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June 26, 2012


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Luckily I knew of this advice when I started my first post college job and it has worked wonders in the few short years since I graduated. If more people took this seriously we wouldn't freak out about the potential of social security not being around because we would be able to support ourselves.

Is it possible that the average family thought they were saving enough for the future because they had bought into the fact that their home value would continue to increase as quickly as it had in the "bubble" years? A reasonable response to (mistakenly) feeling like you had all of your future savings taken care of would be to spend the rest. Making $50k at age 40 with $110k "saved for retirement" is a little light for the average family, but not extremely. The extra $16.4k could fall into a reasonable amount to be the emergency fund (likely falls into a 3-6 month expenses range). The argument you layout for saving more than $800 a year in something other than your house could also be an argument for diversification or understanding your "savings" vehicle.

FMF said: "Prior to the current economic turmoil, the median American net worth was $126,400. Of this, $110,000 was in home equity. That means that the average family only had $16,400 in non-real estate net worth (assets - liabilities). Really? Wow. Does anyone else think that this is an extremely LOW number?"

Yes, that's extremely low and is the reason many find themselves in a real jam if any negative event comes their way. It would be interesting to see the break down of taxable vs. tax-advantaged/tax-free savings in that $16.4K sliver.

Housing here in coastal California was appreciating 20% a year for a full decade to 15 years and a lot of people bought into the hype that it would continue long term.

Becky --

Perhaps. But did they think about emergency funds, retirement, college savings, and the like? Surely they didn't think buying a house was going to accomplish every financial goal for them...

With that said...

Half of Americans Still Lack 3-Month Emergency Fund

It's all common sense, really. I absolutely agree with those steps, and have tried to put that in practice to the best of my ability. Actually, it's been implemented:)

That said, it's remarkable but the average person is probably just barely financially literate. Most people have no clue how much they will need for retirement, and what expenses will be coming their way. Short-term thinking still prevails, and is often passed down from generation to generation.

Make money, save it, invest it, and avoid the big mistakes. Seems easy to understand, one would think!

The current issue (7/2/12) of TIME magazine has a very informative article entitled, "The History of the American Dream - Is it still real?" You can also read it online.

In order to end up "Above Average" you need above average intelligence and also above average drive and energy. However there is a much larger factor involved and that happens to be "Timing".

If you examine the generations that have lived and died since the great depression you will see that being at the right age to take advantage of any of several events can have a large effect upon your success. One of those events was the most successful government program of all time, "The GI Bill". This gave the returning veterans from WWII the ability to resume their interrupted education and go back to college at the government's expense. I worked with one such man that ended up with his PhD in engineering as a result. The same man also benefited from the second major event which was the Cold War that ran from 1946-1991. This war generated a bonanza for the defense industry and made engineers one of the most sought after commodities in the labor market.

The returning vets from WWII also caused a boom in the housing market because of the availability of low interest rate loans with nothing down for Vets and deals almost as good for the rest of the population. During this 1946-1991 period the housing bubble it produced made lots of people from that generation wealthy and enabled many low income people to enjoy a very secure retirement.

In 1982 the stockmarket took off and had a great run that gained more steam as the computer age went viral with the internet, computers, and huge growth in hi-tech and web based commerce. This lasted until 2000 when there was a large correction as the bubble burst.
Meanwhile the housing market kept climbing upwards until excesses finally created a top around 2006, followed by a very severe decline. Just when euphoria reaches its highest pitch and people think a bubble will never end - it does.

Finally on top of that we now have the great recession that started in 2008 and stubbornly continues in spite of numerous actions to stimulate a recovery.

Getting back to the American Dream, it appears to be in trouble, especially for young people, now burdened with large student loans, trying to finish their education and get a good job. The causes would seem to be such things as increased automation, the global economy, the rise of China as a low price manufacturer of almost everything (even Apple products) and last but not least, finally a world that's running into Peak Oil / Peak Energy.

Who counts their amorphous "home value" in their networth in a tangible way like oh ok we can buy that new car because our house is theoretically worth X? I just bought an apt., but I hide the value in because it's just a made up # until you try to sell. I focus on the loan as a debt and how much I have to pay off.

brooklyn money
I'm with you. I certainly don't consider the value of my home in my net worth even though it's appraised at $1.17M at right now and was paid off 20 years ago. If my investment portfolio consisted of rental properties then I would definitely include them, but the home I live in - it just doesn't make any sense.

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