Average Net Worth by Age (How Do You Compare?)

Summary

BiggerPockets Money Podcast: “Average Net Worth by Age (How Do You Compare?)”

Release Date: December 3, 2024
Host: Mindy Jensen
Co-Host: Scott Trench
Description: For those who have money… or want more of it! Join Mindy and Scott weekly as they delve into strategies for earning, saving, investing, and growing wealth.

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Introduction and Topic Overview

In this insightful episode, Mindy Jensen and Scott Trench delve deep into the concept of net worth, exploring how it varies across different age groups and what benchmarks individuals can aim for to achieve financial freedom. The hosts emphasize understanding net worth, its calculation, and the significance of building a healthy financial foundation at various life stages.

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Personal Net Worth Journeys

Mindy and Scott share their personal experiences in building wealth:

• Scott’s Journey:
  "I started my journey in 2014 making $50,000 a year and grew it to nearly $200,000 annually within five years. By keeping expenses low, house hacking, and investing in the stock market, I crossed the million-dollar mark shortly before turning 30."
  (01:12)

• Mindy’s Journey:
  "Our first million came 11 years ago, just before Carl turned 40. We achieved this by spending significantly less than we earned, live-in flipping homes, and investing the proceeds into real estate and the stock market."
  (02:46)

Scott acknowledges the variability in their paths, highlighting Mindy’s approach as more repeatable and less reliant on luck.

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Understanding and Defining Net Worth

Mindy:
"Your net worth is the difference between what you owe and what you own. Simply put, it equals your total assets minus your total liabilities."
(07:28)

The hosts discuss the importance of accurately calculating net worth to assess financial health and set realistic goals.

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Including Primary Residence in Net Worth Calculation

A significant portion of the discussion centers around whether to include the primary residence in net worth calculations:

• Mindy:
  "Some people say yes, some no. I believe primary residence equity should generally be excluded from net worth because it's more of an expense and doesn’t generate cash flow."
  (08:05)

• Scott:
  "Primary residences often trap the middle class. To build substantial wealth, you need investments outside of your home, like businesses or real estate equities that compound over time."
  (06:25)

Scott advocates for excluding primary residences to better reflect true financial flexibility and investment potential.

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What to Include in Net Worth

Mindy and Scott outline what should and shouldn’t be included in net worth:

• Assets to Include:
  "Investments in businesses, private equity, rental properties, and stocks are essential as they generate cash flow and appreciate over time."
  (16:37)

• Assets to Exclude:
  "Personal effects, vehicles, boats, and other depreciating assets shouldn’t be counted as they don’t contribute to financial growth."
  (15:25)

This distinction helps in maintaining a clear and actionable net worth statement.

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Tracking Net Worth and Benchmarks

The importance of consistently tracking net worth is emphasized:

• Scott:
  "You should start tracking your net worth immediately. It’s essential for understanding your financial position and making informed decisions."
  (17:31)

• Mindy:
  "Having benchmarks helps keep your financial goals in sight and prevents unnecessary spending."
  (19:46)

They recommend using tools like Monarch to accurately monitor net worth and stay aligned with financial objectives.

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Net Worth by Age Bracket

The hosts break down average, median, and top 1% net worths across different age groups, providing valuable benchmarks for listeners.

In Your 20s

• Mindy:
  "Most people in their 20s have a median net worth of around $31,000. The top 1% can reach upwards of $2 million, often through high-income careers or successful business ventures."
  (21:05)

• Scott:
  "In your 20s, focus on increasing income, paying down debt, and starting side businesses. This sets the foundation for significant wealth accumulation in later decades."
  (30:05)

Key Insights:

• Early 20s typically see low net worth due to starting careers and possible education debt.
• Highest wealth achievements often come from entrepreneurship or high-earning professions.

In Your 30s

• Scott:
  "If starting your 30s in the bottom quartile with around $8,000 in net worth (excluding primary residence), aim to move up a few quartiles by increasing income and investing wisely."
  (33:47)

• Mindy:
  "Be intentional with your spending and investing. Starting businesses or house hacking can significantly boost net worth during this decade."
  (35:09)

Key Insights:

• Transitioning from debt to significant investments is crucial.
• Real estate and business ventures play a pivotal role in wealth growth.

In Your 40s

• Scott:
  "In the 40s, focus on continuing to save and invest while being wary of lifestyle creep. Expenses can increase with higher income, so maintaining frugality is essential."
  (44:04)

• Mindy:
  "Avoid unnecessary spending like flashy cars or lavish vacations unless they align with your financial goals."
  (45:31)

Key Insights:

• This decade builds upon the financial foundation set in the 30s.
• Balancing increased income with controlled spending is vital to avoid stagnation.

In Your 50s

• Mindy:
  "By your 50s, the bottom 25% has a net worth of less than $100,000. However, with disciplined saving and investing, it's still possible to achieve financial goals."
  (46:23)

• Scott:
  "Many in their 50s might retire or inherit wealth at this stage, significantly boosting their net worth."
  (48:31)

Key Insights:

• Significant wealth increases can occur through retirement savings and inheritances.
• Continued investment and strategic financial planning remain important.

In Your 60s

• Scott:
  "The top 1% net worth can reach up to $15 million. However, most growth happens earlier, and by the 60s, managing and preserving wealth becomes the focus."
  (48:49)

• Mindy:
  "Ensure you have a solid financial plan for retirement, including bridging funds if retiring early."
  (49:56)

Key Insights:

• Wealth peaks in the 60s, often supplemented by retirement funds and inheritances.
• Focus shifts to wealth preservation and strategic withdrawals.

