Knowing your net worth is the key to finding out where you truly stand financially. But even if you’re familiar with your own net worth, how are you supposed to know if it’s good or not without any context? This article is going to go over what your net worth should be by age so you can see how your net worth measures up!
This net worth article goes over everything you need to know about net worth: What exactly net worth is, how to determine your net worth, where you stand in comparison to your age range, and what your net worth should be now if you want to retire comfortably at age 65.
What is net worth?
Net worth is the value of all your assets (things you own) minus your liabilities (things you owe). Net worth can be positive or negative and gives you a snapshot of your current financial status. In other words: It’s a temperature check for evaluating your financial situation. Everyone should know their current net worth status! You get a bonus if you know your average net worth by age.
How is net worth calculated?
Net worth is calculated by adding up all of one’s assets and then subtracting all of one’s liabilities.
Assets may include:
- Liquid (or easily available) cash
- 401k retirement accounts
- IRA retirement accounts
- Rental properties
- Vehicle market value
- Valuable jewelry or possessions
- Current market value of home*
Liabilities may include:
- Student loan debt
- Credit card debt
- Vehicle loan balance
- Personal loans
- Payday loans
- Other debts
- Mortgage balance*
*If you’re wondering how your home can be both an asset and a liability, click here
Why does net worth matter?
Net worth gives a clear picture of how much you own and how much you owe. Most people have a net worth goal they’ll need to achieve before they can retire. Keeping track of your net worth regularly ensures that you’re on the right path to retire when you plan to.
Net worth also works as a motivational number. When you’re paying off debt, watching net worth go from negative to positive is extremely inspirational. For many people on a journey to better finances, they first focus on becoming debt-free. After that, there’s no real clear next steps or goals to reach. Your net worth is a new goal to focus on and makes living a debt-free life even more fun.
What should your net worth be by age?
“Should” is a strong word here, but we want to give you an idea of what the average net worth is in your age group and how you measure up with your peers. There are many factors that determine net worth by age, and if you don’t “measure up,” to your peer group, don’t be dismayed! We’ll go over how you can improve your net worth later on in this article.
In order to determine what your net worth by age should be, you’ll want to first know what the average net worth by age is so you can see how you compare.
According to Nerdwallet, below is the median and mean of net worth by age:
|Age Range||*Median Net Worth||*Average Net Worth|
|Less than 35||$13,900||$76,300|
How does your net worth measure up?
*Median = The middle (median) value in a list of data
*Average (Mean) = Adding up all the values and dividing them by the total number of data entries
When looking at net worth by age above, note that the averages, or means, take into account outliers, or people in your age group that make $5M+. The median is simply “the middle value when data are arranged in numeric order or the average of the two middle numbers when the set has an even number of data,” which may also helpful for you to compare to. However, the median net worth estimates above do seem a bit on the low end of where you would want to be.
If you’re aiming high and want to be among some of the higher net worth folks during your life, pay more attention to the average.
Now that we’ve analyzed the average net worth by age, let’s look at a number even more important and helpful than that.
What should your net worth be by age if you want to retire at age ____ with $_____
This number is the real key to determining if your net worth is in an acceptable range right now.
Retirement is not an age, it’s a financial number.
So you need to know if you’re on track to retire by the age you desire.
The average net worth between the age range of 65 and 74 is $1,217,700. However, the median net worth is $266,400. When you are ready to retire, you should have roughly ten times your final salary saved.
Click here to play around with a retirement and net worth calculator to determine the net worth you need to have right now to retire by your desired retirement age, to see if you’re on track!
There are several retirement calculators you can try online. The easiest I have found is NerdWallet’s. They explain how retirement is calculated on their end and lay out different variables you should look out for.
This will help you determine if your net worth right now is good enough for you retire by age 60 with $1.5 million, for example.
How to start tracking your net worth
The Personal Capital app is the best net worth app I have found — and the best part is that it’s free! Personal Capital has done an excellent job making their interface user friendly, simple, and functional. The app connects to all of your financial institutions (banks, IRAs, 401ks, house loans- everything) and uses the real-time numbers in their automatic calculation.
Personal Capital takes all your assets and subtracts your liabilities and shows your net worth in real-time. All you have to do is connect your accounts and watch the magic unfold. No math is needed from you!
How to grow your net worth
Now, if you just read through this article and thought, “I am nowhere near where I need to be,” have no fear! This is the fun part where I show you how to increase your net worth and start making financial progress so that you can retire wealthy!
