Today, let’s look into average American net worth by age, break it down, and see just see where we land. Firstly, because it is interesting to see how we stack up money-wise against others in our age bracket. Secondly, it can help us know if we’re on track or need to pull up our socks!
To this end, the average American household has a net worth of $748,800. Now, before we get too cynical about how high that number is, keep some things in mind: this includes billionaire households, all ages, and includes home equity.
Therefore, if we just look at the median net worth, we see a lower and more reasonable $121,700. Still keeping in mind that this includes all ages and home equity, but has effectively removed the billionaires. However, before we look between ages brackets, lets review what net worth is, why it is useful, and then calculate our current number.
What is Net Worth?
Easy Calculation
As you can likely imagine, the number of items on this list can get long. Luckily there are some great apps that can help us. Two such applications are Personal Capital and Mint. Each can easily summarize your assets, liabilities and calculate your net worth. Additionally, they have some effective budgeting tools as well.
Quick and Free
Breakdown by Age
Below is a table of the average and median net worth for American citizens. However, if you happen to live outside of the USA, the same should still apply with little variance after adjusting for currency. Especially true if your nation doesn’t provide free post-secondary education, rewards capital markets, and encourages entrepreneurship.
When looking at the chart, focus first on median net worth as this is the best indicator of where you fit. 50% of the population will be below this number while the other half is above it. Average net worth can be heavily skewed by the top 1% who hold a disproportionate share of the wealth through business ownership.
Break This Down Further
Net Worth by Age 30 Goal: Get Above 100k
Scenarios
Goals
- Consumer debt equal to zero.
- Student loans paid down to zero.
- Mortgage is our only debt
- Investment account is equal to half our annual salary
- Side project that could change your life if it takes off
I believe you won’t have any questions about the above listed. Again, these are goals and things to aspire towards during your 20’s. In particular, I would like to speak about the last point and goal: having a side project.
Side Project – Why?
My goal, and purpose of this blog site, is to make you fabulously rich and wealthy. In reality, working for a company, saving 10% to 20% and investing it wisely will make you rich and wealthy. But it will take a full 30 years to deliver. I’m sorry, but this is just the reality of the situation. What we need is a method, business, or system that you create or build that is capable of generating incredible returns or cash flow for you and your family. To clarify this further, we want to start a side business or “side hustle” after working hours.
Additionally, this side project will inject massive amounts of positive energy into your life because you’re pursuing a possibility. While it may not click during your 20’s its important to learn the lessons that will make it work one day.
Execution
50% Needs
Allocate 50% of your after tax money towards your needs. As you might assume, this includes our fixed or non-negotiable items necessary for living. For example, rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment, and utilities.
Half of your after-tax income should be all that you need to cover your needs and obligations. If you are spending more than that on your needs, you will have to either cut down on wants or try to downsize your lifestyle.
30% Wants
Wants are all the things you spend money on that are not essential. As such, this includes dinner and movies out, that new handbag, tickets to sporting events, vacations, and the latest gadget. As it happens, these “wants” are optional and can more easily be controlled. For instance, you can work out at home instead of going to the gym, cook instead of eating out, or watch sports on TV instead of getting tickets to the game.
20% Investing
Real Life Example
Net Worth by Age 40 Goal: Get Above 250K
Scenarios
Now that you’re in your thirties, and you’re inching towards 40, we need to tighten things up. You’re working the daily grind, got a young family, a home, and all the major responsibilities that come with these. Most importantly, this is a pivotal point in life where the decisions you make here will impact the rest of your adult life. For example, this is your last opportunity to make investments that can grow for 30 years and still enjoy them someday.
Financially speaking, we need to get that net worth above $250,000 before we hit 40. Much of this increase needs to come from our investments and side projects. So don’t rely on home equity to deliver this bump. More over, if some of this increase is from a successful side project or business, we will definitely be on the right path to accumulating substantial wealth during our lifetime.
Goals by 40
- Investment account balance is 2 X our annual gross salary
- Mortgage on primary home is less than half, and will be paid off next decade
- No Credit Card Debt
- 1-2 Passive income streams started and working – even if small
- Scalable side project that will change your life
Execution – Check your Stocks
During our 30’s, and before we reach our 40th birthday, we need to take a serious look at our investing approach and determine we’re holding enough stock. As we still have a 30 year plus timeframe, we still want to be heavily invested in stock based index funds. Now is not the time to be conservative with our investments.
