Wouldn't you like to know the secret of becoming wealthy? Well, thanks to Money Central, we now have some scientific information on this subject (see the bottom part of the article).
First, some key findings:
- There’s a huge variation in wealth at every income level. Many low-income families have almost nothing. But the same is true of many high-income families.
- Income alone doesn’t explain wealth disparities. Some of the lowest-earning households had managed to accumulate significant wealth.
- In fact, income differences explain just 5% of the wealth dispersion the researchers found.
- What the researchers called “chance events” -- inheritances, medical bills, marital status, number of children -- explained about 4% of the dispersion.
- Investment choices explained about 8% of the variations.
- In other words, the vast majority of the differences in wealth had nothing to do with income, chance events or investment choices.
- What did explain most of the differences in wealth? Venti and Wise concluded it was this: How much the families chose to save. Those who made it a priority to save built wealth, regardless of their income level, individual circumstances or choice of investments.
Let's re-read that last sentence again:
Those who made it a priority to save built wealth, regardless of their income level, individual circumstances or choice of investments.
This is a pretty revolutionary finding. But it's good news for us all. We can control our wealth (net worth) simply by choosing to spend less and save more. Income level, inheritance, and investing (all of which are harder to influence than saving) account for little when it comes to net worth. It comes down to spending less than you earn and saving the difference.
Good news indeed.