Mindy Jensen: Have you ever thought about how your household wealth or annual income stacks up to others your age, or even how others made their first million dollars? Today, we’re talking about net worth, what it is, how to calculate it, and what a healthy net worth looks like in your 20s, 30s, 40s, and beyond. Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen and with me, as always, is my plaid fanatic co-host, Scott Trench.
Scott Trench: Thanks, Mindy. I’m great to, it’s great to see this wonderful pattern we’ve established with our… BiggerPockets Money. BiggerPockets says a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting. Excited to get in to the show today. We’re gonna talk data. We’re gonna look at the average, median, and top 1% wealth by age bracket. What’s the top 1% wealth in your 20s, 30s, 40s, 50s, and 60s, and get into it, and we’ll have a, some discussion about how people get there, how, and, to these upper echelons and accelerate the wealth-building journey.
Mindy Jensen: Funny you should say that, Scott. Uh, I just asked, do you ever wonder how others made their first million? So I’m gonna put you on the spot. How did you make your first million?
Scott Trench: Yeah, mine was a, uh, look, look, there’s a couple of things that, that accelerated my journey. So, um, I started my journey in 2014 and I started out by making $50,000 a year. And over the next five years, I was able to increase that, uh, income to close to $200,000 per year. I kept my expenses low the whole time and I serial house hacked. I invested, um, into the stock market and that compounding over about five, six years enabled me to cross the million-dollar mark shortly before 30, probably 28, 29.
Mindy Jensen: So I had a bit of a different journey. You had the benefit of Mr. Money Mustache when you were starting your journey. I did not. I will say that our journey probably started in 2002 when we got married and we got to our first million just before Carl turned 40 and I don’t even know what year that was. It’s been a minute. 10 years ago, 11 years ago. Um, so it took us a little bit longer, but we also weren’t really focused on it either. We were saving for the future, but we didn’t really know what we were saving for, so we weren’t saving as aggressively as we could be. We were investing rather aggressively, but in, uh, not the same type of aggressive of, of aggressive investing as a typical FIRE adherent would. Uh, we got there through a combination of spending significantly less than we earned. Carl was a high-income earner, uh, being a computer programmer. I was not a high-income earner. Let’s just say that. I funded our 401ks. And, uh, but we, we spent approximately my salary and saved approximately his salary. And we did it through a combination of live-in flipping and taking the proceeds from that, rolling them over to a 20% down payment on our next house and putting the rest in the stock market. And we just kept compounding that. And our first million came 11 years ago, and it has doubled and doubled again since then.
Scott Trench: You know, I, I, I like your journey a lot better than mine in a lot of ways because it’s, you know, my, like think about the luck that was in my journey, right? I joined a startup as the then-third employee and took over as CEO, which allowed me to drastically skyrocket my income. I bought a bunch of rental properties starting in 2014, leading up through 2020, 2021, 2022, around that, and a ride of appreciation. And even the stock market was a big tailwind over that same time period for the, the, the, all the index funds I was putting in. Like, everything that could have gone right for me at the highest level, the most meaningful things, went right. And so there’s a good bit of like, okay, how do, you know, I want to be cautious about those things. There are some good plays in there, but there’s also a tremendous amount of luck, um, on that front. And there’s always different ways to think about how the, how the career could have gone in some of those. So I, I don’t, your journey is much more repeatable, I think than, than the one I, I’ve been on. Maybe I’d actually like to kick off something here that wasn’t even on our, our little agenda here with a quick, with a quick preview. This is a, a site I like a lot is called, uh, VisualCapitalist.com. It’s just got some fun stuff to show there. And this is a chart that I think really made a difference to me. This is a dated chart now. It’s a couple years old. I think it was 2017. But I remember looking at this as I was doing, um, the, my portfolio planning and thinking like, huh, this is really interesting. And for those listening on the podcast, don’t worry, I won’t just stare at a chart and tell you this is interesting and leave you to wonder. Uh, but look, this is, this is a composition of wealth diagram and it shows how the middle class invest their assets and how the ultra-rich invest their class… their assets, and then it throws in this upper income, uh, group in the middle. And, you know, the middle class is defined as 0 to 500k, and the ultra-rich is defined as 10 million plus in net worth. And the most striking difference here is that the middle class, most of their net worth, 62%, is in their primary residence. And for the ultra-rich, the vast majority of their wealth, or about half of their wealth, is in businesses, business equity and real estate that is not their primary residence, and then stocks, securities, mutual funds and trusts. And guess what? The people between $500,000 and $10 million are right in the middle. They have about a quarter of their wealth in their primary residence and a quarter in businesses or other real estate. But this is what, this is, this really struck a chord with me, you know, years and years ago when I saw this and really kind of put me in this high-conviction place. Like if you want to get into these upper echelons of wealth, you can’t hold all your wealth back in your primary residence. You have to be developing a business or real estate equity over time. It compounds and compounds and compounds. And this is going to be the big difference. Like if there’s one chart that shows how your capital should be deployed, that’s, that’s going to give you a chance, at least, to get into these upper echelons, it’s this one and showing that wealth is built for the wealthy, at least, have built their wealth in businesses, private businesses, real estate, and stocks. Um, all the things that we talk about all day long here on BiggerPockets Money.