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Strategies to Improve Net Worth

The hosts provide actionable advice tailored to each age group:

• 20s:
  "Max out your Roth IRA, start side businesses, and focus on debt elimination. Attempt multiple business ventures to increase your chances of success."
  (30:51)

• 30s:
  "Increase income through career advancement or entrepreneurship, invest in real estate, and maintain disciplined spending habits."
  (36:47)

• 40s:
  "Continue saving and investing while avoiding unnecessary lifestyle inflation. Focus on building and maintaining a diverse investment portfolio."
  (44:04)

• 50s:
  "Plan for retirement, maximize retirement account contributions, and consider inheritance or retirement strategies to significantly boost net worth."
  (46:23)

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Overcoming the Middle-Class Trap

A recurring theme is avoiding the "middle-class trap," where wealth is primarily tied up in the primary residence, limiting financial growth and flexibility.

• Scott:
  "If your wealth is mostly in your primary residence, you’re unlikely to reach the upper echelons of wealth creation. Diversify your investments to ensure continuous growth."
  (07:28)

• Mindy:
  "Consider your primary home as an expense rather than an investment to better focus on building a diversified asset base."
  (12:43)

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Audience Engagement and Takeaways

Mindy and Scott encourage listeners to assess their net worth, engage with the podcast through emails and social media, and utilize the provided benchmarks to guide their financial journeys. They stress that achieving significant wealth requires intentional actions, disciplined spending, and strategic investments tailored to one’s age and financial stage.

Notable Quotes:

• Scott:
  "If you want to get into the upper echelons of wealth, you can’t hold all your wealth back in your primary residence."
  (06:25)

• Mindy:
  "If you're in your 20s and want to FIRE, aim to be in the top 1%. In your 30s, target the top 5%, and so on."
  (51:20)

• Scott:
  "Start tracking your net worth immediately. It’s essential for understanding your financial position and making informed decisions."
  (17:31)

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Conclusion

This episode of the BiggerPockets Money Podcast provides a comprehensive overview of how net worth evolves through different life stages. By sharing personal experiences, defining key financial concepts, and offering practical strategies, Mindy Jensen and Scott Trench equip listeners with the knowledge to assess and grow their wealth effectively. Whether you're just starting your financial journey in your 20s or planning for retirement in your 60s, the insights shared in this episode can help you navigate the path to financial freedom.

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Transcript

[A]

Have you ever thought about how your household wealth or annual income stacks up to others your age or even how others made their first million dollars? Today we're talking about net worth, what it is, how to calculate it, and what a healthy net worth looks like in your 20s, 30s, 40s and beyond. Hello, hello, hello and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen and with me, as always, is my plaid fanatic, co host, Scott Trench.

[B]

Thanks, Minnie. I'm great to. It's great to see this wonderful pattern we've established with our BiggerPockets money. BiggerPockets has a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order, because we truly believe financial freedom is attainable for everyone, no matter when or where you're starting. Excited to get into the show. Today we're going to talk data. We're going to look at the average, median and top 1% wealth by age bracket. What's the top 1% wealth in your 20s, 30s, 40s, 50s and 60s? And get into it. And we'll have some discussion about how people get there into these upper echelons and accelerate the wealth building journey.

[A]

Funny you should say that, Scott. I just asked, do you ever wonder how others made their first million? So I'm going to put you on the spot. How did you make your first million?

[B]

Yeah, mine was a. Look, look, there's a couple of things that, that accelerated my journey. So I started my journey in 2014 and I started out by making $50,000 a year. And over the next five years, I was able to increase that income to close to $200,000 per year. I kept my expenses low the whole time and I serial house hacked. I invested into the stock market. And that compounding over about five, six years enabled me to cross the million dollar mark shortly before 30, probably 28, 29.

[A]

So I had a bit of a different journey. You had the benefit of Mr. Money Mustache when you were starting your journey. I did not. I will say that our journey probably started in 2002 when we got married and we got to our first million just before Carl turned 40. And I don't even know what year that was. It's been a minute 10 years ago, 11 years ago. Um, so it took us a little bit longer, but we also weren't really focused on it either. We were saving for the future, but we didn't really know what we were saving for. So we weren't saving as aggressively as we could. Be we were investing rather aggressively, but in not the same type of aggressive, aggressive investing as a typical fire adherent would. Uh, we got there through a combination of spending significantly less than we earned. Carl was a high income earner being a computer programmer. I was not a high income earner. Let's just say that I funded our 401ks and but we, we spent approximately my salary and saved approximately his salary. And we did it through a combination of live in flipping and taking the proceeds from that, rolling them over to a 20% down payment on our next house and putting the rest in the stock market. And we just kept compounding that. And our first million came 11 years ago and it has doubled and doubled again since then.

[B]

