The prevalent idea promoted across much of our media is the vast disparity between white and black wealth is indicative of “systematic racism.” No matter the reason, the gap exists. What is lacking actual proposals to increase black or anyone else’s wealth. What is offered generally involves money transfers or mandated higher wages. This may or may not increase wealth, depending on whether the additional money is saved or consumed. Wealth is just another way to say net worth. We determine our net worth by subtracting what we owe from our assets. What is left is our net worth.
An easy way to understand this is to look at how many people’s two biggest assets would determine one’s net worth. Say you buy a house for $100,000 and auto for $20,000. You were able able to acquire both with 10% down and to borrow the rest. You have $120,000 in assets and debt of $108,000. That leaves a $12,000 net worth. From that point forward, we have to mark the assets to their present market value. Autos are a depreciating asset. They lose value the instant you buy one. Real estate may depreciate or appreciate depending on several factors, the greatest one being location. If the real estate fails to appreciate and the car continues to depreciate, you’ll have a declining net worth. It could even turn negative. Keep this in mind.
Only the portion of one’s income actually saved can add to net worth. Unless it is used to obtain a capital asset, it cannot grow. Putting money in your mattress stays the same. If the assets acquired appreciate it adds to net worth. Maybe the asset gives a return of interest, dividends, or net rent. If those are reinvested, they can also add to wealth. If the value depreciates, your net worth reflects this adversity. This is all basic stuff but is often overlooked.
How do we help those with a net worth deficiency? I submit the “Expanded Dave’s Plan” would be an excellent place to start. Everyone has a Personal Benefits Account (PBA). It consists of two sub accounts at the financial institution of their choice. One combines all tax-favored savings accounts and the other a regular bank account. A catastrophic Health Care plan is associated with the tax-sheltered account. Significant medical bills can wipe out savings, but here we have protected them with a Catastrophic Policy. Employers and governments contribute proper benefits directly into the appropriate account. They’re yours even if you change jobs, locations, or both.Continue reading