Money Management

Americans have a pretty high net worth but a lot of us still feel financially strained. Read on to see why. 

It’s interesting to have a look at Americans’ net worth, as opposed to just the amount of money they have in their savings accounts, because it paints a bigger picture. Net worth is a measure of all of your assets minus all of your liabilities.

So let’s say you own a home worth $400,000 and you have $40,000 in savings and $160,000 in a retirement account. That’s a total of $600,000 in assets. But let’s say you also owe $300,000 on your mortgage. That brings your net worth down to $300,000.

Recent Federal Reserve data found that the average American has a net worth of $1,063,700. But if that’s the case, why do so many people feel as if they’re barely making ends meet?

Average net worth doesn’t tell the whole story

While the average net worth among Americans may be $1,063,700, median net worth is only

$192,900. And when you have a median that’s well below the average, it tells you that more people are closer to the median than the average.

To put it another way, what’s likely happening with this data is that a small percentage of very wealthy Americans is resulting in an average net worth of over $1 million. But that’s not representative of the typical American.

Many of us can’t tap our assets in full

Net worth is a measure of your total assets. But not every asset translates to liquid, spendable cash.

Let’s say you have a net worth of $200,000, which is roughly what the median net worth looks like today. You might have that net worth because you have no money in savings, a home that’s worth $300,000, and a $100,000 mortgage balance.

Do you feel wealthy? Probably not. You may be sitting on $200,000 worth of equity in your home. But you need your home to live in, so you can’t exactly convert that asset to spendable cash unless you sell it.

One thing you can potentially do is borrow against your home equity via a loan or line of credit. But that means taking on more debt and having to pay interest on it. So while it is a way to get access to liquid cash, it may not be an optimal one.

Now let’s say you have a net worth of $1 million, which is closer to the average. It may be that you’re sitting on a $1 million IRA balance by your late 40s because you started funding that account in your early 20s and invested your money well over the years.

In this situation, you may be doing quite well financially. But that doesn’t mean you have $1 million to spend. If you tap your IRA ahead of retirement, you won’t have that money for retirement. And if you’re not yet 59 1/2, you’ll be penalized for taking early withdrawals anyway. In fact, it’s more than possible for someone to have $1 million in a retirement plan but still have to pinch pennies day to day to cover their expenses.

Take this data with a grain of salt

All told, Americans’ average net worth is high. But that doesn’t mean the typical American feels rich. If you were to survey your friends and neighbors today, chances are, they’d tell a very different story.

To be clear, it’s good to have a high net worth, even if most of your assets aren’t ones you can touch easily. If you have a house you have $300,000 worth of equity in, you can tap that equity in an emergency or downsize to a smaller home and pocket some profit if you need money.

But if you want to feel as if you’re in a good position to be spending money without worry:

Build emergency savingsKeep your essential expenses lowSteer clear of high-interest debt, like that of the credit card varietySave money in the bank for the things that bring joy to your life, like vacations and social events

It’s good to have a high net worth. But it’s also important to set yourself up to enjoy your success and feel as if you’re in a position to be able to spend money comfortably.

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Home values are up these days. Read on to see what the typical property is worth. 

In 2020 and 2021, mortgage lenders started offering really low interest rates to entice buyers at a time when the country was deep in the throes of a financial crisis. Back then, it was possible to sign a 30-year mortgage at around 3%. By contrast, the average 30-year mortgage rate today is around 8%, according to Freddie Mac.

Meanwhile, when rates were low, buyers across the country were clamoring to purchase homes. That drove home values up in a serious way.

Recent data from the Federal Reserve reveals that as of 2022, the average U.S. home value was $471,000. And even if your home isn’t worth quite as much, chances are, it’s worth more now than it was prior to 2020.

Having a higher home value could do a lot of good things for you, even if you have no plans to sell. But if you’re going to take advantage of an uptick in the value of your home, proceed with caution.

You can benefit from a higher home value without selling

Many people are hesitant to sell their homes right now for one big reason: Moving would likely mean signing a mortgage at a much higher interest rate. In fact, one big problem home buyers are running into these days is a lack of inventory. And a big reason is that people just aren’t motivated to sell when mortgage rates are so high.

But the good news is that you don’t need to sell your home to benefit from its higher value. Rather, you can tap your home equity via a loan or line of credit if you could use the money to do things like make improvements or repairs.

You can also borrow against your home equity to do something that has nothing to do with your home. Let’s say you’re eager to start a business. Qualifying for a small business loan can be challenging. But let’s say you also have $50,000 worth of tappable equity in your home. You may be able to borrow that sum and use it as seed money to get your venture off the ground.

