People sometimes wonder what their net worth should be at the point they are at in their lives. The answer to this will obviously depend upon several variables, such as how much debt you have when you begin your career and how much you make. But your net worth should always be increasing, at least in the long run. The following general formulas can give you some idea of what your net worth ought to be at progressive stages in your life. All of the examples shown assume that you have six months of savings in the bank, contribute 10% to your company retirement plan and it grows by an average of 7% per year. You also have a 10-year, $20,000 student loan charging 4% interest to pay off. Each example also bases its numbers of the results from the previous example.
At Age 30
At this point in your life, you are probably still just starting out. You may still be in school, getting a graduate degree or an undergrad degree if you're a late starter. And it may have taken you a while to find a job after you got out of school. But if you started working when you were 25, then your net worth should perhaps fall into one of the following categories, depending upon your income:
Income Below $50,000
If you made an average of $40,000 per year from age 25 to 30 and rented your living quarters, then your retirement savings would equal about $23,000. If you have paid $200 a month toward your student loans in that time, then you will have paid off approximately half of your loan balance, so your net worth would be somewhere in the neighborhood of $30-35,000 when you count your liquid savings. ($23,000 + $20,000 - $10,000 = $33,000)
Income Between $50-100,000
If you work in a higher-paying field and make $75,000 from age 25 to 30, then you would have about $43,000 in your retirement plan and a net worth somewhere around $50-55,000. ($43,000 retirement + $20,000 - $10,000 = $53,000)
Income Above $100,000
If you are really successful and clear $125,000 a year from age 25 to 30, then you would have about $72,000 socked away in your retirement plan by age 30. The $10,000 of liquid savings that isn't canceled out by your loan brings your net worth to the $80-85,000 range.
At Age 40
At this point, you are probably done with school and are getting established in your career. We will use the final net worth numbers from the last example to start with and also assume that at age 35 you buy a $200,000 home with a 15-year note charging 4%. Your student loan is now paid off. With a house payment of about $1,475, you would accumulate about $40,000 in equity by age 40.
Income of less than $50,000
If your salary continues at $40,000, then you would have about $100,000 in your retirement savings plus $20,000 liquid and a $200,000 house (we will not add in any appreciation in home value here in a nod to the current real estate market). This comes to $320,000 minus a $160,000 mortgage, leaving your net worth around $160,000.
Income of $50-100,000
If your salary continues at $75,000, then your retirement would be worth about $188,000 by age 40. Add in net home equity of $40,000 and your $20,000 of liquid savings and you're worth about $250,000.
Income above $100,000
If you're still making $125,000, your retirement savings will be about $315,000. Your other $60,000 of assets will make you worth about $375,000.
At Age 50
At this point, your mortgage will be paid off, and you may be looking for ways to fund your kids' college educations.
Income of less than $50,000
$40,000 salary = $250,000 retirement savings + $250,000 home value (including estimated appreciation) + $20,000 liquid savings = $520,000
Income between $50-100,000
$75,000 salary = $475,000 retirement savings + $250,000 home value + $20,000 liquid savings = $745,000
Income above $100,000
$125,000 salary = $790,000 retirement savings + $250,000 home value + $20,000 liquid savings = $1,060,000
The Bottom Line
Of course, these illustrations can only give a general idea of what your net worth might be given the set of assumptions presented. There are obviously a myriad of factors that will affect your net worth throughout the course of your life, and many major components of household finance, such as car loans have been omitted from these examples for simplicity's sake. There are also simplified formulas for determining net worth that state that your net assets should equal a tenth of your annual pretax household income multiplied by your age. For more insight into how much you should be worth at a certain point in your life, consult your financial advisor.
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