Average Net Worth By Age In 2021!

average net worth 2021. it's brian preston the money guy brian i'm so excited i i try not to have favorites i try not to have favorites but i think this is one of my favorite shows that we do every single year so this show goes hot in just the next few days um we are right before year end and what's interesting to me just today i've had three of our co-workers come up and go brian it's almost time to do network stuff they weren't talking about this show they're talking about just time to do the net worth statement that shows me we got a movement going where others are getting just as excited about tracking their net worth but here's what's cool on this show we don't even talk about not only tracking your net worth we try to show you where you should be we actually give you some measurable goals so you can jump into this so here's here's what i want to kind of reflect on though okay we did our first net worth show in 2017 and we've kind of made this into an angle traditional tradition yep well here's how i opened the 2020 show i said quote what is unique about 2020 that you mean so in 2019 that's what we said going into 2020. what's unique about 2020. and the observations we made so innocent and so oblivious because we were talking about hey it was gonna be an election year oh oh that it was there's gonna be a leap year it seems like that one didn't get a whole lot of press last year the glasses we're gonna wear new years ago actually look cool these are the things we talked about how little did we know that 2020 was going to really 2020s i mean it was just um incredible what what all we faced but i do think that new year's create new opportunities and this is definitely a time to have self-reflection figure out what you can be doing better and look i think after a year like 2020 that was so hard working had so many things that were thrown at it that there's a lot of opportunity to really grab that ring and move forward in 2021 and what i love about these shows runs we're going to talk about as you're preparing your annual net worth statement i didn't say if i said as because you should be doing it every single year no as you're doing it we're going to talk about depending on where you are age-wise what part of the net worth statement you should be focusing on we're going to talk a little bit about your army of dollar bills and then we're going to close with something new talking about a little spot check that we know you guys are going to love we know you're going to be excited well that's the thing every year when we do this i think oh my gosh we just topped it that was the best show we've nailed it and then we always come up with something new this year did not disappoint here's something let me go ahead and set up how do you do you know if you're a financial mutant we're going to show you this year we're going to show you what the top 25 of your peers are doing so you can measure yourself to fellow financial mutants i love it all right brian so let's jump right in let's start at the beginning with the 20s and this is the age where we say this is where you really need to start your addiction to saving start that healthy savings addiction this is the biggest opportunity of your life i mean bo we get emails from parents we get emails from the actual people themselves who say you guys are changing our life because you've made me realize i have the opportunity to be on the ground floor of something incredible i can become an empire builder if i just don't blow my shot that's exactly and that's the that's the biggest thing is that i just want people to understand a little just a little bit of today this whole concept of deferred gratification can turn into a tremendous great big beautiful tomorrow but you have to start that pebble into the rolling process so it can really grow into the big financial empire that i know you have the potential to build so maybe you're someone in your 20s and you've only been doing your network statement for a short amount of time or maybe this year is the very first year you've ever done it you're thinking okay where should i focus my attention what's the thing that i should be thinking about we think if you want to set yourself up on solid foundational footing you got to focus on the liabilities the debt side of your net worth statement you have to make sure you have that one under control well this is the first time you get to be an adult i mean you get in your 20s you get to go into adulthood and you know what there's so many choices so many opportunities a lot of you go you just don't have the discipline and i think so much of success is built upon the back of discipline do not let your fallen fall into this trap because you know let's talk about where the debt traps are first thing let's talk about education student loans yeah that's a it's a huge maybe you're someone in your 20s who just got done with college and you have student loans or maybe you're someone in your early or mid-20s thinking you know what i should go back to school you know the economy is unique or there's things going on maybe i should go take out some loans and go get that advanced degree go get that graduate degree while that may possibly be an okay solution there's some things you ought to think about before you decide to go saddle yourself with that debt yeah pick your major well we always recommend here's a good baseline thing to know you don't want to come out of college with more student loan than what your first year anticipated salary is that's great so if you're someone's going to come out making 40 50 000 a year it probably does not make sense to go rack up hundreds of thousands of dollars of student loan debt let's talk about credit cards credit cards no go land i'm okay with credit card use credit card debt should not exist if you're not paying it off every month you've got a problem try to get it off your net worth statement as fast as possible this is probably the only place where we say this but if you are one of those folks who's like you know brian i hear you say pay it off every month and i just but i just keep finding myself in credit card debt and i pay it off and i get back into it what should i do in our opinion cut them up if you're not someone who's proven that you can use them responsibly don't use them at all don't even try stay away from credit cards if you can the opportunity cost is just too big i mean the interest rate on credit cards is somewhere between 18 to 21 22 the most you can expect out of your rate of return a good performance return on your investments is somewhere between 8 to 12 so it doesn't make sense to pay the credit card companies compounding interest of somewhere between 18 to 22 percent when you're only hoping to make 18 to 12 on your investments don't get stuck in the credit card game let's talk about auto loans this is a big one you feel like hey i've gone through college i've got this major i've now working i got you know my big boy big girl things going on in my life this is the time to reward myself with a brand new car yeah you know and i don't mind uh confessing i fell prey to this i got my very first job my very first salary first thing i did is i went out and bought a big fancy nice car and that was sort of silly that was sort of dumb and i did not follow the money guy principle because we think when it comes to buying an automobile the thing you want to make sure you do is you subscribe to 23 8 you want to put 20 percent down you don't want to finance any more than 3 years or 36 months even though they might offer you 84 month financing now and you can't let your total car payment exceed eight percent of your monthly gross income 20 down three-year financing eight percent if you can't buy a car that fits in those parameters