Be careful when tapping home equity

If your home’s value has increased in a big way, it can be tempting to tap your equity and use it to improve your life in the near term. But remember, falling behind on a home equity loan or line of credit could, in time, put you at risk of foreclosure, not to mention damage your credit score significantly. So before you rush to tap your equity, think about whether you’re doing so for an important reason.

It’s one thing to borrow against your home to build an office in your basement so you can work remotely more easily. It’s another thing to borrow against your home to go on a vacation that might bring you temporary enjoyment but isn’t necessarily going to better your life beyond that.

Of course, once housing inventory starts improving, we could see the average home value drop below $471,000. Don’t be surprised or panic if that happens.

Overall, home values tend to rise in the long run. In fact, in 10 years from now, the average home value is likely to be higher than $471,000, even if values experience some temporary declines along the way.

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Want to lower your tax bill? Read on for tips on how to do so in the next two months. 

Taxes are one of those annoying things everyone has to deal with. And chances are, you’d prefer to pay less in taxes rather than more.

Well, here’s some good news. If you make these moves by the end of the year, you might shrink your 2023 tax bill quite nicely.

1. Pump more money into your 401(k)

Many people have access to a 401(k) plan through work. If you’re saving for retirement in a traditional 401(k), every dollar you put in is a dollar the IRS won’t tax you on, up to the annual limit of $22,500 if you’re under 50 or $30,000 if you’re 50 or older.

Now if you have an individual retirement account (IRA), you get until mid-April of 2024 to fund that account and have it count for 2023 tax purposes. But any 401(k) contributions you want to count for 2023 have to be made in 2023. So now’s the time to contact your payroll department and see what you need to do to increase your contributions. You may have to submit a form or fill out a request online for them to process that change.

2. Sell losing investments that aren’t likely to recover

Generally speaking, when the investments in your portfolio lose value, it’s a good idea to sit tight and wait things out. Often, investments will recover, whereas if you sell right away, you’ll lock in a loss.

But sometimes, it does pay to sell a bum investment, such as if you have a stock in your portfolio that’s consistently been losing value and isn’t likely to recover. And the good news is that doing so could benefit you from a tax standpoint.

When you sell assets in your portfolio at a loss, you can use that loss to offset capital gains. So let’s say you sold stocks earlier this year at a $1,000 profit. If you sell a stock you no longer want and lose $600 in the process, you’ll only be looking at taxes on $400 worth of gains, not $1,000. You can also use up to $3,000 in losses to offset income for the year if you don’t have any gains in your portfolio to offset.

3. Purchase equipment and supplies you need for your side gig or small business

If you’re self-employed or run a small business, the supplies and equipment you purchase related to that work count as a tax write-off. So rather than wait a few months to buy the things you need to keep earning money, buy them this year.

If you’re a content editor and need a new monitor for work, that’s a totally legitimate deduction. And if you own an IT consulting company and you need to buy some cables, do it by Dec. 31.

Incidentally, in the coming weeks, you may find that retailers are running their biggest sales of the year. So aside from a tax write-off, it could benefit you to purchase equipment sooner rather than later.

Nobody wants to pay the IRS more money than necessary. If you make these moves, you may find that you’re able to nicely slash your tax bill — and keep more of your hard-earned money for yourself.

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Now might be a great time for some car shoppers to score deals, but it might be too costly for others. Find out how to decide if you should buy right now. 

This is the time of year we usually think about buying gifts for other people, but sometimes it’s nice to treat yourself, too. If you’ve been thinking about buying a new car, you might be able to find some great deals right now. But you have to weigh more than just the retail price of the vehicle you’re buying.

Below, we’ll look at two reasons you may not want to put off a vehicle purchase any longer and one reason you may prefer to wait so you can decide what’s right for you.

Two reasons you might want to buy a new car right now

Here are two reasons why buying a car right now could be a great move.

1. End-of-year deals

The end of the year often brings some of the best deals on vehicles because dealerships want to get rid of what they have to make room for new model-year cars on their lots. So they’re often willing to part with them for lower prices in late fall and winter than they would if you were trying to buy a new car in the spring or summer.

Wandering car lots while it’s cold and dreary out may not be your idea of a good time. But if it saves you a few thousand dollars on your purchase, it could be worth it.

2. Auto workers strike

The United Auto Workers (UAW) strike has now been going on for over a month and there’s no sign of an end. This could potentially lead to a shortage of vehicles in 2024, and scarcity usually drives up prices. So if you try to wait, you could end up paying a lot more than you would if you bought a car now.

