Are you better off than 4 years ago? This is the question we’re asked every presidential election in the United States. I know it is still a little early in the election cycle, but I just filled out my ballot this weekend so it’s been on my mind. I wrote this article in 2012 and it’s time for the quadrennial update (I had to look that up).
Don’t forget to take my poll at the end of this post.
Back in 2012
This question was a simple in 2012. We made tremendous gains in our financial and personal lives from 2008 to 2012. This was easy because the US economy was in the midst of a huge recession in 2008. By 2012, the economy had recovered somewhat and the rising tide lifted all boats. We were also making great income and I was saving all of the paychecks from my job in 2011 and 2012. Our net worth increased over 60% from 2008 to 2012 and it gave me the confidence to leave my engineering career.
This question is actually a trick question. All of us who are of working age should be able to keep improving our financial situations over time. Even setbacks like unemployment should be temporary and can be overcome. Unless you have a serious long term issue such as a chronic health condition, you should be better off than 4 years ago.
Now in 2016
If 2012 was easy, what about now in 2016? It’s been 4 years since I quit my job to become a stay at home dad/blogger. My income dropped quite a bit since I retired from full-time work. Luckily, Mrs. RB40 is still working, I have some income from this blog, and we have some passive income. We haven’t been able to save as much as before, but we still save and invest over $50,000 per year. The stock market and housing market also improved quite a bit since 2012.
Before I checked the numbers, I felt we wouldn’t be able to beat the previous 4 years (2008 to 2012). Our saving rate was lower because I didn’t work full-time. However, the stock market and the local housing market did much better than the previous period. As a result, our net worth improved 64% from 4 years ago! That’s just a little better than from 2008 to 2012. Our net worth gain is in the same range as the S&P 500’s. That’s pretty good because our asset is a mix of stock market, bonds, real estates, P2P lending and more.
Our net worth grew over 3x since 2008. That is a tremendous gain and I can only hope it keeps growing. I doubt it will continue to grow at this rate, though. I’d be happy as long as it grows a little every year.
I know things are tougher for the Millennials. Many of them graduated into the recession and had a difficult time finding a well paying job. They also had a lot of student loans. However, I think everyone still should be able to improve their finances over the long term.
Spend Less Than You Earn
The RB40 household motto is spend less than you earn. If you can do this consistently, then you will be better off financially in the long run. We never spend more than we earn and this enables us to grow our net worth like we have. I started investing in my 401k as soon as I started working in 1996 and have branched out since then. You can read more about our investments through these links below.
Everyone should start saving and investing as early as they can. It can be difficult to save for retirement when you’re young, but think of it as building your wealth instead. Retirement funds aren’t very accessible, but they will be there in your time of need.
Power Through The Down Market
The stock market has been on a great run since 2008. Many of our younger readers have never gone through a bear market before. It will be difficult to go through a stock market crash, but young investors should know that it is the best time to invest. You’ll be able to buy shares of quality companies at a great price. We kept investing through the last recession, our net worth recovered nicely and tripled since the 2008 election. Many investors missed much of the recovery because they pulled during the bear market and didn’t know when to get back in.
The last 4 years has been great for our family. If we can keep growing at 60% every 4 years, we’d be rich in a few more election cycles. This is an unrealistic expectation, though. The stock market valuation is high and we are overdue for a bear market. We should do well over the long term as long as we keep investing. Mrs. RB40 plans to work until 2020 so we should be able to continue to save over $50,000 per year for at least that long.
Once she quits working full time, then we will need to make some adjustments. My plan is to live on my online income and our passive income. We will leave our retirement funds alone until we reach full retirement age. It will be interesting to see if we can continue to increase our net worth after Mrs. RB40 retires. I’m optimistic because our retirement accounts should keep growing as long as we don’t withdraw from it.
Gallup did a poll in January 2016 and about 50% of those surveyed are better off than 8 years ago. That’s a lot lower than I thought. I guess it’s tough to break out of the cycle when you’re struggling financially.
Are you better off today than 4 years ago? If not, what’s your plan to improve that situation?
Image by Gage Skidmore