What should your net worth be by age XX?
It’s a good question. What should your net worth be by age 20 or 30 or 40 and so on, is probably one of the most common inquiries I get, but I’m always hesitant to answer. Mainly because there really is no good answer. A lot of the targets are arbitrary, no matter who makes them, including mine in this post.
There really is no right number to set as your net worth target. Personal finance is personal, and this is one of the most personal numbers of all.
How to calculate your net worth
Calculating your net worth is simpler than you think. All you need to do is subtract what you owe from what you have, and the number left over is your net worth.
Assets – Liabilities = Net Worth
To determine what you owe, add up all your debts: mortgage, car loan, student loans, credit cards, and so on. If you’re not sure what debt you have (hey, it happens!) one of the easiest ways to find out is to get your credit report. Your credit report will list all your balances owing, as well as your minimum payments and whether the accounts are in good standing.
To determine what you have, add up all your assets: home, car, investments, cash savings, and so on. Sometimes assets are a little trickier to value than debts, because people have a tendency to overvalue things like their car or jewelry. If you want to err on the safe side, underestimate the value of any non-cash assets or have them professionally appraised.
What should your net worth be by age?
What will be “enough” depends on you and factors you don’t know yet. Some people cannot live on less than $100,000 per year, others struggle to spend as much as $25,000. These people do not need the same net worth at every age milestone.
Knowing how much wealth you personally need to accumulate in order to live comfortably is far more important than knowing what everyone else has. For that reason, I would encourage you to think up a number that feels good to you. Then work backward.
Do you want to be a millionaire? When? Pick an age, and then work out the steps to get there. The goals you set don’t need to be set in stone, and more likely than not, they will change as the decades pass. It’s okay, even preferable, to be flexible with your finances. Nevertheless, I hammered out some targets if you do want a rough guideline to go by. Enjoy!
Age 30: $0 to $50,000+
The net worth number you end up with by age 30 is going to be almost wholly dependent on how much financial privilege you enjoyed in your 20’s. That is the awful truth.
I want to tell you the end result will be a product of your own ambition and fiscal responsibility, but in reality, the biggest determinant of whether or not you finish the decade in the black will be how much money your parents donated to your cause. The second biggest determinant will be how much you earn.
Depending on how long you went to school and what you studied, your student loan debt load, job prospects, and work experience, what you earn can vary tremendously. Some people graduate at 22 and go right into the workforce, others pursue professional or graduate studies and don’t wrap up their schooling until their late 20’s (or later). Some jobs start at $40,000 per year, others start at $100,000. How much you’re paid determines how quickly you can pay off your debts and build up your savings, and therefore, what your net worth is.
The most important thing about your net worth in your 20’s is just that you start building it.
Make a dedicated effort to pay down your debts and save and invest what you can. What should your net worth be by age 30? Your main goal in your 20’s is just getting your net worth to a positive number. This is purely a matter of aggressively paying down debt and accumulating assets. Here are some ways to start off on the right foot:
- Earn 2.30% on your savings with EQ Bank
- Start investing the stock market by opening an account with as little as $100 with Wealthsimple
- Get your spending under control with Koho
If this is easy for you or you hit it on early in your career, it’s time to focus on building real wealth. An excellent starting point or target number is to have a net worth of $50,000 or greater by age 30. It’s not essential that you hit this target to enjoy long-term financial security, but if you do, you’ll enjoy it a lot sooner.
Age 40: $150,000 to $250,000+
Once out of your twenties, how well you do net worth wise will have more to do with your choices rather than your circumstances.
Your 30’s will likely be one of the most financially demanding decades of your life, particularly if you decide to have a family. Nevertheless, you should have paid off all or most of your debt from your 20’s, enjoy greater job security, as well as a higher salary in your career. Unfortunately, most people make the mistake of using the extra wiggle room in their budget to spend on shinier consumer goods. This leaves them financially more or less the same as they were as a college student, except with a BMW in the garage so they feel like they’re doing better. They’re not.
The most important thing about your net worth in your 30’s is not to sabotage it with aspirational spending.
What should your net worth be by age 40? You should be able to finish your thirties with a healthy six-figure balance on your net worth sheet. It’s not unreasonable to have hit your first quarter-million milestone, or even surpass it. You should be completely debt-free (except for a mortgage, if you have one) and your entire surplus of cash should be going towards building wealth for you and your family. It’s okay to buy a few nice things, but not so many that you end up with more stuff and money.
Age 50: $500,000 to $750,000+
By age 50, barring any catastrophic financial setbacks, you should have amassed a significant amount of wealth by the time you blow out the candles on your 50th birthday cake (will you dare to have 50 candles? It’s a bit of a fire hazard).
What should your net worth be by age 50? Many people dream of early retirement in their 50’s. If your one of those people, your numbers should be a lot higher. If you’re of the other camp that plans to work through your 60’s and 70’s and beyond (because technological advances will give us 200-year lifespans for sure), you can worry less, but your focus should still be on growing your nest egg. With university-aged children, it might be harder than you think, particularly if they refuse to move out.
Age 60: $1 million+
What should your net worth be by age 60? You should be a millionaire by your 60th birthday. I would even argue that you have to in order to enjoy any kind of long-term financial security. Unfortunately, most people hit their 60’s and are horrified to realize they no longer have time to catch up on their finances. Many are still lugging around massive mortgage balances, and are buried in consumer debt. It’s baffling to me that you can be so old and so stupid. You’d think you would know how to manage your finances after a good 40 years of personal budgeting, but turns out people can never really shake the desire to buy crap they can’t actually afford.
Lucky for you, if you start now, it’s easier to hit a seven-figure net worth than you might think.
If you can contribute $10,000 per year to your assets starting at age 25, you’ll have just shy of $1 million at age 60 assuming an average rate of return of 5%.
If you stick to this and retire at the traditional age of 65, you’ll do so with a net worth of $1.2 million.
Of course, this represents just one route to this wealth. You can have a net worth of $0 at age 30, but you manage to increase it by $10,000 per year for that decade, then commit to bumping up your contributions by $5,000 per year in each decade thereafter (which is absolutely manageable), you’ll end up at roughly the same end:
Some final thoughts…
One of the most important things to remember is net worth does not equal cash on hand. I’m a big fan of maintaining the bulk of your wealth in liquid financial assets like cash and stocks. Cash — particularly cash that will generate passive income through interest and dividends — is far superior to tying your wealth up in a less liquid, income-draining asset, such as a house. I am not a fan of people who boast $300,000+ net worth numbers just because their house has increased 17% since they bought it 2 years ago, meanwhile, they have only $2,000 saved in their retirement accounts. This is why the above calculations might seem lower than what you would expect: they’re essentially done with cash in mind, not your primary residence rapidly increasing in value.
The numbers I’ve included in this post are fairly modest. It’s fairly easy to increase your net worth by $10,000+ per year. Ideally, you should be increasing your net worth by $25,000 or more each year. However, whether or not this is possible for you depends on your income and expenses. It’s not for everyone, nor should it be.
So what should your net worth be by age? It depends. The most important thing about your net worth is that it’s increasing year over year, and moving towards your personal financial goals. The purpose of your money is to deliver you the life you want, not merely to exist on your balance sheet.