雅虎香港財經 What Should Your Net Worth Be in Your 40s?
Being in your 40s generally means you’re established in life and in your peak earning years. Yet, being in that age group comes with a specific set of financial priorities and obligations, such as beefing up retirement savings, perhaps paying off debt — such as student loans — or buying a house.
Yet, while everyone’s circumstances are different, is there a specific net worth goal you should attain in your 40s?
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Simply put, someone’s net worth is your assets minus your liabilities or debt — a good indicator of your financial health and a better measure of someone’s financial stability than income alone, as the Federal Deposit Insurance Corporation (FDIC) explains.
Your net worth can either be a positive number — when you have enough to cover your debt and some assets left, as the FDIC explains. You can have zero net worth when your assets equal your liabilities, and you don’t have a financial cushion. Or you can have a negative net worth, meaning that your liabilities are greater than your assets.
According to the Federal Reserve Survey of Consumer Finances, published in October 2023, the median net worth for someone aged 35 to 44 is $135, while for someone in the 45 to 54 age group, it was $247,200.
Whether a typical person who is 40 years or older is behind the mark in net worth status is difficult to tell, some experts said.
“But I believe this cohort is facing some pretty big challenges economically, including inflation, rising housing and living costs and unprecedented debt — key factors that can set people in their 40s back when it comes to their net worth,” said Steve Sexton, CEO of Sexton Advisory Group.
Jenny Jean-Baptiste, behavioral financial advisor and founder of Surplus Financial Consultants, said that two factors significantly impact people in that age group: accessibility to home ownership and their relationship with consumer debt — credit cards and student loans specifically.
“So many other factors impact this Sandwich Generation, including career, generational family health and changes in the U.S. economy,” she said. “My recommendation is to avoid getting caught up in the “shoulds” and instead clarify with a financial professional their values, definition of wealth and plan of action to close the gap between those things and their current reality.”
So against this backdrop, where should your net worth — ideally — be in your 40s?
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Somewhere Around Twice Your Annual Salary
According to Scott Lieberman, founder of Touchdown Money, ideally, your net worth should be somewhere around twice your annual salary.
Yet, he also conceded that if that number seems daunting, it’s important to remember that your net worth is the sum of all of your assets minus all of your debts.
“If you own a house that’s worth $300,000, that can make up for not having much cash on hand,” he said. “The same can be true if you have a strong portfolio.”
Lieberman added that when you’re in your 40s, you should have a mix of a few assets, including your home, investments and cars. You should also strive to reduce debt as much as possible.
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It’s More About Milestones
Other experts said that comparing your net worth to the national average is a start, but it’s likely more helpful to have completed key financial milestones by this age.
For instance, these can include having a plan to strategically pay down debt if you’re not already debt-free, getting serious about your retirement plan and maximizing your contributions every year, Sexton said.
Sexton added that it could mean optimizing your earning potential — especially since your peak earning years are in your late 40s and early 50s — and having a six-month runway in your emergency fund.
“For this age group, I recommend a bigger emergency fund because you’re likely responsible for dependents, whether it be children, pets, or aging parents,” he said. “If you have kids going to college in the near future, this is also a good time to start financially planning for this added expense as well.”
No Rule of Thumb
Meanwhile, some experts argued that there is no rule of thumb for where your net worth should be in your 40s.
Instead, what matters, by the age of 40 — is that you should have an established emergency fund, a clearly defined budget and a retirement account.
You need an emergency fund. You need to expect the unexpected. Have 6 months of expenses earmarked in a high-yield savings account, according to Melissa Murphy Pavone, certified financial planner (CFP), certified divorce financial analyst (CDFA) and director of investments at Oppenheimer & Co.
According to her, the secret to building wealth is living below your means. She also noted that you need to be clear on the income coming in and the expenses going out, adding that the results of compound interest are powerful.
“As your income increases, lifestyle inflation creeps in. Avoid the urge to spend more as you make more. Save more. Invest the difference. Your future self will thank you,” she said.
Other experts echoed the sentiment, saying that whatever the amount, one’s net worth should at the very least be sufficient to cover current and future financial obligations: living expenses, debt repayment and some socked-away emergency funds.
“It should additionally enable the satisfaction of long-term financial goals: retirement savings, homeownership and any anticipated education expenses for oneself or dependents,” said Peter Earle, economist at the American Institute for Economic Research. “It should be sufficient to navigate uncertainties while pursuing meaningful objectives.”
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This article originally appeared on GOBankingRates.com: What Should Your Net Worth Be in Your 40s?