you're probably looking at too expensive of a car and i've got two additional rules to put on top of that these are kind of overreaching sit on top umbrella rules and the fact that if your savings your monthly savings are not exceeding your monthly car payment you're doing it completely wrong number two the 23.8 only applies to normal car brands if you get into luxury if you get into anything that i would consider premium and it breaks my heart to even put tesla in this but tesla lexus mercedes bmw those things 12 months same as cash i don't want you financing that type of luxury purchase because you might be getting bigger than your wallet can actually afford so don't fall into that trap so okay we said you ought to look at the liability section you ought to make sure you have a grasp on that but that's probably not the one you get excited about the one you get excited about is the assets the things that you own because in your 20s a little bit can go a long long way yeah we had to get past all the traps of consumerism so now we can get into actually building wealth and that is the asset side of your net worth statement so this is the part i'm going to go ahead and lay out that big goal that you need to be shooting for you need to be trying to save 20 to 25 percent of your gross income i said gross not net you want to take what you are paid multiply by 20 multiply it by 25 somewhere in that range and by the way if you make under a hundred thousand dollars as an individual 200 000 as a couple you can count your employer match in that 20 25 but your goal is you're trying to get the process of systematic savings going so your army of dollar bills can start replacing eventually what you have to do with your hands your back and your brain you're going to let your money work just as hard as you do now even though the goal is 20 to 25 don't let that be a deterrent where you say oh if i can't do that i'm just not going to do anything because remember in your twenties a little bit goes a long way you can start somewhere if you can't do twenty percent do five percent and then next year try to do six try to do seven if you want some motivation go to go out to our website go to moneyguy.com resources we actually have a deliverable there called how powerful are your dollars if you want to see what every dollar can turn into you for the by the time you turn 65 go print out the deliverable because it will blow your mind yeah because that's where in a minute we're going to talk about 88 times over and we'll really show you how powerful that deliverable is going to be a really driving force to motivate you i also think while you're on the resource page i want you and you can hear the paper in the background because i'm old school i print but you can go get the electronic version moneyguy.com i want you to go download the financial order of operations because while we're focusing on assets i also want you to be focusing on building emergency reserves right got to have some liquidity we saw in the year 2020 when the pandemic happened it's nice to have liquidity so that you can have the ability to pay bills in case you're not able to work so you can buy groceries for your family all this stuff will be important um this is financial order of operation steps one and four a few grand really is going to help you cover the insurance deductibles make sure you can cover any emergencies that come your way you'll be in a much better place with emergency reserves now one thing we talk about all the time brian we start talking about this idea of the army of dollar bills we always talk about the win is way more important than the how yeah right when i start saving is way more important than what i'm buying and how i'm investing and it's because of this concept that we've come up with called 88 times over yeah well 88 times over if you think about it this is motivated i know you guys have heard this story but i will say it for our newcomers this is what changed my life i had a high school teacher tell me if i saved a hundred dollars a month i could be a millionaire by the time i retired didn't believe it i was like i could save 100 a month guys it was even better than what was shared with me because the number if you are 20 years of age realize i was like 17 18 years old in high school is less than a hundred dollars for a 20 year old and that what's even crazier to me is if you think about the fact that the lion's share i'm talking about i believe it's like 95 we have it on the chart but it is 95 of that million dollars is not for money i've saved it's from the army of dollar bills growing my contribution is only five percent of that billion dollars it's really an incredible thing yeah brian i think it's absolutely incredible that it only takes 95 a month to get to a million dollars by time you turn 65 and what i get so excited about especially for young folks is when not only are they building up like emergency reserves and that kind of thing when they're taking advantage of vehicles like a roth ira that grows completely tax-free so when they get their million dollars and go to pull it out it is tax free forever and think about the employer match where it's dollar for dollar or 50 cents on the dollar match from your employee that is practically free money here's the thing i think is interesting for 20 somethings you probably look at your older peers and you're jealous because you see them with the fancier cards you see them with the nice houses here's what i want you to understand keep your eye on the ball to understand if you do this right if you maximize your army of dollars you will not only have all the things they have in your 30s 40s you'll have more it's just don't get your order wrong you've got to focus on building those base level assets so that your money starts growing for you the opportunity cost is huge and that's a great transition to kind of do a wealth spot check where should people actually be in their 20s this is great so we wanted to look at two different things we want to say first where are the average americans in their 20s and this is what we found this is the average median income so if you look at the median income from age 21 all the way or from 20 all the way to 29 the average medium income comes in at 28 197 if you look at the average median net worth across that age range it's just under 8 000 if you want to be an average accumulator of wealth and you hear us talk about this all the time there's a formula you can do you take your age times your income divided by 10 plus the number of years until you're 40. i'll say that again so if you're a 25 year old you would take your age times your income divided by 10 plus 15. so divided by 25 will tell you if you're an average accumulator of wealth so if we take a 25 year old here and we know their income and we know their age we would say if they want to be average they should have a net worth at 25 of around dollars here's the thing i don't pick on people too much because you know you see an average median net worth of seven thousand eight hundred and sixty four this is your first step that's the first thing this is the start i'm telling you you're just trying to start the foundational habits that will lead you to success this is not the decade that i pick on you for not keeping up with these numbers this is where i just want you to start the habit of wealth building and i'm telling you you're going to get addicted to saving and it's going to start happening for you but i still think it's nice to be aspirational sure you should want to know what are financial mutants doing what are the people at the top of my peer group the top 25 what are they actually doing yeah this is what we found the top 25 of income earners in their 20s are earning forty four thousand six hundred and