You know, I like your journey a lot better than mine in a lot of ways because it's, you know, like, think about the luck that was in my journey, right? I joined a startup as the then third employee and took over as CEO, which allowed me to drastically skyrocket my income. I bought a bunch of rental properties starting in 2014, leading up through 2020, 2021, 2022, around that and a ride of appreciation. And even the stock market was a big tale over that same time period for the, the, all the index funds that I was putting in. Like everything that could have gone right for me at the highest level, the most meaningful things went right. And so there's a good bit of like, okay, how do you know I want to be cautious about those things. There were some good plays in there, but there's also a tremendous amount of luck on that front. And there's always different ways to think about how that, how their career could have gone in some of those. So I don't like your journey is much more repeatable, I think, than the one I've been on. Maybe I'd actually like to kick off something here that wasn't even on our little agenda here with a quick preview. This is a site I like a lot. It's called visualcapitalist.com it's just got some fun stuff to show there. And this is a chart that I think really made a difference to me. This is a dated chart. Now it's a couple years old. I think it was 2017. But I remember looking at this as I was doing my portfolio planning and thinking like, huh, this is really interesting. And for those listening on the podcast, don't worry, I will just stare at a chart and tell you this is interesting and leave you to wonder. This is a composition of wealth diagram and it shows how the middle class invest their assets and how the ultra rich invest their class, their assets. And then it throws in this upper income group in the middle. And you know, the middle class is defined as 0 to 500k and the ultra rich is defined as 10 million plus in net worth. And the most striking difference here is that the middle class, most of their net worth 62% is in their primary residence. And for the ultra rich, the vast majority of their wealth, or about half of their wealth is in businesses, business, equity and real estate that is not their primary residence. And then stocks, securities, mutual funds and trusts. And guess what? The people between 500,000 and $10 million are right in the middle. They have about a quarter of their wealth in their primary residence and a quarter in businesses or other real estate. But this is what this is. This really struck a chord with me years and years ago when I saw this and really kind of put me in this high conviction place. Like if you want to get into these upper echelons of wealth, you can't hold all your wealth back in your primary residence. You have to be developing a business or real estate equity over time it compounds and compounds and compounds and this is going to be the big difference. Like if there's one chart that shows how your capital should be deployed, that's pro, that's going to give you a chance at least to get into these upper echelons. It's this one. And showing that wealth is built or the wealthy at least have built their wealth in businesses, private businesses, real estate and stocks. All the things that we talk about all day long here on BiggerPockets Money.

[A]

And this is not a guess, right? This is based on data.

[B]

This is based on data. Now it's a little dated. I haven't found an updated one that really does this good a job at diving into the wealth of Americans on this. So this is from 2017. Possible the mix has shifted, but come on, it hasn't shifted much. This story is still the same in 2024. Another issue with the data that we're going to discuss even today is that the Federal Reserve comes up with studies for American wealth every couple of years. So the last major study on this was done in 2022 and 2023 and the next one won't be done until 2026. So that's a constant problem. Unless you're finding somebody who's doing original research, very expensive, very large scale polling of Americans, you're going to find wild variations. If you get look for like the updated net worth numbers if 2024, 2025. So we're going to be taking a little, a bit of a look back. So there's always a little bit of a lag on these things. But I still think this story is the one that really should strike a chord with folks who are watching this on YouTube. Real Estate on the podcast wealth is built by the ultra rich in real estate, private businesses and stocks.

[A]

That is fascinating. I have never seen that before and I'm glad you shared that with us, Scott. All right, let's start off and define what we're talking about. What does net worth mean? Simply put, your net worth is the difference between what you owe and what you own. So the formula is really straightforward. Your net worth equals your total assets minus your total liability. So your house is worth $1 million, but you have a $500,000 mortgage on it. That's $500,000 in net worth, not $1 million in net worth. And speaking of house, Scott, does my house count in my net worth? Some people say yes and some people say no. I want to know what you think.

[B]

I think this is an age old argument and the answer is of course yes. Home equity counts technically towards net worth, but in many cases in bigger pockets money. We talk about how the primary residence leads to this middle class trap. If most of your wealth is in your primary residence, you probably aren't going to join the the upper echelons of wealth creation in America unless you got something else going on like a business cooking. Because that, that primary residence is not going. Is, is, is, is not really an asset that is going to be inflating your wealth over the long term. It's more, I believe primary residence should be thought of as an expense. And when you're thinking about retiring and how your portfolio can lead to early financial independence, I think you should generally default to excluding your primary residence from your net worth equation. And a lot of research agrees with that. That's why the research that we're going to look at today has two snapshots of your net worth. One with your primary residence and one without a primary residence. And it presents both data sets. Because of that dynamic, we need to.

[A]

Take a quick break, but while we're away, we want to hear from you. Do you know what your net worth is? Answer on the Spotify app OR below on YouTube. We'll be right back. Want to invest in real estate but don't have the time or know the best local markets? Rent to retirement has you covered. Here's the deal. They've helped thousands of investors just like you find turnkey homes across the best US Markets. And best of all, they do all the heavy lifting for you. With over 255 star reviews on Biggerpockets, Rent to Retirement experts help you build strategies to retire early through real estate. And right now, Rent to Retirement offers some amazing incentives on turnkey new construction properties, like up to $30,000 off new build prices, 0% down loan options, 3.99% interest rates available. Don't miss out. These deals won't last. Text REI to 33777 or visit biggerpockets.com retirement to start investing in top cash flow markets today. This show is sponsored by Airbnb. Fall is here and I've got a trip coming up soon. And while I'm enjoying the autumn vibes, my home will be earning me extra cash as an Airbnb. And the best part? Everything's managed right from my phone so it doesn't mess with my vacation plans or my pumpkin spice lattes. Airbnb makes hosting easy and practical. Whether you're gone for a weekend or a month, it fits right into your lifestyle. Your home might be worth more than you think. Find out how [e-mail] host I love.

[C]

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[A]

I get what you're saying, but in a pinch, if I needed to access funds, I could sell my house. Yeah, I'd have to find someplace else to live. I would probably go rent or buy another house. That also presents an interesting problem though. Like my house right now is probably worth 750 and I paid 365 for it. There's a significant Delta, I value it lower. Like on the conservative side when I am calculating my net worth and I only calculate the home equity in the property, not the entire 750. But I can't, I don't do that math quickly. But whatever the difference is, that is my, I add that to my net worth. But yeah, that does create a middle class trap. If I didn't have other investments because, oh Look, I've got $400,000 in net worth, but it's all tied up in my house, especially now where we're in this higher interest rate environment. My mortgage payment is thirteen hundred dollars a month. So if I were to sell this house and go find another house, if I took on a mortgage, I'm going to be taking on a significantly higher monthly expense every month. Which I think this is a different kind of trap, the home equity trap or the home, the primary home trap where you've got the interest rate trap. We need to come up with some clever name for this.

