Net worth compared to Annual Income

[guppy]

I've asked this a couple years ago, but I'm wondering what rule of thumb you all use to figure out if you're on target with your net worth. I know there's a lot that goes into a number like this, but I'm just wondering if you guys use anything as a guideline.

I've seen online that if you have 1x your annual gross income in the bank by the time your 30 that you're in good shape. Do you think this is a good marker or not? My husband and I are 31 and 33 and we just hit this a couple months ago so I'd like to know where everyone was at a similar age. Or maybe what the next milestone should be at age 35 or 40? I'm assuming right now that we'll both work until 65 but obviously that could all change.

Thanks in advance!

[corn18]

Here's one guy's answer:



Here's another opinion:

Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten.This, less any inherited wealth, is what your net worth should be.

I like using a robust retirement calculator that uses a monte carlo simulation to tell me how I'm doing and more important, what I need to do, to retire. I use this one:

http://www.flexibleretirementplanner.com/wp/

There are simpler ones you can use as well.

Hope this helps.

Tom

[tripods68]

I think this information is very good, except it doesn't tell you how to get there OR where do you want to go. It doesn't tell you the "how" and the Why". Do you follow a regular budget each month? How much debt do you have, what's the expenses, and income? I think its great information.

But having the plan to attack it and sticking to it for the long haul is the ultimate driver to be able to reach your goal.

[disneysteve]

There are a lot of charts and guides for this stuff and they all differ. You can look at them for a ballpark and adjust accordingly. For example, I didn't finish my education and start my first real job until I was nearly 29 years old. I had a negative net worth until well into my 30s.

Also, pay attention to if they are talking about net worth or a multiple of income in savings. Those are two very different things. You kind of blended them in your post.

[feh]

I've seen online that if you have 1x your annual gross income in the bank by the time your 30 that you're in good shape. Do you think this is a good marker or not?

No, I'm not a fan of such "rules of thumb". Every situation is different.

Here's what you need to do - save as much for retirement as you can, without depriving yourself. How much you will need saved for retirement should not have anything to do with your salary. All that matters is your expenses.

[Nika]

What is this "based on 200K income" even mean?

If you make 200K when you are 35, it is highly unlikely that you were making 200K when you were 22. Even more unrealistic if you are making 200K at 65, that you started with that and had that even income every year.

Does this chart assume you are making the same amount of money year after year and therefore assumes what you should be saving each year based on that?

[LivingAlmostLarge]

Agree with Nika which is why net worth is hard to determine. Right now technically we are doing well with no income and savings. But that's not the case.

[riverwed070707]

I've asked this a couple years ago, but I'm wondering what rule of thumb you all use to figure out if you're on target with your net worth. I know there's a lot that goes into a number like this, but I'm just wondering if you guys use anything as a guideline.

I've seen online that if you have 1x your annual gross income in the bank by the time your 30 that you're in good shape. Do you think this is a good marker or not? My husband and I are 31 and 33 and we just hit this a couple months ago so I'd like to know where everyone was at a similar age. Or maybe what the next milestone should be at age 35 or 40? I'm assuming right now that we'll both work until 65 but obviously that could all change.

Thanks in advance!

+1 on all the above posts but just to clarify, the rule of thumb you're referencing is that you should have 1x your annual income in RETIREMENT by age 30, not net worth. As DS mentioned, it can vary pretty dramatically based on your circumstances but overall I find the 1x by 30 rule to be a good guideline for someone who has been working since their early 20s.

[snafu]

I hope you are not taking it literally and keeping 1 year of income in savings. With the teeny bit of info you offer, I point out... One common, easily worked out measurement tool is 20% savings of all income, whatever the source, 50% to pay for needs, 30% to cover 'wants' those things that give your life pleasure.

Depending on your circumstances you need to have a fluid, easily accessed Emergency Fund, contribute about 15% of annual income to retirement, and be working on your ROTH as tax rules apply.

[cologero]

Here's one guy's answer:



Here's another opinion:

Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten.This, less any inherited wealth, is what your net worth should be.

I like using a robust retirement calculator that uses a monte carlo simulation to tell me how I'm doing and more important, what I need to do, to retire. I use this one:

http://www.flexibleretirementplanner.com/wp/

There are simpler ones you can use as well.

Hope this helps.

Tom

$240K by 35 (assuming $60K)?! I'm sorry but that's just not realistic for the average Joe with a family in my opinion...I'm certainly no expert, but still...

[riverwed070707]

$240K by 35 (assuming $60K)?! I'm sorry but that's just not realistic for the average Joe with a family in my opinion...I'm certainly no expert, but still...

