Your bank account is not a direct reflection of your job, education, or parents. It’s a reflection of the 6 main factors that determine how much money you have and whether or not that number will change. Here they are.
1. Whether or not you’re married.
This stat may come as a surprise to some of you – it sure did to me – but single people have a way harder time growing their net worth compared to married couples. Historically, it’s been financially better to be married than single, but the gap between married couples and their single counterparts has widened extensively thanks to inflation. In 2019, the median net worth of married couples was almost nine times higher than single households in the same age range. Nine times higher!
When you’re married, you have two asset pools to pull from. You’re also more likely to get approved for a mortgage for that first home, which takes you out of the renting sinkhole. Not to mention the tax breaks of course. Don’t rush to marry the next person you date for your money, but do consider its impact when debating the big question down the line.
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2. What your car payment is.
The average American salary is $59,428, or roughly $4,000 per month not including health insurance or other taxes. Now, the average American’s monthly car payment for a new car is $729 – that’s 18% of that monthly income on your car, and that doesn’t even account for gas, insurance, vehicle registration, and mechanic bills! Add your housing cost to that and half of your paycheck is easily gone down the drain by the second of the month.
If you’re shocked by the numbers or displeased by your car payment, whether it be $400 or $800, there are steps you can take to rectify it. Start by considering a used car to replace your new one, even if it’s just a year or two old. Choose stability and lifespan over a flashy, expensive-to-fix beamer. If it’s too late and you already have that beamer, consider renting it out when not in use on the Turo platform and using public transport now and again. There are plenty of ways to play around with this dagger in your budget to put that money to good use elsewhere.
3. Where you’re living.
How much money you have will be greatly impacted by where you’re living, both geographically and what you’re renting or buying. Starting with geography, the country or state you’re born into or choose to live in will greatly impact your chances of becoming upper class. The wealthiest areas in the U.S. include states like Massachusetts, which has the largest education and health services supersector in the country, or California, where Silicon Valley is housed. Of course, we have more options now with remote work post-pandemic, but geography still plays a part.
The second component is renting versus buying, and how much you’re spending on both. Housing is usually the largest monthly expense a person has, so throwing money away on expensive rent or buying a home too big for your budget could have drastic financial consequences down the line. Alternatively, house-hacking or buying a smaller piece of property could propel your extra cash into investments or savings to save you from future mishaps.
4. Whether or not you have children.
As per the USDA, middle-income parents of a child born in 2015 could expect to spend over $233,000 for food, shelter, and other necessities to raise that child through age 17. Two-hundred-thirty-three-thousand. Need I say more?
5. When you start saving/investing.
It’s no secret that investing earlier means more time to earn interest, dividends, and cold hard cash. Think of saving and investing like planting seeds for your future money tree. The sooner you plant those seeds, the more time they have to grow into a big, leafy financial tree. If you start investing $200 per month at age 25 with an annual return of 7%, you’ll have invested $96,000 by retirement age but actually have around $407,000 because of compound interest over time. If you instead start at 35, though, you’ll invest $72,000, but end up with just $198,000 due to less time for compound interest. That’s a $200k+ difference!
6. The emotion you attach to money.
Almost every financial decision you have made this far in life is due to some emotion, and the most common money emotions are fear, guilt, shame, and envy. None sound very positive, now do they? But think about it; when the stock market goes up or down, behind it are thousands of people who are making decisions based on fear or FOMO – or should I say, envy? If you can’t identify where your financial decisions are coming from, then you’ll never be able to start looking at your money analytically and unbiasedly. Detach emotions, empower decisions. When it comes to your finances, stay rational, not emotional.
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Conclusion:
You may not be able to get married tomorrow or un-have your child, but there are always steps you can take to change your financial picture if it’s not where you want it to be. Start with your emotions and then take it a step further to your car and housing bills. Awareness is the first key to getting that bank balance moving in the right direction. You got this!