Mindy Jensen: And this is not a guess, right? This is based on data?
Scott Trench: This is based on data. Now, it’s a little dated. I haven’t found an updated one that really does as good a job of diving into the wealth, um, of Americans on this. So this is from 2017. Possible the mix has shifted, but come on, it hasn’t shifted much. This story is still the same, um, in 2024. O- another issue with the data that we’re gonna discuss even today is that the Federal Reserve comes up with studies for American wealth every couple of years. So the last major study on this was done in 2022 and 2023. And the next one won’t be done until 2026. That’s a constant problem unless you’re finding somebody who’s doing original research, very expensive, very large-scale polling of Americans. You’re going to find wild variations if you get look for like the updated net worth numbers in 2024, 2025. So we’re gonna be taking a little a bit of a look back. So there’s always a little bit of a lag on these things, but I still think this story is the one that really should strike a chord with folks who are watching this on YouTube or listening on the podcast. Wealth is built by the ultra-rich in real estate, private businesses, and stocks.
Mindy Jensen: That is fascinating. I have never seen that before and I’m glad you shared that with us, Scott. All right, let’s start off and define what we’re talking about. What does net worth mean? Simply put, your net worth is the difference between what you owe and what you own. So the formula is really straightforward. Your net worth equals your total assets minus your total liabilities. So your house is worth a million dollars, but you have a $500,000 mortgage on it, that’s $500,000 in net worth, not a million dollars in net worth. And speaking of house, Scott, does my house count in my net worth? Some people say yes and some people say no. I want to know what you think.
Scott Trench: I think this is an age-old argument and the answer is, of course, yes. Home equity counts technically towards net worth. But in many cases in BiggerPockets Money, we talk about how the primary residence relieves to this middle-class trap. If most of your wealth is in your primary residence, you probably aren’t going to join the upper echelons of wealth creation in America unless you got something else going on, like a business cooking, um because that, that primary residence is not going is is is is not really an asset that is going to be inflating your wealth over the long term. It’s more, I believe, a primary residence should be thought of as an expense. And when you’re thinking about retiring and how your portfolio can lead to early financial independence, I think you should generally default to excluding your primary residence from your net worth equation. And a lot of research agrees with that. That’s why the research that we’re going to look at today has two snapshots of your net worth. One with your primary residence and one without a primary residence. And it presents both data sets because of that dynamic.
Mindy Jensen: We need to take a quick break. But while we’re away, we want to hear from you. Do you know what your net worth is? Answer on the Spotify app or below on YouTube. We’ll be right back.
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Scott Trench: Welcome back to the show.
Mindy Jensen: I get what you’re saying, but in a pinch, if I needed to access funds, I could sell my house. Yeah, I’d have to find some place else to live. I would probably go rent or buy another house. Um, that also presents an interesting problem though. Um, my house right now is probably worth 750 and I paid 365 for it. There’s a significant delta. I value it lower, like on the conservative side when I am calculating my net worth, and I only calculate the home equity in the property, not the entire 750, but I can’t, I don’t do that math quickly, but whatever the difference is, um, that is my, I add that to my net worth. But yeah, that does create a middle-class trap if I didn’t have other investments because, oh look, I’ve got $400,000 in net worth, but it’s all tied up in my house. Especially now where I, we’re in this higher interest rate environment, my mortgage payment is $1,300 a month. So if I were to sell this house and go find another house, if I took on a mortgage, I’m gonna be taking on a significantly higher monthly expense every month, which I think this is a different kind of trap, the, the home equity trap or the home, the primary home trap where you’ve got the interest rate trap. We need to come up with some clever name for this.
Scott Trench: The lock-in effect.
Mindy Jensen: The lock-in effect. Oh, well, that’s, I guess there’s a name for it then. Uh, the lock-in effect. I am, I am a little bit beholden to the lock-in effect, not because I couldn’t afford the other more expensive property, I just don’t want to pay more. I like my house.
Scott Trench: Yeah, I think this is a problem that millions of Americans are grappling with. And, you know, if, if the way I like to frame the debate about whether you should include or not include your home equity in the net worth calculation as it relates to financial freedom is what your intent is with the house. Like if that’s your forever home and you don’t plan on selling it and your plan is to retire in your home, don’t count your home equity towards your net worth. It’s not going to produce any cash flow there. You can use a paid-off home or whatever to defray the expense. You don’t have to have no mortgage payment, you have to build a portfolio capable of generating cash to cover the mortgage payment. Um, there are advantages to having home equity or paying off the house. But I just wouldn’t include it. You need to build up an asset base outside of it. And if you look at your net worth strictly that way, I think you’re going to be, make a lot better decisions that give you better financial flexibility, um, than if you overweight the value of your home relative to your freedom, your ability to stop working for a paycheck.
