Turning 25 is a significant milestone, often marking the point where careers begin to solidify and financial independence becomes a tangible goal. Understanding your net worth at this age is important for setting a strong foundation for your financial future. Your net worth is simply what you own (assets) minus what you owe (liabilities).
Calculating Your Net Worth
To determine your net worth, tally up what you own (assets) and subtract what you owe (liabilities).
Examples of assets include:
- Cash in your checking and savings accounts
- Investments such as a 401(k), IRA, brokerage accounts, stocks, bonds and mutual funds
- Real estate: the current market value of your home, rental properties or land
- Vehicles
- Other valuables such as jewelry, collectibles and significant household items
Examples of liabilities include:
- Student loans
- Auto loans
- Personal loans
- Mortgages
- Other outstanding debts
A positive net worth means you own more than you owe, while a negative net worth indicates you owe more than you own.
Benchmarks For 25-Year-Olds
The median net worth for people in their 20s is $7,638, while the average net worth for the same age group is $113,084, according to Empower.
The median represents the midpoint where half of people have more and half have less. The average is calculated by adding everyone’s net worth and dividing by the number of people. A small number of wealthy individuals can skew the average much higher than what most people actually have, so the median typically offers a more representative picture.
Also keep in mind that net worth at 25 can vary because of diverse life circumstances, educational paths and career choices.
Looking ahead, some financial experts suggest aiming for a net worth of 0.5x to 1x your annual salary by age 30. If you’re 25 and earning $60,000 a year, a target of $30,000 to $60,000 by 30 would be a strong goal.
Key takeaway: Don’t get discouraged if your net worth is lower than the average. The median is a more realistic benchmark. More importantly, focus on building positive financial habits for long-term growth.
Contributing Factors to Net Worth at 25
Several factors influence your net worth at age 25, including your education level and career path, debt load, cost of living and lifestyle choices.
Higher education often leads to higher earning potential but you may have racked up more student loan debt. Careers in fields with high starting salaries can accelerate wealth accumulation.
Student loans, credit card debt and auto loans can weigh down your net worth. High-interest debt, such as on credit cards, is particularly detrimental.
If you consistently save a portion of your income and invest it early, you’ll benefit from the powerful effect of compounding returns, but living in an expensive city can make saving more challenging even if you have a decent income.
As your income grows, you may be tempted to spend more, but if you’re not careful, it will hinder your wealth building.
Mistakes 25-Year-Olds Should Avoid
Many young adults fall into financial traps that impede their net worth growth.
For example, if you don’t create a budget, you don’t know where your money goes, which is a recipe for overspending and living beyond your means.
If you don’t build an emergency fund, you won’t have a safety net for unexpected expenses, which may lead you to rely on high-interest credit cards to fund your lifestyle. If you accumulate too much high-interest debt, your financial progress can rapidly erode.
One of the biggest mistakes 25-year-olds should avoid is delaying retirement savings. Not taking advantage of compound interest is leaving money on the table. The earlier you start saving for retirement, the less you need to save overall to reach your goals.
And when it comes to investing at age 25, a too conservative approach for long-term goals like retirement can lead to missing out on growth potential.
Acceleration Strategies if You’re Behind
If your net worth at 25 isn’t where you’d like it to be, don’t despair. It’s still early, and you can significantly improve your financial standing with these action steps:
- Create and Stick to a Budget: Track your income and expenses to understand your cash flow. Identify areas where you can cut back and free up money for savings and debt repayment.
- Prioritize High-Interest Debt Repayment: Aggressively tackle credit card debt and other high-interest loans. The money saved on interest can be redirected to building your net worth.
- Build an Emergency Fund: Aim for three to six months of essential living expenses in an easily accessible, interest-bearing savings account. This prevents future emergencies from derailing your financial progress.
- Start or Increase Retirement Contributions Immediately: If your employer matches your 401(k) contributions, contribute enough to get the entire amount. If an employer plan isn’t available or you want to contribute more, open a Roth IRA or Traditional IRA, and set up automatic transfers to your retirement accounts so you pay yourself first.
- Invest Consistently: Once high-interest debt is managed and an emergency fund is in place, consistently invest in diversified low-cost index funds or ETFs. Even small, regular contributions can grow substantially over time. Don’t be afraid to take on appropriate market risk for long-term growth.
- Increase Your Income: When starting a new job, don’t be afraid to negotiate your salary, and once you’ve been there for a while, don’t shy away from asking for raises. Invest in yourself through education or certifications to increase your earning potential. Finding a side hustle is also a great way to earn extra income to accelerate debt repayment or savings.
- Avoid Lifestyle Creep: As your income grows, resist the urge to immediately upgrade your lifestyle proportionally. Instead, save and invest a larger percentage of your increased earnings.
- Minimize Depreciating Assets: Think twice before buying a new car. Used vehicles are often a more financially sound choice, helping you preserve cash and avoid significant depreciation.
- Educate Yourself: Continuously learn about personal finance, investing and wealth building. The more informed you are, the better financial decisions you’ll make.
At 25, you have the immense advantage of time. By adopting smart financial habits now, prioritizing savings and investments, and avoiding common pitfalls, you can set yourself on a powerful trajectory toward significant wealth accumulation and financial security in the decades to come.
Frequently Asked Questions
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You should focus on median net worth — it provides a more realistic picture of the financial position of people in your age group. Average net worth is skewed by a few wealthy people.
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Having a negative net worth because of student loan debt doesn’t necessarily mean you’re behind. The first thing you should do is build an emergency fund of three to six months of living expenses while making your student loan payments.
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Starting retirement savings at 25 is one of the most powerful financial moves you can make because of the magic of compound interest. The earlier your money is invested, the more time it has to grow. Contribute at least enough of your paycheck to your 401(k) to receive the maximum employer match.
