How do you compare to your peers in terms of your financial situation, particularly your income, savings, and net worth? In this episode, we explore the essential steps to assess where you stand in these key areas in relation to others. Discover the indicators, tools, and best practices that can help you gain valuable insights for informed financial decision-making and goal achievement. It ultimately comes down to one thing... Tune in to find out!
For the full transcript, links, and resources, visit theinvesteddads.com/197
Sign up for our exclusive newsletter here!
The Invested Dads: Website | Instagram | Facebook | Spotify | Apple Podcasts
How do you compare to your peers in terms of your financial situation, particularly your income, savings, and net worth? In this episode, we explore the essential steps to assess where you stand in these key areas in relation to others. Discover the indicators, tools, and best practices that can help you gain valuable insights for informed financial decision-making and goal achievement. It ultimately comes down to one thing... Tune in to find out!
For the full transcript, links, and resources, visit theinvesteddads.com/197
Sign up for our exclusive newsletter here!
The Invested Dads: Website | Instagram | Facebook | Spotify | Apple Podcasts
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better, helping you to understand the current world of financial planning and investments. Here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. I am Austin Wilson, Co-Portfolio Manager at Hixon Zuercher Capital Management.
Josh Robb:
And I'm Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Austin, how can people help us with our podcast?
Austin Wilson:
We would love it if you'd subscribe. If you're not subscribed, so you get new episodes when they drop, and if you could leave us a review on Apple Podcast or Spotify or wherever you're listening, that would really help us to be found by more people, so hopefully we can help more people with their money. So today we're going to be looking at a question that you get asked a lot, Josh.
Josh Robb:
It is true. I get asked this question a lot and I get it. I understand. The question is how do I compare to others? They want to know how are their savings, how is their earnings, how's their net worth? How are those things compared to other people around them? Which is a normal question.
Austin Wilson:
It is a normal question. It's the old keeping up with the Jones' thing, right?
[1:15] - The Most Common Question Financial Advisors Get
Josh Robb:
That's right. It's that, am I doing all right? That's really what they're asking.
Austin Wilson:
That's really what they're asking.
Josh Robb:
Am I doing okay? Am I doing what I need to do? So we're going to look at this and we're going to use some statistics, the census that goes out every handful of years. We're going to use some stats for the United States and talk through that. There's two different stats that we're going to use, median and average, or another word for average is mean because they're so close together, I'm going to use average more than anything because mean and median sometimes blur together.
Austin Wilson:
But they're very different.
[1:46] - Understanding Median & Mean Measurements
Josh Robb:
Yes. Let's first define both of those and talk about why there's difference and why one is better than the other in certain instances. So the median is the middle value.
Austin Wilson:
Somehow, when I was learning these as a third grader, median and middle stuck out, I was just able to remember median and middle. So if you can remember that.
Josh Robb:
Median is middle. Yep, very easy. Arrange them from smallest to largest.
Austin Wilson:
And you pick the middle.
Josh Robb:
Find the middle, and that's it. The other one is mean or average, and you take all the numbers, add them together, and then divide them by the number of numbers that you have. What happens though, and this is why this is important, if there are big outliers on either end, you'll get a difference between these two. And in one of the stats, you're going to actually see a huge difference between the median and the average or the mean and the median. So a median is less affected by outliers. So if taking just the middle, the outliers...
Austin Wilson:
Don't have as big of an impact.
Josh Robb:
They count as just one on either end.
Austin Wilson:
Because the outliers, and we're going to talk about some of these numbers, but the outliers in terms of net worth or income, you've got millionaires and billionaires that are many, many, many multiples of the average income or the median income or most people's income or net worth in the United States. So those numbers will be skewed.
Josh Robb:
Yes. So let's do this for an example. We're going to use simple numbers, very easy to do math on.
Austin Wilson:
Very easy.
Josh Robb:
Austin, what is the median of these three numbers? 1, 2, and 10. What's the middle?
Austin Wilson:
I would say 2.
Josh Robb:
2 is its median, it's the middle number. You have three numbers. You put them in order, pick the middle one.
Austin Wilson:
But this is where it gets different.
Josh Robb:
Yes, because this is an outlier. 1, 2, and then 10 would be considered an outlier. So then what's the average?
Austin Wilson:
Four and change.
Josh Robb:
Yeah. So you go from 2 to 4, you actually doubled the number between the median and average.
Austin Wilson:
Because of one outlier.
Josh Robb:
Yep. If you make that outlier 20 now, 1, 2, and 20, you have 23. Your median is still 2, but your average, your mean is working its way the other direction.
Austin Wilson:
7 and change.
Josh Robb:
So just a simple math there is the average skews along with outliers.
Austin Wilson:
And low numbers would also do the same thing.
Josh Robb:
Oh, if you get the other direction. Yes.
Austin Wilson:
So if we're looking at income, obviously we have people making millions of dollars, but you may also have people making no money, and that's not the normal either. So it goes both ways. Skews.
[4:20] - How Your Income Compares to Others
Josh Robb:
Yes. So we're going to use median for a lot of these stats because you don't want those outliers. For instance, income, which is one of the first things we're going to talk about. All right, we're going to start there. So again, when they're asking me questions, a lot of times they're how do I compare? Am I on track or am I line? And so what they're usually looking at are three things. And we're going to look at each of these. Income, how much am I earning compared to others? Savings, am I saving or have savings similar to others? And then my net worth, which is a good summary of your overall position, how does that compare?
So let's start with income. We're going to look at income, we're going to use the Census Bureau. I have a forged article, the actual census data in a Times article, all of which are where we're getting a lot of this data from these things. All right, so according to this Census Bureau, median household income was 70,000 for 2021. And that's household income. And so the average, or to be above that middle group, you have to earn more than that. And then if you're below that, again, outliers. This actually looked at age 25 and older is what they were using for this data. If you look at a family median, so you look at a joint household, $91,000.
Austin Wilson:
Okay, quite a bit more.
Josh Robb:
And then if you're a single or non-family household is how they broke that up, 41,000, almost 42,000. So you can kind of see the difference there.
Austin Wilson:
And that just means essentially if you're looking that 70 is closer to 91, there's probably more household.
Josh Robb:
Or joint income.
Austin Wilson:
More joint income households than single people.
Josh Robb:
And then the other thing I looked at that was interesting, they broke it down by education. They had all different ones, but I just took two stats. If you had a high school diploma as your highest education, the median, again, the middle was 50,000. College degree, it was 115,000.
Austin Wilson:
For the median?
Josh Robb:
Median.
Austin Wilson:
Wow.
Josh Robb:
So again, you could see there's a big jump there. But again, those skew all different directions because you have some billionaires who don't have a college degree that are very successful. And you probably have people who graduated college but aren't working in their profession that potentially aren't earning. If you look at that and say, hey, if I'm a joint household, there's two of us working and we're making more than $91,000. We're above that middle person. We're above 50% of the people in the earnings. So when it comes to income, this is my least favorite comparison, and we're going to talk about that in the next couple, why I don't care about income so much as anything else, but do you have any thoughts when you look at these numbers?
Austin Wilson:
Yeah, it's interesting because this is a national average also. So this is not taking into consideration geographics. So geographics play a huge factor on your income. So if I were to have the same job I have now in LA or New York, these are high cost of living areas, it would be very common to make a significant amount more money just to keep up with the cost of living.
Josh Robb:
Yeah, I looked at it. It's almost double.
Austin Wilson:
Same work... We live in a very low cost of living area. We're in northwest Ohio, rather rural area, not a huge city. Cost of living is relatively affordable. So if you start applying things like same work in these bigger metro areas on the coasts, it is crazy how much more money. So this also factors in that. This is including the people in the big cities.
Josh Robb:
Oh, it takes it all.
Austin Wilson:
And the people in the rural countryside and putting it all together. So I think that's one thing to also just take those numbers with a grain of salt, because those are skewing things also.
Josh Robb:
And if you're looking for a job, and let's say you're relocating, don't use this data as a reference point for salary negotiations because you're right, it is factoring in all different costs of living, all across the United States. And that was one thing I was going to point out. I did look at it in Connecticut.
Austin Wilson:
Very different.
Josh Robb:
The East Coast, the West Coast, high cost of living. So their averages and their median are a lot higher. So you're right on all that. All right, so that was income. I think, again, this is probably one you can get a lot of data on because there's a lot of stuff out there. You can look up Glassdoor, all the places where you can say, hey, what's kind of the person getting paid that does what I do? But again, I don't think this is very important when you're comparing, how am I doing or am I on track?
Austin Wilson:
Absolutely.
Josh Robb:
That's the first one. We've got two more to go, but first...
[8:46] - Dad Joke of the Week
Austin Wilson:
Let's take a break. Dad joke of the week. This is more of a thought, more of a phrase, and it's really going to tie into what we're talking about today. So Josh, the average person.
Josh Robb:
Average.
Austin Wilson:
Yeah, average person is really just very mean.
Josh Robb:
Just mean.
Austin Wilson:
Just mean.
Josh Robb:
I like it.
[9:00] - How Your Savings Compare to Others
Austin Wilson:
Dad joke of the week. We are back. We got two more things to look at. So first of all, we're going to talk about savings. So we talked about income, let's talk about savings, Josh.
Josh Robb:
All right, the average savings is $41,600.
Austin Wilson:
That's average.
Josh Robb:
The Federal Reserve collected that. Yes, that's average. So you got the skews.
Austin Wilson:
That is not median.
Josh Robb:
Yes. That skews with the big numbers because I also have the median, the median balance for American household. So same group of people, $5,300.
Austin Wilson:
What?
Josh Robb:
So the average 41,600, the median, so the middle number, 5,300.
Austin Wilson:
So this is the skew you're talking about.
Josh Robb:
This is the skew. So again, the bigger you have those outlier numbers on either direction zeros, all the way to the big numbers of savings, it pulls that.
Austin Wilson:
So this is saying that half of Americans have less than $5,300 in savings. Now this savings...
Josh Robb:
Now look at retirement accounts. This is cash.
Austin Wilson:
Oh, this is cash savings only.
Josh Robb:
Yep. The reason why I looked at this stat is because this protects people from emergencies. This is the baseline, before you should be saving much in retirement or anything else, you need to have this in place. And so what's important about this is that the Federal Reserve reported that 64% of Americans had enough money to cover $400 emergency, or if you invert that.
Austin Wilson:
36%.
Josh Robb:
36% of Americans can't even cover $400.
Austin Wilson:
Wow.
Josh Robb:
What's interesting, 60% of adults live paycheck to paycheck. Of that group, four in 10 are considered high income earners. So this is why, going back to your income piece, that's not as important because 40% of that group that can't get out of paycheck to paycheck are actually above the median and are considered high income earners.
Austin Wilson:
This is where it comes down to things we've talked about many times before, is spending control is really what's important here.
Josh Robb:
That's why to me, am I earning more or less than the average person or the median person? However you look at it, doesn't matter because if you are spending above what you're earning, it doesn't matter if you're earning a million dollars or $10,000, if you can live within your means, you're going to be on track better than most people according to these stats.
Austin Wilson:
Speaking of that, little sidebar here, so Kevin Costner, famous actor, been in a lot of movies, apparently he's going through a divorce or went through a divorce with his wife who he had kids with. She said she's pushing back on the proposed amount of child support, and the proposed amount of child support was like $130,000 a month.
Josh Robb:
Oh boy.
Austin Wilson:
A month.
Josh Robb:
A month.
Austin Wilson:
And she says that's not enough.
Josh Robb:
Not enough. They would struggle with that.
Austin Wilson:
That's spending problems.
Josh Robb:
That is interesting. Yes. And so again, the savings in dollars, you see the difference between the average and the median there. But what's even more important is the average savings rate is 4.3%. Well below what we suggest is people need to be saving more than that. We say a total savings of 15 to 20%.
Austin Wilson:
Including retirement.
Josh Robb:
Retirement, those things. But if they're not covering emergencies...
Austin Wilson:
There ain't no way they're are.
Josh Robb:
They're not doing that. And so this is a big indicator that in America especially, people are spending more than they should be and not saving enough.