sixty dollars if you wanna look at the top twenty five percent net worth it's actually right at forty three thousand so i think it's really unique the average median net worth is right at eight thousand but if you want to be in the top tier if you want to be sort of the cream of the crop their net worth is about 43 000 and if you just do the prodigious accumulator of wealth number so age times income divided by 10 plus the number of years until 40 and then multiply that times two a prodigious accumulative wealth in their 20s should have a net worth of just under 90 000 yeah and i think here's what's cool we use the millionaire net worth formula that's where that formula that beau's giving comes from but we did an adjustment in there because everybody under 40 you probably when you see the millionaire next door formula you get frustrated i have not had enough time to start building assets that's why we have the denominator is 10 plus how many years until you reach 40. we make that little slight adjustment until you're age 40 that gives you a chance to show you where you should be all right so we're going to work through our 20s now we're moving into a new decade we're moving into the 30s and we've just called this the breakthrough now in previous shows we talk about how this could be like the messy middle or the hard time because you have all these things going on but really when you think about it from a wealth building standpoint this is where your dollars start to get a little bit of steam behind them yeah no doubt life is probably is getting more complicated but it's also a time to have some celebrations because you're starting to get some traction in your career you're starting to get some of those adulting side effects is meaning that you might be getting married you might have children you have your first house purchase is typically in your early 30s so these are all some of the things that are coming your way that's why we call this the breakthrough so if we were actually trying to figure out net worth wise what part of the net worth statement should we focus on in our 30s the first thing this was kind of interesting when we came up with this in show notes because everybody when you think net worth you think okay assets minus liabilities equals my net worth we didn't start there both did not start we actually started with what footnotes notes that you should put at the bottom of your net worth statement what do we mean by the reason we think the footnotes are so important because of exactly what you just said maybe in your 30s you're getting married maybe in your 30s you're starting to have kids what we're saying is really now your life isn't just based on you there are other people that are now depending on you so you want to make sure that you have all of the appropriate risk mitigation measures in place you want to make sure that you do have your life insurance in place you do want to have your wills in place you don't have those things well they don't normally find themselves on the network statement they're not an asset they're not a liability so they tend to be a footnote at the bottom or on the second page i think it's interesting i just saw this on twitter in the last hour or two is that there were more cash value life insurance policies than there were than term really and so this is something i want to tell my 30 year olds there's a good chance that you need those assets you need the income to be allocated out efficiently because you've got kiddos you've got a spouse you're trying to buy the house plus you're trying to build the savings habit of having army of dollar bills building for the future you're just trying to prevent if you got taken out on a tuesday afternoon that you don't leave behind a big mess for your family term life insurance is actually probably one of the most effective ways to do that so i i make that statement just to understand that you might want to go look at just some simplistic benchmark rules that you see out there in the industry 10 times your income absolutely i mean if you go look at 10 times your income go look at 20-year 30-year term i think you'll find it's much more affordable because you're basically buying just the cost of the insurance you're not trying to overpay now so that when you get to be 70 years old that all those overpayments cover the increased cost of the insurance we're not worried about that just now we're just trying to cover the insurable need that you have and so obviously life insurance covers the big thing it covers the financial responsibility but if something were to happen to both you and your spouse you want to make sure that you have stuff in place that'll say what happens to the kids what happens to the assets what are my ultimate wishes that's why estate documents are so important and unfortunately it's a weird conversation to have okay if something happens to us who's going to watch the kids if you think it's difficult for you to have that conversation while you're here and can speak for yourself imagine how difficult it's going to be for the rest of your family to try to figure it out that's why we hate seeing people in the 30s neglect this because it is so so important hopefully you do them you get them filled out you never need to use them but they're in place just in case let's transition to beyond the footnotes let's talk about liabilities you know we started this even though it's not the top of your net worth statement liabilities are still one of a big concern i think you have in your 30s because this is the time you're buying a house sure so you want to make sure because that your biggest expenses are like automobiles houses but these are also huge financial traps where if you have all of your monthly budget going to those two big purchases what's left for you to actually save and build your army of dollars that's why we give you the guidance your mortgage plus your housing expenses should really not exceed 25 of your gross income that's exactly right now a lot of people on the coastal communities you're like 25 that's laughable we probably need to spend 35 i get it i'm going to give you a little bit of grace on this but understand if you take 10 percent here of that grace you better be cutting somewhere else so that we can continue to build the savings habit now notice what we said there we didn't say oh if you have a mortgage in your liability column your goal should be to pay that mortgage off as quickly as possible in your 30s in our opinion that should not be your goal your goal should be to make sure that your mortgage is an appropriate amount and it falls in less than 25 of your gross income other big purchase cars yep we talked about this for 20s but i'll quickly repeat it again 23 8 20 down payment don't finance for more than three years or 36 months on the amortization cannot be more than eight percent of your gross income and here's the other two caveats you do not you do not want your monthly investments to be less than your monthly car payment if you got those two backwards meaning you have like a thousand dollar a month car payment only two hundred dollars a month going into your roth ira you're doing it all wrong make sure that the investments are bigger than the car payment also if you get those luxury brands you better be treating it same as cash essentially have it paid off within 12 months so then we want to move on to the asset side to the exciting side now in your 20s we talked about you want to be looking for an emergency fund you want to be moving towards that in your 30s it's a non-negotiable you have to make sure that you have your liquid cash covered three to six months of living expenses in cash usually it hangs out right there at the top of your net worth statement you got to make sure you check that box