August 22, 2023

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Good day. It usually makes sense to presume that the older you are, the more more assets you have. Can you guess what percentage of the nation's wealth Baby Boomers (those born between 1946 and 1964) currently hold? a. 33%, b. 43%, c. 53%. Follow the wave 🌊 below for the answer. Follow the wave 🌊 below for the answer.

Here are the topics for today:

Building Generational Wealth
The 30% Mortgage Rule May be Outdated
Why Haven't You Switched Your Savings Account?

GENERATING WEALTH

Building Generational Wealth

The phrase "generational wealth" has become increasingly popular in recent years, and search volume for the phrase has noticeably jumped since 2020.

It's somewhat of a vague, catch-all phrase with a definition heavily dependent on who you ask. But there's an underlying idea that it communicates to us all — wealth that's bountiful enough to provide for generations to come.

That seems like a lofty goal, but it's within reach for all of us if we make some good decisions.

The essentials — building generational wealth

Forming habits: Interest on your money isn't the only thing that compounds, decisions do too. The choices we make throughout our life will have a snowballing effect on the course we follow, and money choices are at the epicenter of that. Making good decisions that form good habits early on is quite possibly the most important thing we can do to facilitate wealth creation down the road.
Cover the basics: Aiming big doesn't allow us to escape the mundane either, and it's oftentimes the slow and steady route that ends up creating generational wealth by accident too. Save, invest, and max out your retirement plans + offered benefits as early and often as possible. It might sound boring and slow, but remember, compound interest piles up fast, and actions do too.
Invest in your heirs: The more lottery tickets you have, the better your odds of winning. By investing in your children and grandchildren through their education, training, and other valuable life experiences, your family's chances of creating generational wealth increase exponentially.

Aiming wider

Start a business: Family businesses are one of the most common sources of generational wealth out there. Not only is a business a store of value, but it's also a source of income as long as it's owned. It's no walk in the park to start and maintain a business that can span generations, but with careful curation and a little luck, it's entirely doable.
Non-traditional investing: Investing in a traditional manner is a great way to ensure a nice retirement, but it may not be enough to create generational wealth. Investing more in alternative opportunities, if you can, into the likes of real estate, angel investing, growth investments, commodities, and other typically higher-risk assets may provide this exposure as long as you're careful. With real estate, for example, everyone needs a place to exist and the same can be said about businesses. Because of this, real estate tends to trend upward in aggregate over the long run and is often looked to as a top source of generational wealth.

Here's a related lesson on this topic:

Real Estate Investing Basics

Investing Basics

5 mins

HOUSING

The 30% Mortgage Rule May be Outdated

There's a limitless number of "rules of thumb" out there in the world of personal finance. The reality is that everyone's exact ratios will be a little different, but these rules can be great guidelines to follow anyway, nudging us in the proper direction.

For housing, the 30% rule has long been a general guideline that many advisers abide by — but it might be getting outdated.

What's changed?

The 30% rule is simple, it suggests that you should spend no more than 30% of your gross monthly income on housing expenses. For homeowners, this includes homeowners insurance and property taxes too.
Let's put this idea into practice with mortgages. The median sale price of homes nationwide is currently $416,100 — meaning your monthly mortgage (including taxes + insurance) would come out to about $2,683 if you locked in the average 6.96% 30-year fixed rate. As for rent, the national median for a 2-bedroom place came in at $1,862 for July.
Compare these numbers with median incomes, and we have a problem. The most recent data from 2021 puts the median household income for the U.S. at around $70,784, or $5,898 per month before taxes and deductions. In this situation, that median mortgage payment consumes roughly 45% of most household budgets, and this doesn't even account for single individuals who make less.

How do we deal with this?

The simplistic answer is this — a combination of high mortgage rates and increased home prices have rendered it cheaper to rent than own in most places. If you're uncomfortable spending more than 30% of your income on a home, now is a tough time to purchase one for the average person.
Homeowners, stand pat: Many homeowners who'd like to move or sell their homes are procrastinating doing so for this very reason. They've got a much lower rate than what's available now, and buying another place likely means getting less home for more money.
Put it off if you can, but the fact of the matter is that we're in a tough spot right now. Prospective homebuyers making median incomes are awaiting a confluence of factors to coalesce just right between rates, prices, and even income.
Practically speaking, continue to follow actionable steps like upping your savings rate, adding to your skillset, and increasing your income. Elsewhere, explore mortgage options that require lower down payments, cheaper markets, and even a fixer-upper if you're into it.

Take this related lesson and earn 🟡 Dibs:

Mortgage Fundamentals

Housing

5 mins

MONEY TIP

Why Haven't You Switched Your Savings Account?

When the FOMC elects to raise the Federal Funds Rate, banks usually respond in unison by also raising their interest rates—both on debt and saving products. The relationship between the two is loose, but the primary reason banks do this is to attract more deposits at a cheaper rate than what they'd be paying for an overnight loan from another bank.

Regardless of the logistics, the outcome is the same—more ROI on your savings.

And yet, most individuals still haven't opted for a high-yield savings account. A recent survey from Santander revealed that roughly 70% of middle-income Americans have not switched to a higher-yielding account offering despite new offers.

We're here encouraging you to strike while the iron is hot. A savings balance of $10,000 would earn just $53 per year in the average savings account, but in a top-yielding account offering over 5% — $500 per year.

The top ways to reap APY

Reminders: With these offers, it's important to remember that these rates are sometimes only applicable to certain balance ranges, and often the more you hold, the lower your rate becomes—it's like the inverse of taxes. Additionally, the standard FDIC insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
Top offers right now: Savers can pull yields of 5% or more at some of the following banks — Milli, TotalDirectBank, CIT Bank, UFB, and more.
As for the 4% club, there are several big names here — Ally Bank, Sofi, PNC, Synchrony, USBank, and the list goes on.
Alternatives: If you're seeking a little more but want to do so safely, there's always the option of going for a rewards checking account, some of which offer APYs of 2%+ if you meet their criteria.
What's important here is to pick a bank that makes the most sense for you. Look at the criteria to earn these rates, if there's a welcome bonus, if the offer is valid in your state, and take into account the bank's reputation as well.
And check regularly: We haven't had rates rise this fast and consistently in a long while, so it's worth comparison shopping online on a consistent basis.

🌊 BY THE WAY

by the way

🦉 Answer: 53%. According to the Federal Reserve's most recent data, Boomers currently hold about 53% of the nation's wealth. That's not the surprising part though — this cohort held roughly 4x as much wealth as Millennials currently do when they were their age (CNBC & The Fed)
🚗 Automakers partner up for new EV charging network (Axios)
👀 ICYMI. What's next for the housing market? (Finny)
🏦 Loan applications hit highest rejection rate since 2018 (Forbes)
📚 Finny lesson of the day. If generational wealth is the tip of the iceberg, saving is the foundation:

Save for a Rainy Day

Budgeting & Saving

7 mins

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