Net worth is frequently used as an indicator of wealth. Simply sum up the total value of all your possessions, then deduct any debts you owe, and there you have it. To illustrate, let’s say you possess $100,000 in assets.
retirement accounts
, $25,000 in savings, and $10,000 in debt, then your net worth would be $115,000. This gives you an idea of how you’re doing financially.
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After determining your net worth, you might wonder where you stand compared to people in higher, middle, and lower economic brackets. Fortunately, the Federal Reserve has conducted studies providing us with such information.
Below is the net worth associated with the upper, middle, and lower classes.
Typically, social classes are determined by income levels, particularly when discussing finances. Those who fall within the top 20% of incomes are classified as part of the upper class. At the opposite end, the lowest 20% represent the lower class. All others fit into the broad category known as the middle class, which further breaks down into the lower-middle, middle, and upper-middle classes.
The Federal Reserve offers the median net worth for these categories in its report.
2022 Consumer Finance Review
Here’s how much each group has:
-
The
upper class
starts with an
average net worth of approximately $793,120.
That’s for the top 80% to 90% of earners. The
top 10%
has much more — an average net worth of
$2.65 million.
-
The
upper-middle class
has an
average net worth of $300,800.
-
The
middle class
has an
average net worth of $169,420.
-
The
lower-middle class
has an
mean net worth of $58,550.
-
The
lower class
has an
average net worth of $16,900.
Remember that your net worth is not the sole crucial element. Simply having a certain net worth does not indicate that you are in good financial health.
If you’re a young adult, having a lower net worth is typical since you’ve likely not had enough time to accumulate significant wealth. Although a higher net worth often indicates financial health, it isn’t the sole indicator of success. For instance, even if someone possesses millions of dollars, constantly fretting over personal expenses can signal an unhealthy relationship with finances as well.
Ways to boost your overall wealth
It’s not necessary to fixate on your net worth, but it is crucial to accumulate wealth as you advance in years. This will provide greater financial stability, and by saving sufficient funds, you can achieve the retirement of your choice.
Below are some intelligent money practices to adopt that can assist with achieving your goals:
Dedicate yourself to setting aside and investing part of your monthly earnings.
A common suggestion is to save 10% and invest another 10%, yet you should choose percentages that suit your situation better. As an illustration, if you earn $5,000 each month, you might move $500 into savings.
savings account
And add another $500 to an investment account.
Put significant funds into the stock market to increase your wealth.
Historically, the stock market stands as one of the most reliable investment options, with
average annual growth rate
Approximately 10%. Provided you do not intend to retire in the coming decade, it would likely be advisable for the majority of your investment portfolio to consist of stocks.
Create an emergency fund to prepare for unforeseen costs.
Emergencies will happen, and if you’re not prepared for them, you may need to go into debt to pay for unplanned bills. Put some of your savings toward an
emergency fund
— Once adequately financed, this should cover between three to six months’ worth of living costs.
Be cautious when assuming debt, and steer clear of high-interest loans.
Certain forms of debt can prove beneficial,
mortgages
being the best example. But high-interest debt, such as
credit card debt
, significantly complicates the process of accumulating wealth.
Should you adopt these practices, your overall wealth will increase gradually. Keep in mind that this progress may experience fluctuations. There could be instances where you have to use some of your savings, or the worth of your investment portfolio might fall momentarily.
Therefore, you should not obsess over monitoring your net worth on a monthly basis. Regardless of your current financial situation and ultimate destination, amassing wealth is an extended journey. Progress is gauged in terms of years and even decades. Provided you maintain healthy monetary practices, you will be heading in the correct path.
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