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.
Most people don't have any net worth targets to shoot for. As a result, they wake up 10 or 20 years from now, wondering where all their money went. They ask themselves why they aren't richer? Having aggressive net worth targets will keep you focused.
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. That's one way to look at things.
Shoot For An Aggressive Net Worth Target Figure
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 in the chart below, 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. But if you want to afford healthcare in retirement, you need a high net worth.
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 and compounding over the long term.
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.
For those of you who want to take on more risk for potentially greater return, I think it's better to invest in growth stocks. Your goal is to grow your capital as much as possible and as quickly as possible. Once you have enough capital, then you can invest in less volatile and less risky dividend stocks.
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.
Invest In Private Growth Companies
If you look around, the richest people in the world are all entrepreneurs with tremendous amounts of company equity. As a result, if you want to achieve an extreme net worth target of 50X your income, you have to take on more risk.
Consider investing in private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out Fundrise Venture, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Fundrise Venture invest in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what Fundrise Venture is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Here's a podcast episode I did interviewing Ben Miller, CEO of Fundrise about investing in venture capital and private growth companies.
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 $400,000 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 an around 30X multiple of my average gross income over the past three years. In other words, I've got a long way to go.
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 55 in eight years. After age 55, 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.
The two best private real estate platforms
Fundrise: A way for all investors to diversify into real estate through private funds with just $10. Fundrise has been around since 2012 and manages over $3.2 billion for 350,000 investors.
The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund 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 and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends.
If you are a real estate enthusiast with more time, you can build your own diversified real estate portfolio with CrowdStreet. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.
Both platforms are Financial Samurai sponsors and Financial Samurai is a six-figure investor in Fundrise funds.
For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.
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?“
I think it’s fun to look at extremes once in a while to get inspired by what extreme net worth achievers are capable of. I wouldn’t have got as far as I have today if I only read about average Joe’s and underachievers. I definitely push myself to be better by imagining what it would be like if I could achieve xyz like the pros in various scenarios.
Very interesting stats on the long term care stuff too. No body likes to think about end of life care including me but it’s an expenses our parents and most of us are likely going to face and the better prepared for it we are, the better.
What I want to know is what kind of jobs and/or businesses you guys are running that help you make $200,000 a year or more. Several of you have mentioned this in the comments so far and I’m rather surprised to hear of so many people in this situation.
I just got out of school with a Chem-E degree and may have jumped into the wrong industry (Environmental Engineering), where the income for the top 1% is around $160,000 a year (typically for an environmental contractor). Do you guys work in real estate, law and IT?
Patrick, check out: How to Make Six Figures At Almost Any Age.
Give yourself 10+ years, and you can probably earn way more than $100,000 in your field too. Inflation + performance makes it so.
Thank you. I read your article several months ago and it has served as a guide as to what I need to do in the next few years to make over six figures.
My question though, is slightly different. While there is a good chance that I will hit the six figure mark in the next 5-6 years, I want to know more about the individuals who make $200,000 a year or more.
It’s the same people who make $100,000 – $199,999. Most are just at their jobs longer.
Most engineering fields offer a relatively high starting salary, but most people reach a quick ceiling if they stay in an individual contributor role in the field. If your primary goal is financial success, then you’ve got to move onto a management and business role and also use other methods to supplement your earning power as Sam mentioned in his articles.
However, if truly you enjoy/love what your doing, then consider yourself lucky since most people don’t love their work much and instead focus on learning more about your profession.
Here’s my take on making bigger money when working for a company and having a technical (engineering) degree:
1. become the best at your job (distinguished or fellow engineer)
2. Go into sales
3. Go into management.
I would think #1 & #3 is realistic for most as long as they’re willing to work hard, although #3 requires being good with office politics to some extent.
#2 for most people in engineering field is highly unlikely, since most engineers don’t make good sales people and vice versa.
I’m at the start of the road and something is unclear to me.
You mentioned 20x of the gross annual income, but my salary kept increasing. So if year by year the salary will go up, do I have to recalculate the 20x on each change?
Good question. Since you are starting off, you are in a discovery period of how much income you need to be happy and how much can your income rise to. Once you discover these variables, then you can apply the multipliers. Or you can just take the average income of the past three years and use the multiplier.
Thanks for answering me, this made me rethink my long term strategy.
I figured out how much I actually needed to have a decent life, and luckily it’s way bellow my current salary (3x-4x lower), but that doesn’t seem right.
I tried to keep my life the same, even with the increase in income and I tried to reduce useless costs such as rent where no asset is being accumulated. I know I’m on the right track, but I don’t know exactly how to pinpoint the 20x – 50x.
I would agree that 50X is extreme, but knowing that you have that as a target helps put things in perspective.
Today, at 35, I’m only at 3X. My current FI target for when I’ll turn 40 (at 25 times expenses) would still only be 6X gross income.
I do want to reach 40+X by the time I get to 65 and I’m still not sure this is realistic.
However, like you said, having a (crazy) goal and then trying to figure out how to make it work (even if it fails) might still be the best way to actually achieve more reasonable goals.
I like your target of 50X income by 50.
Awesome goals you have. 25X expenses at 40 will definitely make you feel financially free to do whatever you want. I like having the option of doing something that pays less, but is much more rewarding.
worn the same clothes for 10 years? psh, I literally am wearing some stuff I got back in 7th grade. No joke. Yes it still fits (I haven’t grown in 13+ yrs…). I will wear them until they fall apart. Not getting fat is easy when you are such a cheap ass they you eat as little as possible to save money. @being_this_extreme
Haha, nice. Great job being the same size since 7th grade!
