When it comes to growing your net worth, having extreme net worth targets by age, income, and work experience is a good idea. Even if you can’t reach the extreme net worth targets, you will likely have pushed you harder had you not had such aggressive goals.
After publishing my latest Net Worth Targets By Age post, I received some pushback. Some people felt it was more appropriate to use a multiple of spending as opposed to a multiple of income to calculate a net worth target.
The argument is that most people spend less than they earn, therefore taking a multiple of spending creates an excessive net worth target. Fair enough if you want to make excuses. But don’t you want a challenge?
What if your spending goes up drastically due to unforeseen medical expenses? Or what if you have to start supporting more people? What if your investments lose money as we forget they sometimes do? Or what if you get laid off with no severance?
What if you can’t sell your house to pay for living expenses because the market dried up? Because there is no rewind button in life, I think it’s better to be more conservative with your financial calculations.
Using a multiple of income as a net worth target prevents you from CHEATING. You can just cheat your way to financial independence by slashing spending and eating rice and beans. No. The more you make, the more you will save and invest.
Extreme Net Worth Targets By Age
If you agree shooting for a net worth equal to 20X your income is sufficient to declare financial independence, let’s talk about what it takes for someone to get to 50X. Achieving a net worth equal to 50X your average annual gross income is secretly my true net worth target. I’ll explain why below.
Take a look at the chart below. To get a better view, mobile phone users please hold your phone horizontally. Sorry for the small print. You can also pinch and zoom.
For a “normal” extreme financial freedom seeker, I assume s/he can achieve a 50X multiple by the age of 50. Call it 50 for 50 if you will to make remembering the goal easier.
The net worth goals are therefore $2.5M, $5M, $7.5M, $10M, $15M and $25M by 50 for those who earn $50K, $100K, $150K, $200K, $300K, and $500K respectively. Obviously, the 50X multiple target is harder to achieve the less you make due to basic expenses.
50 is a very important age target because the median life expectancy is only about 80-85. You might feel very healthy at 75, but what I’ve found with more and more people who’ve passed away recently is that you can look good one day and be dead within a couple years. Once we get ill, it’s very shocking to see how quickly our bodies deteriorate.
Health Care Is Expensive
Here’s a chart from the American Association For Long Term Care Insurance on the average stay/need for long-term care patients.
As you can see, most patients die in under three years once they need care. Therefore, the best hedge to an early death is to not only get life insurance, but to retire by a certain age and not a certain financial figure. If you can’t get to 50X by 50, then so be it.
What It Takes To Get To The Extreme Net Worth Growth Target Of 50X Your Average Income
Half the battle of getting rich is believing you deserve to be rich. Getting to the extreme net worth growth target of 50X your average income is hard. So here are some ways to get it done.
1) Extreme frugality.
Living way below your means is a must in order to save 50% or more of your after tax income after maxing out your 401k or IRA. While most of my peers were buying bigger houses and fancier cars in their late-30s, I decided to go the other way by downsizing to a smaller house and buying a Honda Fit after my 14-year-old vehicle couldn’t pass the California smog test. I’ve worn the same clothes for the past 10 years and have shoes from before 2005.
2) Extreme hustle.
Not only do you have to maximize your career earnings, you must also maximize your side income. Take none of your time and energy for granted. Working only 40 hours a week to gain financial independence is a joke. I don’t know a single self-made multi-millionaire who works so little before the age of 45.
I love the story about a reader who makes $100,000+ a year and still works at his friend’s restaurant every week for an extra $200 – $300. It’s awesome to hear from an Uber driver how he drives for four hours in the morning before attending classes at SF State.
Over the years, this hustling work ethic will provide huge returns. People who change from consumers to producers are those who create much greater wealth for themselves. I’ve introduced 20 side hustles to help make you more money today.
3) Extreme sacrifice.
Sleeping two hours less a day than you normally do will yield 700+ hours more of production a year. You may need to delay courtship or start a family. You may have to live in your basement while you rent out the rest of your house. Toro sashimi, lobster, and dry-aged beef will need to be replaced by mac and cheese.
Tap water will be your main source of hydration. The thrift store is your Nordstrom’s. The funny thing is, what’s considered sacrifice in America is considered routine to the average Joe in most other countries.
4) Lucky breaks.
Give yourself enough chances to have as many lucky breaks as possible. We all know that outsized wealth is mostly due to luck. But you can increase your luck!