Or you might have to settle for a car that’s not exactly what you want in the future. Some worry that automakers might do away with some vehicle models entirely due to the strike, leaving drivers with fewer options.

Why you might not want to buy a car right now

If you’ve gone as far as looking into auto loans for your new vehicle, you probably already know they’re not great right now. Here’s a look at average auto loan annual percentage rates (APRs) in 2023 by credit score:

If you were to borrow $30,000 for a new car with a middle-of-the-road 8.99% APR and a 60-month loan term, you’d wind up paying $623 per month and over $7,300 in interest over the lifetime of the loan. That’s pretty high.

It might not be that big of a deal to you if you have a vehicle to trade or a large down payment. Then you’d be borrowing less so you’d also pay less in interest. However, any way you slice it, you’re going to pay more than you would if you’d locked in an auto loan when rates were lower.

At the end of the day, you have to weigh how badly you need a new vehicle right now. If yours is totaled or barely runs, it’s likely worth it to get a new one now, even if it means paying a little more. But if you don’t need a car, you might consider taking a chance and waiting.

Alternatively, you could explore used cars instead. Strangely, used car loans can have even higher interest rates than new car loans do. But used cars also tend to cost a lot less and they’re more affordable to insure. So it’s possible you could still come out ahead this way. Explore both options before deciding which is right for you.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Women may follow core investing principles better than men do. Find out why women tend to outperform men in the market. 

It can be challenging to find your own personal investment strategy, which includes deciding how comfortable you are with taking risks and what types of stocks you prefer to add to your brokerage account. But one simple approach to investing may help you: Consider what women are doing.

While there isn’t a one-size-fits-all approach to how people should manage their investments, some data shows that investments managed by women perform better than those managed by men on a risk-adjusted basis.

According to a Wells Fargo report from a few years ago, women may be better investors than men are because their investment behavior “tends to follow recommended investment principles more often than men’s.”

Here are three reasons why women do well with their long-term investing decisions.

1. Women are more patient investors

One crucial aspect of investing is to be patient so that your investments have time to grow. Quick decisions are often based on emotion, which can cloud your judgment and can be a quick way to lose money.

However, Wells Fargo data showed that women excelled at being patient investors. The results showed that single women tended to trade stocks 27% less frequently than single men.

The report also mentioned that overconfidence — which male investors tend to have more of — can lead to more frequent trading, which often results in lower investment returns.

2. Women are more disciplined investors

Another interesting piece of data from the Wells Fargo report showed that women were more disciplined in their investing approach, leading to higher risk-adjusted returns.

For example, single women had the highest risk-adjusted returns on their investments, compared to joint investment accounts with men and compared to accounts led by single men. Additionally, women who invested independently had better risk-adjusted returns than accounts shared with men, even when women led the investing decisions.

Wells Fargo also cited a Betterment study that found men were twice as likely to allocate 100% of their investment into stocks — which are inherently riskier — than women were. Women were also six times less likely than men to make huge investment allocation shifts, like moving 100% of stock investments into bonds.

3. Women are more willing to learn

Finally, the report showed that women may have more of a willingness to learn, which may end up making them better at investing. Wells Fargo said that more than half of women worked with a financial advisor, compared to under 40% of men.

Separately, a Fidelity report about women and investing found that 62% wanted to increase their knowledge of investing and financial planning, and 44% planned to reach out to a financial planner within the next year.

RELATED: Best Financial Literacy Apps

There’s a lot you can learn no matter who you are

Whether you’re confident in your investing approach or just getting started, there’s always room to learn more. Here are a few points to keep in mind.

1. Find the right brokerage account

There are lots of accounts to choose from, but taking a look at some of the best online brokers for beginners and comparing what they offer is a great way to get started. This may include looking at some investing apps and selecting the best one for you.

2. Overcome your fear of investing

It can be overwhelming to some people to take their hard-earned money and put it into the stock market. If you feel that way, you may want to read a firsthand account of someone who overcame her fear of investing. One way to help you be more confident may be to invest in an index fund that tracks the broader market and doesn’t require you to pick individual stocks.

3. Don’t go it alone

Just like the Wells Fargo data suggests, it could be a good thing for you to hire a

financial advisor, especially if you’re just getting started in investing. You’ll quickly learn

more about the investing world and begin building wealth at the same time. If you’re

unsure about hiring a financial advisor, you may want to consider using a

robo-advisor.

It’s worth remembering that no matter how much investing experience any of us have, we could all use more patience and some additional learning. Now, if you’ll excuse me, I need to go ask my wife where we should put our money.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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