On top of this, because of the demands of family life and the responsibilities we carry, we should automate our finances as much as possible. As a result of having less time tied up watching the markets and worrying about our investments, we will have more time to put towards our side project.
Scalable Side Project for Passive Income
You’ll notice the addition of a passive income stream goal to our set above; which replaced some of our debt reduction goals from earlier. That is to say, now that we’ve eliminated someone else’s income stream, now we want to build some of our own! As a result, this should align nicely with our side project goal of creating something life changing. Our focus on the side project is going to change slightly to be more focused on a scalable side project. Whereas in our 20’s we pursued any and all viable side projects, now we need to ensure they are scalable.
Why this Focus on Side Projects Again?
Side projects are pursued for the energy they inject in life, the lessons they teach and the people we meet. Of course, we are also pursuing them in the off chance that one of these connects and works. If and when one of these projects delivers, your whole life will change, and new doors and avenues magically open up. To sum it up nicely, this will single handedly revolutionize your net worth more than any other single thing we talk about today.
Net Worth by Age 50 Goal: Get Above 500K
Scenarios
Now that we’re in our forties, the pressures of life and accompanying responsibilities are at their fullest and most intense. On top of these pressures, these are also our prime earning years, so we absolutely need to work hard and make them count. If you’ve been a consistent investor, and smart with debt, you should have no problem crossing the $500,000 net worth marker. You may also be on your way to your first million. To round this out, we should also have at least one passive income stream that are working and bringing in some income. If not, then continue pushing those side projects until one clicks.
Goals by 50th Birthday
- Investment account balance is 4 X annual gross salary
- Mortgage paid off
- No debt of any kind; except maybe investment property debt if you’ve chosen this asset
- 1-2 Passive income streams that rival your active income (combined)
- Exiting the workforce becomes a viable option
Execution Summary
3 Prong Attack
The execution plan for these goals is three fold. Firstly, we want to finish paying off our mortgage and eliminate any debt that isn’t against a positive cash flow generating asset. On top of removing the obligation of debt, it also reduces our monthly expenses and enables our exit sooner.
Secondly, we want to continue building up our investment account so that it amounts to four times our annual gross salary. Because we have been doing this all along we don’t need to change anything, not even our asset mix. So we stay heavy on stocks we will wait until we’re in our fifties before our first adjustment.
Thirdly, we need our side project or business to continue generating cash flow and consistent profits for us. As we have been building it to be scalable, hopefully we can ramp up operations through our forties and take things even further. In other words, as we increase our operations and thereby profits and income, and we could realistically quit and rely on this income instead. Should we do it? You decide!
Stretch Goal – $1M Net Worth By Age 50
While its true a million dollars is not what it once was, it still resonates as a huge milestone with wealth accumulators. Therefore, it’s likely you’ve held this goal in mind all along since you started working. But now, it’s entirely possible that you can eclipse this milestone during your forties. Chances are, if it does happen for you, it will likely happen near the end of your forties, say 47 or 48. My point here is as you start your forties, buckle down and work hard. You have a real shot to achieve Millionaire status! Certainly it will be difficult, but with a solid foundation from previous decades of working and saving, we can accomplish this goal during our forties.
Net Worth by Age 60 Goal: Millionaire Status
Scenarios
Goals by 60th Birthday
- Investment account balance is 8 X annual gross salary
- No debt of any kind; except maybe investment property debt
- 2 passive income streams that can replace your active income (Each)
- Working is for a paycheck is a choice
Execution
By now, it should be a rinse and repeat operation, relying on our good habits and experience. Assuming we have sufficient passive income to completely replace our active income, we should give it a try. This is not to say we exit and retire completely. Rather, this is just a trial basis to see what it would be like to rely on our passive incomes. To further clarify, we don’t want to sell any assets, but rather utilize the income they generate. Chances are this trial, or sabbatical, will become your new lifestyle! However, in the off chance you don’t like it or run into problems, you can return to your previous job.
Investment Portfolio Adjustment
