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Financial HealthKnow Your Net Worth: You are Never Too Young - Jen Davis: Life Coach

September 25, 2019by Jen Davis - Life Coach1

Don't Be Lulled by What is in the Bank, Know Your Net Worth

Many times, particularly when we are younger, we get caught up in calculating what we are worth based on what is in the bank, or what our house could sell for and become lulled into a false security. But the reality is your net worth should equal 4x your salary by the time you are 50.  Many people simply don’t know their net worth, even though it is one of the most important aspects of personal finances.  It is a good indicator of knowing if you are on target to hit financial goals.

In fact, knowing your net worth is a great way to see what might be holding you back.  Your net worth is a very strong indicator of your overall financial health.

The Calculation

It sounds simple:

The combination of what you own (your assets) and what you owe (your liabilities) makes up your personal net worth.

And yet so many people don’t know the answer.  Let’s break this down.  First gather any statements and other information about your assets (what you own) including:

  • Cash in the bank
  • Value of investment accounts
  • Market value of home
  • Value of retirement accounts
  • Value of car
  • Business interests
  • Personal property, such as jewelry, art, and furniture
  • Cash value of any insurance policies

Next, we need to list your liabilities (what you owe) including:

  • Mortgage
  • Car loan
  • Credit card balance
  • Student loans
  • Other loans

Now, subtract your liabilities from your assets to determine your personal net worth. It should be a positive number, at least you hope it is, but it may not be.

Great, now you have the number.  But what does it mean? And where should it be?

What is the Magic Number?

First, there are a lot of factors in determining the magic number.  But I will share some numbers as benchmarks to begin judging your own net worth.  However, the overall average is skewed by the nations 1%, so take all of this with a grain of salt.  As an example, the median net worth of the average US household is just over $97,000, where the average is over $692,000.  We will use the median, which is the middle point where half the households have more, and half have less and is the best indicator of where you stand.

Net worth at 30

Under the age of 35, the average net worth of families is $76,200 and the median net worth is $11,100.

Your goal in your 30s is to have half of your salary saved.

Net worth at 40

For ages 35 to 44, the average net worth for families is $288,700 and the median is $59,800.

Your savings goal is to have twice your yearly salary saved by age 40.

Net Worth at 50

For ages 45 to 54, the average net worth for families is $727,500 and the median is $124,200.

By age 50 your net worth should be four times your salary.

Net Worth at 60

For ages 55 and 64, the average net worth is $1,167,400 and the median is $187,300.

By age 60, your net worth should be six times your yearly salary.

Net Worth at Retirement

For ages 65 and 74, the average net worth is $1,066,000, and the median net worth is $224,000.

When you are ready to retire, you should have ten times your final salary saved.

What if I'm Behind?

Start doing something to change it today, not tomorrow. Figure out where you are spending and start budgeting toward a goal.  Also, with any spending, figure out what you can comfortably afford and stick with the budget and not take on anymore debt.

And remember, there are other things that can happen in life to increase your net worth.  But don’t wait around for them, they are not an excuse to stop saving.  For example, you may receive an inheritance from your grandparents or parents that may impact your net worth.  But don’t rely on others to raise your net worth.

Instead, keep saving, find a side hustle, make your money work for you (consider a round-up/investing service like Acorns), stick to a budget and make sure you are putting as much as you can away for retirement.

Know Your Net Worth, but Live Life Too

Once you know your net worth, remember, you can’t take it with you.  And while you want to make sure you can live comfortably well into your 90s, maybe 100s, don’t skimp on too much today.  Take the vacation.  Buy the new car or house as you need it and do it by adhering to buying what you can comfortably afford.

Save, but invest in yourself and your family.  It is a delicate balance. Look at the numbers above, see where you are at and adjust accordingly. Remember, there is a decade in between these dates, so you don’t have to catch up tomorrow. Go ahead and buy that coffee today, but round-up the change to savings.

Jen Davis - Life Coach

One comment

  • Tim

    July 13, 2020 at 9:49 am

    Like!! Great article post.Really thank you! Really Cool.

    Reply

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