How Much Money You Should Save (According to Your Age)

The Billionaire Club Vol. 01

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Our planet has always been an unequal place. The bottom staggering 70% of the global population controls just 3% of global wealth. Compare that to the eight wealthiest people who’s wealth combined equals the bottom 47% of the population of the entire planet. Despite what you might have heard, the top 1% isn’t as wealthy as it might seem, you only need to have a net worth of 770 thousand dollars, and you can consider yourself “The 1 Percent”.

That’s definitely a lot of money, but it’s not even a million. With that kind of net worth, you can’t get yourself a yacht or also fly privately. The median house price in California costs almost 600K dollars. So, every house owner in California can consider himself or herself the top 1 percent. Those who are buying these mega yachts and flying private jets are the ones who are at the top of that 1%- The billionaire club.

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As of 2018, there are over 2,200 U.S. dollar billionaires worldwide, with a combined wealth of over US$9.1 trillion. That is more than the GDP of entire nations of some of the most advanced countries on earth, such as Japan, Germany or the United Kingdom. And what’s scarier is that the amount of wealth billionaires control has only been growing. Just in the year 2000, their combined net worth was below 1 trillion dollars; 3 years ago, it was 7.67 trillion dollars, and a year later (2018), it’s over 9 trillion dollars.

So, the real question is: are you too poor for your age, or maybe you are ahead of everyone else? If you are let's say not a very good financial position, you can always change that, because it’s there right in your hands. Whether you’re fresh out of school, well into your career, or forging your path through life, it’s never too late to start saving or to check to see that you’re heading in the right direction.

Calculate Your Net Worth.

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Calculation your net worth isn’t really difficult. It’s much easier than you might think. Take a piece of paper, draw a line in the middle of it. On one side, you have to add up the total value of your assets. This includes the current market value of your investment accounts, retirement savings, homes, cars, valuable things like jewelry, and the cash value of your checking, saving accounts.

On the other side, write down your liabilities. This includes your mortgage, car loan, student loan, personal loans, credit card debt, 500 bucks you owe to your mate, and any other form of debt you might owe, and now finally, subtract your liabilities from your assets. The total cost is considered your personal net worth.

Your total could result in positive net worth or negative net worth. If you’re in the negative new worth, don’t be afraid, it’s alright. It’s typical for people who are early in their careers to have a low or negative net worth if they have student loans, or are new homeowners, or are just starting to save for the future.

If you are in your 20s and have zero savings, congrats, you’re doing not bad. I am not kidding, it's fine not to have any savings at this point in your life. Let’s face it. If you are in college and have student debt, your part-time job would hardly cover your bills, leave alone paying your debts. So, do not worry; most 20-year-olds have a negative net worth. However, that doesn’t mean you should not budget and make smart financial decisions because often it’s only later in your life; you will realize the consequences of your financial decisions.

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If you’re smart enough to start investing even as little as 5 to 10 percent of your income in your 20s, you are going to be well above the average in less than a decade. When you approach your thirties, and you want to be doing at least good enough, you should have at least saved six months of your income as an emergency fund.

If we take the average household income, then that’s almost 31K. But if you want to be better than your average boy, then you should have at least a year of your income saved in your account. Emergencies happen, sometimes they even lead to bankruptcies. Hundreds of thousands of people failed for bankruptcy due to unexpected healthcare bills. So be mindful.

When it comes to your net worth, according to the FED, the average net worth for families in the U.S. under the age of 35 as of 2016 was $76,200. But this number isn’t accurate because a small percentage of wealthy Americans skewed it; that’s why the median is much lower at $11,110. That’s not hard to achieve.

The reason that this number is so low that even though average adults might have assets like a house and a car, their student loans, and a mortgage would overshadow them. So, don’t worry, as you begin to cover your student loan and your mortgage, your net worth would quickly build up.

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As you start hitting your 40s, ideally you should have saved at least three times your income, if you are earning 100k, then your number is 300K, but that’s quite unrealistic for most people.

In fact, according to the FED, the median income of 40-years-olds is a little below 60K. Usually, people have families and lots of bills to cover at this stage of their lives so it’s wise to be better than the average if you don’t want to be struggling financially. Taking care of an entire family isn’t easy, especially when your children begin to grow.

As you approach your 50s, your net worth should be significantly higher because you are also getting closer to your retirement age, and if you want to have a good retirement, you have to prepare for it. The median net worth of 50-year-olds is $124,200. But keep in mind that, it's the median, the average is $727,500 which is much much higher. And your savings should be five times your annual income.

It might seem unrealistic to reach these numbers, but to be practical, even saving a small portion of your income over 30 years is enough. And if you decide to invest, it’s easily going to add up due to the power of compounding. Keep in mind that you don’t have necessarily have to follow these numbers. You can work a little harder and retire in your 30s. Possibilities are beyond what you imagine.

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But remember, money alone isn’t going to make you wealthy. Your dollars are going to lose their value year after year. True wealth hides in obtaining assets that continuously payback. And with the power of compounding, you are only going to get wealthier. 7% on a thousand dollars might not be much, I mean making 70 dollars a year from your investments isn’t a lot. But 7% on 10 million dollars is 700 thousand dollars. The amount of wealth that would put you in the top 1 percent.

It’s extremely difficult to build the foundation for your wealth, but once you do it, it accumulates by itself. Most people find it difficult to deny themselves short term pleasures for the sake of long term wealth. You might have to live on an extremely tight budget, even if you are making six figures.

As of 2018, the average median household income in the United States is a little over 61 thousand dollars. The stock market has proved itself to guarantee 10% returns in the long run, which means, with an investment of a little over 600 thousand dollars, you can ensure yourself that average household income without working another day in your life.

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Of course, that’s just in theory because, as humans, we have to work to give some meaning to our lives, but you get the idea. Nobody has an excuse for not understanding how to build wealth. The key is to start as early as possible to take advantage of the power of compounding.

If you are in your 20s, it might be silly to overthink your 40s and 50s, but the fact is, think about how fast last year has to overthink your 40s and 50s, but the fact is, think about how fast last year has passed. How about the last decade, imagine if you started back in 2010, how wealthy you would be today. It’s pointless to regret over the past because time can never be reversed, but what you can do is to make a different decision today.

Available now, the second part of this article, click here.

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Written by

An engineer from Barcelona. Writing about Apple, Entrepreneurship, Business & Self-Improvement. For exclusive content, IG:@thejuanscword & Tw: @thejuansc

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