before you begin building the rest of the asset column when we get to investments it's interesting in the 20s i gave a lot of latitude and i said look i want you to be able to you know work towards saving 20 maybe 25 but it's also aspirational in your 20s in your 30s guys this is the time it's got to happen you've got to make sure you're getting 20 to 25 of your gross income working for you through your army of dollar bills that can come from your employer retirement plan and come from your roth ira just make sure you have investments that are building your army of dollar bills the other thing that i think is so beautiful it's a magical thing that i think happens for a lot of folks in their 30s is your net worth statement if you're doing it right should look a lot different at 31 than it does at 39. it's almost a tail of two net worth statements and one of the things that you'll recognize as you're doing your annual net worth statement you'll start to see the critical mass of your assets grow year over year over year well one of the things your net worth statement might inform you of is okay am i at the level now where it makes sense for me to graduate past an automated investing automated financial planning solution yeah because we love look 20s 30s i love people what's the this is why it's a great time to be alive and a great time to be a builder of wealth we have what's called index target retirement funds all you have to come up with is how much can i save when do i need the money when do i think i'm retiring what's my financial independence period if you can come up with those two periods just go buy an index target retirement fund from somebody like vanguard fidelity investments these are incredible opportunities those are the leading providers of it however you're going to reach a level probably around 400 000 maybe 500 000 somewhere in there where you're going to say you know what i need a little more attention to the asset allocation focus i also need to focus on tax diversification or what's called tax location meaning i want my fixed income in those tax deferred accounts because i go get taxed at ordinary income i want my roth ira to have the best growth assets whatsoever and then i want my taxable account not only to have liquidity but i also want to make sure they have the dividends they have the long-term capital gains all the things that have some tax favorability focus on that and then don't forget tax loss harvesting as well as capital gain planning mean that you could even get into charitable planning charitable giving there's all kind of cool things that you could help navigate those large financial decisions with yeah and if you are making large financial decisions it's perfectly fine if you're using resources like the money guy or other resources out there but if you do find that the gravity of the decisions you're making is maybe more than you want to bear on your own it's not a bad time to start thinking about reaching out to a financial advisor start thinking about working with someone who can help you on that journey so this is the other thing that i love about the 30s we said this is kind of that decade where your assets start to catch steam and you actually start to have some momentum behind you but still your dollars are powerful in your 30s we said that for a 20 year old you only have to save 95 a month to get to a million by 65. well for a 30 year old you only have to save 270 a month that's still more than the 95 but not a ton when you think about over an entire working career you could have a million dollar saving if you're just saving 270 per month 89 of that million dollars is comprised of growth it's your army of dollar bills working upon itself to generate wealth for you that's that's the big takeaway 11 of your million dollars is you the other 89 is coming from your army of dollars working just as hard if not even harder than you yep don't blow that opportunity because you're gonna find out the most valuable resource in that equation is the time that these assets had in the market not timing the market as bo always says but time in the market so focus on those and now this is probably a great point you're trying to figure out where do i fit in what's my spot check where should i be i know according to fidelity they think 30 year olds should have like one times your gross salary so whatever you make in a year they should have one times annual gross salary if you're 30. well we said let's take it even a step further let's talk about someone sort of in their mid-30s around age 35 and this is what we found the average medium income for someone in their 30s is a touch under 48 000 a year the average median net worth is right at 45 000 so it aligns pretty closely well if you want to be an average accumulator of wealth you want to take your age times your income divided by 10 plus however many years you have until 40. so if you're 35 year old you would divide by 15 you can see that an average accumulator of wealth should have a net worth this includes all of your investments all your home equity all your assets of a little over a hundred and eleven thousand dollars a year but that's not financial mutants that's not average accumulators of wealth when we get into the financial mutants column you quickly see that income jumps up to 76 000 a year the net worth for the top 25 percent mid 30s about 170 273 000 i think what's so remarkable there is if you just look at the averages about one times annual salary you can see the folks who tend to have be higher income at least if you want to fall in the top 25 category they're doing a great job of turning that higher income into wealth they're not just a one-time salary they're at greater than two times salary which is pretty remote yeah and think about it because this is also 35 year olds that's why you know we celebrate those median americans but they're really kind of behind because this is a 35 year old is what we base these numbers off of the prodigious accumulator remember we've talked about that modified millionaire next door formula where you take your age times your income divided by 10 plus how many years are you from your from 40. well in your 30s it's a lot less it's less than 10 so you can see still a prodigious accumulator is somebody who has that millionaire next door formula times 2 that number comes in for the financial mutants right around three hundred and fifty six thousand dollars so if you are someone in your mid thirties and you are over that 350 mark you are doing great keep on the path because those dollars are going to be so so powerful as you continue to build towards financial and if you're behind use this as your chance i'm telling you the 20s and 30s are your opportunities get excited get engaged you're not behind you can do this still you just have to kind of wake it up let your army of dollar bills start doing the heavy lifting for you yep let's talk about something i resemble 40s well i'm going to miss the days i'm about to say you only have a little bit longer you get to say that but i love it so this is the part it really is a fork in the road moment we have if you've done it right if you've found something like the money guy show and you started saving your 20s and even 30s you probably get into your 40s and be like this is a celebration this is when i can start looking at how my army of dollars have started building this might also be the time if you've actually just ignored all of that and you're kind of late to the game and i'm not trying to scare you i'm just trying to tell you you have to get very purposeful if you're behind because i don't want you to get on the bitter train that's right this is the age where i find people have the middle life crisis this is the age where they start telling younger people