Mindy Jensen: That’s an interesting take. I like the way that you are framing that. Uh, so Scott, I know that you have rental properties and a primary residence. Do you include your rental property equity in your net worth but not your primary residence equity?
Scott Trench: I do now because I’ve never had a primary residence until now. Right? Because this is the first year I’ve had one. I’ve always had house-hack investment properties. So I think the intent is really important. I bought a duplex as a house hack intending to keep it as a rental property. I’d absolutely include a rental property in my P&L and I would sell the rental property if I thought there was a better investment alternative. The purpose of the house hack was to create an investment property that was part of my long-term, my investment pool. It was never intended to be my long-term house. And so I do think it’s fair to include a house hack or if you’re in the process of a live-in flip, um the equity in those because the intent is different than to reside in the house for the long term. Just be realistic with yourself. Is your house an asset? Is it part of your investment portfolio that you intend to generate income from it, or is it not? And treat it accordingly. But it’s an art, right? It’s technically part of your net worth. So that’s the debate I have.
Mindy Jensen: You know what? This is a great question to ask our audience. So, do you think your net worth should include your house, your home equity or not? Please leave an answer below on our YouTube channel if you’re watching this on YouTube. So Scott, do you think people are getting anything else wrong with their, when they’re calculating their net worth?
Scott Trench: You know, I, I, I think you know, I, I don’t include any personal effects for example in my net worth, but some people do, um, around that. I, I, I think that if you’re listening to BiggerPockets Money and you use an app like Monarch or something like that, you’re probably going to get pretty close to computing your net worth. Vehicles, you know, you can, you know, I, I wouldn’t necessarily include, um, you can, but I think it’s kind of the same dilemma as the house. It’s a depreciating asset. It’s not really part of the investment portfolio. And the vehicle unless you’re putting it on Turo or doing something crazy like that, uh delivering for Uber, is not really going to put cash in your pocket. So I think I would exclude those as well on there. Um, so you know, I wouldn’t include a boat, you know, or or certain other things. Like things that are not going to put money in your pocket that are toys, you know, or or or vehicles, I wouldn’t include in the net worth statements. I’d really be strict when I’m thinking about my, my my real net worth, the net worth that’s going to help me move toward financial freedom, and only including assets that I expect to appreciate in value and/or produce cash flow. And I think you’re going to again make much better financial decisions if you treat your net worth that way and treat the, the boat or the cars as the, the, the, you know, the depreciating assets or the toys that they probably are.
Mindy Jensen: I asked in our Facebook group, “what do you include in your net worth?” and I see people, a lot of people saying cars. I saw, uh, a woman named Melanie said everything except cars. Uh, everything except cars, jewelry, and household goods. So, uh, somebody else says just equity positions. There’s all sorts of different answers and I think it’s really interesting how, how people answered. One smart aleck said, “Beanie babies, Pokemon.”
Scott Trench: One thing that I do think is going to be interesting outside of these categories though is business assets. A lot of the ultra wealthy, the top 1% by net worth are going to have private business interests. And I bet you that the numbers we’re going to look at today for the top 1% are way understated because if you have a private business, you’re probably not valuing it on your personal balance sheet, um, at a super high or inflated level.
Mindy Jensen: When would you suggest somebody start tracking their net worth?
Scott Trench: Immediately. He should, he should start tracking it yesterday. The best time was 20 years ago, the next best time is today. If you’re listening to BiggerPockets Money and you don’t track your net worth, you know, this is not the episode for you. You should go and start doing that. You go back, we have several episodes on how to do this. That should be your immediate practice right now because there’s no point in trying to play the game if you can’t even keep score.
Mindy Jensen: Oh, wow. Okay. Well, you can email him, Scott@BiggerPockets.com. Okay, uh, Scott, what do you think is the minimum net worth to be considered rich?
Scott Trench: Oh, one million dollars.
Mindy Jensen: I, I think FIRE is the number and I’m gonna put that number between 1.5 for a low-cost living area and 2.5 to a medium to high-ish cost of living area. For ultra-high cost of living areas, the number goes up from there, but I think it’s 1.5 to 2.5 million is the, the baseline number to be, to be rich. At that point, you can fire modestly or earning a middle-upper middle-class job plus the asset base, you can have, you can do anything you want, but you can’t do everything you want. What’s your, what’s your answer to that, Mindy?
Mindy Jensen: I was, I was joking and quoting Austin Powers when I said $1 million, but that’s where I am at right now, is if you have a million dollars, you’re a millionaire and millionaires are rich. And just because you have a million dollars doesn’t mean that you’re going to be able to retire, but I, you know, I’m a little older than you and I’m kind of stuck in the past where going from 999999 to a million is a big deal. Uh, so I consider a million dollars to be rich.
Scott Trench: I think a million dollars is a great answer to it. I bet you, I, I, I wonder what the the audience feels like, um, uh, rich to them.
