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Joyfully Losing Our Net Worth and Finding Our Real Worth

Am I the only one excited about the Fed’s announcement  the average U.S. household lost 40% of their net worth in the last few years? NO, I am not anti-capitalist; I am pro reality.

Follow me on this:

  1. Houses have never appreciated, they have inflated. When you sell your house, try buying a nicer house for the same amount in your community. Surprise, all you can get is what you sold.

  2. The stock market has become untethered from its historical relationship with the cash flow and earnings of the stock. Only Greenspan’s “irrational exuberance” could explain the $100 billion valuation of Facebook. P/E ratios suggest that our portfolios are based on the greater fool theory.

Once I realized these two simple truths, I realized the Biblical principle of 10/10/80 was alive and more relevant than ever. Give 10%, save 10% and live on the 80%.

  1. When you give 10% you soon realize YOU ARE THE JONES’ to many others. 

  2. When you save 10% you can slowly build up real net worth.

  3. When you live on the 80% you realize the joy of sleeping without stress and you get the bonus of realizing that stuff really doesn’t matter as much as you thought.

This will lead you to look at your needs in a more sustainable way. Your house should be a place to live and raise a family, not an investment. My generation, like the proverbial frog, has been slowly boiled by the Fed’s policy of inflation. Even worse, we have borrowed on this false equity to live above our 80% means. Actually, it’s above the 90% means since very few of families continue to save.

When you live on the 80% your savings are gravy. You can afford to take less risk since you don’t need a high return to maintain your lifestyle. Slow and steady value based investing continues to provide a great long-term return. Ask Warren Buffett who rejected technology investing and avoided the bubbles and bursts that always follow.

When you live within your means, you are also less likely to fall for government’s siren song of deficit spending. If you can get by with less, why shouldn’t Washington? And when government lives within their means, guess what goes away? Inflation. And future generations can avoid becoming frog stew.

Jim Collins’ planning guides call this Confronting the Brutal Reality. To my way of thinking, reality will become brutal if you don’t recognize this. America’s greatness has always been built on our ability to confront challenges straight on and keep going. That’s our real worth.

The best is still ahead.

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