Ever since my wife and I got married (and even a bit before that), I’ve really felt like we’ve been on the right financial track. In addition to being frugal in our day to day lives we’ve also made a number of what I believe to be sound monetary decisions. This includes contributing to multiple retirement accounts, setting money aside for emergencies, and using credit cards purely to our advantage. However, while I knew we were doing something right, I was never really sure how we measured up to others our age and in the same earning bracket.
A few months ago I (finally) did a review of the personal finance site Mint. In using that site, I got my first clue into how our overall finances looked by calculating our net worth. Obviously the next question I had after knowing this figure was, “Well, what should it be?”
About net worth
Before I share what I’ve learned on that front, I should back up and explain a bit. If you aren’t familiar, your net worth is essentially the total amount of money and assets you own minus the number of liabilities and debts you have. In the case of Mint, they tallied up all of our bank account balances and retirement accounts as well major assets like our car. And since we pay off our credit cards monthly, there were no liabilities to subtract.
What’s smart about using net worth as a financial measurement tool is that it really gives you a snapshot of where you stand. Of course, for younger adults, the number may not be very impressive based solely on the fact that your savings — and thus your net worth — should grow over time. Which brings us back of to the question of what your net worth should be at, say, age 30.
Net worth at 30
According to Barbara Friedberg of The Balance, a good rule of thumb for 30-year-olds like yours truly is to have a net worth about equal to half your annual salary — or really what your annual salary was leading into your 30s. For example, if you’ve been making $50,000 a year, she suggests you should strive to have a net worth of $25,000 by age 30. More specifically Friedberg says you should have that amount in your retirement account, which is a bit different than your net worth, but the overall point remains the same.
Looking nine years down the road (for me), Friedberg also lays our a goal for age 40: a net worth of double your annual salary. This time around, though, she really means net worth in the traditional sense. Notably this would mean that, if you were to buy a home, the equity you earn in that will help boost your overall worth (remember: although the debt you owe on your house would count against your net worth, the value of the home will hopefully put you back in the black).
So what about me?
Well, that’s a bit complicated. For one, neither my wife nor I have had the type of job where our annual salaries are so predictable. That said, based on that formula, I thought for a hot minute we were well ahead of the game… until I realized the number Mint was providing me was for both of us and should really be cut in half. Damn it.
Despite that minor setback, I nevertheless maintain that we’re in good shape on the net worth and retirement fronts. More importantly, we continue to up our retirement contributions, which make up a large percentage of our net worth as is. So while I’m still a little hazy on whether we’ve met Ms. Friedberg’s rule for age 30, we’re well on our way to knocking the goal for age 40 and beyond out of the park.