You’re a Heck of a Lot Richer than You Think

richer than you think
These workers are stoked to learn they only need $1,000 in the bank to be rich

I have some great news for you. If you’re saving responsibly and have an emergency fund of at least $1,000 in it, you’re a 1% er. No I’m not making that up. A study by GoBankingRates found that 50% of families making between $100,000 and $149,000 a year have less than $1,000 in the bank. A solid 18% of these families don’t even have anything in the bank. Keep reading because I’m about to massively boost your financial self-esteem from how many people suck at managing money.

Even the Ultra Rich Can’t Handle Their Money

Perhaps even more disturbing, 29% of households making over $150,000 have less than $1,000 in the bank. About 6% of them have nothing. My question is this: how the crap could you be pulling down six figures and not even have a band to your name? What are these highly educated people doing?

So if the rich are so bad at handling money, it’s little surprise that the middle and working class barely have enough to get by. It explains why high deductible plans are fantastic in theory but awful in practice. We have so little money, most of us have to turn to our credit cards, pawn shops, or corner payday stores just to meet a basic unexpected expense.

How Much You Should Have in the Bank

Just because everyone else is committing financial suicide doesn’t mean the readers of Millennial Moola have to. Here’s a good guide to how much to have in the bank at any given time. You want to have at least three months expenses in a checking account that you could get ahold of tomorrow.

That figure will be different for everybody. If you live in New York City where even an apartment with 4 roommates costs $1500 a month, you should have a minimum of $5000 in the bank. Perhaps in a small college town, it’s ok to have $2000-$3000 saved up. If you have a family, then that figure probably needs to be closer to $10,000.

In no way is it ever smart to have less than $1000 in your bank account. Obviously you can’t help it sometimes, but here’s what happens when you have nothing to rely on in an emergency. You turn to lenders of last resort. So if you’re middle class you load up on your credit cards and pay 15% interest charges and destroy your chances of retiring before 65. If you’re working class, you pay something between 100% to 400% interest at a pawn shop or payday lender because you probably don’t have great credit and don’t have other options.

At Least Millennials Are Better at Saving Than Gen Xers

The only silver lining in this GoBankingRates report was that our generation is slightly better at saving than our older counterparts, Generation X. Apparently 13% of us have between $5000 and $10000 in the bank, whereas only 10% of Generation X have that much saved.

To be honest, that makes a lot of sense. Generation X is the most likely to have just been entering the housing market right at its peak. It really sucks for them, but they were buying houses in California, Nevada, Florida, and Arizona right at the peak of the bubble with almost no equity. There only choices were to walk away and damage their credit, which has probably led to higher costs in other areas of their lives.

Is This Study an Outlier?

Unfortunately, I’ve seen other studies that suggest similar results to this one. While I sure wish Americans learned personal finance in schools and weren’t so doggone awful at putting money away for a rainy day, it seems like we are.

Policy Implications For Our Terrible Savings Rate

As I mentioned earlier, high deductible health insurance is shot if you don’t have any savings. We Americans have taken a great idea and destroyed it because we’re the equivalent of junkies when it comes to money.

We’re addicted to credit cards because many of us live paycheck to paycheck. When we have car repairs, purchase a vehicle, shop for a mortgage, and plan our weddings, we finance everything because we just don’t have the money to pay for it cash.

So think about the consequences. If you have no money, and you finance everything you buy, you will always be stuck paying for your past debts without any ability to get ahead. Any talk of massive social change in America should begin with ideas on how to jump start America’s savings rate.

So Readers, Pat Yourselves on the Back Because You’re Richer than you Think

I’m excited to write for you here on my blog. I want to encourage you to keep up the good work if you have more than $1,000 in the bank because you’re doing a lot better than many of America’s highest income earners.

If you’re not there yet, slash your expenses as hard as you can until you have that $1,000 saved up. Once you make it to that point, figure out your monthly expenses by tallying up all your credit card bills and multiply by 3. That is the minimum I want you to have in the bank to protect against financial catastrophe.

Questions for You

  1. How much do you like to keep in the bank?
  2. What are some examples of high income people you know whose finances are a wreck?

4 thoughts on “You’re a Heck of a Lot Richer than You Think”

  1. It’s really pretty astounding to me how people making six figures can end up with so little in the bank. I think a lot of it has to do with the normalization of debt in these high income fields. Recently was listening to Dave Ramsey and heard a dentist with $480,000 in student loans, recently graduated, talking about buying a house right away. When you think about that, it’s easy to see how a big paycheck just gets sucked away.

    In my own field, I saw the same thing with my colleagues. All had student loan debts, but rather than live frugally and live fairly cheaply, they instead opted to live in luxury apartments. The odd thing is, many of these folks also lived in these same luxury apartments while in law school, which meant they were either independently wealthy, or funding that with student loans. Couple the high, self-imposed cost of living with six figures of student loan debt that you carry for 10-30 years, and it’s easy to see how a lot of that paycheck just slips away every month.

    I’m still working on building up my own emergency fund, and am slowly aiming for around 10k approximately, which I feel is adequate to cover the majority of emergencies.

  2. This is an awesome article Travis. I really felt your point. And you had some pretty astounding data points. Personally, I’m investing my money pretty aggressively, so I don’t have as big of an emergency fund as I probably should.

    The good news is though, I have no consumer debt and a couple different income streams with regular surplus cash flow. So even though I might only have $1,000 or so immediately liquid, if I don’t shuffle it to my brokerage account it starts to pile up relatively fast. That said, a little more emergency buffer wouldn’t hurt.

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