Mindy Jensen: Yeah, as we’re going through this episode, I would love to hear your thoughts to all of these questions. So hit me below, email Mindy@BiggerPockets.com, email Scott@BiggerPockets.com, or hop over to our Facebook group, facebook.com/groups/bpmoney.
Scott Trench: Let’s talk about uh, benchmarks here, Mindy. What, what are the, the, well, there’s like no real rules to this. We are going to show data sets that have these these numbers on down there. How do you feel about let’s even talking about benchmarks for wealth creation?
Scott Trench: I love benchmarks. I love having a goal to work towards because when you don’t, it’s really easy for dollars to slip out of your pocket here and there. Oh, I, whatever, I don’t have to worry about, you know, buying that coffee or going out to dinner or, you know, whatever you’re spending your money on. What do you think about benchmarks?
Scott Trench: I think that they’re really good ideas for what’s attainable. Um, what’s possible in various brackets and and some folks, I think, like me need to have a little bit of competition in there to see how we’re doing against that kind of stuff. That’s why I like, you know, it’s hard for me to just like run on my own, but I love Peloton for example, because I can see, oh, I’m on, I’m in a, I’m out of shape. I’m only in the this percentile and I want to get into that percentile when I’m taking like, I think that helps, um, motivate certain types of folks and I think this is a good data set for some folks, and I think it can also be problematic for folks who that is demotivating too. So it just depends on your personality, um, when the, the tool is useful or not.
Mindy Jensen: Yeah, that’s true. Although, I think I’m a little more competitive than, than average and I would want to, like I would want to gamify it. Oh, I’m supposed to have 3784. I’m going to win and I’m gonna get 38, I’m going to get 39, I’m getting 40, four thousand.
Scott Trench: So a couple of things that that I think stick out about this, this data set here are, and let’s start with with folks in their 20s. This is this should be and is the most extreme um, differences, right? Like a a 20-year-old in college probably doesn’t have a lot of net worth and won’t. Maybe they maybe they worked in high school and saved up some cash or whatever. But you’re looking at a median of $31,000 in net worth. And a 29-year-old who has start spent their 20s building a business or going into some, you know, field like investment banking and is starting to begin approaching those higher income levels. You know, that like that’s where you can possibly get to this kind of $2 million net worth by that point, probably through some sort of business or elite income-generating activity like a sports profession, uh, big-scale entertainment, um, or some of these highly lucrative private equity or investment banking jobs on there. So, you know, I don’t know, what do you, what do you observe about the 20, the distribution of wealth for 20-year-olds, people in their 20s?
Mindy Jensen: The 20-year-olds, in your 20s, more than anyone other one of these decades, in your 20s, you are starting off either just having graduated high school or you’re in college still, versus by the end of your 20s, 10 whole years in your 20s is a very different time period than 10 whole years in your 30s or 40s or 50s, just because of the life changes that are happening in that decade. Uh, so having a $2 million net worth as the top 1% versus the bottom 25% has $3,000 in net worth. I can see, um I would encourage anybody looking at these charts to keep your eyes on the bottom 25 and the bottom 75% because those are going to be like between 3,000 and 130,000. I think it’s a more realistic ideal. Not everybody is going to be an elite athlete. In fact, uh, very few people make it to the elite athlete tier and even fewer are Mark Zuckerberg starting Facebook in his 20s. So, you know, I think that those, and he’s not even 2 million, he’s like what, 2 billion? Um, but between 3,000 and 130,000, that’s a great benchmark. That’s a great goal. I’m 21 years old. I have a negative net worth. Okay. Well, the bottom 25% actually has an average $3,000 net worth. So I would like to do what I can to get myself out of debt as soon as possible so I can start building my positive net worth. If you find yourself in debt and there are other options you can choose from besides just taking your W-2 money and throwing it at your debt, I would encourage you to do that. Start a business in your 20s because typically in your, especially your early 20s, you’re not married, you don’t have kids, you have a lot more flexibility in your time to put into starting a business. If you need an idea of a business to start, go on YouTube and look at literally every person there because there is something that you can do online or even in person that is reflected on YouTube that will generate income.
Scott Trench: All right, stay tuned for more after our final break.
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Mindy Jensen: Let’s jump back in.
Scott Trench: I think that’s the right answer here, right? Like you’re listening to BiggerPockets Money right now. You’re not listening to uh, The Chainsmokers or whatever the kids listen to these days if you’re in your 20s. Um, on that. And so, you know, like, like what, what’s the goal? The goal is surely to be in the upper echelons of the wealth distribution scale, um, by the time you’re done your 20s or heading into your 30s here. And I think that’s right. I think, I think that the, the lesson learned here if you’re just getting started is take that shot in business. You might lose, it might not go well, but you can’t, it’s almost impossible to get into the top 1% without doing something like that. And that cash, that’s why, um I’ve talked about this in the past, but I believe that the 22-year-old just graduating college and starting out in the workforce should focus on just saving up cash and using it on a business opportunity, house hack, or some project like that, super aggressively, and forgo that 401k or the Roth IRA for the first year or three while that’s going on there and seize opportunity because that opportunity is just not going to be there in the same sense if in your 30s and and and 40s you decide to have a family, have kids, and and life starts to catch to catch up a little bit. It’s just it’s just that’s the unfair head start that you can get uh in those early days and that’s why you’re going to see this the most extreme distribution um or or or scaled distribution um of of wealth in this bracket in in someone’s 20s.