[B]

The lock in effect.

[A]

The lock in effect. Oh, well, that's, I guess there's a name for it then. The lock in effect. I am, I am a little bit beholden to the lock in effect. Not because I couldn't afford the other more expensive property. I just don't want to pay more. I like my house.

[B]

Yeah. I mean this is a problem that millions of Americans are grappling with. And you know, if, if the way I like to frame the debate about whether you should include or not include your home equity in the net worth calculation as it relates to financial freedom is what your intent is with the house. Like if that's your forever home and you don't plan on selling it and your plan is to retire in your home, don't count your home equity towards your net worth. It's not going to produce any cash flow there. You can use a paid off home or whatever to defray the expense. Like if you have no mortgage payment, you don't have to build a portfolio capable of generating cash to cover the mortgage payment. There are advantages to having home equity. You're paying off a house, but I just wouldn't include it. You need to build up an asset base outside of it. And if you look at your net worth strictly that way, I think you're going to be make a lot better decisions that give you better financial flexibility than if you overweight the value of your home relative to your freedom, your ability to stop working for a paycheck.

[A]

That's an interesting take. I like the way that you are framing that. So Scott, I know that you have rental properties and a primary residence. Do you include your rental property equity in your net worth but not your primary residence equity?

[B]

I do now because I never had a primary residence until now because this is the first year I've had one. I've always had house hack investment properties. I think the word intent is really important. I bought a duplex as a house hack intending to keep it as a rental property. I'd absolutely include a rental property in my P and L and I would sell the rental property if I thought there was a better investment alternative. The purpose of the house hack was to create an investment property that was part of my long term, my investment pool. It was never intended to be my long term house. And so I do think it's fair to include a house hack or if you're in the process of a live in, flip the equity in those because the intent is different than to reside in the house for the long term. Just be realistic with your, with yourself. Is your house an asset? Is it part of your investment portfolio and you intend to generate income from it or is it not and treat it accordingly. But it's an art, right? It's technically part of your net worth. So that's the debate I have.

[A]

Do you know what? This is a great question to ask our audience. So do you think your net worth should include your house, your home equity or not? Please leave an answer below on our YouTube channel. If you're watching this on YouTube. So Scott, do you think people are getting anything else wrong with their when they're calculating their net worth?

[B]

You know, I think, you know, I don't include any personal effects, for example, in my net worth. Some people do around that. I think that if you're listening to BiggerPockets Money and you use an app like Monarch or something like that, you're probably going to get pretty close to computing your net worth. Vehicles, you know, you can, you can. You know, I wouldn't necessarily include you can, but I think it's kind of the same dilemma as the house. It's a depreciating asset. It's not really part of the investment portfolio and the vehicle, unless you're putting on Turo or doing something crazy like that. Delivering for Uber is not really going to put cash in your pocket. So I think I would exclude those as well on there. So, you know, I wouldn't include a boat, you know, or certain other things like things that are not going to put money in your pocket that are toys or Vehicles I wouldn't include in the net worth statement. I'd really be strict when I'm thinking about my real net worth. The net worth that's going to help me move toward financial freedom and only including assets that expected to appreciate in value and or produce cash flow. And I think you're going to again make much better financial decisions if you treat your net worth that way and treat the boat or the cars as the depreciating assets or the toys that they probably are.

[A]

I asked in our Facebook group what do you include in your net worth? And I see people, a lot of people saying cars. I saw a woman named Melanie said everything except cars. Everything except cars, jewelry and household goods. So somebody else says just equity positions. There's all sorts of different answers and I think it's really interesting how how people answered. One smart aleck said, be the babies, Pokemons.

[B]

One thing that I do think is going to be interesting outside of these categories though is business assets. A lot of the ultra wealthy, the top 1% by net worth, are going to have private business interests. And I bet you that the numbers we're going to look at today for the top 1% are way understated because if you have a private business, you're probably not valuing it on your personal balance sheet at a super high or inflated level.

[A]

When would you suggest somebody start tracking their net worth?

[B]

Immediately. You should. If you just started tracking it yesterday, the best times 20 years ago. The next best time is today. If you're listening to bigger pockets money and you don't track your net worth, you know this is not the episode for you. You should go and start doing that. You go back. We have several episodes on how to do this. That should be your immediate practice right now because there's no point in trying to play the games. You can't even keep score.

[A]

Oh wow. Okay. Well you can email him [e-mail] okay Scott, what do you think is the minimum net worth to be considered rich? Oh, $1 million.

[B]

I think fire is the number and I'm going to put that number between 1.5 for a low cost living area and 2.5 to a medium to high ish cost of living area. For ultra high cost living areas the number goes up from there. But I think it's one and a half to two a half million is the baseline number to be to be rich. At that point you can fire modestly or earning a middle upper middle class job plus the asset base. You can do anything you want but you can't do everything you want. What's your answer to that? Mindy?

[A]

I was joking and quoting Austin Powers when I said $1 million. But that's where I am at right now, is if you have a million dollars, you're a millionaire, and millionaires are rich. And just because you have a million dollars doesn mean that you're going to be able to retire. But I, you know, I'm a little older than you, and I'm kind of stuck in the past where going from 999-999 to a million is a big deal. So I consider a million dollars to be rich.

[B]

I think million dollars is a great answer to it. I bet you. I wonder what the audience feels like is rich to them.

[A]

Yeah. As we're going through this episode, I would love to hear your thoughts to all of these questions. So hit me below. Email mindyggerpocketsco [e-mail] or hop over to our Facebook group. Facebook.com groups/bpmoney.

