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USA Real Estate Blog

The top 1% have 286 Times More Money Than the Bottom 20%

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“man holding 1 US dollar banknote” by lucas Favre on Unsplash

The top 1% of households (as measured by income) have an average of $2,495,930 in these various saving accounts. The bottom 20% have an average of $8,720.- Per Maginify.com

I was recently reading a post on Magnify Money, in which they really break down the data for savings in the U.S.

There is some truly fascinating facts about savings by different groups, but this is the one that truly floored me.

“The top 1% of households (as measured by income) have an average of $2,495,930 in these various saving accounts. The bottom 20% have an average of $8,720.”

For every dollar of savings (of all types including retirement savings) owned by the average household in the bottom 20% of income earners, the top 1% have $286.23. Put another way, the top 1% of households in the U.S have 286 times more savings than the average household in the bottom 20%.

We all know two things to be true:

  1. Most people don’t save enough (for ANYTHING) and;
  2. Income inequality is a serious issue.

At first glance this appears to fly in the face of something I wrote recently where I reviewed data that showed a low correlation between income and wealth.

However, it is important to put these numbers in context. Firstly, there is not zero correlation between income and wealth, those who make more money have an easier time becoming wealthy. But for a great many people, there is a low correlation between income and wealth, meaning not many high income earners are “wealthy”.

That being said, the top 1% of income earners, which is the focus of today’s articles are outliers. The very nature of being “the top 1%” makes them outliers. To qualify as the top 1% of income earners in the U.S you need to make more than $390,000 per year. With nearly $400K as the “Floor”, it’s almost impossible to not, if even by accident, stumble into a large degree of wealth over time. Again, $400K is the floor I wonder what the top 1% of the 1% make per year? (If you know please let me know in the comments).

So it’s safe to say that even though many high income earners have not achieved a great deal of wealth, the very highest income earners have.

How can the rest of us can achieve greater savings and more wealth in the long term?

First things, first: Create a budget and WRITE IT DOWN. We have a tendency to lie to ourselves about things like dieting and budgeting. When I ask most people if they have a written budget that they stick to, they say “yes”. In reality only 40% of Americans have a written budget.

How can you possibly make the most of your money if you don’t know where your money is going? How can you “plug the holes” in your money bucket (bank account) if you cannot answer the following questions.

How many holes does your money bucket have?

Where are they located?

How big are they?

Your going to continue to leak money until you get a real good handle on where your money is going.

Second, if you have credit card debt PAY IT OFF AS SOON AS HUMANLY POSSIBLE.

It boggles the mind how many people have $15,000 sitting in a cheuqing or savings account earning 0%-1% interest while they have $10,000 in credit card debt at a rate of 20% interest.

Have large amounts of debt? You are not alone and you CAN get out from underneath it. I’ve written about a few strategies of paying off debt here:

Once you complete understanding of where your money is going, you have knocked off or at least knocked down your debt, it’s time to start playing some offence. Saving and investing to build your long term wealth.

Once you have an emergency fund saved up in a risk free savings account, you might consider some more risky investments that can bring you long term returns. In the personal Finance community there are two major asset classes that are very popular:

  1. Stocks
  2. Realestate

I’ve written extensively about stocks, and why I think for the novice/average investor, passively managed index funds are a good bet for long term investing.

On the real estate side of things, you have virtually unlimited options. One way of “dipping your toe” into real estate investing while eliminating or reducing your biggest expense in life is the concept of house hacking.Read up about house hacking here:

Clearly we all need to “step up our game” as it relates to money. No matter how hopeless your situation may feel, you can (eventually) get out from almost any financial mess if you are willing to do what it takes. It’s a long road, but there are loads of people who want to support you. Including me! If you have a question about personal finances or want to share your story about money with our community please let me know in the comments.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions

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