“All wealth is relative; and so is its absence.” – Sybille Bedford (The Sudden View, 1953)

How does your financial situation compare to that of a typical wealthy American? Following are some numbers to work with (provided by Dr. Steve Sjuggerud). The average wealthy American (based on numbers Steve crunched from the Federal Reserve’s Survey of Consumer Finances) has $1,000,000 in assets and $200,000 in debts (80% of that debt in properties; only 1% in outstanding credit-card balances), for a net worth of $800,000.

Of that million in assets, only about $400,000 is in financial assets. The other $600,000 is in non-financial assets, such as real estate. The average wealthy American does not like individual stocks. According to the numbers, he has only 11% of his assets invested in them.

Far more of his money — 36% — is in retirement accounts or mutual funds, where (for better or worse) somebody else is managing it. Here’s the exact breakdown of the average wealthy American’s financial assets (40% of his $1,000,000 total):

* 21% ($84,000) in retirement accounts

* 15% ($60,000) in mutual funds

* 12% ($48,000) in cash earning interest and CDs

* 15% ($60,000) in bonds

* 11% ($44,000) in stocks

* 4% ($16,000) in life insurance cash value

* 22% ($88,000) in other investments (savings bonds, partnerships, etc.)

And here’s the breakdown of his non-financial assets:

* 32% ($192,000) in his home

* 28% ($168,000) equity in his own business

* 18% ($108,000) in a second residential property

* 13% ($78,000) in non-residential property

* 3% ($18,000) in vehicles

* 5% ($30,000) in other assets (jewelry, artwork, antiques, etc.)

While it’s true that there is no “magic formula” that works for everyone, it’s clear that the wealthy in this country spend more time on asset allocation than you might think. The average wealthy American also does not live beyond his means, which means NO credit-card debt.

It’s also interesting to note these distinguishing characteristics of wealthy Americans:

* They own their own businesses. (The average net worth of a family in which the head of the household works for someone else is $52,000 as compared with $248,100 for the self-employed. The numbers suggest that this is the way significant wealth is generated in America.)

* They own their homes. (The average homeowner’s net worth is $132,000, while the average renter’s net worth is a measly $4,200.)

* They have college degrees. (The average net worth for a family in which the family head DID NOT graduate from high school is only $21,000, whereas the net worth when the family head DID graduate from college is $146,800. Looks like an investment in a college education could provide a return greater than you could expect in the stock market!)

* They own real estate in addition to their homes. (They have nearly the same amount in real estate outside their homes as they do in their homes.)

* They have inexpensive cars. (As I’ve pointed out before, wealthy people generally don’t drive rich.)

We’ve said so much about owning your home, buying property, and having your own business that there is no need to say any more on those subjects here. But I would like to point out the importance of a college education. The difference in net worth between  someone with a high-school degree and someone with a college degree is more than $100,000.

I think the car thing is kind of interesting, too, since I like nice cars and have three of them. Let’s see … the average wealthy American owns $18,000 worth of cars. That represents 3% of his net worth. As I mentioned in Monday’s message (#699), I have three cars: a late model SUV that my wife drives, a pickup truck that I drive to and from work, and a 12-year-old high-performance sports car that I use whenever my testosterone drops below normal levels. Hmm. Let me run the numbers …

I hope I’m not being profligate … Oh, good. I’m not. In fact, I’m pretty conservative. The investment I have in cars is less than one-half of 1% of my net worth.

What about the rest of my major assets? In case you’re interested, here are the relative values (as percentages of my net worth):

* my house: 10%

* other property: 30%

* bonds: 20%

* cash and money markets: 5%

* businesses: 30%

* art and tangible assets: 5%

* stocks: 0%

I asked Steve what he thought about this allocation. This is what he said:

“My first thought is that you have plenty of real estate. But then I quickly changed tacks … You’re beyond where most people ever get. You’ve got “middle-finger money” — enough in cash and bonds to give the world the middle finger whenever you’re ready. Therefore, you’re free do whatever you want with the rest of your money.

“So do it. Build that dream home on the beach. Help friends and family out, while avoiding giving out handouts. And … wait, you’ve already done these things …

“To think about it deeper, what do YOU want to do with your money? Where is it going to go when you’re not around? Bill Gates and Warren Buffett, who have more money than anyone, are giving most of theirs away. Is that the right thing to do? You’re the only one with those answers. And, congratulations, you’ve “earned” the right to do whatever you want with it …”

How do you measure up? Now is as good a time as any to roll up your sleeves and examine your own financial picture.

I urge you to take this opportunity. It may be a frightening, eye-opening experience … or you may be pleasantly surprised.