How To Be 45 Times More Wealthy Than Your Neighbor
How do most people gain wealth in America?
If you search the internet for “ways to gain wealth,” you will undoubtedly find hundreds of articles with catchy clickbait titles [like the one used for this post] written by gurus and advisors that claim to reveal secrets and shortcuts to financial freedom.
I’ll summarize the majority of those articles for you:
- buy less crap you don’t need
- never use a credit card if you’ll pay a single month of interest
- live by a budget that you track and have written down
- consistently invest to make your money work for you
…and then, in a few short decades, you’ll look back and see that you have achieved financial independence and can enjoy retirement doing all of those wonderful things that retired people do.
In other words, keep more of the money you earn, and make that money work for you over time. There, I just saved you hours of research looking for the Holy Grail of investing.
But wait, there’s more…
Did you know that as of 2016, homeowners’ median net worth was 45 times the median net worth of renters? You read that right. It’s not a typo. Not 4 or 5, that’s 45 times!
According to the Federal Reserve Board, the median net worth of the average homeowner in the United States was $231,400, compared to $5,200 for the average renter. Housing was the largest source of wealth for homeowners’ net worth, with the average net housing wealth at $197,500 (85 percent of median net worth).
“Housing wealth (or net worth or equity) is built up over time via the home price appreciation and the principal payments that the homeowner makes on the loan. NAR calculated the gains in housing wealth (equity) over a 5, 10, 15, 30 year holding period using NAR’s median existing home price data, assuming a 20 percent down payment and a 30-year fixed rate mortgage. These calculations are illustrative of the magnitude of the wealth gains over time. Actual wealth gains will vary by property and type of financing.”[1]
In Orange County, equity gains over the same period of time were considerably higher ($218,773 at 5 years; $357,536 at 10 years; $449,653 at 15 years; $780,620 at 30 years):
There are many factors that go into the decision to buy a home. If your future financial position is one of those factors, the numbers show that homeownership is the single greatest source of wealth for Americans over time. For Orange County, the median housing wealth gain is considerably above (about 3 times) the national average.