[B]

Let's talk about benchmarks here, Mindy. What, what are the. Well, there's like, no real rules to this. We are going to show data sets that have these. These numbers on there. How do you feel about us even talking about benchmarks for wealth creation?

[A]

I love benchmarks. I love having a goal to work towards, because when you don't, it's really easy for dollars to slip out of your pocket here and there. Oh, I, Whatever. I don't have to worry about, you know, buying that coffee or going out to dinner or buying beer for everybody at the bar or, you know, whatever you're spending your money on. What do you think about benchmarks?

[B]

I think that they're really good ideas for what's attainable, what's possible in various brackets. And, and some folks, I think, like me, need to have a little bit of competition in there, see how we're doing against that kind of stuff. That's why, like, you know, it's hard for me to just, like, run on my own. But I love Peloton, for example, because I can see, oh, I'm gone. I'm in the. I'm out of shape. I'm only in the this percentile, and I want to get into that percentile when I'm kicking butt like some. I think that helps motivate certain types of folks, and I think this is a good data set for some folks, and I think it can also be problematic for folks who that is demotivating, too. So it just depends on your personality. When the tool is useful or not.

[A]

Yeah, that's true. Although I think I'm a little more competitive than average and I would want to like, I would want to gamify it. Oh, I'm supposed to have 37, 84, I'm going to win, I'm going to get 38, I'm going to get 39, I'm getting a 44,000.

[B]

So a couple of things that, that I think stick out about this, this data set here are, and let's start with folks in their 20s. This is, this should be and is the most extreme differences, right? Like a 20 year old in college probably doesn't have a lot of net worth and won't. Maybe, maybe they worked in high school and saved up some cash or whatever. But you're looking at a median of $31,000 in net worth. And a 29 year old who has started, spent their 20s building a business or going into some field like investment banking and is starting to begin approaching those higher income levels. You know that like that's where you can possibly get to this kind of $2 million net worth by that point probably through some sort of business or elite income generating activity like a sports profession, big scale entertainment or some of these highly lucrative private equity or investment banking checks on there. So you know, I don't know, what do you, what do you observe about the 20, the distribution of wealth for 20 year olds, people in their 20s.

[A]

The 20 year olds in your 20s more than any other one of these decades in your 20s you are starting off either just having graduated high school or you're in college still versus by the end of your 20s, 10 whole years in your 20s is a very different time period than 10 whole years in your 30s or 40s or 50s just because of the life changes that are happening in that decade. So having a $2 million net worth as the top 1% versus the bottom 25% has $3,000 in net worth. I can see. I would encourage anybody looking at these charts to keep your eyes on the bottom 25 and the bottom 75% because those are going to be like between 3,000 and 130,000 I think is a more realistic ideal. Not everybody is going to be an elite athlete. In fact, very few people make it to the elite athlete tier and even fewer are Mark Zuckerberg starting Facebook in his 20s. So you know, I think that those. And he's not even 2 million, he's like what, 2 billion, but between 3,000 and 130,000. That's a great benchmark. That's a great goal. I'm 21 years old. I have a negative net worth. Okay, well, the bottom 25% actually has an average $3,000 net worth. So I would like to do what I can to get myself out of debt as soon as possible so I can start building my positive net worth. If you find yourself in debt and there are other options you can choose from besides just taking your W2 money and throwing it at your debt, I would encourage you to do that. Start a business in your 20s, because typically in your 20s, especially your early 20s, you're not married, you don't have kids. You have a lot more flexibility in your time to put into starting a business. If you need an idea of a business to start, go on YouTube and look at literally every person there because there is something that you can do online or even in person that is reflected on YouTube that will generate income.

[B]

All right, stay tuned for more after our final break.

[C]

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[B]

I think that's the right answer here, right? Like you're listening to bigger pockets money right now. You're not listening to the chain smokers or whatever the kids listen to these days. If you're in your 20s on that. And so you know, like, like what, what, what's the goal? The goal is surely to be in the upper echelons of the wealth distribution scale by the time you're done your 20s or heading into your 30s here. And I think that's right. I think, I think that the, the lesson learned here, if you're just getting started, is take that shot in business. You might lose it, might not go well, but you can't. It's almost impossible to get into the top 1% without doing something like that. And that cash. That's why I've talked about this in the past. But I believe that the 22 year old just graduating college and starting out in the workforce should focus on just saving up cash and using it on a business opportunity, house hack or some project like that super aggressively and forego that 401k or the Roth IRA for the first year or three while that's going on there and seize opportunity because that opportunity is just not going to be there. In the same sense if in your 30s and 40s you decide to have a family, have kids and life starts to catch up a little bit. It's just, it's just that's the unfair head start that you can get in those early days. And that's why you're going to see this, the most extreme distribution or scale distribution of wealth in this bracket.

[A]

In someone's 20s, your dream job, your business that you start doesn't have to be this sexy, amazing new thing. You can just go do these boring businesses. Cody Sanchez talks about boring businesses and how those are the bread and butter of her net worth. And just buying these boring businesses and doing this boring work, this, this, you know, solid work can generate a lot of income in your 20s. Absolutely. Focus on increasing your income, paying down your debts and starting a side business, starting a whole. Like the best time to start a side business when you're already employed because then you can take some risks and if it pans Out Awesome. And if it doesn't start again, Scott, what is Your quote? If nine out of 10 small businesses failed, start 10 businesses.

