This Is How Much You Should Have in Savings by Age 40

I blew out 40 candles on my last birthday cake, and ever since, something weird has been happening. This year has been full of mid-life wake-up calls -- and money seems to be at the center of most of them.

According to the most recent Survey of Consumer Finances data, Americans aged 35 to 44 have a median net worth of $135,300 and an average net worth of $548,070. That's a wide gap -- and a reminder that comparing yourself to others doesn't always help.

Rather than stressing about where everyone else stands, let's figure out what your savings should actually look like by age 40 -- and how to grow it from here.

Rule of thumb: Save 3x your salary by age 40

Some people live in expensive cities. Some are raising kids. And some lucky folks have access to the Bank of Mom and Dad. All of this shapes our financial picture, which is why it's better to use a savings rule that adjusts to your life -- not someone else's.

Some experts say you should aim to save roughly 3x your annual salary by age 40. It's not a perfect science, but it adjusts to your income and offers a simple target to work toward.

• If you make $60,000 per year, that's about $180,000.
• If you make $100,000, that's $300,000.

Again, this is just a guide -- not a judgment. If you're behind on savings, it's never too late to improve things.

How to calculate your net worth (and why it matters)

Your net worth is basically a snapshot of what you own minus what you owe.

It's your personal balance sheet showing the final number of what's left over if you sold everything you own and paid off all your debts.

Start by adding up the amount you have in:

• Cash in checking and savings accounts
• Certificates of deposit (CDs)
• Brokerage and investment accounts
• Retirement accounts like 401(k)s and IRAs
• Health savings accounts (HSAs)
• The fair market value of your home, car, or other large assets
• Any life insurance policies that have cash value

Don't include potential assets, like future inheritances or Social Security payments. If you can't tap into it right now, don't count it.

Next, subtract the debts you owe, like:

• Mortgage or home equity loans
• Credit card balances
• Auto loans
• Student loans
• Personal loans
• Business debt, if it's tied directly to you

Once you've got those totals, just subtract: Assets - Debts = Net Worth

For example, if you've built up $200,000 in assets and owe $75,000 in loans, your net worth would be $125,000.

Some folks wonder if you should include your primary home. I say yes -- as long as you're realistic about its current value and understand that it's not a liquid asset.

While your home can be a valuable part of your nest egg, it won't replace your paycheck in retirement. That's why it's important to build up other investments -- like 401(k)s, IRAs, and brokerage accounts -- that can generate real cash flow when you're no longer working.

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How to grow your net worth faster

You can't change the past. But you can control your future actions.

Here are some ways to grow your net worth going forward:

• Pay off high-interest debt: Credit cards are a wealth killer. So are car loans. If you have any consumer debt like this (really, anything with an interest rate over 10%) pay it off as fast as you can.
• Increase your income: I know, it's easier said than done. But the more you earn the more you can save -- assuming you don't spend it.
• Lower unnecessary expenses: Cutting even $200 a month from your budget can free up money for saving or investing. Scrutinize your budget to see which areas you can be more mindful in spending.
• Invest consistently: Treat saving and investing like a built-in part of your routine. Even small amounts can add up into something big over time.

Personally, I contribute over $1,000 a month into my 401(k) at work and max out my Roth IRA every year. I've found that putting these investments on autopilot helps me save more, because they grow quietly in the background without me having to think about it.

There's no magic number you have to hit by 40. But having a rough goal, knowing your net worth, and making steady progress is what really counts.

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