How Much Money You Need to Save (By EVERY AGE)

Sharon Tseung 0:02
This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income, become financially free and design their best lives.

Hey guys, is Sharon Tseung and today we’re gonna be talking about how much money you should have saved by every age, no matter what stage of life you’re in, one thing will always remain the same, it’s never too late or too early to save and build your net worth. So first of all, let’s go over how to calculate your net worth your net worth equals your assets minus your liabilities. So basically everything you own minus everything you owe. For example, for your assets, it could be your checking account savings account, your home value your stocks and index funds, while your liabilities might be your mortgage or student loans or credit card debt. So right away, you guys should make sure you start tracking your net worth as well as your income and expenses. So you guys can see where you are at financially. And now that we’ve gone over how to calculate your net worth, let’s start with a breakdown by age. So we’re going to start with 18 to your late 20s. And we’re gonna break it down by 18 to 24, and then 25 to 29. So if you are between the ages of 18 to 24, the average net worth is approximately $28,707. And the median net worth is approximately $8,216. If you are between ages 25 to 29, the average is $49,388. And the median is even further behind at $7,512. It’s actually interesting that the median for 25 to 29 is actually lower than the median for 18 to 24. But anyway, in these years, you may still be in school or just had graduated and you may have taken student loans. If you take out a loan to buy a car or you accidentally racked up credit card debt, it can hurt your net worth. So that’s why you shouldn’t freak out if your net worth is negative at this age range, many people are trying to pay off that student debt and they’re trying to start building their lives. So it’s okay to start off negative. So I would say the recommended savings is around $7,500 based off of the median of 18 to 24 and 25 to 29. Now, during your 20s you should start working on paying off high interest debt. So once you graduate, I recommend immediately looking for a job and start earning money. And if you can, you should start looking into building high income skills so that you can start getting higher paying jobs. If you have debts, use the Debt Avalanche Method and figure out your high interest debts and pay them off as soon as possible. So you’re not losing a ton of money to interest, you should be mindful of incurring debt and start thinking smartly about your car purchase. So around this time, you might be thinking about buying a car, but cars are depreciating assets. So if you are looking for a car, you should consider buying a used car in cash or even leasing a car. Now if you have to buy a car, you should consider using the 2410 rule. This basically means you’d put down 20% for the downpayment, doing a max of four years for the loan term and then a max of 10% of your monthly income you’d be paying towards your car payments, for example towards your loan payments, gas insurance and repairs. If you want to break down of the 2410 rule, I did make a video on it on my channel. So go ahead and check that out another tip in your 20s you want to open a Roth IRA and invest with a Roth IRA you will have already paid taxes on the money you contribute into your account. And then your contributions and earnings on your investments grow tax free forever. This works out very well over time. And then lastly, you want to work on saving money. So make it a goal to save a portion of your income. And if you do have debts put it towards paying off your student loans and credit card debts like I mentioned earlier. Now let’s go into your 30s. So if you are between the ages of 30 to 34, the average net worth is $122,700. And the median net worth is $35,112. Between the ages of 35 to 39. The average is $274,112. And the median is $55,519. In your 30s You usually start making more money as you jump jobs or get promotions and raises you might be starting different side hustles as well. And compound interest will help your investments grow faster. It’s gonna be an expensive decade if you buy a house you start a family or you make a career change. So continue to focus on your long term strategy and make sure most of your savings are going towards your retirement versus toward short term goals like vacations and things like that many articles recommend a savings of one year of your salary. According to the Bureau of Labor Statistics, the BLS you can see the median annual earnings between for ages 25 to 34 is $50,700. And for 35 to 44 is $60,060. So if you were to use this median annual salary, that’d be around 50 to $60,000 that you’d want to save up for example, but you should do this based on your own current salary. Now what should you do during this age? First thing you want to aim to have a credit score of at least 750 Plus, with this you’re going to be in a better position to borrow money. So just make sure you build a long credit history and work on Paying off your bills on time, you should also work on paying off all your debts by 30 years old. So especially you want to pay off your bad debts, there’s a difference between good debt and bad debt. If the debt helps you earn more and it helps you build your net worth, then that can be good debt for example, cash flowing rental properties you own or you have mortgages on could be considered good debt, your bad debt like high interest credit card debt needs to be paid off, you basically want to make sure that you have nothing that could weigh you down. You also want to start side hustles so I started looking at different ways of making money try to increase your income by starting different part time jobs freelancing or trying passive income side hustles I have a bunch of ideas on my channel. So go ahead and check those out. I talked about a lot of different ones like merch by Amazon, YouTube et Cie doing digital products affiliate marketing, I talked about so many different ones and side hustles have totally changed my life. The average millionaire has seven sources of income, you want to make sure you diversify your income streams in case anything happens to one because you never know what’s going to happen. Having multiple income streams gives you peace of mind. And it’s an important step that you start making your money work for you. Another thing here is you want to continue investing. So whenever you receive your salary, you should try to pay yourself first, that means putting a portion of your money into savings and