[B]

You do that starting at age 22. Every two and a half years, you're going through two 10 bets. You can have two very successful outcomes by the time you're 30. If you try 20 bets over the course of your 20s, which is a very realistic goal, something's going to work at that point in time. Your hit rate, if you try 20, is going to start getting better than 1 in 10. I think a lot of people with no business acumen, no reps behind them are starting a business and they failing and they give up. But when you start 10 businesses, probably going to start hitting on business 7, 9 and 12 on those fronts. And that's a really powerful dynamic and that's why you're seeing this distribution curve going up here. One thing that did take me by surprise of this data set is that the bottom quartile of wealth in someone's twenties is still positive. I would have guessed that that would be negative.

[A]

Oh, that's interesting. Now that's with the primary residence. Without a primary residence, it's much closer to zero.

[B]

Yep, something interesting there.

[A]

Yeah, that is very interesting. I think it's an average. One thing I would encourage anybody in their twenties to do is max out your Roth IRA every year that you possibly can, because that's when your compound interest is going to really have that start taking that hockey stick effect or start the lay the foundation for the hockey stick effect down in your 40s and 50s. But your, your Roth IRA is you're paying taxes now traditionally you're typically you're going to be spending paying a lot less in taxes in your 20s than you will in your 30s and 40s. So you're paying taxes on a lower amount going in. It grows tax free and you withdraw it tax free. So get as many dollars as you possibly can into your Roth IRA in your 20s.

[B]

Yeah, I think that's right. I think, I think after you've gotten enough cash to be able to take advantage of a real estate and, or business opportunity. Like what I did is I spent the first two or three years not doing that even, the, even that part. But just stop buying cash to do a house hack and try some business ideas. And then after my income started growing, I've done that. I've maxed out my 4, my, my Roth 401K every year since.

[A]

And you had a plan. I think a lot of people aren't contributing to their retirement accounts in their 20s, but also don't have another plan for that money. Okay, Scott, let's move on to our 30s. In your 30s, you are ideally building upon the foundation that you set in your 20s. I'm hoping that you are now debt free or very close to it. But if you're not debt free that you have been investing while you are going through your debt payoff, what advice do you have for someone in their 30s who is coming in closer to the bottom 25%, the $8,000 net worth if they don't have a primary residence, or the $16,000 net worth if they do?

[B]

There's no reason that if you're starting in a median or bottom quartile, you can't expect to move up a quartile or two quartiles from the 25th to the 75th percentile.

[A]

Right.

[B]

For the someone in the 30s that would be starting your 30s with, you know, $8,000 and ending with close to $200,000. It's a lot more of a stretch to think you're going to go from 8,000 to $645,000 by your 30s, but you can move to that, that echelon, and then you have a great crack at getting to close to $1 million, the 90th percentile by your 40s and moving up those, those chains. So I think that's how I would be thinking about this. And it goes back to the basics. Right. I mean, you know, I think that a lot of, I would imagine, look, there's, there's the economic starting gate here, which is, I think, a median U.S. income. So if you're not earning a median U.S. income, there needs to be the, the workload put in for probably two to four years to develop the skillset that can get you to that point. Once you earn a median income, it's about the frugality and allowing that to expand slightly to move up these buckets and those basics and blocking and tackling. But that begins to compound as you can move into the 65th, 75th percentile from an income standpoint, which should be achievable over the course of a decade or so. And that will set you up to really move again into that millionaire status by the middle to end of your 40s. That's how I'd probably be thinking about it in my, in my 30s if I was sitting there at the bottom quartile on that front.

[A]

Yeah. I think now is when it's really important to keep track of these benchmarks and just because you're not in the same level as these benchmarks doesn't make you a bad person. I'm not trying to sit here and say, oh, if you're in the bottom 25% in your 30s, then you're a terrible person. But if you're in the bottom 25% and you're in your 30s, your chances of retiring early are very slim. So let's start looking at these benchmarks. If you're not quite at 8,000 in net worth in your 30s, what are the circumstances that have surrounded you not being there? Did you. Are you a physician? And you just like you specialize and super specialized and hyper specialized and you're just getting out of school. I'm not talking to you. Are you a teacher? I really, really wish we paid teachers more. What other things can you do to add to your income, to increase your income so you can start saving more aggressively? But also look at the circumstances surrounding your spending. I don't see very many people who don't have something to cut from their expenses that would not affect their life a lot. I think there's just so much mindless spending because I deserve it or I thought it was cute or everybody else is doing it. And I think in your 30s, if you're not in the 50 to 75% net worth bracket, you should be doing everything you can to tighten up your expenses and increase your income.

[B]

I agree. And I think, you know what, we're bigger pockets, so I'll throw in a real estate player too. A live in flip or a house hack can make a big difference. What if you do two of them over the course of a decade? I mean that's, that's gonna be. That could add hundreds of thousands of dollars to the net worth number and bump you pretty material. Pretty close to. You could probably get on the other side of a million. Even if you're starting from scratch. If you can spend the first couple of years of your 30s amassing even 50 or 100k in liquidity to be as a down payment on the first or second house hack. Mindy, if you don't mind me asking, where did. We're in your 30s. When you start in your 30s, where would you have been on this net worth scale?

[A]

Way to put me on the spot, Scott. I would probably be in the top 75% in my 30s. I did have a primary residence. I would say 3 to 4 to $500,000 in net worth.

[B]

Okay, great. And would it be fair to say that you're now in the 95th plus percentile of net worth. Your age, Your age group.

[A]

I am in the 95th percentile.

[B]

What do you think? And that journey was conducted over your 30s and 40s, right?

[A]

Yes, and into my 50s.

[B]

What do you think you did to move from one like that kind of 75th percentile to the 95th percentile?

