Benchmarking

Why Benchmark Yourself and Your Family?

The following benchmarking metrics allow you to compare your financial accomplishments and progress in a variety of areas with other members of the Family Inc. community. However, be aware that Family Inc. members do not fit the profile of average Americans –they are different in many important ways.

For example:

  • Family Inc. members are younger: median adult age of 37 vs. overall adult population of 47.
  • Family Inc. members earn almost twice as much with median income of $90,000 vs a national median of $46,000 for all American adults
  • Family Inc. members are 20% more likely to own a home with a median value that is 30% higher than the national median.
  • Lastly, in spite of being younger, Family Inc. members have a median net worth of approximately $100,000 which is 25% higher than the national median net worth of $80,000.

In summary, you are benchmarking yourself against a very competitive group of peers:  an educated, accomplished, ambitious and knowledgeable group who value financial security and independence and are willing to invest time and effort to “win the financial game of life.”  Benchmarking yourself and your family against this very accomplished group allows you to determine how you are performing financially; where you are excelling and where your financial plan can be improved relative to other smart, accomplished people.  Welcome to Family Inc! 

Age

Labor Assets

labor-assets

Labor is the largest asset for most Family Inc. members averaging over $3 million. This value is impacted not only by today’s earnings, but also expected future earnings, taxes and remaining work capacity.

Social Security Assets

Social-security-assets

Many families forget to include the expected value of their social security payments in their financial planning.  This can be a significant asset with an average value of over $300,000 for Family Inc. users.

Investment Assets

investment-assets

Note the significant difference between the median and mean for investment assets.  The mean in skewed by Family Inc. members who have accumulated significant financial assets. The more wealth a person has, the faster it generally grows given that both your financial and labor capital are generating significant income.

Real Estate Assets

real-estate-assets-new
  • 24% of the Family Inc. population does not own a home.
  • For those that own a home, it is likely the largest single tangible asset a family owns.
  • A home can be a great purchase, but don’t justify it as a great investment. It is likely inferior to other investments when considering related costs like maintenance and taxes, illiquidity and the cost of debt.

Measures Of Debt

measures-of-debt

The Family Inc. community averages $212,000 in debt and is heavily weighted to tax deductible fixed rate mortgages used to purchase real estate.  This is a prudent use of debt.

Measures Of Budget Health

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  • The median monthly savings for a Family Inc. user is $1,400 – a great start toward financial security.
  • “The reported mean savings rate of 31% is likely a measurement error which often exists because users under report variable expenses which are hard to predict.  Consider adding a “catch-all” expense line to your budget that reduces your budgeted savings to be more consistent with your actual savings. Very few people actually save more than 15% of after tax income.”

Measures Of Wealth

measures-of-wealth

o    Financial Net Worth:  Note the significant difference between the median and mean.  The mean in skewed by members who have accumulated significant wealth. The more wealth a person has, the faster it generally grows given that both your financial and labor capital are generating significant income.

o   Family Business Net Worth:  Mean and Median Family Business Net Worth are $4.1 million and $2.9 million respectively.  This represents the most holistic measure of wealth and includes all of the assets (to include labor an social security) you have at your disposal to achieve financial security.

o   Asset Composition:  

  •  Be sure to include labor and social security when evaluating asset diversification given their magnitude.  This chart highlights that effectively managing labor capital is often the best way to maximize wealth.
  •  Given the value of labor and social security assets and their “fixed income” profile, most families should seek significant equity exposure with their available investment capital.

Measures Of Risk

measures-of-risk
  • Contingency Capital:  represents liquid savings relative to monthly expenditures available to support unexpected needs.  The average member contingency capital is slightly less than eleven months.
  • Borrowing Capacity: represents the amount you can borrow through existing sources of credit.  This borrowing capacity can complement contingency reserves during periods of financial distress.
  • Net Debt to After Tax Earnings:  represents a measure of your income relative to obligations.   A lower ratio implies less financial risk.
  • Estimated Life Insurance needs: Estimated life insurance needs are based on the required capital to replace lost labor plus additional expenses incurred by your family should you die.