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How much savings should you have at age 25, 35, and 45?

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Sri writes:

How does one know that he/she is doing great in terms of savings? Is there a magic number?

For example:
Age 35, single Savings: > US$100K = great
Age 35, single Savings: > US$200K = outstanding
Age 25, married, savings <10K = poor

My response to him:

Nope, no magic number. There are guidelines and comparisons like this and this–both are very good links that show you how others are doing), but if you’re reading iwillteachyoutoberich, they’re basically meaningless because (1) most people don’t know what they’re doing–do you want to benchmark against that?, and (2) it really all depends on your goals.

If you want to be a multi-millionaire by age 40—or better yet, you have some specific goals like “I want to start a foundation and give away 5% of my wealth every year” or “I want to take a 3-month vacation every year and travel with my kids”—you can plan for them. But if you just want to be better than everyone else in your same age bracket, you’re asking for trouble. It’s a never-ending cycle of keeping up with others…really for no good reason.

There is actually some pretty good data on this question, but I need to go to the library to find it. (Some of the best online data is where the Fed does a survey of consumer finances every 3 years and posts it in PDF here. I printed it out but, man, there are a lot of numbers. Actually, heh, it’s for households and doesn’t break out data for young people). I’ll dig up the data and post sometime when I get around to it.

Send me your questions any time by email.

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  1. The book “The Millionaire Next Door” uses the formula of Annual Income * Age / 10 as what they call “expected” net worth. They call people who greatly exceed this formula “wealthy”.

  2. Hi Ramit, my husband and I have pondered this issue would love for you to post any data you find on your blog.

  3. That number indeed is going to be different for everyone, factoring in lifestyle and expectations.

    I’d say save early, save often, make it a priority, watch it grow exponentially through time, and by the age of 40 if you did those things you likely will be very surprised with whatever your number is.

  4. This part: ” (1) most people don’t know what they’re doing–do you want to benchmark against that?” had me laughing out loud, but it’s also true. Good response.

  5. Thanks Ramit for answering this question. I found the answer in one of the links that you provided above.

    This is in no way trying to keep up with the Jones’s. Think of this more as a way of SAT scores or any other standardized exams where you want to know where you currently stand.

    I think many things we do in life are compared to data.

    For example, the salary we earn….the quality of university we go to…..Our credit ratings…

    So I think its good to know what milestone we are at our current savings.

  6. I use the Millionaire Next Door formula that Jeremy referred to.

    For new grads, this puts them behind in wealth accumulation (because they’re lucky to graduate with a net worth of zero) but it also provides an incentive to “catch up” before the big expenses (kids, mortgage, etc) come.

  7. The Millionaire Next Door formula (MNDF) seems to say you are not saving much if you happen to be getting good raises and moving up in the world.

    Even if you do save a lot of money young, if you end up on a big salary you are then made relatively “poor”. On the other hand, if I save up a bit of cash, and then quit my job and get a minimum wage position, then you become relatively “rich”. Does that make sense to the rest of you? I think you need to measure it in terms of the cost of your lifestyle. I.e. if you have savings that meet the cost of your living for several years, then you must be fairly wealthy.

    Consider this, if I had 20x my annual cost of living saved up, and earned 5% interest (maybe a bit more to meet inflation) then I wouldn’t need to work a day more in my life.

  8. Savings relative to income doesn’t make sense as a measure; income relative to expenses does. As your income from savings approaches your expenses then you are reaching excape velocity (financial freedom as R Kiyosaki says).

    A student with 200K in the bank who like KD is closer to being free than a doctor with 500K, two houses, three cars, a boat, and enjoys fine dining.

  9. I like the idea of basing your success against a goal rather than against a magic formula. If you start comparing your achievements against a formula you might be doing well but if you compare to your goals you’ll see where you stand, you’ll know how much more you have left before you get to where you’re going. But when it comes to a formula it might be either too aggressive or not aggressive enough for your goals.

  10. First you have to get one thing clear – the difference between saving and investing. Savings is short-term, investing is for the long-term. The amount you invest should be reletive to your income. But Transcendental Success is right in that savings should be reletive to your expenses. 3-6 months expenses in a simple money market account will give you the ability to weather most any storm.

    Besides savings or investments is not how you measure success (assuming all you look at is numbers). Net worth is how you do that. What you own minus what you owe.