Mindy Jensen: Your dream job, your business that you start doesn’t have to be this sexy, amazing new thing. You can just go do these boring businesses. Uh Cody Sanchez talks about boring businesses and how those are the bread and butter of her net worth and just buying these boring businesses and doing this boring work, this this, you know, solid work can generate a lot of income. In your 20s, absolutely focus on increasing your income, paying down your debts, and starting a side business, starting a whole like the best time to start a side business is when you’re already employed because then you can take some risks. And if it pans out, awesome. And if it doesn’t, start again. Uh Scott, what is your quote? “If nine out of 10 small businesses failed, start 10 businesses.”
Scott Trench: You can do that starting at age 22. Um, every two and a half years, you’re going through two-ten bets. You can have two very successful outcomes by the time you’re 30 uh, if you try 10 bets over the course of your 20s, which is a very realistic goal. Something’s going to work at that point in time where your hit rate if you tried 20 is going to start getting better than 1 in 10. Right? Like a lot of people with no business acumen, no reps behind them are starting a business and they’re failing and they’re giving up. But when you start 10 businesses, you’re probably going to start hitting on business seven, nine, and 12, you know, and that in those fronts. And that’s that’s a really powerful dynamic, and that’s why you’re seeing this this distribution curve going up here. One thing that did take me by surprise on this data set is that the bottom quartile of wealth in someone’s 20s is still positive. I would have guessed that that would be negative.
Mindy Jensen: Oh, that’s interesting. Now, that’s with a primary residence. Without a primary residence, it’s much closer to zero.
Scott Trench: Yep, something interesting there.
Yeah, that is very interesting. I think it’s an average. Um, one thing I would encourage anybody in their 20s to do is max out your Roth IRA every year that you possibly can because that’s when your compound interest is going to really have that start taking that hockey stick effect uh or start to lay the foundation for the hockey stick effect down in your uh 40s and 50s. But your your Roth IRA is you’re paying taxes now, traditionally you’re or typically you’re going to be spending paying a lot less in taxes in your 20s than you will in your 30s and 40s. So you’re paying taxes on a lower amount uh going in, it grows tax-free and you withdraw it tax-free. So get as many dollars as you possibly can into your Roth IRA in your 20s.
Scott Trench: Yeah, I think that’s right. I think I think after you’ve got enough cash to be able to take advantage of a real estate and/or business opportunity. Like what I did is I spent the first two or three years not doing that, even the Roth, even that part, but just stock-piling cash to do a house hack and try some business ideas. And then after my income started growing, I’ve done that, I’ve maxed out my four, my Roth 401(k) uh, uh, every year since.
Mindy Jensen: And you had a plan. I think a lot of people aren’t contributing to their retirement accounts in their 20s, but also don’t have another plan for that money. Okay, Scott, let’s move on to our 30s. In your 30s, you are ideally building upon the foundation that you set in your 20s. I’m hoping that you are now debt-free or very close to it, but if you’re not debt-free, that you have been investing while you are going through your debt payoff. Um what advice do you have for someone in their 30s who is coming in closer to the bottom 25%, the $8,000 net worth if they don’t have a primary residence, or the $16,000 net worth if they do?
Scott Trench: There’s no reason that if you’re starting in a median or bottom quartile, you can’t expect to move up a quartile or two quartiles from the 25th to 75th percentile, right? So someone in their 30s, that would be starting their 30s with, you know, $8,000 and ending with close to $200,000. It’s a lot more of a stretch to think you’re gonna go from 8,000 to $645,000 by your 30s. But you can move to that that echelon and then you have a great crack at getting to close to a million dollars, the 90th percentile by your 40s and moving up those those chains. So I think that’s how I would be thinking about this and it goes back to the basics, right? I mean, you know, I think that a lot of, I would imagine, look, there’s there’s the economic starting gate here, which is I think the median U S income. So if you’re not earning a median U S income, there needs to be the, the the workload put in for probably two to four years to develop the skill set that can get you to that point. Once you’re earning a medium income, it’s about the frugality and allowing that to expand slightly to move up these buckets and those basics of blocking and tackling. But that begins to compound as you can move into the 65th, 75th percentile from an income standpoint, which should be achievable over the course of a decade or so. And that will set you up to really move again into that millionaire status by the middle to end of your 40s. That’s how I probably be thinking about it in my, in my 30s if I was sitting there at the, the bottom quartile on that front.
