What Should Your Net Worth Be At Your Age? Use This Formula to Find Out!

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what should your net worth be at your ageI was 23 years old, fresh out of college, and I just started my first big boy job making $33,000 a year. (It wasn’t a ton, but in the peak of the recession I was just happy to have something to build up my experience and hopefully land a better job later in life.)

I had debt – it wasn’t that much compared to some of the messes people make today, but I owed my parents $12,000 for the last year of college that I couldn’t quite afford (FYI – being a 5th year senior is NOT the way to go). Since I was a finance major, I was naturally curious about my net worth and where I stacked up against all the other 23 year-olds in the world. Much to my delight, I had just picked up the book, “The Millionaire Next Door” and found a net worth formula that could answer the question, “What should your net worth be at your age?”!!

Perfect! Just what I was looking for!

They did it with a formula… and to be honest, it immediately made me sick to my stomach…

According to them, I should have had a net worth of $78,200…

I was about $90,000 behind.

What Should Your Net Worth Be At Your Age?

I didn’t realize it at the time, but this book wasn’t helping me discover my target net worth at all….

First of all, this book was written back in 1996, when it wasn’t expected that everyone go to college to get a degree like today. So, there were plenty of people that were already earning money when they were 18 years old, which made it easier to amass an early net worth that was positive instead of negative…

Second, the equation is a bit flawed. It works great if you’re about 40 or 50 years old, but not so well if you’re 20 and almost equally as poor if you’re 70.

Lucky for you, I have updated the formula so you can use it to make sure you’re on track financially.

Here’s the new and improved target net worth formula:

Target Net Worth = (Age – 25) x (Annual Income) / 3 

Let’s use an example so you can get comfortable calculating your net worth. It’s super easy. Trust me.

Example: Bob and Karen’s Target Net Worth

“What should your net worth be at your age?” Bob and Karen often wondered. Well I say we put the formula to the test!

Bob and Karen are each 35 years old. He earns $45,000 a year and she makes $55,000 a year – all before taxes.

So what’s their target net worth?

Bob and Karen’s Target Net Worth = (35 – 25) x ($100,000) / 3 = $333,333

Bob and Karen are fairly young, but if they want to retire with dignity, they’ll need a net worth somewhere in between $2.5 million and $3 million when they retire. A current net worth of $333k will put them on track for that.

By the way, if you’re young (like 22), your number is going to be negative, and that’s okay! you’ve probably got some student loans and that’s a totally fair place to be! Just work toward getting it positive and keeping up with the formula!

So what’s their actual net worth today?

Anyone’s net worth can be simply calculated by adding up everything they own and then subtracting everything they owe. In financial speak, they would say, “Add up your assets and subtract your liabilities”.

Here’s what Bob and Karen own:

  • A house that’s worth $300,000
  • Two cars that are worth $30,000 total, and
  • Retirement accounts with a value of about $100,000

And then this is what they owe:

  • $200,000 on the house, and
  • $20,000 on the cars

All together, their net worth is ($430,000 – $220,000)… They’re worth $210,000.

Not too shabby, but they’re a little bit behind. I would suggest that they pay off those cars, starting putting a bit more into their investment accounts, and then work to pay off their house!

What Should Your Net Worth Be At YOUR Age?

So what about you? What should your net worth be? Are you on track, or are you falling hopelessly behind?

If you’re falling behind, it’s time to make a game plan. You’ve got to learn to live on less, earn more, and invest more!

If you’re ahead, good for you! But you’ve also got to learn to live a little. Don’t forget to take some nice vacations and move up in car if you want to. You’re only on this earth for so long. Enjoy yourself!

What about you? How are you doing vs. your target net worth?

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16 comments to What Should Your Net Worth Be At Your Age? Use This Formula to Find Out!

  • whiskey

    Id like to say we are there but unfortunately we are not. We have a “new game plan and new rules” that’ll be starting after the first of the year. (Once the kids are moved out, that’ll help out tremendously as well. God they eat a lot, lol)
    What the calculation says and what we are striving for are two different things though. The calculation is about a 1/4 of what we are shooting for. It does provide a good base to start from. For us I took our current monthly expenses, reduced them by 20%, added in predicted medical, and multiplied that by estimated years in retirement. That comes close, real close to what we are shooting for.
    But I do like the formula above.

  • Nicole

    Now I’m depressed . Ughhhh!!!

  • Nicole

    Yes,far behind based on this calculation.I am behind by 300k : ( Maybe it would be a little better if my house was not underwater which is my only debt around 72k.The value is slowly increasing though. Well, it could be worse. I could have a negative net worth.

  • I’m 25. So my target net worth should be 0? Well, I’m a little bit ahead of that…

  • […] your net worth negative? Don’t be overly discouraged because a lot of American’s net worth is. Now that you […]

  • I’m not sure that this formula can be accurate if it only uses your age and ‘current’ salary. Most of my life I earned a decent blue collar wage at best. But the past 8 years have been progressively better (I am currently 56). But useing just the number for my current wage as opposed to my life wages this says I am way behind.Every financial advisory I have spoke with in the past 2 years (only 3) says I am fine and will be right on track at retirement. I would love to have the $1.7M net worth the calculator says but feel pretty good where I am.

    • Hi Gary. They key then is to be able to retire on the wage you’re used to earning. If you’ve gotten used to (and spend according to) the new wage, then you might run into trouble in your retirement years.

  • Tom P

    I am close to retiring. At the age of 61 I am about 10% ahead of where I Should be at age 61. If I retire soon in a year or so should I be good?

    • Hi Tom! As with most things…it depends… Let’s say you make $50,000. At age 62, your target net worth is $617k. If $500k of that is in your house, then no, you’re not ready to retire. You’d have to live on basically nothing for the rest of your life. If $100,000 of that was your house (meaning you have $500k in investments), then you’re much closer to retirement than the previous scenario. Personally, I’d want to have $1M in investments before retiring now days (which is what you’ll have if you work just 7 more years or so).

      • Tom P

        Our combined income is $120,000 per year and we have 1,260,000 in savings…almost all of it in IRA’s and 401k. Our only debt is a$150,000 mortgage on a $350,000 house. Add cars and collectibles and our net worth is $1,550,000.

        Think retirement is going to be doable in a year? We have normal expenses, no country clubs or second homes, or alimony, or support payments.

        • Those are great numbers, Tom! Yup, retirement would be doable, but I would still encourage you to do two things to make an even better retirement. 1) Knock out the house mortgage before retirement – sounds like you could do this in 2-3 years and then retire VERY comfortably. 2) Commit to living a modest life forever while drawing just 4% of your investment balance each year – roughly $50,000. What do you think? If you retire in a year, you can certainly make it, but life might have a better chance at kicking your butt. I guess I’m just ultra-conservative in that way.

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