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.

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.

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.

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.

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.

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.

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.

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.

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)

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)

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)

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.

Connect with BiggerPockets Money Podcast:
Email: mindy@biggerpockets.com | scott@biggerpockets.com
Facebook Group: facebook.com/groups/bpmoney