[A]

We invested in the stock market. We got intentional about our investing. We got intentional about our spending. We got intentional about our house flipping, and we started paying attention. When we were in the 75th percentile, we were saving for retirement, but had made a couple of really great bets. One of the early bets that we made was Google. My husband was a computer programmer, and he asked somebody in his cubicle, do you know how to do this problem in computer programming? And the guy's like, no. And Carl's like, ugh, okay. And he reaches up to get this giant, thick computer programming book, and the guy's like, well, just Google it. And he said, what? Because this was not when Google was a verb. He said, just Google it. And Carl's like, I don't know what those words mean. He said, go to google.com and type in your question. And like, the guy had to show him how to use Google the first time. And it came back with the answer like that. And he's. Carl's like, this is the greatest website in the history of the world. And he started following it. He started doing research on it. He started looking into it a lot more and became a little bit obsessed with it. And when they announced that they were doing an IPO via a Dutch auction instead of, you have to know investment banker in order to get in, he bought shares in Google, and that has exponentially increased in value. That has been a really great bet. And I don't want to give stock tips or hot stock advice, but Carl did the research. He had used the product. It was unlike anything else that he had ever seen before. And he believed in that product. But he also didn't put our entire net worth in that one stock. So there were several key stock purchases because we didn't know what index funds were. There were several key stock purchases that happened in our 30s that propelled us into the 95th percentile in our 40s and 50s.

[B]

Got it. Okay. So the answer to how to go from the 75th to the 95th percentile is to invest in Google.

[A]

Invest in Google when you're 30, when it's IPOing.

[B]

And then as a byproduct of that, the shape of your net worth. I bet you change to be much more reflective of the wealth that, that we showed at the earlier, earlier part of this, of the super rich. Right. Where much more of the wealth was in equities in real estate than in the primary residence over that course of that journey. Right.

[A]

Yeah. I would say we are 50, 50 stocks and real estate. And then of that 50% in stocks, it's probably 50% in individual stocks and 50% in index funds.

[B]

Awesome.

[A]

And we are slowly extricating ourselves from the stock portfolio and putting it into index funds. But you know, then you hit on capital gains and all sorts of fun nice problems to have taxes and things like that. But we, we really like the stability of an index fund.

[B]

Yeah. One question I have here as well is how many years in the journey to your financial independence journey were you earning in the top 1% of all Americans?

[A]

What is the top 1%?

[B]

I think it's over $650,000. But that would have regressed. That would have regressed over the last 10 years. Right. It would have adjusted with inflation. So let's, you know. So were there any years where you came close to being a top 1 percenter on that journey?

[E]

No.

[B]

I love how you're laughing at that. Right. And, and I think that that's like a misnomer here is sure. Yes, income is important in driving towards these net worth journeys. But I read a stat that 11% of America that basically no one stays, very few people stay in the top 1% of income earners on a consistent basis. Top 1% is very dynamic and people go into and out of it. I think there's this data reading here from an article is that 11% of Americans will join the top 1% for at least one year during their prime working years age 25 to 60. But only 5.8% will be in it for two years or more. So most of the people that are even in that probably top 1% net worth by age aren't sitting in there making a huge income. Of course there will be people that are doing that, famous athletes, rock stars, Taylor Swift, whatever around there. But that is not, that is not by and large not the byproduct of what is getting people to the net worth is a sustained elite level of income. They're probably all earning a high level of income. But it's more to do with I think the expense profile and how you invest that puts you in the top 1% of wealth holders in this country. What do you think about that?

[A]

I think you're spot on and I'M trying to think of all the people that I know who are in the 90, 95% income, I'm sorry, wealth brackets, and they, none of them were in that six. I don't know anybody that makes $600,000 a year.

[B]

Here's another one. This is a Quora quote. So you know how accurate that is. Some 94% of Americans who reach the top 1% will enjoy it only for a single year. 99% will lose the top 1% status within a decade.

[A]

Wow. And now is that net worth or is that income?

[B]

Income?

[A]

Yeah. I don't want to work hard enough to make $600,000 a year. That's, that's like, I don't need 600. I can't even spend the money I have. I don't need to make more.

[B]

I'll put this out there. I have made a top 1% income in two years out of the last 10. And I had to work very, very hard in those particular years and give up quite a lot in order for that to be realized.

[A]

So, Scott, let's move into the 40s.

[B]

Yeah. So I think what's interesting here is at the extreme end, in the top 1%, we're really starting to see separation from an income perspective. So I'm looking at a different data set here to pull that in. But under 35, the 99th percentile, the top 1%, you have to earn $465,000 per year. When you get into the 35 to 44 year old bracket, you have to earn over $1,000,000 a year, $1,066,000 per year to be in the top 1%. So the income realize the spread from an income distribution is even more extreme in the 40s and 50s. And it stays about the same. You know, 45 to 54 is 1.3, 55 to 64 is 1.4, 65 to 74 is 1.5 to be in the top 1% million. So there's a much. That's when really people really come into their own in terms of their, their maximum income generation potential, especially at the top of the food chain. But what's surprising is how the spread between the net top 1% net worth is not as high on these. And so that leads me to believe that even as people really come into their own from an earnings perspective, at the upper echelons of this, the expenses must go up as well. That's probably when we're buying the really nice house, the really nice car, the private school tuition or those other types of things, you'd expect there to be a larger spread based on that income distribution that I just, I just chimed off. So that was the most interesting takeaway for me. Looking at the data set in the 40s.

