Saving

The net worth Americans need to feel 'financially comfortable'

“If this last year showed us anything, it is that the unexpected can and will happen.”

Share
Twenty/20

For some Americans, the pandemic provided an opportunity to reprioritize their finances: The personal savings rate hit its highest level in decades, many people now have more money in emergency savings than credit card debt, and contributions to 401(k)s and other retirement accounts reached new highs.

Those changes in how people are saving and spending are showing up in a key measure of financial well-being. Americans say they need a net worth of at least $624,000 to feel comfortable about their finances, according to Charles Schwab's 2021 Modern Wealth Survey, which polled 1,000 U.S. adults. That's much less than the $934,000 people said they needed for comfort just a year ago, in early 2020, before the onset of the pandemic.

Net worth is the sum of all your assets, like your cash savings, investments, and/or real estate, minus the total debts you owe, like your student loans, credit card debt, and/or mortgage. When the needle moves for wealthy people like Bill Gates or Jeff Bezos, it makes headlines. But tracking your own number is important, too.

Here's the net worth people in the Schwab survey say they need to feel good about their finances.

  • To feel "financially comfortable": $624,000 (versus $934,000 pre-pandemic)
  • To feel "financial happiness": $1.1 million (versus $1.7 million pre-pandemic)
  • To feel "wealthy": $1.9 million (versus $2.6 million pre-pandemic)

'You need to be prepared' and plan for unexpected financial crises

The pandemic played a major part in shifting the way Americans look at money. Of the Schwab poll takers, 31% said the economic strain hurt their finances, 26% faced slashed wages or hours, and 20% were furloughed or laid off. Many of them had little choice but to reorder their financial priorities.

"If this last year showed us anything, it is that the unexpected can and will happen," says Wesley Botto, a certified financial planner and certified public accountant at Botto Financial Planning & Advisory in Ohio. And that's why "you need to prepare for it." That's exactly what many people are doing.

VIDEO2:0902:09
What is a 401(k) match and how can you take advantage of it?

Video by Ian Wolsten

Last year, nearly two-thirds, 64%, of Americans said they were "savers" as opposed to "spenders," according to Schwab. In the year ahead, 80% plan to save more money than they spend: Of those, 45% intend to stash away more income, and 34% will aim to reduce their debt burden.

"While Covid-19 upended nearly every corner of American life, many are starting to see the light at the end of the tunnel and are ready for a reset," Jonathan Craig, Charles Schwab's senior executive vice president and head of Investor Services, said in the survey. "But we're also seeing a healthy balance – even as many people are eager to get out to spend, they also want to nurture newfound, healthy savings and investing habits developed over the last year."

If this last year showed us anything it is that the unexpected can and will happen.
Wesley Botto
CFP

If you're putting more money away, start with building an emergency fund, Botto says: "If you don't have 3 to 6 months' worth of spending in your emergency savings, you need to get there." If saving that much of your salary isn't possible right now, it helps to aim for smaller goals along the way. Having $1,000 is a start, and saving $3,500 could be even better.

"Build your savings into your budget," Botto adds, "just like another line item like grocery shopping. If you fall short one month, you need to catch up the following month."

Whether you want to feel 'financially comfortable' or wealthy, make a spending plan

As more people get vaccinated and jobs open, Americans are feeling optimistic about increasing their net worth. And boosting that number may be simpler than you think. Paying down lingering debt, staying on top of key expenses, and even picking up a side hustle to earn more income can all help.

Another strategy that can help you hit your financial goals: writing them down. More than half, 54%, of the Schwab respondents who put their financial plan on paper feel "very confident" about reaching milestones, versus 18% without a written plan.

Tracking your net worth can help you see how much progress you're making and showcase the net effect of smaller changes. By making a post-pandemic money plan, you could discover and follow financial guideposts that are tailored to your situation and can guide you in the right direction.

VIDEO3:5403:54
Coronavirus: How to negotiate a raise during a pandemic

Video by Mariam Abdallah

"Don't be afraid to create a budget," says Teresa Talton, a certified financial planner at Stearns Financial Group in North Carolina. "No matter what their age, I've found that most people dread the idea of budgeting." But if you want to better your chances for a comfortable future, "it's going to require a little adulting and that often means sticking to a budget."

Whether your aim is to feel financially comfortable, happy, or wealthy, it makes sense to evaluate your financial situation and document a plan, whether in a notebook or tablet.

Households nationwide had an average net worth of $748,800 before the pandemic, data from The Federal Reserve's 2019 Survey of Consumer Finances shows. The median, or midpoint, net worth of all families, though, was much lower at $121,700 in 2019.

Take a critical look at your spending patterns to track where your money is going, and don't hesitate to address any cashflow issues you may find. For most people, there's a long way to go between net worth reality and aspirations, but getting granular about your money management could help you down the line.

More from Grow: