factors impacting wealth
Okay. So for this posting, I wanted to generate list of factors that meaningfully affects one’s net worth. I’m a big believer in looking for models of behavior that can be used to build wealth. So, along these lines – here are ten things than actually impact your bottom line. Some of these you can can implement in your own life, others are more features of the sociological landscape.

1) Budgeting: We don’t often pay enough attention to budgeting, but its clear that if you know where your money is going, its a lot easier to improve your net worth – you can locate areas of waste, better balance your income and expenses, etc.

2) Home ownership: The vast majority of wealthy Americans own their own home. The richer you are, the more likely you are to own your home. The latest survey from the Federal Reserve puts the median homeowners net worth at $234,000 and the median renters at $5,000. Why? Well, it seems that home ownership has tax benefits, and forced savings mechanism via mortgage payoff have a substantial long term impact on your bottom line.

3) Maximizing your return: Some academic studies have pointed to the role of compound and accumulated interest in net worth improvements. This certainly makes sense. All things being equal, an investment compounded at 5 percent over 20 years will give you less than an investment compounded at 10%. Your return is very important for long-term building of wealth.

4) Education: Having a bachelors or professional degree also appears to elevate wealth. But only so much though, persons with a Ph.D. tend to have lower lifetime earnings. This partly because it takes such a long time to get one, but also because the humanities tend not to pay as well as skilled professional jobs such as law or medicine.

5) Not having Kids: Sorry to say this folks, but the Federal statistics are pretty clear. According to the 2007 Survey of Consumer Reports, childless couples have the higher incomes and tend to save more.

6) Coming from a smaller family: People with fewer siblings are more likely to receive an inheritance. Think about it, where there are more mouths to feed, everybody gets less.

7) Being Jewish or Episcopalian: We covered this a while back, but certain beliefs and religious communities have psychological and sociological characteristics that are appear to result in higher wealth levels.

8) Avoiding High Interest Debt: Since you are an obvious reader of personal finance blogs, you probably already know that payday loans, high interest credit cards, rent to own and overdraft protection loans are basically usurious schemes to separate you from your dollars. Wealthy people tend not to mess around with high interest consumer debt products.

9) Ownership: If you look at data driven studies of rich people such as Stanley and Danko’s The Millionaire Next Door or Lisa A Keister’s Getting Rich: America’s New Rich and How They Got That Way, you see that a lot of millionaires are self employed business owners. Why? Great question. Its possible that overall earnings levels are higher for business owners than people who work for others.

10) Saving: Who can forget saving! The impact of saving on your bottom line is obvious. Every dollar you save is a buck towards your net worth. More importantly though, saving fuels the processes of investing and debt reduction. For example, if you want to buy a house, you’ll need to scrape up a down payment. Similarly, if you have want any serious position in the stock market or an equity stake in a small business, you need a small pile of cash. The classic way to do is save! Living frugally can also have a drastic impact on your ability to save.

Folks if you’ve got anything to add, we’d love to hear about it!

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MANAGE YOUR MONEY TOGETHER

Here are some simple guidelines for DINKS to build wealth:

1) Collaborate: Meet regularly to talk about money, set goals together, track and monitor them.

2) Understand and respect your partner. Take time to understand your partners values about money.

3) Watch the numbers. Get a budget, monitor your spending and track your net worth.

4) Max your retirement. Maximize contributions to your tax deferred retirement accounts.

5) Invest in stock. Stocks perform better than bonds or cash.

6) Avoid high interest debt. Credit cards and title loans are financial cancer.

7) Diversify. Don't put all your eggs in one basket.

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