you know the co-workers all the systems against you and it's not i don't want you to get on the bitter train i want you to get inspired so you can actually start creating wealth for yourself as well so if you are someone in your 40s and you're beginning to do your net worth statement or you're starting your network statement we've talked about how earlier in your life you want to focus at the different components this is the part where you want to start looking at the bottom line in your 40s you really do care about what is my net worth if i take all the things that i own and i subtract out all the things i owe what is my net worth that's where you want to focus your effort and attention in your 40s well this is you got to have a plan i mean this is it's one of the things we're just based and you just said this but we're focused in the 20s and 30s on the components and that's kind of like in a financial plan you don't you know because a financial plan is going to have retirement planning it's going to have estate planning it's going to have college planning for the kiddos it's going to have all that encompassed it's not just those individual pieces if you're in your 40s and you're looking at your spouse or you're kind of looking at your net worth statement that you just created you go man this thing doesn't feel like it's cohesive it doesn't it's not working together i don't really know what i'm working to i don't know what my why is you've got a problem that focus on what the financial plan is for you in your 40s this is so important because you're starting to also realize hey i kind of can see when retirement's going to be or when i at least i don't even have to use the word retire i just want to be financially independent i better make sure the components are lined up to get me to where i need to be now the beautiful thing about having that plan in place is that if you've had the plan in place in your 40s it gives you an opportunity to say okay i'm at the place where i want to maybe take my foot off the pedal maybe i can back down maybe my plan is ahead of where i thought it would be or if you're someone doing this and maybe you're behind this is the moment where you get to say okay i can still adjust course it's not too late there's a fork in the road and i can choose to maybe take the harder path maybe take the harder road but i still have plenty of time for financial independence and wealth building even in my 40s well this is you can do spot checks you can do safe withdrawal rates figuring out what you think you want to have in retirement how many years you are to get there spot check it but also i want to give one more lens because i think this is a decade of clarity of your mindset is i want you to look through every decision you make in your 40s as what is this decision going to do 10 years 15 20 years because this is the decade i worried about divorce i worried about mid-life crisis i worry about you know just because you can doesn't mean you should and the fact that you know you're always going to have somebody who has more money should you buy the second house i mean should you upgrade your big house that you're already raising the kids in because think about i'm getting to be in my upper 40s kids are getting older is this the time that i need the much bigger house i don't know because we've kind of passed the biggest years that i'm going to have all these kiddos running around these are things i want you to think about because you can derail your long-term success by kind of keep growing growing growing the lifestyle when it really doesn't even match your why and what the purpose of what you're trying to do with your finances now as much as i like to give you a hard time here brian uh 40s is still young in in the game of life 40s is not is not exactly super long in the tooth and because of that your money still has a lot of power behind it even if you're starting at zero and you say you know what i want to be a millionaire by the time i reach 65 and i've got a 25 or less year time horizon you got to save a little under 800 a month it comes into about 780 a month every month from 40 all the way until 65 to be a millionaire but what's beautiful is if you get there and you have that million dollars 77 was still growth way more than half of your total portfolio is comprised of your army of dollar bills still working upon itself there's still a lot of juice in those pies well i think i think it's it's interesting because i probably gave a little tough love at the beginning of this decade because i'm telling you it's a fork in the road moment if you did it right in your 20s and 30s there's people who are brand new to the money guy family watching this in their 40s and they're like gosh he just hit me hard i mean i kind of feel like my jaw got too slow right there but then we show a slide like this where still 77 of the growth that can come from your ultimate net worth at retirement can still come from your army of dollars guys it's still time make it happen you still have potential to really get involved make your money work as hard as you do don't let this opportunity pass you by all right so let's do a little spot check we know that fidelity said that for a 30 year old they should have about one times their annual salary saved uh what's fidelity say for someone who's 40. they say three times three times i mean it is what it is you're going to start noticing the money guy family starts kind of going just like we have a fork in the road moment i'm starting to think they might be a little i'm a financial mutant creator i want you to have tremendous success three times starts to feel a little a little low in my book so we'll go with it right so fidelity says you should be at three times well if we look at the average american in their 40s the the average median income is about 51 000 a year well if you look at the average median net worth it's about 146 000 a year so we are close to three times very average that's very average if you want to be an average accumulator of wealth you don't get to use the money guy formula anymore you have to use the true formula age times income divided by 10 an average accumulative of average accumulator of wealth in their 40s ought to have a net worth of around 231 000 but i don't think that's quite no let's talk about let's talk about that top 25 percent the the financial mutants what are they doing they make a little bit more money they're right under 89 000 that's the top 25 income their net worth is right around 402 000 and then but here's the thing and look i'm gonna pick on even my financial mutants we have it's four hundred and two thousand but the prodigious if you wanna have two times if you remember if you take the formula millionaire next door formula you take the income of eighty-eight 000 times your age divided by 10 we're showing that this thing should be right around right under 800 000 there's some work to do so just focus on building those assets you know what this shows me is like in in your 40s uh you may not quite be there yet but you should be approaching millionaire status if you want to be one of the financial mutants this is kind of where you might make that cross into seven-figure territory well and i don't mind sharing it i always had the goal when i hit 30 i wanted to make 100 000 income i didn't make it i think i missed it by about a year on that when when i was 40 i wanted to be seven figures meaning over a million dollars liquid net worth not counting housing i wanted it to be investment assets i missed that by less than a year but still i missed it by a few months it is something that i think it's good to be aspirational give yourself goals of what you want to do in your 30s what you want to do in your 40s and that way you have something to measure