If you work hard to get the best grades, your luck getting into a good college or getting a good job increases. Get in an hour earlier and work an hour later than your peers for a year. If you do, getting a raise and a promotion increases.
If you spend an hour before work each morning getting smart about investing, your chances of finding a hidden gem increases. Strategically get to know everybody at a bar frequented by wealthier people. If you do, your luck dating and eventually marrying a wealthy person increases.
If you decide to start a website one day and write nonstop for three years in a row, you might be lucky enough to negotiate a severance package and be free to work for yourself. The harder you work the luckier you tend to get!
5) Investment returns.
To achieve your extreme net worth target, you need great investment returns. There is no way anybody at any income level who just aggressively saves can achieve a 50X target multiple without investment returns.
For example, even if a $50,000 income earner saved 100% of her gross income for 28 years, she would still only end up with $1,400,000. The only way a $50,000 gross income earner can get to $2,500,000 in 28 years is by contributing $29,000 a year and earning 7% a year.
Can it be done? Of course it can if you are extreme! $18,000 of the $29,000 contribution is pre-tax anyway into a 401k. Good thing 7% is within the average historical total return of the S&P 500.
I strongly encourage everybody punch their numbers into a retirement calculator and play around with their expected expenses and expected returns to see what their finances will look like. It’s a fun exercise that I do at least once a year to keep myself on track.
Why 50X Income Is The Extreme Net Worth Multiple
50X is the magical multiple for extreme financial freedom seekers because matches the Fed’s long-term inflation target of 2%. 2% is also the safe withdrawal rate where you will likely never run out of money. In general, the 10-year bond yield, or risk-free rate of return, averages around 2%.
For example, if you earn $100,000 on average and accumulate a $5,000,000 liquid net worth, you can dump the entire $5,000,000 into a 10-year US bond and earn $100,000 a year guaranteed and never have to worry about money again. Declining interest rates have forced us to create or own more income producing assets.
$5,000,000 is probably the most common extreme net worth target to shoot for. Many people I know who are extreme hustlers make $100,000+ a year and can get to $5,000,000, especially with a partner.
The baseline extreme hustler makes the median household income of ~$76,000 and uses his/her extra time to earn double their income through side gigs or entrepreneurial endeavors.
Nobody I know who wants to reach financial freedom early just sits around and watches TV after they come home from work. They are working on their entrepreneurial endeavors!
There are endless ways to make six figures a year at almost any age.
A Balanced Life Is Not Realistic If You Want To Achieve A Big Net Worth
The only people I know who’ve achieved 50X without too much sacrifice are those who won the lottery, worked at a startup that became a huge success very quickly (Instagram, WhatsApp, Facebook), or who already came from wealthy families.
I know a lot of you will say or think things like, “there’s more to life than just money,” or “I’d rather enjoy my life now,” or “YOLO” etc. That’s totally fine. Only a small minority of people are extreme.
Similarly, only a minority are entrepreneurs, multi-millionaires, or weirdo early retirees. Heck, probably only a minority of people read personal finance sites on a regular basis.
But what some of you may not realize is that after sacrificing for so long, sacrifice no longer feels like a sacrifice. It feels like normal everyday living because hedonic adaptation works both ways.
My Current Net Worth
Based on my latest net worth, I’m at a around 35X multiple of my average gross income over the past three years. It does help that I make less now on average than in the past.
Given I plan to continue saving and investing 50% of my after-tax income, I believe I will get to a 50X multiple by age 50 in 11 years. After age 50, I plan to accelerate my giving before the government takes half of my assets away!
The fact of the matter is, you don’t need an extreme net worth equal to 50X your average annual earnings to live the ultimate lifestyle. I still think once you get to a net worth equal to 20X your average annual income, you’re good to go!
But if you like a good challenge and want to create generational wealth, shooting for an extreme net worth is a worthwhile endeavor. Just make sure to have fun on your journey! After all, after you accumulate 20X, anything more is gravy!
After reading this post, doesn’t having a net worth equal to 20X your average income seem so much more achievable? Even if you don’t achieve the goals, you’ll go much farther than if you had no goals. Here’s the original net worth target by age chart again for your review.
Build Extreme Net Worth Through Real Estate
Real estate is my favorite way to achieving financial freedom. It is a tangible asset that is less volatile, provides utility, and generates income. By the time I was 30, I had built an extreme net worth for my age largely by investing 70% of my savings each year into real estate.