Pay down debt
“You can’t borrow money at 18 or 20 percent and come out ahead.” – Warren Buffet
One of the first things you need to look at when considering how to increase your net worth is getting out of debt. Now, getting out of all debt is a must, but the first thing you want to attack is the high interest debt that is dragging you down. Yes, we’re talking about credit card debt.
With an average interest rate of almost 18%, these particular debts will weigh you down and continue to make your net worth in the negative. The best thing you can do is wipe out credit card debt as fast as possible.
Here are a few of my favorite articles on how to use credit card responsibly and how to pay down high interest credit card debt:
- THE BEST TOOL FOR CALCULATING YOUR CREDIT CARD PAYOFF
- HOW TO SWITCH FROM CREDIT TO DEBIT IN ONE DAY
- 7 TIPS TO BREAK UP WITH YOUR CREDIT CARD
- HOW TO NEGOTIATE CREDIT CARD DEBT
- THE 7 STEPS TO PAYING OFF BIG DEBT
Live below your means
Once you pay down your high interest debts, keep living below your means. That means you need to budget and continue to save money and pay off debt. The biggest mistake I see people make is living above their means and sending nothing to debt, savings or investing.
Lifestyle creep is real, spending all you have is real, having a credit card balance is real– but this doesn’t have to be your reality, in fact, it shouldn’t be if you’re prioritizing having wealth by the time you retire. Make saving a priority, budget your income using a Zero-Based Budget and be intentional with your money!
Here are a few of my favorite articles on how you can live below your means:
- HOW ZERO-BASED BUDGETING CHANGED OUR LIVES AND CATAPULTED US INTO DEBT FREEDOM
- NEW TO BUDGETING? CUT BACK IN THESE TOP 6 AREAS FIRST!
- 5 REASONS DIGITAL BUDGETING MIGHT BE BETTER FOR YOU THAN PEN + PAPER
- HOW TO MAKE A BUDGET: STEP-BY-STEP GUIDE + FREE EXCEL TEMPLATE!
- GET CONTROL OF YOUR SPENDING WITH THE CASH ENVELOPE METHOD
- THE 22 ESSENTIAL BUDGET CATEGORIES
Avoid lifestyle creep
Don’t let increased income increase the way you live your life. Ask yourself what you would do if you got a raise tomorrow. Would you get a newer car? Would you want to move into a bigger house? What about a new boat, new clothes, new watch?
As we get promoted in life, we tend to upgrade our life — that’s what lifestyle creep is and that’s how you wind up in a lot of debt. My friend @Aunt.Kara discusses lifestyle creep at length on her Instagram and blog.
We don’t want you to start down this rocky road. Of course, with increased income comes nicer things, but the trick is to still live within your means!
Use your promotions, tax refunds, windfalls, etc for paying down debt, saving money, or investing in various assets.
Start investing in tax-advantaged accounts
Once you have paid off your high interest debt and have a 3-6 month emergency fund, the best and most effective way to build your net worth is to invest your money — and not by just investing in individual stocks or low cost index funds, but also investing into tax advantaged accounts.
What exactly is a “tax advantaged account”? According to Investopedia, a tax advantaged account, “ refers to any type of investment, financial account, or savings plan that is either exempt from taxation, tax-deferred, or that offers other types of tax benefits.”
Some of the most popular tax advantage accounts are Roth IRAs, HSAs and 529 plans. These accounts allow you to place money to grow with compound interest, without having to worry about being taxed immediately or at retirement withdrawal. This can save you hundreds or even thousands of dollars in taxes, while also growing your net worth!
Start investing into cash-producing assets like index funds, stocks, real estate, etc.
The biggest way to grow your wealth is investing your money so that it makes more money. Compound interest is your bff as far as net worth goes, and that’s why I recommend investing in cash-producing assets like index funds, stocks and real estate.
No matter what your risk tolerance is, there’s an investing strategy out there that will build your net worth and be completely comfortable for you. If you’re a person that enjoys low risk investing, I recommend Index stocks, medium and high risk would lean more towards individual stocks and real estate.
If you’re not sure what method is best for you, check out my Index funds course that goes over, well, index funds, but other means of building your wealth when it comes to investing.
Related reading: Do You Know These 23 Beginner Investing Terms?
With this net worth overview and step-by-step instructions on how to increase yours, you should be well on your way to retiring wealthy!