yourself by that's why you got to be doing these annual net worth statements yes all right so then we move on into the next decade the 50s and in my opinion brian there's sort of a paradigm shift the thing changes in your 50s as opposed to the things you're focused on and thinking about in your 20s and your 30s and your 40s because in your 50s it's about finishing the puzzle it's about getting the final pieces put into place of your financial independence you've been working on this for decades now so it is one of those things where the edges should be built just like you build a puzzle by focusing on the outer edges and then you start letting it kind of build within this is going to be the part where you're there's only a few pieces left and you're going and grabbing them and putting them right in there there's a reason we create these type of visuals and we ask fte daniel to do them is because this is the part and let's go ahead and hone this into your specific network statement we first want to focus on assets what i think about that is and bo this is where i think you can add a lot of detail coming from a cfa background we talk about that just like we've had target retirement funds in the past by the time you get in your 50s that's probably not doing because you need to be thinking about asset location what do we mean by that you need to be thinking about what types of accounts you hold what types of assets in because realistically in the next 10 15 20 years you're going to start pulling those assets out well how efficiently you can begin pulling those assets out is a direct derivative of how of how efficiently you've begun building those assets so you want to make sure you have the right types of investments and the right types of account buckets so that when you do get to financial independence when you do get to retirement you can begin pulling the levers in the way that leaves you in maximum control and you made a great observation this is a probably about a month ago you said you know what brian you're an accountant a nerdy accountant you said y'all have this inventory pro system that you learn in accounting called lifo yep where it's last in first out i think it is very brilliant that you talked about and you made the analogy that it's very interesting that when you're funding your retirement accounts when we talk about tax deferred tax-free and after tax we kind of pull our assets out in retirement exactly like we put them in meaning that the first thing that goes into your retirement savings is like your roth assets you love that tax-free growth that is going to be the last place you want to pull out of so you'll find as you build you go from tax free then you do the tax deferred so you get that employer match and then kind of the last thing and it probably is happening in your 40s and 50s you're thinking about where am i going to get my money from so you start saving those after tax brokerage account type savings accounts that's going to be one of the first places you probably will pull out of when you retire so focus on those type of things and i think you'll understand this type of planning is so important yeah you ought to be looking your network statement saying okay are there some like advanced planning things i ought to be thinking about in my 50s or to set me up for what i will be doing in my 60s should i be looking at funding deferred compensation plans should i be looking at roth conversions should i be looking at age 55 401k rules what are the things i ought to be paying attention to because for a 20 year old those things are way way way in the future for a 50 year old you can see the landing strip you your landing gear might not be down yet but you can see it you can see the airfield you want to make sure you're cruising in for a smooth landing i internalize this personally is that as i'm quickly approaching 50 one of the few things just like you get to an age you start getting discounts on food and other things because you're officially a senior citizen i don't think it's it's something aspirational to know that once as soon as you the year you're going to turn 50 you get catch-up contributions on your ira contributions your 401ks there's all kind of little added things that the government's like hey knock knock knock you're going to retire in a few years we're going to give you a little special provision so you can save even more money in retirement so don't blow that opportunity as well so not only do we think you ought to focus on the assets portion of your net worth statement because ultimately your assets are what's going to kind of generate the income that you're going to live off of in retirement but the other thing you want to focus on is you want to go back to your footnotes now and now when you look at your footnotes it's less about the risk mitigation footnotes the life insurance the estate documents and that sort of thing and it's more about the source of income footnotes have i been paying into social security my entire career and what will that benefit look like for me do i have a pension are there other sources of income because we don't get to list those on our assets they have to show up somewhere though because they do need to be part of your overall financial planning also this is the part when you're in your 50s you've got to pay attention to risk yeah for sure you've got to because i i'll tell you this is one of the biggest things when we have prospects come in and i see a lot of comments on our youtube channel that talk about what their portfolio is and there's this new movement now where you want to be 100 equity and i get it interest rates so low we're all just you know what do we do with our money to actually grow it i will tell you there does become a balancing act of not only building wealth but keeping wealth so don't don't be so optimistic that you blow past your big win by not understanding that you do need to start thinking about that kind of glide path on your asset allocation that you take a little risk off the table so um that gets a little more complicated because it's so specialized to everybody out there based upon what you have your assets in meaning that are you in tax deferred tax-free after tax what's your risk profile what's your goals it's very customizable that's why this is probably also another thing that's not on the net worth it's more of a footnote are you working with somebody professionally to make sure that you're answering these big decisions now when you get into your 50s especially as you approach your later there's a chance you might be reaching that precipice of financial independence you might your net worth statement might be quote unquote complete no don't mishear me we have a lot of retired folks who still do the net worth statement every year because it's a lot of fun and we would argue you should do the same but this is a good point where maybe you want to start thinking about like an after action review to your wealth building you actually see everything that you've built up and started thinking okay have i stress tested this how do i know that this is going to be the thing that's going to provide for me for the rest of my life yeah i think a lot of what i call do-it-yourself planners you know especially i'm looking at you fire folks you use the safe withdrawal rate because that's that's cool you can take your total assets multiply by safe withdrawal rate that's the money you think you can pull out and it's going to last for for decades sure and it sounds good but it's not really stress testing i've got a great analogy on this because it hit me while i was right working on show notes is that i love going to the fair and riding rods okay but there's a big difference between riding a fair ride and riding a roller coaster like disney