This chart is NET WORTH not savings/retirement. I think $240k is highly achievable by 35. I'm 29, have a NW a little over $200k and I don't feel we are overachievers when it comes to savings or spending - we just have a couple houses, save 15% for retirement and don't have any consumer debt.

[autoxer]

$240K by 35 (assuming $60K)?! I'm sorry but that's just not realistic for the average Joe with a family in my opinion...I'm certainly no expert, but still...

That Financial Samurai chart is kind of assuming that you are putting away 20% of your income every year. The average Joe is certainly not saving that much, but they could if they prioritized it.

My personal savings rate was around 10 - 15% in the beginning of my career and for the past couple years, I've gotten it up to 40%. I'm still a little behind that chart, but catching up quick. I'm 36 and my net worth is roughly 3.5 times my gross income.

[cologero]

This chart is NET WORTH not savings/retirement. I think $240k is highly achievable by 35. I'm 29, have a NW a little over $200k and I don't feel we are overachievers when it comes to savings or spending - we just have a couple houses, save 15% for retirement and don't have any consumer debt.

It very well could be "highly" achievable for you...I'm just basing my opinion off folks I know in my area and personal experience. The average salary in your 20's (where I'm at) is about $30K and that's with a degree. Difficult to raise a family when you're making that all while saving 20%, trying to build credit and getting out of debt from being stupid in your 20's. Yes, its doable, but... Also, congrats on having two homes...but that's also not very realistic for most 29 year olds. With all that being said, it sounds like you're doing really great and should be very well off if you stay on that track!

[riverwed070707]

It very well could be "highly" achievable for you...I'm just basing my opinion off folks I know in my area and personal experience. The average salary in your 20's (where I'm at) is about $30K and that's with a degree. Difficult to raise a family when you're making that all while saving 20%, trying to build credit and getting out of debt from being stupid in your 20's. Yes, its doable, but... Also, congrats on having two homes...but that's also not very realistic for most 29 year olds. With all that being said, it sounds like you're doing really great and should be very well off if you stay on that track!

I hope my post didn't come off as bragging because that wasn't my intention - and I wholeheartedly agree that the slope becomes much steeper with an income below $50k. You can only scale back your lifestyle so much. We've lived on $30k and we weren't saving much when we were at that income level. We got by but we weren't getting ahead. The secret to getting where we are has been to increase our savings as our income has gone up with out increasing spending much. If you never go through that period of increasing income, it would be much more challenging to achieve these benchmarks.

On the flip side, if its $30k and a 2 income household, presumably you live in a LCOL and putting aside 15-20% savings is still very attainable IMO. Its about priorities. My 7 year old has gotten to the age where she realizes she doesn't have all the gadgets and luxuries that her school friends have. She doesn't have an ipad or video game system, her closet is filled with second hand clothes (as is mine), we drive 10+ year old cars and we don't have a fancy house. For us, its been worth it skimp on the material things in exchange for building a solid investment portfolio. Fully understand not everyone is going to make the same choices, it certainly hasn't always been the easy way to go.

[cologero]

I hope my post didn't come off as bragging because that wasn't my intention - and I wholeheartedly agree that the slope becomes much steeper with an income below $50k. You can only scale back your lifestyle so much. We've lived on $30k and we weren't saving much when we were at that income level. We got by but we weren't getting ahead. The secret to getting where we are has been to increase our savings as our income has gone up with out increasing spending much. If you never go through that period of increasing income, it would be much more challenging to achieve these benchmarks.

On the flip side, if its $30k and a 2 income household, presumably you live in a LCOL and putting aside 15-20% savings is still very attainable IMO. Its about priorities. My 7 year old has gotten to the age where she realizes she doesn't have all the gadgets and luxuries that her school friends have. She doesn't have an ipad or video game system, her closet is filled with second hand clothes (as is mine), we drive 10+ year old cars and we don't have a fancy house. For us, its been worth it skimp on the material things in exchange for building a solid investment portfolio. Fully understand not everyone is going to make the same choices, it certainly hasn't always been the easy way to go.

No I did not take your post as bragging one bit...but you really should be proud of what you've accomplished! That's a great feat. I'm in my mid 30's and trying to 'catch-up' on my retirement. My current net worth is about $90,000 (none of it in real estate)...so I still have a very long way to go before retirement age.

I think you hit it on the head though when you said "The secret to getting where we are has been to increase our savings as our income has gone up with out increasing spending much." It's only been in recent years that I've my income has gone up enough to make a real impact which is why I'm now in the aggressive savings mode. Fortunately, my monthly bills today are only $400/mo higher than the bills I had 16 years ago when I was only making $22K per year out of college.