Mindy Jensen: Yeah, I think now is when it’s really important to keep track of these benchmarks. And just because you’re not in the same level as these benchmarks doesn’t make you a bad person. I’m not trying to sit here and say, “Oh, if you’re in the bottom 25% in your 30s, then you’re a terrible person.” But if you’re in the bottom 25% and you’re in your 30s, your chances of retiring early are very slim. So let’s start looking at these benchmarks. If you’re not quite at 8,000 in net worth in your 30s, what are the circumstances that have surrounded you not being there? Did you, are you a physician and you just, like you specialized and super specialized and hyper specialized and you’re just getting out of school? I’m not talking to you. Are you a teacher? I really, really wish we paid teachers more. What other things can you do to add to your income, to increase your income so you can start saving more aggressively? But also look at the circumstances surrounding your spending. I, I don’t see very many people who don’t have something to cut from their expenses that would not affect their life a lot. Um, I think there’s just so much mindless spending because “I deserve it,” or “I thought it was cute,” or “Everybody else is doing it.” And I think in your 30s, if you’re not in the 50 to 75 percent net worth bracket, you should be doing everything you can to tighten up your expenses and increase your income.
Scott Trench: I agree and I think, you know, we’re, we’re a BiggerPockets, so I’ll throw in a real estate play or two. A live-in flip or a house hack can make a big difference if you do two of them over the course of a decade. I mean, that’s, that’s gonna be, that could add hundreds of thousands of dollars to the net worth number and bump you pretty material, pretty close to, you could probably get to the other side of a million even if you’re starting from scratch, if you can spend the first couple years of your 30s amassing even 50 or 100k in liquidity, um, uh, to the to be as a down payment on the first or second house hack.
Mindy Jensen: Mindy, if you don’t mind me asking, where did where in your 30s, when you were starting your 30s, where would you have been on this net worth scale?
Wait to put me on the spot, Scott. Um, I would probably be in the top 75 percent in my 30s. I did have a primary residence. Um, I would say 3 to 4 to $500,000 in net worth.
Scott Trench: Okay, great. And and would it be fair to say that you’re now in the 95th plus percentile of net worth for a year age group?
Mindy Jensen: I am in the 95th percentile.
Scott Trench: What do you think, and and and that journey was conducted over your 30s and 40s, right?
Mindy Jensen: Yes, and into my 50s.
Scott Trench: What do you think you did to move from one, like that kind of 75th percentile to the 95th percentile?
Mindy Jensen: Uh, we invested in the stock market. We got intentional about our investing. We got intentional about our spending. We got intentional about our house flipping. And we started paying attention. When we were in the 75th percentile, we were saving for retirement but had made a couple of really great bets. One of the early bets that we made was Google. Um, my husband was a computer programmer and he asked somebody in his cubicle, “do you know how to do this problem in computer programming?” And the guy’s like, no, and Carl’s like, uh, okay. And he reaches up to get this giant, thick computer programming book. And the guy’s like, “Well, just Google it.” And he said, “What?” Because this was not when Google was a a verb. He said, “Just Google it.” And Carl’s like, “I don’t know what those words mean.” He said, “Go to google.com and type in your your question.” And it’s like the guy had to show him how to use Google the first time and it came back with the answer like that. And he’s, Carl’s like, this is the greatest website in the history of the world. And he started following it. He started doing research on it. He started looking into it a lot more and became a little bit obsessed with it. And when they announced that they were doing an IPO via a Dutch auction instead of you have to know a investment banker in order to get in, he bought shares in Google. And that has exponentially increased in value. That has been a really great bet. And I don’t want to give stock tips or hot stock advice, but Carl did the research, he’d used the product, it was unlike anything else that he had ever seen before, and he believed in that product. But he also didn’t put our entire net worth in that one stock. So there were several key stock purchases, because we didn’t know what index funds were, there were several key stock purchases that happened in our 30s that propelled us into the 95th percentile in our 40s and 50s.
Scott Trench: Got it. Okay, so the answer to how to go from the 75th to the 95th percentile is to invest in Google.
Mindy Jensen: Invest in Google when you’re 30, when it’s IPOing.
Scott Trench: And then as a byproduct of that, the shape of your net worth I bet you changed to be much more reflective of the wealth that that that we showed at the earlier earlier part of this of the super rich, right? Where much more of the wealth was in, um, equities in real estate than in the primary residence over that course of that journey, right?
Mindy Jensen: I would say we are 50/50 stocks and real estate. And then of that 50% in stocks, it’s probably 50% in individual stocks and 50% in index funds.
Scott Trench: Awesome.
Mindy Jensen: And we are slowly extricating ourselves from the stock portfolio and putting it into index funds, but you know, then you hit on capital gains and all sorts of fun, nice problems to have, taxes and, and things like that. But we, we really like the, the stability of an index fund.
Scott Trench: Yeah, one last question I have here as well is, how many years in the journey to your financial independence, um, journey, were you earning in the top 1% of all Americans?
Mindy Jensen: What is the top 1%?
Scott Trench: I think it’s over $650,000, but that would have regressed, that would have regressed over the last 10 years, right? It would have adjusted with inflation. So let’s, you know, so were any years where you came close to being a top 1 percenter on that journey?
