Elderly couple sitting in their backyard enjoying a glass of wine

How much money should you have saved for emergencies by your 30s? How many dollars should be in your retirement savings accounts by the time you celebrate your 50th birthday? And how early should you start socking away money for your children’s college education?

And, maybe most importantly of all, what should your net worth be at different stages in your life?

It can be difficult to know if you’re on the right track financially as you move through your 20s and 30s and into your 40s and 50s and beyond. But there are general guidelines you can follow to make sure you’re hitting the most important financial milestones at the right time. If you hit certain net worth checkpoints, you can rest easier knowing that you’re on track with your savings, retirement goals and credit.

Just remember that everyone’s financial journey will vary in some way, says Byron Ellis, certified financial planner with United Capital Financial Life Management and founder of Doing Money Right in The Woodlands, Texas.

“Planning for retirement can seem overwhelming at times,” Ellis says. “Be careful not to compare yourself with Mr. and Mrs. Jones. Everybody has different retirement goals. Achieving them is a personal journey.”

Calculating Your Net Worth

What is net worth? Basically, it’s everything you own, otherwise known as your assets, minus what you owe in debts, also known as your liabilities.

Your assets can include cash, investments, your home, cars or anything else valuable that you own.

Say you own a home worth $300,000 and car that’s now worth $4,000. You might also have $50,000 in your 401(k) account and $10,000 in savings. Those are your assets. Maybe you also have a mortgage on which you owe $200,000 and credit cards on which you owe a total of $2,000. You might also have $20,000 in student loan debt.

To figure your net worth, you’ll need to total your assets and subtract your liabilities. In this example, your assets equal $364,000. Your liabilities equal $222,000. Your net worth then equals $364,000 minus $222,000, or $142,000.

In Your 20s – Time to Start Planning

You shouldn’t worry too much about your actual net worth in your 20s. After all, you’re just starting to build wealth at this age. Instead, Drew Parker, creator of the Complete Retirement Planner, says that your 20s are the time to start thinking about retirement planning. And the key is to develop good financial habits that encourage long-term saving.

This means investing part of your paycheck into a 401(k) plan or IRA. Retirement might seem far away, but the earlier you start saving for it, the more money you’ll have when you leave the working world. Starting a retirement savings account, then, is the top milestone that 20-somethings need to hit.

“You may not be able to predict the future, but you can certainly prepare for it,” Parker says.

If your employer offers a 401(k) match, which is typically up to 3% 4% of your salary, you especially need to start investing in the program early in your work career. Say you save $150 a month in retirement savings starting in your 20s. If you only saved that amount for 40 years, at an expected return rate of 7%, you’d have more than $350,000 or almost $700,000 if your company matched your investments at a rate of 3% 4%.

“Not bad for saving only $150 a month, which gets easier as your salary increases,” Parker says.

Allison Kade, editorial director for personal finance website Fabric, says that your 20s is a great time to master the art of budgeting. This is especially important because many 20-somethings will be confronted with the impact of student loans.

“This is a good time to focus on making sure that your income exceeds your spending, to start paying down debts and to start saving for retirement,” Kade says. “This is a great time to get started so your money has time to grow.”

In Your 30s – Half of Your Annual Salary Saved

A good goal for your 30s is to have a net worth – made up largely of retirement savings – of about half your annual salary.  If you earn $70,000 a year, you should aim for a net worth close to $35,000.

You’ll need to boost your retirement savings to hit this figure. Parker recommends drafting a comprehensive written retirement plan to guide yourself.

Parker recommends, too, that you do everything you can to earn a FICO® Score of at least 720. Lenders and credit card companies rely on this credit score to determine if you are a good risk. The higher your score, the lower the interest rates you’ll pay when borrowing money. This means you’ll pay less each month for your mortgage or car loans. Spending less can help you boost your net worth.

As Parker says, a score of 720 is “the point where you will receive the best loan, mortgage and credit card rates.”

To get this high score? Pay off as much of your credit card debt as possible and pay your bills on time every month. These are the two most important steps you can take to raise your score.

By the time you hit your 30s, you should have built a solid emergency fund, too. As its name suggests, you can dip into this fund to pay for any unexpected emergencies, everything from a blown transmission in your car to a burst water heater in your basement. Without this fund, you’d have to pay for these emergencies with your credit card. Building credit card debt will cause your net worth to plummet.