investments first so that you ensure you do this, then you make the rest of your income stretch to cover your living expenses, you can also use the 5030 20 rule as a basic framework. So 50% of your after tax income goes to your needs 3% goes to your wants and 20% goes to your savings and investments. If you can, I would try to beat that number and try to get over 20% to your savings and investments. As you continue investing your net worth should grow exponentially over time. Lastly, you might want to open an HSA. So if your employer offers you that option, it’s generally a good idea to open this account HSA is our triple tax advantage. So all contributions to an HSA are income tax free. And then any interest earnings investment growth from those deposits are also income tax free. Now let’s talk about your 40s. So between the ages of 40 to 44, the average net worth is $623,694. And the median is $127,345. If you are between 45 to 49, the average is $761,500. And the median is $164,197. These are generally going to be your prime earning years. So in your 40s, you might again be thinking about a career change, or you’re thinking about the cost of college for your kids. If you have kids, you might also start thinking about your retirement age is recommended to save three to four times your salary. So the average annual salary of people in the ages of 35 to 44 is $60,060.04 45 to 54 is $60,944. So that means you’re looking at around 180,000 to $240,000 saved up based on this median, I basically got that number from multiplying 60,000 by three to four. But if you yourself are earning $100,000, you’d want to save at least 300 to $400,000. Having saved this amount will make it easier for you to compound and invest more money so you can live off your investment in retirement. So as a tip, you want to figure out how much you want to have for your retirement. So one rule you can consider is the 25x rule. It’s an estimate of how much you’ll need to have saved for retirement basically multiply your estimated annual spending by 25 to get your retirement number. So if you plan to spend $40,000 annually in your retirement, for example, you would multiply this by 25 to get $1 million that you would need to save before you retire. This is all based on the 4% rule. This is a rule of thumb that states that theoretically you can withdraw 4% from your investments without tapping into the principal. And this takes into account an average 7% rate of return minus 3%. For inflation. Inflation has been at all time highs lately, but historically it has been around 3% The 4% rule and 25x rule are good guidelines for you to keep in mind. But make sure you just use this as a rule of thumb it doesn’t have to be exactly that way you can decide to save more or less for your retirement based off your risk tolerance. Another tip is it is recommended to max out your retirement accounts like your 401 K or Roth IRA every year and next you want to try to invest 20% or more of your income at a seven to 10% rate of return but make sure you only invest in what you understand and avoid any get rich quick schemes. You can look into index funds or even rental properties. I personally like rental properties as you guys might know for its cashflow, appreciation, leverage and tax benefits. If you want more information go ahead and check out our How to buy your first property master class in the link below. All right now let’s talk about your 50s. So in your 50s if you are between 50 to 54 the average net worth is $197,663 and The median net worth is $171,360. Between 55 and 59. The average is $1,165,477 and $193,549, respectively, which is a huge difference. At this point retirement is getting closer and closer. And if you’ve calculated your 25x Rule number, maybe you can even retire earlier. If you’re getting closer to your retirement number goal, your recommended savings is going to be six to seven times your salary. So if you’re earning $100,000 per year, you should have at least 600 to $700,000 in your savings and investments might seem ambitious to save up to seven times your annual salary. But meeting this goal could set you up for success. One tip is by this time, you should have paid off all your bad debts, you even want to aim to pay off your primary home before 60. So you can live a life without any debt, it’s good to diversify so that you don’t put all your eggs in one basket. And as you get older and older, it’s good to put it in safer investments. For example, CDs and bonds are lower risk investments. As you get older and older, you’re transitioning from a wealth accumulation phase to a wealth preservation phase. Now let’s talk about your 60s. So between the ages of 60 and 64, the average net worth is $1,187,730. And the median is $228,833. If you are between 65 to 69, the average is $1,250,679. And the median is $271,805. So at 60, you might be ready to retire or at least you’re getting ready to do it. If you’re not there yet and you want to be safer, you may also consider working for a few more years for more income, so you decrease the time you’ll need to tap into retirement savings. And then during your 60s, you’ll also be eligible for Social Security benefits, which can be very helpful. If you find your savings are lacking, it’s recommended to save eight to 10 times your salary. Again, if you’re at 100k a year salary that would equate to 800 to $1 million in net worth would also try to meet that 25x 4% rule at this point where you’re about to retire soon. This number again is different for everyone, it really depends on the amount you spend every single year. So if your annual spending is $60,000, for example, you will need $1.5 million to retire based on the 25x rule so that you theoretically wouldn’t tap into the principal. But if your annual spend is $100,000, you would need about $2.5 million to retire based on that 25x rule. So as a tip, if you do have rental properties, you may want to start paying off the mortgages at this age. If you decide you don’t want to leverage money anymore, and you’re in that wealth preservation phase. Honestly, you can’t really be good with money if you don’t practice this delayed gratification. That’s why it’s really important to strategize now and start thinking for the future or else you’re going to be working forever and struggling with your finances. You want to make sure you are empowered and you have your finances in order so that you can start moving towards a life of freedom. And that’s why I talk about what I talked about. I want to make sure you guys tap into your true potential that’s not restricted by your finances. So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.

Transcribed by https://otter.ai