You can build a high net worth without a high income, but it sure does help to earn more.
Tracking your net worth is like keeping a scorecard of your financial progress in life.
Calculating your net worth is straightforward. First, you add up all of your assets — your checking account, your retirement savings, your home. From that, you subtract all your liabilities — your student loans, your mortgage, your credit card balances. The result is your net worth.
Net worth can provide a much clearer picture of your financial standing compared to tracking a single financial metric like how much you have in your workplace retirement account. Holding a lot of cash in your savings account isn’t that great if you’re ignoring loads of credit card debt.
Improving your net worth is as simple as spending less than you earn, paying down your debts, and investing what’s left. But that’s not always so easy. It’s much easier for someone making $200,000 to follow those steps than it is for someone making $40,000. Trying to compare your progress to that of someone earning five times as much as you probably won’t offer much encouragement.
If you want to see how you stand among your peers, you should compare yourself to households with a similar level of income. Here’s the typical net worth for Americans across different income levels.
Image source: Getty Images.
How much are you worth?
Every three years, the Federal Reserve conducts a survey of American households, examining various financial details, including income, assets, and liabilities. The most recent survey data comes from the end of 2022.
At that point, the median household income was $70,250. If you made less than $36,750 as a family, you were in the bottom quartile. The top 25% made at least $129,700. The top 10% brought home $248,600 or more, and a household income of at least $1.2 million put you in the top 1%.
To figure out the typical net worth of someone at those different benchmarks, I took groups within a five-percentile range of the 25th, 50th, and 75th percentiles. I narrowed the range to 2.5 percentiles around the 90th percentile and 0.5 around the 99th percentile. I then found the median income from each group, where 50% of households had a higher net worth and 50% had a lower net worth.
Here’s how the numbers pan out.
| Percentile Group | 25th Percentile | 50th Percentile | 75th Percentile | 90th Percentile | 99th Percentile |
|---|---|---|---|---|---|
| Income Range | $31,346 to $43,236 | $62,693 to $79,987 | $115,658 to $151,328 | $216,182 to $298,332 | $989,034 to $1,837,550 |
| Median Net Worth | $38,880 | $154,700 | $374,410 | $1,207,900 | $6,145,000 |
| Net worth multiple | 1.06 | 2.20 | 2.89 | 4.86 | 5.12 |
Data source: Federal Reserve. Calculations by author.
You’ll also notice a metric called “net worth multiple” at the bottom of the table. That’s how much the median household is worth relative to the median income of the group. For example, a typical household with an income in the 50th percentile group, around $70,000 per year, has a net worth 2.2 times their income. If your income doesn’t fall into one of the ranges above, you can use the net worth multiple of the closest group(s) to determine what the typical household around your income is worth.
One thing the net worth multiple metric makes abundantly clear is that it’s easier to grow your net worth with a higher income. While it’s no surprise that higher-income households typically have a higher net worth, that net worth is also a higher multiple of their income.
Increasing your income could be a great accelerator, but only if you start with great habits
Increasing your income can unlock a lot more options for you to grow your net worth, but it’s important to maintain great financial habits regardless of your income level. You should aim to save a higher percentage of your salary as you increase your income. That doesn’t mean you shouldn’t be able to experience some lifestyle improvements as you climb the ladder, but it does mean you should be mindful of your spending and savings.
There are two main ways to accelerate the growth of your net worth as you increase your income. First, pay down any high-interest debt you may be carrying. If you maintain a balance on any credit cards, that should be the first thing you put any extra cash toward. Few investments offer a guaranteed return as high as the interest rate on a credit card. Paying off that balance is like locking in a return on your investment equal to the interest you would have paid.
The other area to consider is your workplace retirement plan. See if your employer offers a 401(k) match that can be worth 50% or 100% of your contribution (up to a certain percentage of your wages), depending on the terms of the retirement plan. Make sure you’re getting as much of the employer match as you can. If you don’t have access to a workplace retirement plan, you can open an IRA and get some tax advantages from your contributions.
Increasing your income is a great way to support the growth of your net worth. But if your underlying habits are keeping you below the net worth of the typical person at your income, those habits will likely keep you from achieving a typical net worth at higher incomes too. Building good financial habits is essential to building a high net worth at any income.
