Jaspreet Singh is the founder of “The Minority Mindset,” which teaches money skills most people don’t learn in school. One thing that many people don’t learn enough about in school is how to best build wealth.
To help people avoid mistakes that might hurt them while trying to build wealth, he recently posted a YouTube clip of his appearance on “Impact Theory,” where he discussed what he believes is the biggest lie about wealth-building in America.
The traditional American dream, Singh said, is to buy a home and pay it off. That means you’re building equity, which you can then pass on to the next generation. There’s nothing wrong with building equity in your home, he said, but it’s not a fast track to wealth.
The numbers back Singh up. According to data from analytics firm Cotality, the average U.S. homeowner has $302,000 in home equity. That’s an accomplishment, but it doesn’t make you rich. Depending on your age, it may not even put you above average.
According to the most recent Federal Reserve data, the median net worth in the U.S. breaks down like this:
To think of yourself as “rich,” you want to be more than above average. A common benchmark is becoming a high-net-worth individual, defined as having at least $1 million in cash and other investable assets. To be “very rich,” you want to be an ultra-high-net-worth individual, which requires $30 million in liquid assets.
You can’t get there just by paying off your home.
Home equity is beneficial, but the scale is too small. It won’t make you wealthy because there simply isn’t enough of it.
“You never talk about wealthy people becoming the richest people ‘because I paid off my home,'” Singh explained. “Your home is honestly like one of the last things that wealthy people think about.”
Singh believes that traditional money education encourages people to focus intensely on building home equity, sometimes to the detriment of their overall financial health. He references the idea of people stretching themselves too thin and making risky decisions to buy a home.
A recent survey showed that 40% of respondents are “house poor,” meaning they spend more than 30% of their income on costs such as mortgages and home maintenance. This leaves them with fewer liquid assets to cover emergencies or build wealth.
One of Singh’s most significant criticisms of conventional money education is its insistence on connecting the concept of “equity” with homeownership. Building equity is a pathway to wealth, but there are other avenues with more potential. He mentioned:
Rental properties offer the same kind of equity that your home might, but you’re also generating income from rent. Once you’ve paid off the mortgage, that rent continues to generate wealth for you.
Also, Singh pointed out, buying a rental property is a financial decision rather than an emotional one, unlike buying a home: “You’re probably going to make more money because you’re going to do a different type of analysis than in the home that you live in.”
You don’t need to be a financial expert like Singh to build equity and generational wealth. The first step can be as simple as investing part of your salary in an equity-generating opportunity.
“Whether you’re a doctor or you’re working at a factory, it doesn’t matter,” Singh said. “Take some of your salary, go out and build some equity.”
Own something that will generate more money, even if it’s a share in someone else’s company. There’s always room to grow.