world yeah those are a little bit different because look the fare rod the roller coaster disney were both fun but one is just a little bit safer something i would really want to rely and put my steak my life on and the fact and that's going to be probably the this is the safer one right it doesn't make sense because there's a lot more going into it they're not packing this thing up and moving it around every few weeks and that's what a safe withdrawal rate is great for back of the napkin type planning but as you actually get into your 50s and you've got to fine-tune this once again focus points towards a financial advisor those monte carlo simulations you're talking about not only are you using linear growth like what a safe withdrawal rate and other things will help you through it's also just stress testing to make sure you're not getting in a bad situation that's why i make that analogy i'd much rather you go ahead and get the retirement plan a disney plus it type retirement plan instead of a roadie type carnival that is going around getting assembled on the back of a napkin this is a time this is way too important to let it be something that yeah it's probably safe because it works most of the time but i want it to be guaranteed to pretty much be safe so i can get to the other side of retirement financial independence way and what you want to make sure of is that you're thinking about this early enough because it's okay if you have a surprise when you're five ten years out from retirement what you don't want to do is you don't say you know what i'll listen that money guy show and i heard them so i think i'm gonna go meet with a financial advisor and they sit down with the financial advisor hey you know what i'm retiring this year just wanted you to check and tell me it's okay because you've actually been in that meeting before i know the story you've been in that meeting before i've had to make people work three to four years additional you would rather know that early on in your 50s or mid 50s instead of figuring that out at 64 when you've already started you know making all your vacation plans planning on your work exit it's much more fun if you're getting to do and this is the kind of the close-out part i have on this section is is if if you've got financial independence meaning we have that meeting i tell you you know what you don't need to be focusing on where you can cut you need to be focusing on how you want to spend your money in financial independence do you want to go hike the appalachian trail do you want to take the family on a vacation those things are so much more fun to plan for but you don't get to that congratulations moment without doing the heavy and heavy lifting much earlier so don't skip steps because it is tough now you might have saved a lot of money or can potentially fees and other things but you really if you get to retirement and you find out that you just didn't know what you didn't know or you get to the point you just didn't have everything prepared like you thought that can cause a lot of heartache later so don't fall into that let's talk about liabilities because i think it's interesting i didn't really pick on it a ton this year but there is something that happens i think in 20s 30s 40s i'm one of these people on debts especially like mortgage debt i tell people don't get in a hurry to pay that off because especially an environment like we're in currently where you can get a mortgage rate in the twos why would you want to get in a hurry to pay that off when you might need to be focusing on roth iras and other things but i do think once you cross into your later 40s definitely in your 50s it's once again it's not about wealth maximization it's about keeping wealth not just getting wealthy it's about keeping wealth and one of the things is taking risk off the table i know for a fact if you look at financial independence encumbrances in a dictionary independents and encumbrances are in two different places so i want you to think about this is me giving you permission in your 50s assuming you've done everything you're supposed to it's perfectly fine to pay off those low interest debts love it all right so let's do a quick wealth spot check now remember i think there's a paradigm shift that happens in the 50s but first let's kind of look at where the average americans are so the average median income for someone in their 50s is about 54 000 a year average median net worth is about a hundred and eighty two thousand dollars per year and so if you want to be an average accumulator of wealth you take that income times the age and in this case 55 divide by 10 average accumulator should be about 298 000. well we started thinking you know when you're in your 50s it's really less about your overall net worth and more about what your savings actually looks like more about what your liquid net worth looks like so when you think about a financial mutant we can talk about their income they make a little bit more they make about 92 000 per year if you look at the top 25 percent or their net worth is around 570 thousand dollars per year at the top 25 percent but we think you ought to think about income multiples when you think about your annual income in your 50s you ought to be thinking about how many times over do i have my annual income saved and so we just mathematically figured out if we assume a four percent withdrawal rate at retirement and we back that down based on when you're retiring that when you are 55 years old you ought to have 11.6 times your annual income saved up in liquid investments yeah that's a big part of it because i mean you're getting the point is you're on you can see the landing strip ahead you do want to start focusing on where are my assets in relationship to my living expenses and at 55 it's probably might be a little too soon to where your income can tell you exactly where your living expenses will be so income is a good indicator and we like 11 to 12 times your income and that is using as you said four to four and a half percent safe withdrawal rate take those things into account this is important things to really measure to see where you stack up and are you prepared to take that step into financial independence absolutely all right so now let's talk about the last decade this is the 60s and a lot of folks think oh it's retirement it's the end of the journey it's the culmination it's the final point we don't think this is this is new beginnings this is the beginning of a new and exciting journey in your financial i just had a comment this this week says hey i just retired i just got out of the matrix meaning that they made the equation and by the way i just showed this movie to my daughter from the 90s you know keanu reeves the matrix it is interesting that i i think you could take that visualization even that movie creates is that this is the new beginning is that and we've done a show recently we even had a deliverable on it if you go to moneyguy.com resources the money god guide to retirement we talk about how do you do this well love it this is the nine steps to know that you're doing retirement right focus on this because this is the start of the golden age for you you want to make sure you understand what you're getting into and let's talk about what are the asset the parts of your net worth statement that you ought to focus on the first thing is assets yeah hopefully you're getting to the point where assets might be the only part of your net worth statement hopefully you've zeroed out the liabilities so this is where you get to see can i start executing on the plan that i've been putting together for the last 20 30 40 years yeah so this is this is the part since we've created the plans you better measure twice cut once get a full retirement plan analysis done