Mindy Jensen: No.
Scott Trench: I love how you’re just laughing at that, right? And and I think that that’s like a misnomer here is is surely, yes, income is important in driving towards these net worth journeys. But I read a stat that, um, 11% of America… that basically no one stays, very few people stay in the top 1% of income earners on a consistent basis. Top 1% is very dynamic and people go into and out of it. I think there’s a stat I’m reading here, um from an article is that 11% of Americans will join the top 1% for at least one year during their prime working years, aged 25 to 60. But only 5.8% will be in it for two years or more. So most of the people that are even in that probably top 1% net worth by age aren’t sitting in there making a huge income. Of course, there will be people that are doing that, famous athletes, rock stars, Taylor Swift, whatever around there. But the that is not, that is not by and large not the byproduct of what is getting people to the net worth is is a sustained elite level of income. They’re probably all earning a high level of income, but it’s more to do with I think the expense profile and how you invest that puts you in the top 1% of wealth holders in this country. What do you think about that?
Mindy Jensen: I think you’re spot on. And I’m trying to think of all the people that I know who are in the 90, 95% income, I’m sorry, uh, wealth brackets and they, none of them were in that six… I don’t know anybody that makes $600,000 a year.
Scott Trench: Here’s another one. This is a Quora quote, so you know how accurate that is. Some 94% of Americans who reach the top 1% will enjoy it only for a single year. 99% will lose the top 1% status within a decade.
Mindy Jensen: Wow. And now is that net worth or is that income?
Scott Trench: Income.
Mindy Jensen: Yeah. I don’t wanna work hard enough to make $600,000 a year. That’s, that’s like, I don’t need 600… I can’t even spend the money I have. I don’t need to make more.
Scott Trench: I’ll put this out there. I I have made a top 1% income in two years out of the last 10. And I had to work very, very hard, uh, in those particular years and give up quite a lot in order for that to be realized. So,
Mindy Jensen: Scott, let’s move into the 40s.
Scott Trench: Yeah. So, I think what’s interesting here is at the extreme end in the the top 1%, we’re really starting to see separation from a income perspective. So I’m looking at a different data set here to to pull that in. Um, but in in under 35, the 99th percentile of top 1%, you have to earn $465,000 per year. When you get into the 35 to 44 year old bracket, you have to earn over a million dollars a year, 1,066,000 um per year to be in the top 1%. So the income reali… the spread from an income distribution is even more extreme in the four and 40s and 50s and it stays about the same, you know, 50, 40, a 45 to 54 is 1.3, 55 to 64 is 1.4, 65 to 74 is 1.5 to be in the top 1% um, a million. So there’s a much, that’s when really people really come into their own in terms of their their maximum income generation potential, especially at the top of the food chain. But what’s surprising is how the spread between the top 1% net worth is not as high, um, on these. And so that leads me to believe that even though those people really come into their own from an earnings perspective at the upper echelons of this, um the expenses must go up as well. That’s probably when we’re buying the really nice house, the really nice car, the private school tuition, or those other types of things. You’d expect there to be a larger spread based on that income uh distribution that I just I just chimed off. So that was the most interesting takeaway for me, um, in looking at the data set in the the 40s.
Mindy Jensen: Yeah, that is really interesting. And I would, you know, I just think of the 40s as as kind of an extension of the year 30s. Um, you’re continuing to build, you’re continuing to save and invest and, you know, keep an eye on your expenses in your 40s because that’s when it really can be easy to creep out into those expenses. Oh, well, all of my neighbors got a new car. I should get a new car too. I, my neighbors got a boat. That looks like fun. I want to go skiing all the time and the guys at work are always going on these lavish vacations. If it’s not something that you value, then don’t buy it just cause everybody else is buying it. I think the 40s is when you can really start to see some lifestyle creep. Uh so just keep that in mind. Um Scott, I’m gonna talk about your 50s since you’re not actually 50 yet. Um in your 50s, retirement is getting closer. Looking at these net worth numbers, in your 50s, the bottom 25% is less than $100,000. That makes me a little sad for people to get to their 50s and not even have six figures in net worth yet. That doesn’t mean that retirement is never going to happen. We’ve talked to plenty of people who have been able to retire in about 10 years starting from approximately a zero-dollar net worth. So even if you’re, you’re listening to this in your 50s and your net worth is on the lower end, there’s, there’s still hope for a traditional retirement. There’s still hope even for a a slightly early retirement. Um your 75th percentile here is already $1.1 million. 90th percentile is 2.6. 95th percentile is 5 million. I would, I’m kind of surprised that that’s the 95th percentile. I would think that the 95th percentile would be a little bit lower than that. Um more like three or four, but so 5% of Americans, oh I’m reading this wrong. 5% of Americans have a $5 million net worth or higher. The the $15 million net worth, I’d like to know who those people are, but again, your 50s is a whole 10 decade, 10 years, so, whole 10 decades. Sometimes it feels like 10 decades, uh, especially when you’re teaching your daughter how to drive.
