The dangers of average

When you read financial advice, you may feel like the author is talking directly to you, but often times articles are geared towards a minority of the population that makes horrible financial mistakes.

How often have you heard about how much credit card debt people have?  The average household has $7,327 in credit card debt.  The thing is, 56.8% of households have no credit card debt.  Considering a majority of people aren’t in credit card debt, there sure are a lot of articles on the importance of paying off your cards each month, along with strategies for people to follow to pay off the plastic.

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Another area that gets a lot of attention is mortgages, yet in 2013, only 35.8% of owner occupied housing had a mortgage, while 19.9% of owner occupied housing had no mortgage (the rest were either vacant or renter occupied).  56% of housing in the country is actually owned (with and without a mortgage) by the people who live in it; there are a lot of rental properties out there!  So articles on paying down your mortgage versus investing and 15 year versus 30 year loans don’t apply to the majority of people.

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Another frightening statistic involves retirement savings.  The average household has $2,500 saved towards retirement.  Unfortunately, there are no statistics that make this number better.  Of those actively saving for retirement, the average balance of all retirement accounts is $104,000.

Do you see yourself in these averages?  Hopefully you can understand where financial writers are coming from when they make suggestions; the average American does a lousy job paying down debt and saving for the future.  But that doesn’t mean you have to.

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The lesson here is to not compare yourself with the average and think you’re okay.  You should strive to be better.  Much better if you want a financially secure retirement.  It takes time and dedication, but it’s possible.  In the first 3 months of 2014, 43% of all home buyers paid cash for their new property.  That might be out of reach for you, and if it is, take a step back and figure out why.

It may be obvious…I don’t make enough money to do that.  But that’s an excuse everyone can make.  To the person making $25,000 a year, all of his problems would disappear if he made $40,000 a year.  Yet, the person making $40,000 would live life stress free by making $60,000 a year.  And the person struggling to get by on $60,000 would get out of debt easily if only she made $80,000 a year.  Notice the pattern?  One thing we’re all great at is making excuses.

Maybe buying a house with cash isn’t realistic today.  But you can strive to pay cash for your next car.  The average amount borrowed to buy a car in 2014 was just over $27,000.  In the third quarter of 2012, only 15.2% of new car buyers and 47.7% of used car buyers paid cash.  If you can’t afford to pay cash for your next car, perhaps you should consider if you can really afford the car at all.

This isn’t to say you shouldn’t take out a mortgage or a car loan.  Crunch the numbers and see what works best for you, but be honest.  It’s easy to think you can earn more in the market, and so you take out a 2.9% loan on a car, but then you don’t actually invest any money in the market.

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People sometimes think we’re all in a big boat, and take comfort in knowing that we’ll all going down together if things take a turn for the worse.  But the reality is, many are well on their way to financial freedom.  Take a look at the financial decisions you make, and see if you’re making yourself average.

If you have any questions or comments, you can reach out below or continue the discussion in the forum.  If you are interested in receiving a notification of new posts, you can subscribe here.

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