Introduction
Just because you don’t see yourself as wealthy, it’s still important to know your current net worth and to understand it and compare it to your age to make sure you are on track to have enough money later in life.
When the time comes to reduce your work commitments and sit on a beach under a palm tree sipping a Pina colada, you need to make sure you have done enough throughout your working life to cover yourself during your retirement years.
People often overlook this, and they will blindly go through life, never thinking about how their worth should look and at what age to ensure they are on track. It often comes as a shock to them when it’s time to stop work that they don’t have enough money to support themselves in a life they want or a life they have been accustomed to while working.
Why Do Some People Reduce their Lifestyle Habits?
In some cases, some will have to significantly reduce their lifestyle habits to fit in line with the amount of money they saved during their working life, often wishing they had paid this more attention early in life. So, this is your chance to see if you are on track financially with your net worth by age and if you aren’t where you need to be, you have time to try to correct it.
As we all make our way through this life, we seem to think that everyone we look at is doing better than us in all aspects of their life. In most cases, this is probably not true, but unless you know what the average is for what you are trying to compare, you will never know where you are in life compared to your peers.
In this blog, we will look at how net worth is calculated and what your net worth should be for your age bracket, so let’s get started.
What Is Net Worth?
When referring to people like Elon Musk or Bill Gates, you will often hear the media state their net worth, but what does it mean?
The official definition of net worth is calculated as the total wealth of an individual, a company, or a household, taking into account all financial accumulate assets and liabilities.
What is a Financial Asset?
A financial asset is defined as a liquid asset that gets its value from an ownership claim or a contractual right. Cash, bank deposits, mutual funds, and bonds are all examples of financial assets.
What is Financial Liability?
Another word for financial liabilities is debt. Debt is an obligation to deliver a financial asset or cash to another person or entity defined by a contract.
Just before we look into the average net worth by age, we need to put things into context.
How much money do you need to live?
Several factors largely define how much money you need to live.
Where You Live.
If you live in New York and like to dine at fine restaurants, you will need more money than someone who lives in Delaware and eats frozen meals.
The salary you earn currently.
If you are used to a good living during your working years, where you earn hundreds of thousands of dollars a year, you will need more money to live on than someone who has been used to earning minimum wage all their life.
But this is relative because the person earning more money should (if they don’t spend more than they earn) be able to save and invest more money for the future.
What your current spending habits are.
Obviously how much money you need to live is determined by what your current spending habits are .
If you’re used to spending $100 a day on food, then obviously you need at least that much to live. However, if you’re used to spending $10 a day on food, then you could probably get by with less.
Know your Net Worth.
It’s really important to know your net worth by age because if you don’t know if you are saving enough, how do you know where to cut back on your spending or if you are going to retire with the right amount of net worth to live the life you imagine in retirement savings.
How Net Worth is calculated:
Net worth is calculated by taking the value of all the assets you own and subtracting the debt you owe; what is left over is your net worth.
Let’s look at some examples of net worth so you can see what I mean, and this will help you as a net worth calculator.
First, you need to determine all of your financial assets; this is anything that has value and can be sold or is currently in cash in the bank accounts or under your mattress.
Examples of assets:
- Your home
- Gold and Silver
- The money you have in the bank
- Your pension or 401k
- Stocks and shares
- Jewelry, for example, an expensive watch
- A car if there is no finance on it
The list goes on, but as I said, it’s anything you can convert into cash. A home or a car can still be a financial asset if you still owe money on them through a car loan or a mortgage; you just take the asset’s value as the portion already paid for.
Let’s look at the assets you may currently have:
- So, let’s say you own a home which is worth $600,000 (full sale value)
- You own a car that is worth $40,000 (full sale value)
- You own a Rolex watch worth $9000 (fully paid for)
- You have $12,000 in the bank
- And own $3000 in tesla stock
Let’s look at the liabilities you may have:
- You still owe $350,000 on the mortgage
- You owe $30,000 on your car loan
- You owe $10,000 in student loan debt
- You owe $20,000 in credit card debt
Using this information we can conclude:
- Your total assets add up to $664,000
- Your total liabilities add up to $410,000
Therefore, your total net worth is $254,000, which doesn’t sound too bad, but it depends on your age and the average net worth, so let’s look at that now.
Survey of the American Federal Reserve Board.
