Unfortunately, the average person in the U.S. lives paycheck to paycheck and is one financial hiccup away from fiscal disaster. They hope they will be able to retire someday, but have probably never run the numbers.
Even those people who are able to remain fully employed until retirement age (many cannot due to unexpected medical issues, a layoff or family obligations) may be in for an unpleasant surprise.
Based on U.S. Census data, (How does your net worth compare to other Americans) the median household for someone aged 65 to 70 only has investable assets of $43,921. With a 4% withdrawal rate, that’s $1,757 a year plus Social Security to make ends meet. That’s a pretty meager life – and half of U.S. households have less!
At that point, they will have few options. They can move in with their kids if they have room, downsize to an undesirable home or neighborhood, or otherwise throw themselves at the mercy of social services or other government run programs. You certainly wouldn’t wish that scenario on anybody.
What’s the alternative? I call it being net worthy!
Being Net Worthy
So, what does it mean to be net worthy? If you are net worthy, you take a proactive approach to your financial life and think things through. You save money every year, you plan ahead for big expenses and you have a plan in place for catastrophes.
You also have a target date for financial independence and have developed some goals that are likely to get you there. Maybe you love your career and simply want to retire comfortably at 67 or maybe you want out of the rat race at 35 – the choice is up to you.
Either person could take a net worthy approach to get there. Being net worthy is not about saving 50% of your income and getting out in 15 years, but it could be. It’s really about being responsible with your finances and having a plan so that you can have the best life possible.
Wouldn’t it be a drag to look back at the age of 65, 75 or even 85 and think, “Wow, if I had only been more responsible with my money, things could have ended up so differently for my family and me.” Nobody wants that.
There is enough random bad luck out there to set anybody back financially, and there’s nothing you can do about that. You might as well focus on what you can control and do the best you can with it.
Here’s how to take the financial bull by the horns and live a net worthy life!
How to be Net Worthy
Being net worthy is not difficult. In fact, it’s simple. The problem is that simple things are not always easy. But, once you make financial responsibility a habit, it becomes second nature.
Here’s what you need to do, in no particular order:
- Track your net worth and portfolio on a regular basis (The importance of calculating your net worth)
- Target a specific date for achieving financial independence
- Plan for big financial events like buying a house or paying for a wedding
- Set a savings rate that will get you to your goals (Are you saving enough?)
- Take advantage of every legal opportunity to save on taxes (The brutal effect of taxes on your savings)
- Invest the bulk of their money in low-cost index funds
- Establish an adequate emergency fund (A layoff, an emergency fund, and a Martin guitar)
- Insure yourself against catastrophes
- Become a lifelong learner
Don’t be Mediocre
Most people are financially mediocre. Nothing against them, they probably learned it from their parents or the consume-now and worry-later culture that they were raised in. Regardless of the reasons, nobody wants to be mediocre, right?
Being net worthy is achievable to anyone who wants to lead their best possible life. It just takes a vision for what you want your financial life to look like and the will to take the first step in making it happen. Once you take the first step, the second one follows and before you know it, you are on your way. Who wouldn’t want to do that?
So, here is my advice to you – don’t be mediocre, be net worthy!
What do you think about being net worthy? Shouldn’t everyone want to be net worthy? Is anything critical missing from my list that should be added?