Your 30s is also a good time to build up your savings. Parker says you should strive to have two times your annual salary in savings by the time you hit 35. You should also have separate savings built up to help pay for your children’s college education. Both of these, of course, will build your net worth.

Krista Neeley, managing vice president of Las Vegas-based Appreciation Financial, says that you should always save at least 10% of your yearly income for the present and an additional 10% for retirement. This way, you can pay for bills and emergencies without racking up more debt.

“You cannot expect to feel or gain wealth when you blow every dime that comes to your pocket,” Neeley says. “Debt can be eliminated in chunks and should be done consistently, regardless of immediate desires, like a Starbucks, or instant gratification, like eating out.”

In Your 40s: Two Times Your Annual Salary

Retirement isn’t too far off once you hit your 40s, so you should be more cognizant of your net worth. A good goal is to have a net worth that is equal to about two times your annual salary. If you make $80,000 a year, then your net worth should be close to $160,000.

You can get this figure by continuing to pay off your mortgage and credit card debt and by building your retirement savings. Parker recommends that you save at least 10% of your salary every year. You should also have built up a significant amount of savings, an amount equal to three to four times your annual salary.

You should concentrate, too, on paying off debt. Parker says that your only debt by the time you leave your 40s should be your mortgage.

In Your 50s: Four Times Your Annual Salary

It sounds overwhelming, but by the time you hit your 50s, your net worth should be about four times your annual salary. If you are earning $90,000 a year, your net worth should be about $360,000.

Fortunately, if you spend your 20s and 30s saving for retirement, hitting this goal might not be as intimidating as it might seem.

Parker recommends that you should have seven to eight times your annual income saved up by the time you leave your 50s. Parker recommends, too, that you invest in a long-term care insurance policy. This protection can help if you do need to move into some sort of assisted-living facility. Buying such a policy in your 50s is a smart financial move because you’ll spend less than if you wait until your 60s.

“Purchasing a policy in your 50s can be half the price it would be in your 60s and a third of the price of what it might cost in your 70s,” Parker says.

A policy will cost you. But it can also reduce big care expenses that could eat into your net worth later in life.

And the ultimate goal in your 50s? Make sure you pay off all your debt by the time you hit 60. This includes eliminating your mortgage debt. Without debt, boosting your net worth is surprisingly easy.

What best practices do you have for building net worth? Let us know in the comments below!

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This Post Has 12 Comments

  1. Saving is obviously a good thing to do, but, you have to live life too. I am set to retire at 50, in 7 years. My pension and 401K along with the equity in my two homes will make this possible. Having said that, I spend a lot and enjoy life. I travel the world, have toys and cars and lots of nice stuff. Don’t let life pass you by just to stack Benjis. Tomorrow isn’t guaranteed.

    1. Hi Matt:

      I think there’s a balance you have to strike between being prudent and going overboard saving every penny working until you’re 80 – assuming you don’t want to do that. Some people are creatively fulfilled by their profession well into their later years. However, I do agree with you that if you’re going to retire, you might as well enjoy the fruits of your labor. That’s certainly something to be mindful of. Thanks for sharing your perspective!

  2. Although I agree with the above advice, this article is a little confusing. Multiple times this article refers to savings targets that are above net worth targets – correct me if I’m wrong, but savings are a part of ones overall net worth. It doesn’t make much sense to target a net worth of 2x salary in one sentence and a savings target of 4x salary in the next. Please clarify when giving financial advice.

    1. Hi Eric:

      I absolutely agree that savings are part of your net worth. I also think there are places in this article where the experts are giving good tips, but the amount they recommend having saved doesn’t necessarily match up with one another. That being said, I think it’s normal for different financial experts to have different ideas of how much should be saved at any given point. I also think it depends on lifestyle.

  3. Starting in your early twenties, put 20% of your gross income away every paycheck. You will be a millionaire by the time you are 40. If you are not able to do that, you are overspending.

    1. This is a good strategy, although I think overspending metrics may be different depending on your income. If you’re just starting out, 20% could be a lot.

  4. Hi , My credit score is around 815 and i don’t think my interest rates are that low ! For both my mortgage and auto loan.What would need to be done to get better rates ?

    1. Hi Daniel:

      While credit score is one important factor in determining your interest rate, there are other factors that can play a role. Your down payment is another big one, because the more you pay upfront, the smaller the loan and the less the risk. On a mortgage, you can also pay discount points to lower the interest rate.

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