Today, real estate generates over $150,000 a year in passive income. A big reason is due to investing $810,000 in real estate crowdfunding to diversify across the heartland of America. The spreading out of America is real thanks to technology. People are willing to move to save money. Take advantage of this trend.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
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I’ve got a long way to go to get to 50x salary. I would be surprised if I ever got there, unless of course I built up 10 million or so and then switched careers into something that dropped my salary to a much lower number like 200k which would put me at the 50x mark. So then I could easily see me getting there, but if I were to stay on the traditional career path, I would need some amazing investment returns which I’m not sure will happen or not with VOO.
Always an intersting read! I think it does put in perspective what one can achieve with full dedication. I guess it comes down to what you want out of life, both short and long term. I’m 43 with a net worth of 1.3M – this is fully self-made with no luck or help. I’m in a good place now and for “early retirement”. My goal is to be able to retire at 55 while still living comfortably but below my means in the short term. That takes away goals for extreme net worth for me and I’m ok with that. I mostly love my job but certainly would like to be able to walk away early. I also want to be able to travel and see the world, now and in the future.
I’ll keep reading your posts and keep looking at ways to improving my financial situation. Right now, with conservative estimates, I would be able to retire at 57.
I’m a little bit surprised to see that there are no figures listed earlier than 22. I am 19 years old, didn’t bother going to college, and current net worth is $65,000, making 65k annually as a systems administrator. I think I’m just about the luckiest guy on the Planet. I was homeschooled, so I managed to get a job very early on, bought a $3500 car and put state minimum on it. Currently living in my Aunt’s basement for $300 dollars a month. Don’t eat out, wear clothes from Goodwill, cut your own hair. All in all per year I spend $2000 on car insurance, $3600 on rent, about $2000 on everything else. (Gas, clothes, shoes, books, etc.) Everything else (after taxes) gets invested. Obviously I don’t want to live in my Aunt’s basement forever, but due to the time value of money I think it is worth it for a few years to give my savings a head start. Anyways, just wanted to weigh in and say that from my perspective, this looks totally doable. So to the naysayers, this is definitely achievable, at least under a particular set of circumstances.
JD that’s great. There’s nothing under 22 because I assume that most people don’t plan to retire that early and are still going through education and discovery of what they want to do before then.
But good job living below your means and hustling!
Can we get an update on JD? Would be a super interesting read. Would love to see if there’s been a transition from expense reduction to revenue optimization.
Got married, moved to a higher income, higher COL area, household income is ~220 000 now.
So yes, I’d say I transitioned. Wife was really what did it, living like that is a lot more acceptable when you’re on your own
Congrats on finding someone JD! And also moving out of your Aunt’s basement :)
Is your net worth tracking my extreme targets by age?
Not bragging here, but I am ahead of schedule! Through a combination of luck and trying hard to reach high goals, I have been able to make some really great investments. I am 24, soon to be 25, and I should be at a net worth of $220,000 by the end of 2017. I fall into the $50,000 per year range, but only recently. My actual average income over the last 6 years was only $42,000. There’s a lot that went into it for me, but the biggest things were these:
– I did not take the traditional college route (no family money whatsoever) so I financed my college through an employer starting at 18. Employers often have these agreements waiting for people to take advantage of.
– Having had a full time career starting at 18, I was able to buy a house (barely) at age 20 with my savings. I chose to buy the biggest building I could with 3.5% down using the FHA program. I bought a 4 unit in a good location. I just barely had the right work and credit history, to be completely honest, I had been working on it since I was 17, which is not typical, I just really wanted my own place and investments of course!
– I started a 401K ASAP (which was at age 19, stupid company policy) and started with 15% of my income.
So I ended up with a bachelor’s debt free, a four unit building, another small house I live in and rent a room to a friend (going on three years), and I recently bought another building I am renting to college students. That has given me the huge advantage of time and I am ready to start some other investments. The $250,000 mark for the $50,000 income range at 35, I should hit in early 2018 before age 26.
My property equity is now on the rise and it approaching $1,000 a month. My 401K is building itself, and I have two investment properties. I also expect a total passive income of about $17,000 for 2017.
For anyone who reads this that is older, out of the 20s or 30s or wherever you are, Sam has good advice, get discouraged, or get motivated. I recently got discouraged but I just keep plugging away, every day for the past 9 years. I eat free food even if I really don’t want it, I loose sleep because I am shoveling, salting driveways, repairing sinks etc., I don’t have many many things I could have (and I want), but I will continue to put them off, because that end goal is just to good to pass up.
