Saturday, 11 January 2020

How Much Money You Should Save By Age

How Much Money You Should Save By Age

Everybody knows that it is never polite to talk about money in public and under no circumstance should you ever ask somebody how old they are. So how much money do you have at your current age? Today will are going to talk about exactly how much your net worth should be at your current age, and how much money you should have saved up by now and beyond.

Let's Get Started

When it comes to calculating your entire net worth first we're going to do that by adding up all of your entire assets this includes:

  • Investment Account
  • Retirement Account
  • Home Equity
  • Physical Valuables
  • Some Cash That You Have

Liabilities

  • Student Loan 
  • Credit Card Debt
  • Mortgage Loan
  • Car Loan
  • Debt And Other Loans

Anything and everything where you owe money you're going to add that number up and you're going to subtract it from your assets and whatever number that is, whether it's positive or negative that is your net worth and don't worry if your net worth is negative we're going to cheer it up later but statistically speaking people in their 20s and even, the early 30s can have a negative net worth because they're oftentimes buying a new home, buying a new car, they're starting families they owe some money and as a result, their net worth is negative. So don't freak out if yours is negative. 

They looked at the average net worth of a U.S. family and they found that in 2016 the average net worth was $692,100 which is so hard to believe because that same year they did the same study for a median net worth which turned out to be $97,300, so huge difference. Why is that, well, math is sometimes funny because on average both males and females have one testicle.

When we're looking at Gausain date which is a bail distribution, medians are more accurate. Averages are only more accurate if we're looking at data that has a double exponential distribution. So for this one, we're going to use a median.


Net Worth By 20

Your net worth at 20-years old should be $0. That's right if you have anything above zero dollars you're doing better than the average 20-year-old but we want to be a lot better than the average 20-year-old so here is my challenge to you as a 20-year-old.  


Get Yourself An IRA By 20 Years Old ( individual Retirement Account)

It's not something I got myself until I was 30 years old but I wish I did it when I was 20, my circumstance has changed just this year which I contributed my max which is $5,000, you don't have to put in that much money you can just get yourself a free account with Weeble or m1 finance, and contribute whatever you can and I promise that is going to grow into a lot of money by the time reach 30.


Net Worth By 30

  • Get An HSA Account And 401k Account
  • Credit Score Between 700 to 70

More importantly though by 30 you should have an HSA account if your employer offers it, you should also have a 401k account which my parents didn't set up until they were in their mid-40s and I help set that up for them and the last thing you should have is a credit score between 700 to 750 if you don't, that is okay, it's never too late to start building but start on that and you absolutely do not need to buy a house or you do not need to be married either.

Also by 30 years old, you should have at least 1 year's worth of your salary. For example, for me when I was working in my 20s as a video editor as getting paid roughly $50,000 per year so by 30 I should have at least $50,000 saved and invested somewhere which luckily I did and I did that by saving 50% of my income for 5 years and I invested it into free Robinhood brokerage account where I saved $130,000 and in the course of the last 5 years, it's grown to almost $200,000. Which shows you the power of compound interest of saving and investing as early as possible.

Net Worth by 35 - 2x Annual Salary Saved And Invested

By 35 you should have twice your annual income saved and invested. 


Net Worth by 40 - 3x Annual Salary Saved And Invested

By 40 you should have 3 times your annual income saved and invested somewhere. 

Read: How To Start Investing In Dividend Stocks For Passive Income

For me $50,000 per year times 3 I would need $150,000 by 40. Now let's say you just turned 40 and you realize life and you're not happy with your job or your situation or your income, well, just know this, statistically speaking you are within $1,000 of the most amount of money that you're going to earn from your current position unless something drastic changes like you change jobs or you get some major unforeseen promotion which usually doesn't happen.

I realized this at 26 years old that I hit my ceiling I wasn't going to grow in that industry and I was like "I have to get out". So at 28, I quit and I changed directions to try to grow in a new industry where I thought I could have maybe more potential. So again, if you're in your 30s and you're not happy please consider changing directions now because after 35 it becomes significantly harder to leave your job.


Net Worth By 50 - 4x to 6x Annual Salary Saved And Invested

Around this age is when compound interest takes over and it starts to grow your money faster than you're able to contribute to it. So for example, if you have $500,000 invested somewhere and it's growing at just 10% that 10% represents $50,000 per year and most people cannot contribute $50,000 per year so this phenomena stat around this age. 


Net Worth By 60+: 8x to 10x Your Annual Salary Saved And Invested

By your 60s and well into retirement you should have 8 to 10 times your annual income saved and invested.

If you want to know your magic number just take your annual spending and then multiply it by 25 and that's how much money you need to be invested, at, least 4% to support you in retirement.


  • Annual Spending X 25 At 4%

That is the rule of 25 it's a really cool thing. Now I tell people to aim for a 50% savings rate where most institutions will ask for just 15%, which is still good but if you're ready our article, 50% is what we want you to aim for. So set this new year's resolution for 2020 today. 


Conclusion

Before you aim for that 50% savings rate the first thing I want you to do is at least get yourself a job that pays you to know less than $50,000 per year otherwise it's going to be extremely difficult. 

But it's our net worth really that important? Not really, what's more, important is learning how to live and be happy with less money, you can do that, that's an extremely important skill to master in life. Focus on the biggest wins first, rather than focusing on saving first. Get that job that pays you a lot even if you hate it even if you can barely tolerate it because you're going to use it as fuel to motivate you to start that side business that you always wanted to do.



Alright, I hope you learn something from this article

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