The federal reserve board in America surveys consumer finances every three years to collect information about family incomes and net worth. The last consumer finance survey was conducted in 2019, with the 2022 survey being completed in December 2022.
The survey found that the average American household net worth was $748,800, but the millionaires and billionaires around America somewhat skew this figure, so it isn’t a fair indication. So, looking at the median value gives a more accurate view of the average person in America, maybe someone like yourself.
Calculate Average Net worth by age.
The median average American’s net worth household was $121,700, which is a more realistic figure, and you can breathe a sigh of relief. So, what about the average net worth by age:
People aged 20
Now, you should have a job and take your first steps into your chosen career. Can you guess in the comments section below what you think the net worth of a 20-year-old should be? The average net worth of a 20-year-old in America today is -$27,129.
That’s right, the average 20-year-old in the USA owes $27,129, so if you are 20 and you owe less than this in debt, you are doing better than the average 20-year-old in America.
People aged 21-35
At this point, you may just start taking on more liabilities as you start a family, buy your first home, have children, get married, etc. So 30-year-olds don’t tend to have a huge net worth at this stage.
The median net worth you should have if you are below 35 is around $13,900, an increase on your 20-year-old self but still a modest amount.
People aged 36-44
The median net worth you should have if you are between 35 and 44 is around $91,300. This is where your net worth starts to increase at a faster rate than in previous years.
You should have started to pay down a mortgage and have established a career, and started to get regular pay raises, so you can start to increase your net worth at this stage if you approach things right.
People aged 45-54
The median net worth you should have if you are between 45 and 54 is around $168,600. This is where you start to see some steady growth, as you should be getting toward the peak of your salary during your career as you gain more experience and become more established.
If you have been living modestly, you should have a fair portion of your mortgage paid off and have a good amount put away into a retirement account at this stage.
If you haven’t established a retirement account by the time you are around 50, you are running out of time to see the compound interest benefits. You need to start seriously thinking about a retirement account or putting money into growth stocks and shares.
People aged 55-64
The median net worth you should have if you are between 55 and 64 is around $212,500. At this age, as you start to work a little less and start to think about retirement, the well-informed people who started an investment portfolio at age 30 are really starting to see massive growth and compound interest taking effect.
They should be well over the median net worth of $212,500. But for those who haven’t started an investment portfolio, you should still be in this range based on owning a home that should be mortgage free by now.
People aged 65-74
The median net worth you should have if you are between 65 and 74 is around $266,400. The common age for retirement is around 65, so your net worth will have plateaued at this point, meaning that around this age is where you will start to see the rewards of a lifetime of saving and investing.
If you have been investing and saving regularly from an early age, you should be in a position to be sat under the palm tree drinking that Pina colada, as we mentioned at the start of the video. If you are in this position, well done; you can enjoy your retirement accounts comfortably.
People aged 75+
The median net worth you should have if you are over 75 is around $254,800. This is the point where your net worth starts to decrease as you are using your net worth to fund your retirement.
This is where people really start to rely solely on the money they have saved and invested over the years as they are no longer able to work even a small amount to bring in additional income.
All you need to be careful of here is to make sure you don’t outlive your money. None of us know the date for our demise, so it’s important to treat yourself now and again but still be somewhat careful with your money.
Don’t forget that any net worth you have acquired in your life will pass down to your children, so it’s better to have too much money than not enough.
How you can work to increase your Net Worth.
If you are not meeting the average net worth amounts we mentioned earlier in the video, then don’t worry. I have a few tips on how you can increase your net worth to get you back on track or hopefully get you above the average figures.
Paydown debt.
This should be a priority as this is the biggest thing that impacts your net worth by age. Pay off the highest-interest debts first and keep going until you are debt free; then, your net worth will start increasing quickly.
Invest.
In stocks and shares to get your money working for you as early as you can, I have plenty of articles on the website to help you do this, so make sure you check them out after this article.
Decrease expenses.
Try to decrease your expenses where you can, live below your means, and you will always be increasing your net worth. Someone who has $5 million in the bank but owes $6 million is not richer than someone who has $100 in their bank but owes nothing.
Create new income sources.
Lastly, try to create new income sources like starting a side business or even just working extra hours in your current job; it all adds up and will help to increase your overall net worth and put you on the right path to financial freedom.