Austin Wilson:
Well, if you look at the way our economy grows.
Josh Robb:
We're consumers.
Austin Wilson:
GDP is 70% driven by the consumption, by the consumer spending. And so we have created a culture, an economy, and really we benefit from it from the stock market perspective, but a world that is based on people spending more money all the time and more money year over year.
Josh Robb:
But this to me is a big indicator. And if someone asks me how am I doing? Well, if you have an emergency fund that can cover more than $400 of an emergency, you're better than half of the United States in a sense. I mean roughly, give or take 36% or whatever. But if you have a $1000 in your emergency fund, you're doing great. And so that's to me a better indicator of income.
[13:15] - How Your Net Worth Compares to Others
Josh Robb:
And then we got one more level that I think is the even better way of looking at how am I doing overall? And that is net worth. So net worth is overall, plus or minus, how you're doing. So you take all your assets.
Austin Wilson:
All of them.
Josh Robb:
Everything you have that's a positive thing.
Austin Wilson:
Cash, house, cars.
Josh Robb:
Yep. Everything that's in there, that's your assets.
Austin Wilson:
Rolexes.
Josh Robb:
Minus any liabilities, anything you owe. So mortgages, credit card debt.
Austin Wilson:
Student loans.
Josh Robb:
Yeah, student loans, everything like that. And you take the difference of those two, positive or negative, and that says where you're at, everything accounted for. I love it. It's a great way of tracking.
Austin Wilson:
It is a great way.
Josh Robb:
Now the census uses a term, they call it your wealth, and they take the value of your assets minus debts owed. So very similar. They do acknowledge two things. One, you can have negative net worth. So if you have $10,000 of assets and you owe $20,000, you have a negative $10,000 net worth.
Austin Wilson:
That's really not uncommon for young people especially.
Josh Robb:
Right. It's understandable.
Austin Wilson:
It's not the worst thing.
Josh Robb:
Exiting college, most people have a negative net worth with student loan debts. The other thing to acknowledge is one asset that is not covered is any kind of pension or income payout because you don't really value that on your net worth statement, or at least how they calculated wealth in their scenario.
Austin Wilson:
So like an annuity, like pension or an annuity?
Josh Robb:
Let's say I work somewhere where I have a future pension. So teachers, railroad pension plan, they have a current value, but they don't really track that in here. So there is a little bit there they acknowledge are missing. And then small things like home furnishings, things like that, they don't really put in there. Most people don't track individually how much is my couch worth? Those type of things. Just the big assets. So knowing that, but we're going to take the census. So the median household wealth in 2021, again, the last data we had 166,900.
Austin Wilson:
Okay, that's the median.
Josh Robb:
That's the median.
Austin Wilson:
It's the middle.
Josh Robb:
Middle. Interesting to note that the 10th percentile, so one in 10 had a zero or negative net worth. Okay, understandable though, because again, we're looking at a wide range.
Austin Wilson:
Especially for younger people.
Josh Robb:
And so if you're renting and don't own a house asset, because again, a home is a big chunk of your net worth throughout your life, especially later in life. But if you come out of college with student loan debt and you don't have any large assets to tie against it yet, you may have a negative. That's not a bad thing, depending on where you're at in your life and working career. But one in 10 are there. On the other end, one in 10 households had a net worth exceeding $1.6 million. You look at both of those on either end, but you're median, the middle one is 166,900. Now if you're looking to retire or hoping to live off your assets, part of your net worth includes physical assets that you may not want to sell in retirement. But let's just say that's all liquid assets, $166,000, not a lot.
Austin Wilson:
Well, especially when you consider your standard of living is probably close to a median 70K, right? So if your standard of living is spending 70K, then you get two years in change of assets that cover your living expenses, which is a little bit concerning.
[16:22] - Where Should You Be in Your Financial Situation?
Josh Robb:
Yes. So comparing yourself to the average or middle person may not be a good reference point because the average middle person's not doing great. And so, although I do understand why this question is asked a lot, I do usually encourage people that the better way to compare themselves is what are their goals? How close are they to meeting those goals? Are they doing the things they need to do to get to those goals? That's the better way because there's always going to be somebody that you know or that you can look at that's doing way better than you. And it can be frustrating. Like, oh man, look at them. They have that new car, they have the big house, whatever it is that you see, but you don't know what their net worth is. You don't know where they're at. They may be one of those high net worth earners that are living paycheck to paycheck. They also could be on the other end. You say, oh look, I'm doing way better than such and such.
