Can you guess the top 1% net worth for a 20 year old?
$120k
That is equivalent to the top 20% income for an adult.
With more graduates taking on hefty loans with no guaranteed job after college, hearing that amount might sting.
How about this instead.
Did you know the average net worth for a 20 year old is -$40k?
So if youâre worth $0, you are technically above average.
Now I wouldnât be impressed nor shoot for that amount for obvious reasons yet according to our fellow Americans, you are pretty well off as a 20 year old if you are enrolled in college, work a minimum wage job, spend it all and donât have a single dollar tied to your name.
How can this be?
Student loans mixed with no financial literacy education, over exuberance, speculation, lack of priorities and stagnant pay are keeping bright youngsters away from reaching their potential which continues to corrode their budget until adulthood and beyond.
My neighbor is still paying off his Yale $230k education that whenever we bump into each other tells me wasnât worth a penny working as a real estate agent today!
Wealth inequality is at its starkest point in American history. Social mobility has never been harder and for the first time Millennials are worse off than their parents.
The Tough Accessible Life
Life is more expensive and harder with more opportunities and innovation.
Technology breads competition, abundance of opportunities at our fingertips, the self-employement revolution, free trials, subscriptions and fake friends online.
We donât know how to live the simple life because everything seems better.
Besides the fact that 1 in 3 teenagers are medially diagnosed with mental illness and more males are dropping out of college than ever before signals that to be a young adult in America is beyond confusing and difficult.
No matter what choice we make, we always feel we are going down the wrong path.
For young men, it seems like there are more opportunities outside of the classroom for them. Unfortunately more men are able to get away without a college degree than women yet tend to get burnt out more easily having to awkwardly hop back into the workforce later on and explain their exuberance.
College isnât the only choice. It is just a great one for stability and security. To earn an above average salary and net worth as a grad requires preparation, opportunity, connections, timing, patience and unwavering dedication that is found outside of the classroom according to anyone you likely look up to. They probably didnât credit their good grades or solely their diploma to their bank account.
Get AÂ Grip
Every generation has their hurdles but who would have thought that more access to everything and everyone at any time would become so destructive?
Alas, moderation is key in everything.
With excess stimulus, concentration of power, anonymity online, abundance and overload of information, we are bombarded and frying our brains unable to keep up a basic living for ourselves since we are enthralled in others lives 24/7. We consume more information per day than someone in the 19th century did in their lifetime.
We are over consuming and melting, along with the stock market this week as it witnessed itâs largest one day drop since May. We donât know what to make out of everything anymore including the real way to increase net worth without tackling on a Shopify shop to being a YouTuber.
Too many choices leads to disaster.
One of the basic principles that every investor to fulfilled individual should adopt ASAP is to never be jealous of anyone. Every day we see someone own something we donât have and want but neglect the fact that their lives arenât perfect and you have no idea how they are trying to fake that persona in public.
They could be going through a divorce, bad breakup, or worst of all, medical ailment or diagnosis.
Without health, there is nothing, one thing my generation needs to pay closer attention to in order to sustain their wealth.
It is priceless and although we cannot control all of it, thereâs a lot we can and it starts with rewiring our dangerous minds. Consuming less, producing more, not âKeeping Up with the Jonesesâ, and most importantly doing whatâs best for you not your best friend will allow you to pave your own path.
Just because there are ~10k Youtubers earning more than $1m per year and ~700k attempting to make a decent living on the platform doesnât mean you canât start. There are endless excuses you can make on why youâre not qualified or good enough but the truth is, the hardest part is starting and utilizing your unique irreplaceable asset yourself will propel you in your own direction.
Every market is saturated. It doesnât mean you canât add your own spin to it.
Now that weâve covered the reason why teens are at the worst point in their lives, letâs understand how they can get out of that situation and propel their earnings overtime.
Net Worth by Age
Here is the average net worth by age for Americans and how to accelerate it.
By AGEÂ 20:
Average Net Worth: -$39,915
Iâm a little shocked at this number considering teenagers are the most employed generation able to find work anywhere these days as employers are dealing with a labor shortage from the pandemic. Unfortunately spending habits, TikTok, âBuy Now, Pay Laterâ, FOMO, Robinhood, and the pandemic recovery have gotten the best of them.
1. GET A CREDITÂ CARD
Build up your credit score ASAP in order to build more wealth for yourself later. Credit scores range from 300â850. Reach for the 700 range if you can for the lowest interest rates on loans and better perks from spending. You canât prove your credit history and worthiness to the bank if you donât pay your bills on time and save more than you earn.
