lives.

So, what are you waiting for?  Build your net worth and expand your opportunities.   

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