Scott Trench: One interesting hypothesis I have about this age bracket too is that’s prime years, that the the type of years, I’m sorry, let me take a step for a second. One thing that’s that it one thing that I’m going to interesting about the 50s is that that is I believe the typical age that and and into the 160s when folks retire, or retire, when they inherit wealth, um, from from parents for example, um, uh on there. So I think that that’s probably playing a factor in why we’re seeing such a big jump. Uh, more than doubling or almost doubling of the wealth from 8.7 to 15, and we see less of a jump in the next decade. Um, combined with high income earning, um, potential, I betcha that that’s causing a a chunk of this.
Mindy Jensen: Yeah, you know what Scott? That’s a really great point. And looking at these numbers, between the 50s and the 60s, that is, unless you’re in the top 1%, there’s almost no growth. There’s almost no movement. In fact, in your 60s, the bottom 25% is actually dropping.
Scott Trench: It’s not hard to imagine, for example, someone building up to that 90th percentile by the time in there they’re in their early 50s at $2.6 million after a career of hard work and and frugality and a couple of good investments and then inheriting another 2 million from family members who behaved very similarly to them, um over there, working lifetimes. And that bumping you up to the $5 million mark, right? Like you got to imagine that that’s beginning to be a much more impactful part of the puzzle here. Contrary to most beliefs, most, most millionaires are self-made in America, but I bet you that a good chunk of them after they become self-made then supplement that with several million more from millionaire parents on that front. So I think that there’s a dynamic that’s going on underneath the scenes here that someone should study and we’ll have them on the podcast when they complete that study.
Mindy Jensen: Yeah, reach out to us if you’ve made that study. We would love to to dive into that. Uh, one thing I want to note is that if you are in your 50s and you are considering retiring well before age 59 and a half, which is when you can start withdrawing your retirement funds without penalties, uh, make sure you have some sort of bridge to fund those. This is where you want to start thinking about, um, and even in your 40s you want to start thinking about avoiding the middle-class trap, avoiding the all of my net worth is, is locked up in my home equity and my retirement accounts. You want to start thinking about how you’re going to fund your lifestyle from the time you retire until the time you hit 59 and a half. Scott, I think this is a really interesting set of numbers here. I love looking at this kind of data because you know, the benchmarks that somebody can compare themselves to or set goals for based on these numbers in their 20s, 30s, 40s, even into their 50s is really going to help keep them on track. Uh just knowing what other people have, knowing what other people are making, seeing what other people are doing, and seeing how they are investing and how they are growing their net worth can help give you some ideas how you can grow your net worth too. I love the stock market, I love real estate in the right circumstances, uh, when you have purchased intelligently, when you have purchased intentionally, and uh, I just, I think having these numbers is really helpful to people who are competitive or people who are just curious, how much net worth should I have?
Scott Trench: I think another, another, you know, takeaway I’ll have here from this is is the benchmarks are really helpful in understanding what’s realistic here. Like if you’re in your 20s and you want to FIRE in your 20s, you got to be in the top 1%. You want to be and you want to FIRE in your 30s, you gotta be in the top 5% at least, probably closer to the top 2 or 3%. You want to FIRE in your 40s, 50s, or 60s, you gotta be in the top 10% to the top 25%. So it gets a lot more realistic uh the longer that time horizon is and and there’s, and I think that’s that’s one way to kind of benchmark or think about this on there is are you willing to do what it takes to be in the top 1% to get there in your 20s, um or it’s probably much more realistic and reasonable to try to get there in your 40s, 50s, and 60s, um which seems attainable for many millions of of Americans who do put the work in for several decades.
Mindy Jensen: Yeah, Scott, the bottom line is if you want to retire early, you are going to have to do work. You are, it’s not going to fall into your lap. You’re going to have to do something, give something up, make different choices than your average American to be able to do something. What does Dave Ramsey say? “Live like no one else now so you can live like no one else later.” If you are spending every penny that comes in, living beyond your means, not paying down your debt in your 20s and 30s, your opportunities to retire early in your 30s, 40s and 50s are going to be significantly less. So, you know, you’re listening to BiggerPockets Money, you are probably already thinking about this. But we would love to hear from you. Where do you fall in this, uh, net worth brackets? Um, you can email me, Mindy@BiggerPockets.com, you can email Scott, Scott@BiggerPockets.com. We won’t use your name on the air, but I think it would be really fascinating to see, you know, 25% of people sent in and said that they’re in the top 1% or they’re in the top 75% or they’re in the bottom 25%. I mean, you heard me say I was in the bottom 25% of my 20s, so there’s no shame wherever you are in this, in this, uh, net worth graph. I would love to hear from you. All right, Scott, this was super fun. Should we get out of here?
Scott Trench: Let’s do it.
Mindy Jensen: That wraps up this episode of the BiggerPockets Money podcast. He, of course, is the Scott Trench, and I am Mindy Jensen saying, “Bye-bye apple pie.”
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