50X of income too high. Living that frugally does become a way life and a habit, but man you gotta live a little! For instance, I own a very modest cottage with a small sailboat – two luxuries that make no economic sense but have enriched my and my kids life enormously. Seeing Paris at 26, before children – priceless! Lusting (and I mean lusting) over a Porsche since 11 years old, and buying a used one on your 40th birthday! Cash drags all – but part of a life well lived!
My thought is 25x is plenty and 4% annual return is a very achievable target.
A 2% bond provides no inflation protection, and you are going to need it if you retire at 50 and live to 80. To drive 4% you need a diversified common stock portfolio and dividends or rental income – both of which (dividend and rent) rise with inflation.
And the 25x should be on projected required retirement expenses… i.e: kids are gone, school and mortgage is paid… minus any government pension income. For example, we have Old Age Pension here in Canada that everyone is entitled to, regardless of income level.
Based on these spending assumptions, and projection of wealth accumulation through 50 years old, I’ll be right around 32.5x … comfortably above my 25x target and with no regrets along the way.
These targets are definitely possible if you hustle hard and get abit lucky. I am 33 and my average yearly after tax net income is around $400k-600k depending on how my business and the stock market does that year. My current net worth is around 5.1 million. I started my business at age 24 and my net worth at that time was around $75k
Hi Sam – as I’m using this article and the one on “regular” target net worth, I’m wondering what income I should take in consideration.
Let’s be specific, I’m in my first year of work after graduation, and I’m 29. So I’m referring to net worth by working years not age. And when I see that I should aim for 0.5 to 1 time my income in 3 years, does it mean my income now, or my future income in 3 years?
Thanks from London where Brexit is completely depressing.
Claire
I’d like to know how savvy investors can bank on 7-8% annual return on their investments in today’s unprecedented regime of low (and even negative) interest rates world-wide by central banks, causing an asset inflation in the stock market which is almost certain to face a crash in our lifetimes. We are in uncharted territories and we do not know what the next “black swan” event will be. With that in mind, a 50X savings goals sounds to be only a “best case scenario” without at all accounting for macroeconomic risks. That does not mean we should stop saving or investing, but above those two things, we should all be prioritizing to diversify asset holdings to prepare for the impending burst of this “free for all” cash bubble.
I like the idea of Extreme Net Worth Targets. Extreme by definition does not mean the least that you need to retire as you have pointed out a few times. I think you have to be smart about spending and investing money but you do not have to deprive yourself to get to these targets as some posters have suggested.
I agree that the best withdrawal rate is not touching the principal and so far I have only been withdrawing some money for travel since last year and take less than half the earnings of the previous year. I could have been more Extreme in my targets if I knew then what I know now. I have more Extreme targets now.
I wanted to make the point that salary based targets are harder for older people. I am older and salaries were much much lower when I started out and we didn’t have the retirement tax deferral vehicles available now, so even with aggressive saving, NW does not grow much until later.
For example, my first job I made $2,400 a year (1968) and my last job $86,000.(2005) So if you calculate the average of that being $42,000, I should have had NW of $2M by age 50. I had just $368,000. not counting a small pension accumulating.
However little you make and save, NW grows faster and faster after a certain point with compounding and if you are smart with investments. When I was downsized in 2005, my NW was $622,000. Since then my NW has grown to $3.5M between investments and real estate equity because I got smarter with my investments. Also, the bigger the NW, the more you can take a bit more risk.
In my city, real estate is always been a good long term investment especially using leverage so when I was downsized I sold my condo and bought a big house in a good neighbourhood with some rental income potential and took on a big mortgage, thinking interest rates would stay low for years. I also started managing my own investments and did very well, saved my severance pay, and had a few good paying contract jobs the first few years. After that, my freelance income was minor, just enough for basic expenses and a few trips a year. About five years ago I finally quit altogether and live on rental income, pensions, and withdraw some investment income for travel.
So I agree with your idea of NW targets, just showing a different growth trajectory can work too.
The point you made about your net worth accelerating the more you have is particularly true during a bear market. Although I’ve written that the first million might be the easiest due to our endless energy when we are younger, the compounding after $1M has been pretty surprising on my side as well. This is why I’m aggressively trying to decrease exposure and pay down debt so I don’t give it all up.
How old are you now?
I just ran my numbers today, and it’s a bit disheartening. I don’t want to live completely frugal when I retire so I’ll have to cut out extras between now and my 13 year goal.