Since 50% of your score is made up of your on-time payment history and how much youâre spending from your credit limit, this is the easiest thing you can do to set yourself up for success. When it comes to borrowing a mortgage or maybe a loan for a dream startup, you will be seen as more reputable, credit worthy and reliable with a better score able to pay off those interest payments on time to the borrower. It saves both sides.
2. Open a Roth IRA
An individual can invest up to $6k per year and be gifted $15k to invest into the account if they havenât earned enough. This is by far the best account for a youngster to open up before they start working full-time and then set up their employer qualified retirement account, a 401(k) or 403(b).
The point of a Roth IRA is to grow your money tax free and take advantage of compounding, the eighth wonder of the world according to Einstein. Time in the market > timing the market. Time is your best advantage because what you invest today will compound tomorrow.
Invest in some basic index funds that track a broader index or if you have time on your hands and donât mind researching individual stocks, go for it. You donât have to be as worried about downfalls due to your lengthy time horizon to compensate for the losses later on.
The Roth IRA is a post-tax account meaning you pay tax prior to funding the account as opposed to after in a traditional retirement account that grows tax deferred. And by 59 ½, the age at which you can start to withdraw, you can cash out your hard earned earnings and use it to build a better life for yourself during the scariest moment of your life: retirement!
3. Make Some Dough
Most likely, if your goal is to try to build up your wealth as fast as possible and be a part of the 1%, you arenât going to get there in a few years through a traditional job. It shouldnât be a race just reality in most cases.
If you want to build up steam and momentum, pick a career or an industry that isnât dependent on how many hours you work or performance but on the results you achieve.
Nothing happens overnight so plan for it to take a while and build consistency and your personal brand. It matters more than ever.
4. Stream It Up
The average millionaire has 5+ income sources and in order to keep them, ideally have them uncorrelated to each other for maximum potential. If you work in the healthcare industry, besides possible stock options you may or may not own, I would advice not to own any more equity in that industry since if business isnât doing well, the market will go down depleting two sources straight away.
Alternative investments and diversification are key drivers of growth in a portfolio. More diversification = higher returns and less risk. You donât need to be fancy or have fun, you just need to be basic and realistic. There are a plethora of ways to earn income outside of a job but make sure they are sustainable and provide real meaning as well. If youâre selling random junk online that no one needs, it is a waste of your time. Income from the market (stocks, bonds, warrants, options) comes from dividends, interest and capital gains and from real estate, capital appreciation and rental income, from a business or product, royalty income and from alternative investments such as farmland or crowdfunding, interest and earned income.
5. Avoid Lifestyle Creep
The average American spends $20k on non-essential discretionary items. The younger you are, the easier it is to live with less.
Inflation affects all but itâs easier to tackle when you own a business or work in an industry that is inflationary proof such as in consumer staples or discretionary.
The best way to overcome inflation is to make more money while decreasing your spending.
6. 50/30/20Â Rule
Everyone has different methods on evaluating how much they should allocate towards spending, investing and savings yet to get started I would suggest the classic rule of thumb: the 50/30/20 method.
50% of your earnings spent on necessities e.g. food, transportation, mortgage payments, insurance, etc.
30% of your earnings spend on discretionary/wants/not necessary but make life enjoyable e.g. eating out, workout class, vacation, etc.
20% save and invest as much as you can!
The more you earn, the less you spend on necessities and as a result the more you end up reinvesting back into the market since your investments can easily take over your active income if you stay in it long enough.
Never spend more than you earn and really value the decisions you make. Especially as a twenty-year old, you have the least amount of responsibilities and no dependents relying on you to drive them to school or provide them a living! Make the most out of your money while you can.
7. INVEST, INVEST, AND INVEST (ALMOST) EVERYWHERE
Now this isnât just in the market. Iâm also talking about in yourself outside of the classroom! This can entail reading for 30 mins daily, briefing yourself on financial literacy topics, taking charge of your mental and physical health and staying connected with professionals in the industry. A network is a life insurance policy money cannot pay for!
Donât expect your $80k college tuition to feed you everything to prepare you for life.
Focus on yourself and prioritize your future self because it pays dividends in the long-term.
Why do your parents want you to get a good education?
They are hoping that that quarter of a million dollar investment will pay off in a few years, provide you a better living wage than if you were to skip school and let you live a financially free and independent life not under their roof.
Stay patient. Nothing worthwhile or any juicy investment pays overnight.
Although Iâm wary of saying this, more often than not school is more certain to pay off unless you dropout or not fulfill the degree requirements, your salary on average will be $40k more than someone without one.
Focus on your powerhouse: your mind.
