Are You Income-Rich but Asset-Poor?

Do you earn a six-figure paycheck, but find yourself broke every month?

I certainly hope not, but apparently there are plenty of people out there who fit this description.

According to a recent article at Quartz, there’s a growing segment of the population that is considered income-rich, but asset-poor.

Now, by "asset-poor" here, we are talking about financial assets beyond a home, a car or a business.

Basically, it means money in investment accounts, savings accounts, retirement accounts and other financial accounts.

Now, to an investment newsletter-writer like me, this news was both disturbing and encouraging. Let me explain.

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According to the Quartz story, data gathered from the Federal Reserve’s Survey of Consumer Finances shows:

Even a relatively high earner who has been working many years typically only has $70,000 in financial assets, which isn’t even a year’s salary. That’s just the average — about 25% of upper-middle-class 40- to 55-year-olds have less than $17,500 in financial assets.

These numbers include assets in 401(k)-type retirement plans. If you factor those plans out of the mix, then the data gets quite troubling.

The Quartz article states that the average upper-middle-class household has just $12,200 in non-pension financial wealth. Moreover, approximately 25% of the higher-earning population had only $3,200 in financial assets in 2013.

As Quartz puts it:

It’s no wonder one quarter of all American households couldn’t come up with $2,000 if they faced an emergency — it’s not just low earners.

Now, I hate to make these statistics even bleaker, but some additional factors lead me to feeling even gloomier about the situation.

That’s because when you factor in high levels of debt that many in the income-rich, asset-poor class have, the picture looks scarier than any Halloween costume you may have just seen.

So, what’s the answer to this problem? Is there one, or a combination of answers, that can get the income-rich and asset-poor out of their current predicament?

I think there is, and here’s how I would do it.

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First, get rid of your unnecessary debt and expenses. That means don’t go out and by a new car every few years with a big monthly payment. I happen to drive a car from 2000, and I am happy to do the work on the car myself.

It may seem intuitive, but we could all use a reminder from time to time …

Don’t overspend on vacations, boats, recreational equipment, etc. Don’t splurge often on big dinners, big gifts or expensive clothes. Only buy it if you need it, and if you need it then buy it with cash — not on credit.

Second, save more money. This is easy to say, and hard to do, but the more you trim expenses and cut unnecessary debt, the more money you’ll have to save.

Third, invest wisely.

Of course, I am understandably a bit biased toward this third step because of what I do for a living. However, there is nothing biased about the need to invest wisely in an effort to grow your financial assets.

If you are earning a lot of money per year ($75K-$100K or more) and you aren’t putting your money to work though long- and short-term investments, then you are making perhaps the biggest mistake of your life.

I say that in all sincerity, because making big gains in the market and growing your money takes a combination of time, and following the right investment advice.

The newsletters here at Uncommon Wisdom Daily are designed to give you our best trading ideas that can help you in your decision-making. But only you can take action now to put time on your side.

For anyone who wants to correct his/her income-rich and asset poor condition, now is the time to take the three aforementioned steps — and to put the power of good guidance and time on your side.

Are you income-rich and asset poor? Do you have kids, friends or relatives in that predicament? I’d really be interested to know a little more about this situation directly from readers. Let us know what you think by leaving a comment on our website or by sending me an e-mail.

Good Luck and Happy Investing,

Brad Hoppmann

Publisher

Uncommon Wisdom Daily

Your thoughts on “Are You Income-Rich but Asset-Poor?”

  1. I do know someone like that! My good friend is 64, makes $40k and just recently started putting money into a 401k at work and doesn’t even have a savings account!!!! She got divorced and has her grandson living with her so I’m sure that has a lot to do with it. Very sad.

  2. A P.S. to my previous comments, “Living below your means” also, includes not having more kids than you can afford as well.

  3. One fundamental success factor in living well is to “live below your means.” This means living in a house you can easily afford, driving a modest car and not blowing your budget with fancy restaurants and travel. If you do, you can save, minimize debt, and have discretionary income for investments. Believe it or not, most millionaires live this way.

  4. I always love these questions. I earn just about 100k per year and I always find it funny to look at people (who I know earn less than I do) trying to impress with fancy cars, clothings, purse or big vacations. These are the same that starts laughing when we say we want to retire around 45-50 years old or tells us that it’s impossible to save money in this economy… We save around 20% of our income and have slowly bought a few assets for long tine hold. I guess that when we’ll do retire we’ll be “lucky”…

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Brad Hoppmann originally grew up in Florida, but has lived in Baltimore, Charlotte and New York as well throughout his career. Always an athlete, he played varsity football and water polo at the University of Florida and received All-SEC/SCC honors.