Maybe they're happier. Maybe they're living well below their means and not struggling, even though you don't see based on the other driving an older car. Maybe they're doing that on purpose because they don't want those extra expenses. So I get why the question's asked. My answer to them most of the time is what does really matter? But let's look at where you're at compared to where you want to be. And that's the question I'd rather have people ask is, am I in a good spot for where I should be at this point in my career and my life based on my goal?
So if you're 40 years old and you're hoping to retire at 60, let's say you start at 20, you're halfway there, and I don't expect to be halfway to your goals because again, your income increases over time. But am I on track? That's really the question. And then if the answer is no, what do I need to do to get back on track? That's the better conversation I like having is not comparing to the next door neighbor who we don't even have a full picture of, but in general, the next door neighbor not doing great based on all these stats.
Austin Wilson:
That's my overarching thought is we should not seek to be average because average is not going to cut it, right?
Josh Robb:
Nope.
Austin Wilson:
The average American's financial situation is pretty poor. Now, it's not that difficult to be above average is really what I'm getting at here. And how do you do that? You have a plan.
Josh Robb:
Have a plan.
Austin Wilson:
You have a plan, and you stick to it and you make adjustments along the way. And really the best way to do this for most people is to work with an advisor, right?
Josh Robb:
Yeah. Have somebody help you generate that plan. To put some thought behind what is realistic, what are the things you need to do, and along with that, the net worth, again, I like that tracking. I encourage everybody to track that at least annually. Choose a time point, maybe end of the year. Some people like middle of the year, it doesn't matter. I don't care when you do it. But use a timeframe and say, hey, I'm just going to, at the same time every year, take a look at my overall picture. It's a great way of looking at progress because net worth is nice because if you put a lot of effort to paying down debt, it'll show on your net worth, because if you reduce your liabilities, it increases your net worth. If you put effort into savings, same thing, you're going to see it on your net worth.
You get a better picture of your overall financial standing that way. And so I love net worth as a way of calculating progress. There will be times where it'll fluctuate and change. There'll be things that, oh, you know what? We moved houses. So I took some of that equity and put it towards a new house. I have a bigger asset, but now I have a liability that's maybe a little bit bigger. All right, I could see that on my net worth. It's a picture and I understand what I did and why. So I like the net worth, it's a great way of tracking. To me, that's a good way of looking you over a picture. But in general, like you said, having a plan is really the key to being comfortable and confident that you're on track to where you want to be.
Austin Wilson:
And maybe you don't have a plan. We would be happy to talk to you, we'd be happy to help you. You could email us at hello@theinvesteddads.com or go to our website, theinvesteddads.com and check out the invest with us tab. We'd love to chat with you and help you out if we can. But overall, let's try to compare to our goals, not people. And if we do that, I think we're going to be on track.
Josh Robb:
That's right.
Austin Wilson:
All right. Well, thanks for listening. Please remember, maybe you had someone asking, how am I doing? Send this episode to them. Hopefully it'll help them out. As always, check out our website at theinvesteddads.com. Feel free to email us any ideas for podcasts at hello@theinvesteddads.com. And until next episode...
Josh Robb:
Oh, also, if you want to compare to the average, we have an Investopedia stock draft where I am well below the average. I am in second to last place.
Austin Wilson:
Actually, the people holding cash are above average.
Josh Robb:
Yes, they are. But that's a fun way. There's no cost, no risk because it's fake money. You could still join at any point in time. Check out our website, theinvesteddads.com, all the information is there. Social media has it too, but it's just a fun way to play with some stocks and invest without any risk because it's fake money.
Austin Wilson:
Absolutely. Well, until next episode, have a great week.
Josh Robb:
All right, talk to you later.
Austin Wilson:
Bye.
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn't have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today's show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click subscribe and don't miss the next episode.
Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.