Figuring Out your Net Worth from the Average
What’s the Value of Knowing Your Net worth?
2020 pulled the rug right underneath us. In 2019, it wasn’t uncommon for people to complain about their 9-5 during the week and spend money throughout the weekend. The problem with that approach is that people are merely working to live. So much so, Experian reported the average total debt per consumer (including mortgages) was $90,460.
For context, the average annual income was $50,413.
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Let me paint the picture of Net Worth
Most people aspired to have a nice car that spent most of the time parked. All this, while at work, away from a large home that was functionally empty half the time. Let’s call it insanity at its best. The median household is $66,000 with on average $1,000 in savings. And now, we have to deal with inflation.
This is where a net worth calculation comes into play.
It helps you compare what you are bringing in vs what you throwing away. The results should spark you into action and help you learn how NOT to exchange your life for a lifestyle.
What is Net Worth?
To determine your Net worth, simply subtract everything you owe from everything you own. It boils down to your Assets (A) minus your Liabilities (debts).
Let’s consider Paul Wall.
In his checking account, he has $1,500 (A). He owns a home valued at $375,000 (A) with a mortgage of $225,000 (L) remaining, and a car with a resale value of $12,500 (A).
In addition, Paul also contributed to his 401k investment portfolio worth $205,000 (A). Finally, Paul has a credit card debt of $18,000 (L), a car loan of $10,000 (L), and a student loan debt of $45,000 (L).
To calculate Paul’s net worth, we would have to first pull in his total assets subtracted from his total liabilities.
- Assets: $1,500 Bank checking + $375,000 home value + $12,500 car value + $205,000 investment portfolio
- Liabilities: $225,000 mortgage + $18,000 credit card debt + $10,000 car loan + $45,000 student loan
- Total Assets of $594,000 minus Liabilities of $298,000
- Paul’s Net worth equals +$296,000
Average Net Worth by Age in America
| By Age | Median Net worth | Average Net worth | Average Total Debt |
|---|---|---|---|
| 20-35 | $15,000 | $80,000 | $24,000 |
| 35-44 | $100,000 | $440,000 | $60,000 |
| 45-54 | $175,000 | $830,000 | $80,000 |
| 55-64 | $212,500 | $1,175,000 | $70,000 |
| 65-74 | $275,000 | $1,220,000 | $50,000 |
| 75+ | $255,000 | $980,000 | $20,000 |
Most people wait until they are around 45 to get serious about their financial literacy and planning. Oftentimes, it’s too late since they’ve already invested in a lifestyle of debt. Dave Ramsey, a Financial media expert has built an empire selling the concept of debt repayment since it’s more emotional for people.
Nothing drives people more than the fear of others finding out that they are broke or not Middle class. As such, it’s a balls-to-the-walls approach to being debt free by 50. As you can see by the graph, the average American retains some form of debt well into retirement.
Stretching Your Net worth from your 20s through your 30s
For many, our 20s open the realm of exploration and expansion. Consumed with fast fashion and peacocking to win over a potential mate, we spend our money on just about anything because it’s easy.
However, our 20s through our 30s should be a time when we pivot and begin to do more with our money. Here are a few tips on how to stretch your wealth without the pain of hot Yoga:
- Move to where your money works for you. Always start to shift from one job to another at around the 2-year mark. If you haven’t been promoted, it’s time to roll out.
- Work on your soft skills. Communication is the key to wealth. From Interviews to Youtube, those who know how to communicate win the game.
- Spend less on the big items such as housing and transportation. If you are going to go out anyways, you won’t be home that much. Just get a home that has adequate lighting and a virtual office area. The open-concept living room is for the birds.
- Invest at least $500 per month through a ROTH IRA in a Total Stock Index ETF like $VTI.
- Now go enjoy life with Travel and pictures for IG.
Getting Serious post 30th
By the time you reach your 30s, this is when you really need to kick it up a notch. Here are the wealth tips that count:
- Get Fit and Healthy. Your later years will thank you for every morning stretch. Your pocketbook will benefit too.
- Time to purchase a home. If your rent is north of $1,000, it’s really OK to plan to buy. No need to wait for a mate, they will be happy you go more assets than liabilities.
- Speaking of liabilities, Pay down your debts. No need to carry a credit card balance. It’s OK to use a credit card but most people are bordering on credit card abuse. I wouldn’t recommend fast-tracking your student loans if the interest is less than 6%. You would be better served to earn on average 8%+ in the market.
- Get serious about Marriage if that’s your thing. Stop gambling time and your future waiting on the unicorn perfect partner. Settle for a partner that is respectful to everyone, not just you. Pair up with someone who wants to build for a future and someone with a fair character. Those are the traits that last.
Blazing through Net Worth through your 40s
Pulling into your 40s should be a cakewalk if you followed the plan. If not you have your work cut out for you. Most people pick up a second or third job to really push income into high gear.
It might take you 1-3 years to pull it off but you will be roaring into your 50s. Here are the tips that I read about:
- Draft a Family plan for the next 5-10-20 years. This works to build trust and focus within your unit. Everything needs to be on the table and everyone needs to be on board.
- Pay down all your debts by 50 which includes your mortgage. It makes the golden years more fun and stress-free.
- Always opt to invest vs having money for the kids’ college. Yeah, it sounds opposite but it’s like putting on your mask first before you save your kids. Nothing worse than a broke parent in retirement.
- Stop caring about what others think. Nuff said it’s your life. Live it.
Rounding off a Millionaire’s retirement in your 50s and Beyond
Once you hit your 50s, this is where you make up all the lost time in building wealth, leaving a legacy, and knocking out your bucket list.
Retirement is right around the block, here are some tips to consider:
- Maximize your retirement plan. You can contribute the max into a 401k, 403b, or 457b plus the additional contribution for over 50. You can also make use of the extra $1,000 in traditional or ROTH IRAs.
- Have a withdrawal strategy. Get a financial advisor if you need to. You need to know where money is coming in from or going out off in retirement.
- Create moments and memories within yourself, with your loved ones, and with your friends. Think in terms of the growth mindset (see the video below).
Final Stages of Wealth
Wealth is more than money. It’s the journey you had to undertake to get here. In the end, it is less about what you took from the world and more about what you were able to put back into it.
Many reach different milestones with no goal which makes sense as to why it’s difficult to earn and grow throughout the evolution. The effort you put in today will pay off dividends tomorrow.
To quote Usain Bolt on wealth, ‘If you make $10, save $6’.
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