I love this post. I am trying to hit the 50x income net worth by age 50. I recently bought a house for 1.27x my gross annual household income and am beating myself up over it. I am the smallest house in the richest neighborhood, which is what initially drew me to the house. I’m worth about 3x my annual gross income now. According to the Millionaire Next Door, I should have bought a $350,000 house and lived among mainly blue collar workers but the extra $250,000 worked out to under $1,000 per month of mortgage and about $150 more per month in property taxes. I assume the other expenses difference are negligible. Is this still very conservative? Am I beating myself up for no reason? I constantly balance “living life” with prudence and trying to get ahead financially.
Depends. A $350,000 is what multiple of your gross income?
I wish I leveraged more in 2003 when I first bought a place in SF. And I wish I bought a place in Manhattan I couldn’t comfortably afford in 2000. Curse you inflation and a demand for prime property in superstar cities!
$350,000 is approx 75% of my $465,000 annual gross income. I live in a home that wouldn’t make a good rental down the road and where real estate only appreciates about 2-3% per year, so I don’t view my house as much of an investment. It’s really just a place to live and call “home.” This is why I am thinking I should have been more frugal and bought a less expensive home. I didn’t at the time because I felt like a $600,000 home was much nicer than a $350,000 home in my area and the extra cost of ownership is about $14,000 per year. It’s just that I am not exactly the Millionaire Next Door living in a $600,000 house with a $465,000 income. I know I could have “afforded” a larger and more expensive home, but $600,000 is enough where I feel like I am not exactly practicing stealth wealth. I do drive an economy car, but we travel to exotic destinations (which we are considering cutting back on).
I think you are fine. If your $465K/year gross income is sustainable, I think you’re being SUPER frugal with the house you bought. Use this time to save MAX money so that if the $465K goes away, you will be set for life.
What is it that you do?
The only item I’d disagree with is “sleeping two hours”. It’s okay to skimp on sleep at times, but if someone adopts this habit continuously, they’ll not only shorten their lifespan, but also probably be less productive in whatever they’re working on and may even develop substance addiction.
I didn’t mean sleeping just two hours. I mean sleeping two hours less a day to use that time to be more productive. So many folks say they need 8 hours a day. But do they really? Try 7 hours, then 6 hours. Take a nap in the afternoon. I’ve met so many successful people who sleep 4-6 hours. You can do a lot more than someone who sleeps for 8!
Oops, I meant to type “sleeping two hours less a day”. If someone can get 8 hours a sleep a day or function well over long term getting only 4-6 hours sleep, then I’m envious. I can’t sleep 8 hours even if I tried and can’t nap either. I’m in my mid 30s, and I consider 6.5 to 7 hours continuous sleep as blissful, that’s why I can’t cut two hours. I know for a fact I’ll feel groggy all day the next day.
But if someone can actually cut 1.5 to 2hrs of sleep a day and still feel rested enough to function well, then obviously more power to that person.
Hi Sam,
Sleeping two hours less is definitely extreme.
I am sure I can transform my life if I improve my existing time even without infringing on my sleeping time! And obviously this ties in with getting rid of procrastination!
Have been meaning to keep a time journal for a long time now. Will aim to get this moving.
I am a very long time lurker for the last couple of years and this is my first comment.
Always find your discipline, integrity and analytical approach inspiring. Thanks very much.
MRL
Feel free to comment more and share your thoughts! They are always welcome.
Instead of trying to sleep 2 hours less than you normally do, start with 30 minutes less for three months. You will get used to it I promise you. Then try 1 hour less, etc.
I dropped 8am calculus class in college b/c I thought I needed 8 hours of sleep. Now I automatically get up around 6am every day (6:12am this morning) no matter when I go to sleep up to 2am b/c I had to wake up before 6:30am for the markets for so long. It can be done!
I agree it can be done. I trained myself to get up at 5 am years ago when I had to commute, and it changed my life. Years later, when I was downsized and went into hustle mode with many jobs, it was easier because I already was up every day at 5 am. I can function well on very limited sleep if I have to and it really gives me confidence that I can cope and not get behind or lose my momentum during the day. I am retired now and still get up at 5 am and really value those hours of the day. I am way ahead of everybody else all day and have a nice relaxed pace all day with no energy flags. No naps for me either.
I’m impressed you don’t take naps. Once I have a yummy lunch it is game over for me and I enter into a food coma where all I want to do is sprawl out on the couch for 30 minutes. It is one of the most glorious feelings ever!
It takes effort to see the sunrise. Maybe that’s why not many people do it.
50X multiple just seems excessive. If I have an annual income of $50,000 at retirement and my nest egg is $1.25mn, assuming I can get a 4% ROI I can negate most of my withdrawals — I can probably completely cover it because my expenses should be lower in retirement. Now, I’ll openly admit that $50,000 is going to be tough to get because you’re closer to the threshold of ‘what’s needed for basic expenses’, but if you can’t hit a 20x, you can’t hit a 50x.
I would much rather live my life as it happens, rather than be THAT frugally extreme. Just doesn’t seem worth it.
What if you’re at a negative X multiple? Just kidding. But I agree that once you aggressively start saving and generating other income streams, it can eventually become a lifestyle. With time, practice, and a positive support group like here, the process can become easier.
Hi Sam,
I might be missing something but doesn’t it make sense to calculate your multiple on net income? Why factor in taxes when you never get to spend that portion of your income anyways?
Thanks, Bill
To make the goal more challenging. Using top line revenue (gross income) is a more apples to apples way to help everybody looking for extreme targets.
The reason is because everybody has different effective tax rates.