AGE 30: Average Net Worth:Â -$1043
Not much improvement from a 20 year oldâs net worth nor really sustainable to live off of considering most are still paying off some sort of debt theyâve accumulated still. Yet hopefully at this stage you have found a secure job or working towards one along with a side-gig or two to keep you afloat to slowly get rid of those dues.
1. Build Up Your Credit Score to 750<
Having a higher score allows you to qualify for better interest rates on your loans and build wealth for yourself from âgoodâ debt. Lenders want to lend to a reliable borrower while taking into consideration purchasing power (inflationary risk), time value of money, risk of default and opportunity cost of not using it or investing it themselves.
At every age boosting your credit score is all in your hands and it starts with not bitting off more than you can chew. Credit card debt is astronomical and you become a bankâs best friend letting them charge you ~20% for late payments.
Donât become the bankâs best customer only best borrower.
2. Tackle That Debt
Any type of debt, no matter how supportive it is such as a mortgage or student loans or toxic like consumer debt, it still means you own something to someone. You donât own anything in full until you pay it off. This is not a secure feeling especially since debt is a major part of the budget and when you want to build generational wealth, most evidently in real estate, it is important to have full ownership of your home at some point.
Thatâs why homeowners on average are wealthier than renters. While your home appreciates overtime you also can earn rent on top and allow that commission to supplement your mortgage, utility bill and overall expenses so you end up living for free!
Paying off any excess student loans, car payments and P2P loans from friends is crucial at this stage as they hamper your credit score. Thereâs no better feeling than not owning anyone anything so you can focus on better and bigger things. Donât let them drag you down. Getting rid of debt and paying it off all starts with an appropriate budget and timeframe.
Attempt to save 30%+ of your income if you can.
Save until it hurts.
3. Have A 6â12 month Emergency Fund At ALLÂ TIMES
Cash is truly king. Accidents, spills, and hiccups happen. Itâs not a matter of IF it will happen but WHEN.
Historically, corrections happen every 8 or so months and bear markets leading into a recessionary environment occur every 8 years. In the market thereâs volatility, in life thereâs uncertainty. The worst thing you could do when crisis strikes and you need the cash is to sell your investments. Not only you may have lost your house due to a hurricane letâs say but a passive incomes source from the market as well!
Even if you live under a rock, people will be worried about you and you will eventually run out of resources to take care of yourself. Plan for the worst hope for the best. I would argue 6 months isnât enough because when 1 income source topples, another one seems to be gone right away as well. Finding a job isnât straightforward or easy, no matter how many connections you have. Remember, companies hire internally and the people that look and like them first.
Have more saved up since itâs better to have more than less.
AGE 40: Median Net Worth:Â $80,000
Net worth = AssetsâââLiabilities. Considering this is roughly a top 30% salary isnât so bad yet at 40, it should and could be better with a little more diligence and risk.
Hereâs how to fix it.
1. Annually Max Out Retirement AccountsÂ
This is your time to take advantage of employee sponsored plans and accrued benefits. Retirement is the most costly and scariest moment of oneâs life and by 40 you should have already saved shy of $200k in your retirement if youâre contributing around $40k per year. Have multiple side hustles to help you out and focus on the long term potential. Majority of your salary should be automatically deposited into your retirement account.
2. Save More Than You Think or Want
Things are getting expensive these days with inflation so your best bet is to expect to pay more. Youâre getting older, youâre not a 20 something at college anymore. Taking a more conservative approach in your portfolio in case you donât have enough cash is prudent for security.
Whether or not you are taking care of a family or have a spouse, confirm with yourself that if anything happens to you, universal life or disability insurance is in place so your dependents can still live properly without your income.
The rule of thumb is that, for a 30-year retirement, youâll need to have anywhere between 25 to 30x your annual spending Invested in order for that money to last you without running out. In order to do so, maximize the retirement payouts and save as much as you can.
AGE 50: Median Net Worth:Â $212,000
With retirement a few decades away, this is a tight net worth to live off of since oneâs retirement account should be worth 3x more at this stage to be financially secure at 65, the average retirement age.
Especially if debt is still on oneâs shoulders while having to take care of a family and manage a full-time job, this is stressful. You better have your investments working for you to ultimately one day have it surpass your active income.
1. Save 8â9X Your Salary, Or 10â12X Your Expenses
The more you earn, the more you save, invest and tend to spend. Itâs easier to dictate where you want your money to go since necessities arenât a big ticket item that blows your budget. Regressive tax stings those in a lower income tax bracket more since everyday items cost more.
For most, itâs easier to save more than dramatically increase oneâs earnings. In order to do so try to reach for a goal of saving up to 40% of your income as the top 20%+ earners do regularly to boost their overall funds back into the market.