so you know exactly how successful you're going to be with what you've created i also like the fact that this is the time where you get to celebrate that you've done it you've lived like no one else previously you've taken a little bit of your previous earlier years since you could have that great big beautiful tomorrow take advantage of that and then by the way this is another big shift cash reserve that's a huge one that top that top piece of the assets column you know it used to be okay to have three to six months but once you do get into retirement once you do get into financial independence once you are living off of your assets there's a shift you probably do need to have 12 to 18 months of liquid cash available to you and maybe even more in conservative accessible with minimal loss of principal assets you want to make sure you have enough that no matter what the markets are doing no matter what the economy is doing you can still sleep at night and enjoy retirement yeah so that's why having excess liquidity is going to give you that peace of mind through that so let's talk about footnotes these are the risk management specific things that i want to focus on this is probably the time in your 60s i know it's taboo to have this conversation but start letting the adult children know a little bit about what's going on with your financial life if you can start that communication dialogue in your 60s it's definitely going to be much easier than when you're in your 80s so go ahead and start easing into that process also understand the difference in risk tolerance and risk capacity maybe you are an entrepreneur maybe you are a high-flying investor and you are super aggressive in your working years well just because you can stomach that risk doesn't mean that in your 60s you ought to be taking that risk your portfolio may not have the capacity for those wild fluctuations so this might be the time that you do start to take some risk off the table less because of your tolerance and more because of where you are in your financial life cycle and i'll say it simply is that it's not about the journey of just creating wealth it's about keeping that wealth too and that's why risk is such a big component of that um and a part of that i'll say this is a risk is withdrawal rates are too high maybe you are one of these people that you think you know what i'm gonna go and i'm gonna have a withdrawal rate of like eight percent i mean that you could find that it's great while markets are doing well but you could run into a sequence of return risk meaning that you have a bear market on top of some other bad years that come with your investments and it blows up your entire retirement plan be very careful to understanding how retirement withdrawal rates as well as monte carlo simulations and doing a full retirement plan all kind of work together these are all tools that should give you a very successful financial independence journey all right so let's talk about a spot check how do you know if you're on track well for media and americans the average median income is about fifty two thousand five hundred dollars the average median net worth is a little over a quarter a quarter of a million dollars and to be an average accumulative wealth in your 60s at income you want to have about 341 000 saved up however financial mutants are a little bit different their average their top 25 percent income of folks in their 60s make about 93 000 per year the top 25 percent of net worth is about 772 000 but in our opinion if you want to be at financial independence at 65 you want to have about 22 to 23 times your annual expenses saved up in retirement and this is this is probably you know something people ask me about footnotes specifically like social security pensions how does that work out with my withdrawals and my assets is guys take what those living expenses are adjust those down for the social securities and the pensions that's going to give you a much clearer picture on is that 22 to 25 times living expenses actually covered by your your assets that's the best way to kind of think about it you know i get so excited for new year's brian and i think the reason is is because it is the close out of one year uh 2020 certainly a year we're all happy to close out but i'm excited to do my net worth statement it's been a year where the market has performed pretty well you know we're going to kind of look at it and see what it looks like and it allows you to set goals for next year if you're not out there tracking this how can you possibly know if you are on the curve ahead of the curve behind the curve it's a wonderful exercise to begin writing down your financial goals and tracking them in a year-over-year basis and once you've done it for 5 7 10 12 15 years it is so fun to look back on your journey yeah i mean that's the part as you get older you do get more sentimental as memories blossom we talk about that a lot and i do love the fact that if you start the annual tradition of doing an annual net worth statement guys i'm telling you exactly what beau said you can do this with your spouse you can do it it might sound really hokey but i'm telling you it will be just incredibly fulfilling enjoyable to see how far you've come and you'll also find when you're looking at that net worth statement from 15 20 years ago you kind of get visualizations of what you were struggling with where the kids were what you know what were the big things going on with your job that you thought oh my goodness this is going to blow up everything and then you look back now and go we made it you know there's fulfillment that's the biggest part everybody always talks about i want my money to make me happy what they really are saying they're not talking about happiness where they're covering just the basics they're talking about fulfillment meaning you know what your why is and your money reflects that because money is just the tool guys you're going to find if your goal is just to get a big pot of money say you want to have 5 million 10 million 100 million i don't care what your number is you might find it's empty emptier than you planned if you don't have a purpose if you don't have a why so that's why if you'll go through these things build a journey you're going to find that you have wisdom this is that's why i tell people you build those levels of wealth those stages of wealth you build along a healthy journey and a healthy relationship with money and that's what we're trying to create here with the money guy show you know guys if you like this and you're like man these guys give away a ton of information here there's a lot packed in here that's called the abundance cycle we want you to come we give it away we want you to come learn apply grow but you're going to reach a point of success there will come a point of success we're just planting seeds within you we believe in you so much that we know a few years in the future you're going to say i remember those guys that loved on me gave me the free information i need a financial advisor you go remember who planted those seeds that's why it is the abundance cycle complete the drill we work with people all across the country continue to subscribe i mean this is the start of 2021 we're excited to see what happens i'm sure hoping this age is a heck of a lot better than what happened in 2020 i'm your host brian preston mr bo handsome money guy team out

Channel: The Money Guy Show

Views: 160,849

Rating: 4.8486352 out of 5

Keywords: money guy show, debt, budget, cash, real estate, insurance, how to make money, save, credit card, compound interest, buying house, buy stock, success, personal finance, Average Net Worth By Age In 2021!, net worth, by age

Id: GqO_vM9jQb4

Length: 57min 24sec (3444 seconds)

Published: Fri Jan 01 2021