Let’s play a game of So You Think You’re Rich. But are you really? A quick look at average net worth by age and comparing it to yours will give you an idea if you should be dancing in your living room like Jerry McGuire or quietly singing “it’s a hard knock life” as you go about your day.
A common mistake that people make is looking at their finances at face value and then thinking they’ve made it – when they actually haven’t. Firstly, if you haven’t set any clear financial goals, then you won’t really have a sense of direction or a measure of success for yourself.
It’s very important to be brutally honest with yourself when setting great financial goals; base it on what you’re earning, your expenses, assets, liabilities, debt, etc., not your friend’s or sibling’s. Like any other goals you set – hopefully, you have some sort of structure in other areas of your life – they need to make sense to you and where you are financially. Be realistic, set timelines, and make your goals measurable.
We often hear the term “net worth” when it comes to celebrities and public figures, but it applies to you too.
But no point comparing yourself to Warren Buffett or to the original Karate Kid. Looking at average net worth by age may paint a clearer picture for you; so you may want to read on to see how you’re doing compared to your peers. This could also point you in the right direction and help you determine how well – or not so well – you’re doing.
What is net worth?
Simply put, net worth is an indication of how wealthy you are, taking into consideration your assets and your liabilities. By that, I mean everything! From your investments to your bank accounts, any cars or property you own, right down to any other smaller but valuable items that you own.
If you’re a David Geffen in the making and own a multi-billion-dollar art collection, that’s definitely something to be included in your net worth too.
Why is it so important?
There are several reasons why knowing your net worth is important, it can help you spot any financial weak points that you may have. It also highlights what you actually have versus what you think you have. It’s all good and well to own several properties of value, but what about how much you owe? You know… Assets versus liabilities.
Also, average net worth by age can be regarded as a benchmark figure that could help you determine if you have any bad spending habits as well as if your overall wealth is trending up or down.
Ideally, you should pay attention to your liquid net worth as well. Your liquid net worth will give you a better indication of funds you would have almost immediate access to, should anything go wrong. Let’s say you came across an amazing rental property and you had to act fast. Knowing your liquid net worth – meaning how much of your assets could be turned into cash NOW – could make or break the deal.
On the other hand, imagine having to sell one of your properties (which could very well be a 10-year investment) just to buy another one? That would be annoying. Moral of the story – Keep track of your liquid assets and know your net worth. (Also, if a unicorn rental property comes along – act fast.)
How do you calculate net worth?
Your net worth isn’t necessarily a direct reflection of how much you earn. You could be earning hundreds of thousands a month and still have a negative net worth. If you’re bad with your finances then that’s probably the path you’re on. If that’s the case for you, then you’re definitely at the right place to help you turn that around.
As already alluded to, your net worth is simply the total value of your assets less the total of your liabilities. If your total assets, comprising properties, cars and investments, amount to $1,500,000 and your total liabilities – including what’s left on your mortgage – amount to $300,000, then your net worth is $1,200,000.
If you have more liabilities than assets, you have a negative net worth. Sorry to break it to you, but if you don’t make any changes soon, you’ll spend the rest of your life slaving away just to make ends meet and cover your debt. If you have a positive net worth (yay!), you’re relatively good with your finances and can ramp up your efforts towards that early retirement you’ve been eyeing.
Why average net worth of people aiming for financial independence is more aggressive
Financial independence looks different to each person pursuing it. One person might see it as a way to quit their 9-5 and have sufficient passive income for the rest of their lives. For someone else, it could mean getting to travel and explore the world as and when they wish, or getting to live out their wildest dreams unapologetically. Same concept, different goals.
When it comes to average net worth by age, it’ll probably be lower than that of those that are aiming for financial independence. This is because people that are pursuing financial independence tend to have really great financial habits and more assets than the average person, making their approach to wealth accrual that much more aggressive.
While the average person may be concerned with making enough money to cover their expenses and save where they can, those with financial independence in mind prioritize long-term stability and security.
Determining your average net worth by age can be a good way to review and reroute if you seem to be off track to meet your retirement goals. Of course, the average can be skewed by outliers such as those super high earners and the top 1%er net worth by age, but it is still a good indication nonetheless. Average net worth by age is also heavily affected by race as well, as the average differs across races.
Here’s a list of the average net worth by age in households, so you can see how yours compares.
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When it comes to millennials, it’s safe to say that they’re a mixed bag – financially that is. The average net worth by age for millennials is affected by so many factors; student debt and economic conditions, for starters. Think about it, imagine securing a student loan and then right when you graduate, BOOM!, you’re met by the financial crisis of 2007.
Then, right when you’ve managed to pay off your student debt, cue 2020 and that thing that shall not be named that forced us all to isolate and “pivot pivot pivot”! Never mind all the job losses as well, yikes! Yes, yes, I’m not one for sob stories, but those are definitely bound to affect your finances and ultimately, your net worth.
Don’t get me wrong, this is not to say that millennials are poor or that they suck at managing their finances, but we can’t ignore that they’ve been dealt a bad hand that has impacted the average net worth by age. BUT, at least they’re smart enough to make the most of technology and digital solutions to try and get right back on track.
Bearing in mind the average earnings and student loans that millennials have (with the majority having little to no investments, unfortunately), this is what the average net worth by age looks like for some millennial age groups. Brace yourself, it doesn’t look too good.
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What is the average net worth by age of 1%ers?
Think of the 1%ers like those overachievers at school. The ones that got high marks, joined every team, and excelled at everything. Below is a table of the average 1%er net worth by age. These may seem impossible from the outside looking in, but just like those overachievers – they kind of motivate you to up your game.
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Average net worth by age of early retirees
In most cases, people chase early retirement and financial freedom because it will give them more control over their time and how they use it. This obviously means that the average net worth by age of early retirees is higher than that of regular 9-5 people within the same age range who are more than happy to only retire at the expected age (definitely not something that appeals to me).
Generally, early retirees form part of the top earners or outliers within their age range, and in most cases, the top 1%er net worth by age. If you manage to obtain about $1.5 million worth of rental property, you could quite easily net over $100,000 a year – which should be sufficient income to live off without slaving away at the office. This is very doable by 35. Tried and tested!
What to do if you are off target
Let’s face it, it’s very easy to gradually lose your way and then get the shock of your life years down the line when you realize that you’re off target and are far off from the average net worth by age. So, what now? Considering the factors that determine your net worth, the way to improve matters is by increasing your income, saving more and investing better, or by reducing your overall debt and liabilities.
Through developing healthy financial habits, you could work your way up to the coveted 1%er net worth by age categorization.
FAQs: What is a good net worth by age?
While the average net worth by age can be skewed by outliers, the median net worth by age may be a better benchmark. Essentially, a good net worth by age is being on par or exceeding the average net worth by age that is reported. Industry insiders believe that by the time you turn 40, you should ideally have twice your income in net worth, but again, that depends on your personal financial goals.