[A]

Yeah, that is really interesting. And I would, you know, I just think of the 40s as kind of an extension of your 30s. You're continuing to build, you're continuing to save and invest and, you know, keep an eye on your expenses in your 40s, because that's when it really can be easy to creep out into those expenses. Oh, well, all of my neighbors got a new car. I should get a new car too. I, my neighbor's got a boat that looks like fun. I want to go skiing all the time. And the guys at work are always going on these lavish vacations. If it's not something that you value, then don't buy it just because everybody else is buying it. I think the 40s is when you can really start to see some lifestyle creep. So just keep that in mind. Scott, I'm going to talk about your 50s since you're not actually 50 yet. In your 50s, retirement is getting closer. Looking at these net worth Numbers, in your 50s, the bottom 25% is less than $100,000. That makes me a little sad for people to get to their 50s and not even have six figures in net worth yet. That doesn't mean that retirement is never going to happen. We've talked to plenty of people who have been able to retire in about 10 years, starting from approximately a zero dollar net worth. So even if you're, you're listening to this in your 50s and your net worth is on the lower end, there's, there's still hope for a traditional retirement. There's still hope even for a slightly early retirement. Your 75th percentile here is already $1.1 million. 90th percentile is 2.6. 95th percentile is 5 million. I would, I'm kind of surprised that that's the 95th percentile. I would think that the 95th percentile would be a little bit lower than that. More like 3 or 4, but. So 5% of Americans. Oh, I'm reading this wrong. 5% of Americans have a $5 million net worth or higher, the $15 million net worth. I'd like to know who those people are. But again, your 50s is a whole 10 decade. 10 years. So the whole 10 decades. Sometimes it feels like 10 decades, especially when you're teaching your daughter how to drive.

[B]

One interesting hypothesis I have about this age Bracket too is that's prime years, the type years. I'm sorry, let me take a secess. One thing that's one thing I think is interesting about the 50s is that that is I believe, the typical age that and into the 160s when folks retire or retire when they inherit wealth from parents, for example, on there. So I think that that's probably playing a factor in why we're seeing such a big jump. More than doubling or almost doubling of the wealth from 8.7 to 15 and we see less of a jump in the next decade combined with high income earning potential. I bet you that that's causing a chunk of this.

[A]

Yeah, you know what, Scott, that's a really great point. And looking at these numbers between the 50s and the 60s, that is, unless you're in the top 1%, there's almost no growth, there's almost no movement. In fact, in your 60s, the bottom part, 25%, is actually dropping.

[B]

It's not hard to imagine, for example, someone building up to that 90th percentile by the time they're in their early 50s. $2.6 million after a career, hard work and frugality and a couple of good investments, and then inheriting another 2 million from family members who behave very similarly to them over their working lifetimes. And that bumping you up to the $5 million mark. Right. Like you got to imagine that that's beginning to be a much more impactful part of the puzzle here. Contrary to most belief, most millionaires are self made in America. But I bet you that a good chunk of them after they become self made, then supplement that with several million more from millionaire parents on that front. So I think that there's a dynamic that's going on underneath the scenes here that someone should study and we'll have them on the podcast when they complete that study.

[A]

Yeah, reach out to us if you've made that study. We would love to dive into that. One thing I want to note is that if you are in your 50s and you are considering retiring well before age 59 and a half, which is when you can start withdrawing your retirement funds without penalties, make sure you have some sort of bridge to fund those. This is where you want to start thinking about. And even into your 40s, you want to start thinking about avoiding the middle class trap, avoiding the all of my net worth is, is locked up in my home equity and my retirement accounts. You want to start thinking about how you're going to fund your life style from the time you retire until the time you hit 59 and a half. Scott, I think this is a really interesting set of numbers here. I love looking at this kind of data because, you know, the benchmarks that somebody can compare themselves to or set goals for based on these numbers in their 20s, 30s, 40s, even into their 50s, is really going to help keep them on track. Just knowing what other people have, knowing what other people are making, seeing what other people are doing, and seeing how they are investing and how they are growing their net worth can help give you some ideas how you can grow your net worth, too. I love the stock market. I love real estate in the right circumstances, when you have purchased intelligently, when you have purchased intentionally. And I just, I think having these numbers is really helpful to people who are competitive or people who are just curious how much net worth should I have?

[B]

I think another, another, you know, takeaway I'll have here from this is, is the benchmarks are really helpful in understanding what's realistic here. Like, if you're in your twenties and you want to fire in your twenties, you got to be in the top 1%. You want to be in your fire in your thirties, you got to be in the Top 5% at least, probably closer to the top 2 or 3%. You want to fire in your forties, fifties or sixties, you got to be in the TOP 10% to the top 25%. So it gets a lot more realistic the longer that time horizon is. And I think that's one way to kind of benchmark or think about this. On there is are you willing to do what it takes to be in the top 1% to get there in your 20s, or it's probably much more realistic and reasonable to try to get there in your 40s, 50s or 60s, which seems attainable for many millions of Americans who do put the work in for several decades.

[A]

Yeah, Scott, the bottom line is if you want to retire early, you are going to have to do work. You are it's not going to fall into your lap. You're going to have to do something, give something up, make different choices than your average American to be able to do something. What does Dave Ramsey say? Live like no one else now so you can live like no one else later. If you are spending every penny that comes in living beyond your means, not paying down your debt in your 20s and 30s, your opportunities to retire early in your 30s, 40s and 50s are going to be significantly less. So you know, you're listening to BiggerPockets Money. You are probably already thinking about this, but we would love to hear from you. Where do you fall in this net worth brackets? You can email me mindybiggerpockets.com you can email Scott, Scott biggerpockets.com we won't use your name on the air, but I think it would be really fascinating to see, you know, 25% of people sent in and said that they're in the top 1% or they're in the top 75% or they're in the bottom 25%. I mean, you heard me say I was in the bottom 25% in my 20s. So there's no shame. Wherever you are in this, in this net worth graph, I would love to hear from you. All right, Scott, this was super fun. Should we get out of here?

[B]

Let's do it.

[A]

That wraps up this episode of the Bigger Pockets Money podcast. He, of course, is the Scott Trench and I am Mindy Jensen saying bye bye apple pie.