How to Avoid Falling behind Financially in Your 40s
Ever feel like you are falling behind financially?
Turns out, most Americans feel the same way. New job applicants are requesting no less than $80,000 per year in entry-level roles. While most families say they need over $230,000 per year to stay afloat. Boomers are entering retirement with fewer savings than anticipated. Genx is stuck in its own sandwich generation with the likelihood of another recession. While millennials are now ages 26 to 41. Life is getting financially complicated.
We are all navigating through major life transitions from the global pandemic to global reversion to the mean. All this, on top of getting married (or not), going 50/50 on expenses, buying unaffordable luxury homes, and/or having kids with mortgages for daycare costs.
Translation: It’s a lot!
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Your Net Worth should be Increasing, but Most don’t even know What It Is
Your net worth (total wealth) is equal to your assets (the stuff you accumulated thus far) minus your liabilities (just a fancy way to say debts, what you owe). This entire blog is dedicated to breaking down the information barriers to wealth accumulation. To solve the problem of falling behind, first, we have to discuss the current average net worth of people in their 30s and 40s.
The average American currently has an average net worth is $748,800. For those in their 30s-40s, the average is $436,200. Of which, $90,460 is debt.
This seems fantastic at first, however, averages are skewed by extremes on both ends of the net worth spectrum. Basically, the super-rich pull up the average.
According to the 2019 Federal Reserve data, the median net worth for people between the ages of 35 and 44 is actually $91,300.
Many are feeling the economic squeeze since the pandemic (not to mention the growing wealth gap) because the median (i.e. near true middle) American has less than $5,000 in liquid assets and less than $50,000 in their investment accounts.
Track Your Wealth to Avoid Falling Behind Financially
With most American families facing future economic collapse, now is the time to focus on knowing your net worth. The goal is to start with your mindset, and finally take action. In the long term, you will be able to live a life aligned with your purpose, while becoming a producer.
The number one advantage for those 35+ is income, followed by time. Since our 20s and early 30s are generally expansionary, the drastic drop in spending presents new opportunities for your income to work for you.
Over time, you will never be able to outwork inflation and expenses. You should, however, get in the habit of buying quality assets to build wealth.
Here’s a breakdown of the average salary and net worth by age:
Household Income and Net Worth by Age
| Age | Average Salary by Age | Median Net Worth | Average Net Worth |
|---|---|---|---|
| Less than 35 | $31,772 to $52,936 | $13,900 | $76,300 |
| 35-44 | $63,596 | $91,300 | $436,200 |
| 45-54 | $64,428 | $168,600 | $833,200 |
| 55-64 | $63,336 | $212,500 | $1,175,900 |
| 65+ | $54,184 | $266,400 | $1,217,700 |
A Plan for Those Who Are Behind Financially
There are three ways you can grow your net worth; 1. decreasing your expenses (debt) in a strategic way, 2. increasing your income (whenever possible because there is no cap), and 3. investing the difference (in a way that support 1 and/or 2).
No matter how you spin it, these steps are pivotal. They go hand-in-hand to improve your monthly cash flow.
By the time you’re in your 30s and 40s, you probably took on debt. Between credit cards, loans, and mortgages, we are carrying too much and too fast. While it might be easy to spend, there is always a better way.
As of yesterday, you have to rethink the relationship between your spending and your happiness.
Life has value even if you aren't spending. Unfortunately, the government can't teach you that. You have to decide that part on your own. If your algorithm is filled with luxury, spending, and travel; that's your value system. Your mind is likely where your net worth dips.
The true solution is to rethink money and sort through your priorities.
Change is not Overnight
If you are truly seeking this form of change, it will not come overnight. Financial experts say that in this age group of 35+, you should have 10 times your income saved by retirement age.
When you have more debt than total assets, your net worth will be in the negative. Fixing it starts with paying back your debts with an efficient cash flow strategy.
This is where the net max financial plan comes into play. People often wonder how my wife and I were able to become millionaires in 6 years, it was just following a system.
You may not build up to your dream net worth overnight, but with some planning, you can make incremental progress that compounds.
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