2. Be Really Ready
Life isnât linear and at this stage in your life you need to think hard about the years to come. Whatâs certain is uncertainty yet you should have a good picture on how you hope your life will look like in the years to come.
Do you have whole/universal life insurance set up in case something happens?
Home/car/medical insurance?
A mortgage to pay off?
Howâs your health?
Howâs your will/trust/inheritance looking like? Is it all straightened out or will your family members have to bicker over who keeps your assets?
What are your realistic plans for retirement? Do you believe you are ready and can live off of 80% of your income?
This stage comes with questions.
You can call this the half-way mark if you would like.
3. Retirement Is Really on the Horizon
Thereâs so much talk about this stage of life because not enough Americans are ready for it.
You can read the disappointing reality here.
An average American has less than $100k in their retirement and doesnât bother preparing for it until they are half-way working.
Retirement is coming up. It doesnât mean you are old, it means you are ready to take a well-deserved break and that break shouldnât be frightening, instead enjoyable. We cannot work forever and there will come a point in time when you will earn less and have to depend on your earnings from your whole life.
This is fully in your control. The Roth IRA and investment account you hopefully opened up as a college student will be a life-saver if your 401(k) or IRA arenât up to par. Donât expect to work during retirement either. Know what you can spend, where you can save and what you can do now to save yourself later.
AGE 60: Median Net Worth:Â $266,000
1. Save 10â12X Your Salary
At this point, whether you are working or not to not be bored or to stay afloat, this is the time to save as much as you can and take advantage of all the benefits your employer offers, most notably a goodbye severance package.
You are at a point in your life where you cannot afford to take that much risk. Hopefully you have a supportive nest egg with 6â12 months of cash in case a recession hits, a portfolio with more fixed-income than equities mixed in with munis, treasuries and CDs and a support system by your side.
Envision what you actually want retirement to look like. Most likely it wonât involve international excursions all year long. It will be boringly beautiful instead.
Beyond the money, how are your loved oneâs feeling? Can they help you save less and how can you maximize your potential before saying sayonara to the corporate world?
2. Own It
At this stage, you shouldnât have to still be paying off the mortgage on your home. If you need to take out a reverse mortgage (borrowing against the house-bank owns it) you are in a risky spot and cannot support yourself for long nor building generational wealth in the greatest asset of them all: your home! You should own your home in full and make sure your assets are located/split the way you want them to be within your will or trust.
3. When Youâre Ready, Youâre There
Thereâs no turning back or hypothesizing a plan back into the workforce. The most dangerous move you can make is believing you will be able to earn as much as you did in your 30s and be employed. Employers want fresh blood and new people. They have nothing against your amazing talent.
Past 59 1/2, you can withdraw your funds from retirement little by little and test the waters. See how it feels to live off of it and if youâre still earning, terrific if not, always keep your investments on the sideline and never cash out unless you desperately have to.
4. Look Out
The sad reality about our world is that people take advantage of those who are unprepared or unknowledgeable. Almost daily my grandma gets dozens of robo-calls asking for a deductible on her car insurance, lower interest payments on a mortgage, free phone bill, discount on insurance or pronounce theyâve been robbed. If I hadnât taken the time to explain to her what thefts and scammers are up to, she wouldâve been taken advantage of long ago and fallen into their dirty traps.
At any age, always be careful who you listen to. There are too many bad actors out there and you need to be vigilant before you fall into their trap and let them sabotage your life.
These are just general pointers I hope you can sustain and adopt as early as possible. Donât take them too literally or weigh one with less importance than the other.
Life is a marathon not a sprint. Where someone is today might not be where they are tomorrow.
Net worth isnât an indication of gratitude, strong relationships, love, health or happiness. It just keeps us moving forward and stabilizes us. Donât obsess over the number. It means less overtime.
Growing your wealth from nothing to $10m seems unattainable to most because we barley hear anyone achieve this milestone outside of the grueling, competitive industries of the arts, television, sports industry, casino and sometimes real estate industry.
No one said you need a high starting income to accomplish your dreams. 80%+ millionaires are self-made and got lucky overtime.
We all have our own advantages that others donât have. Tap into what you want and why to provide yourself a simple life that can actually be lived in not guarded forever. I know a fair number of people earning $5â10m per year but when it comes to the alimony payments, divorce fees, astronomical maintenance on their Hamptons homes, private school tuition for their children, car loans, etc. they are broke.
Itâs not how much you earn. Itâs how much you keep.
Life is the accumulation of your habits and real change is unleashed when practiced overtime.
Readers, what wealth building recommendations would you add to each stage of life? Are you willing to share something that worked for you at a certain age? Do you believe these are accurate or should be placed elsewhere?