So if I retire by 46 or 47, I will need 2.6 million. Yikes! That seems Extreme to me at this point.
Luckily I have plenty of financial blogs like this one to read to help me on my journey.
You can either get depressed or you can get motivated. Someone said once, get busy living or get busy dying. Always choose motivation!
Sweet Sam…thanks for the great article, and you know I love me some Arnold.
I’m shooting for the 50kx50x50years….so 2.5 million by the time I’m 50 (currently I make a little less than 50 as I’m a school teacher, but I’ll get there).
I plan to do this by practicing frugality and extreme low cost of living <—-Midwest living has its perks:)
Sounds good Clint! I want to invest in the Midwest, and so do many coastal residents. Therefore, I would buy up all the prime Midwest property as you can BEFORE we start coming. We have already infiltrated Denver and Portland!
LOL, I have no doubt you and many other buyers will arrive. Land is pretty cheap here, especially undeveloped so maybe I’ll hedge for that. I know a lot of rich older folks around my area who have used the buy and hold strategy and are sitting on millions of dollars of real estate/rental properties, so I also may go that route. I think I’m going to head over and read your invest in real estate as early as possible article that I just saw. Maybe it will spur me on!
Get neutral inflation Clint. We’re coming. I’m sure of it, because institutional investors are coming. They pool money from outside the midwest and then go deep buying up areas that have the highest yields e.g. Midwest. Investors no longer have to own physical property. There’s all these real estate crowd sourcing companies now that are enabling more and more people to invest. In essence, the arbitrage is getting smaller and smaller. Trust me on this Clint!
Sam, you’re telling Clint, a school teacher who makes $50,000 per year, to buy up all the prime Midwest property he can before you and other investors. You completely ignored his comment of practicing frugality to achieve his financial goals while being a school teacher.
Do you think it’s realistic for someone making less than $50,000 per year to try and compete with experienced real estate investors?
I think you completely ignored his comment and chose to brag in a big d*ck contest instead.
Dick contest? If you think so.
“I’m shooting for the 50kx50x50years….so 2.5 million by the time I’m 50 (currently I make a little less than 50 as I’m a school teacher, but I’ll get there).”
Clint is shooting for a $2.5 million net worth by age 50 and I believe him. $2.5 million is not something to sneeze at, it is particularly impressive for a school teacher.
Half the battle is BELIEVING you deserve to build wealth and be rich too.
I’ve been buying midwest/sunbelt property through private real estate firms like Fundrise and the likes since 2016. It only takes $10 to start investing in Fundrise, which buys single family and multi-family homes in the Sunbelt. In other words, anybody can start investing in Midwest properties.
If someone challenged your manhood, hence your comment, confront them! Go to the source, not online with two people having a separate conversation. The best clap back is to live your best life. GL!
Wow, 50x income is extreme. Only a few people can achieve that level of wealth by 50. Even you are only at 35x and you are an elite in the world of FI. We have no chance at all.
Personally, I think it’s too much. That kind of goal will drive the person a little crazy. Sometime enough is enough. I guess it just depends on your personality.
Just think though, if you were able to get 50 X, then your wife wouldn’t have to work anymore. You and your wife could cheer early retirement, which I think is much more ideal then one spouse working and one spouse being retired don’t you think?
I bet if you got to the point where both of you and your wife are early retired, you could grow your traffic even more and block away the naysayers who question what retirement really is.
While according to your chart I am on track for “extreme saving” there’s no way I am sticking to my current career until 50. I plan to offramp at 35 when I have 20-30x expenses. I’ll probably continue to earn income with whatever I end up doing but it’ll be on my terms and having the time available to spend with future kids while they’re young is worth the extra padding of net worth for me.
I love reading the biggest dreams that people have for themselves. Especially if they feel pie-in-the-sky, because it shows how their brains work. My goals are more modest than yours, but more extreme than most people’s, and that’s alright with me.
All dreams are good! I am a master day dreamer! It’s fun and free. Who doesn’t love to fantasize about what they would do if they won the lottery. I love to dream. And no dream is less than another’s dream.
totally agree with the 50x by 50. People set their goals too low. I’ve been saying over and over – why not $10 million? I mean like you said – the “extreme” sacrifice you mention is what the average joe in most of the world does. There is a lot of American arrogance related to lifestyle and it results in stealth poverty in an attempt to show outward wealth. In the Personal Finance / financial freedom community you hear about stealth wealth while everyone else practices stealth poverty!!!
Everybody needs to ask themselves, “Why not me too?“