It’s one of those things I fiddle with — those little financial tools from CNN Money or Bankrate.com that tell you how financially adequate you are. Though I may be mum about my real economic status, once in a while, I’d like to discuss some of my test results here to keep track of my own fiscal health and progress, as well as offer some insights on the numbers.
So what is my net worth supposed to be? According to this calculator, the household median net worth for people my age and income level is $44,875. Wow.
This sure doesn’t sound like a tough goal to reach, especially if you live in high income areas and if you’ve been lucky enough to purchase a house in the last decade or earlier. Records show that anyone who has joined the house buying bandwagon in the last decade or so may now be worth at least $50,000, thanks to home equity built in (the real estate recession notwithstanding). But in California, housing affordability was actually a phrase that existed in our vocabulary only till the mid-90’s, as its meaning became obsolete in line with the dot com bubble. In many ways, our net worth seems to have been influenced mainly by how long we’ve lived in this state.
In Silicon Valley, just by owning a house in the last decade would have given you some kind of decent net worth that would be in line or further improved from what is portrayed in the net worth chart above.
On the other hand, given my household income, the median net worth is expected to be $363,125. Now achieving any form of net worth given an income of $100,000 ALONE is quite difficult to swing in Silicon Valley. This may seem extravagant to some, but our cost of living is quite high here: think gas, rent, property taxes and everything else in between (no thanks to the California budget crisis), and try swinging that with 2 or 3 kids and it’s not as outrageous as you may believe. For some perspective, you can check out this article on the minimum budget required to survive in California. Could be an eye-opener.
Given the cost of living in California, expecting a nest egg amount of over $300,000 supported by a $100,000 income may actually be a bit of a stretch for a family of four (e.g. that is, you’ll really need to stretch your budget to make it happen). Hence, people here have concocted ways to build their net worth without solely relying on their income — we beg, negotiate and network to gain those stock options that may just give us an edge, and we risk our futures in equity locked into highly priced shacks we own.
This exercise has made me wonder how people have actually accumulated net worth in Silicon Valley. Many of my peers have done so via property ownership with accompanying risky leveraging techniques and strategies, through stock options or by starting their own businesses, by having dual income families or smaller families, or as radical as it may sound: having children late or never.
A regular 9-to-5 income of $100,000 for a family of 4 is going to be tough to cut it here, unless you’re ready to make serious sacrifices by living an ultra frugal lifestyle or by settling in distantly located bedroom communities that surround the Bay Area. And in the free-wheeling, go-go spending atmosphere of Silicon Valley, making such lifestyle changes and choices can be the mother of all challenges.
And for many of us, we only hope this situation is not forever.
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As a newcomer to Silicon Valley, my vote may not fully count, but here it is anyway. I looked at a few cost of living calculators before I came out and one said that I’d have to increase my income by 225% if I planned to own a home. However, if I wanted to rent, I could get by on 87% of what I was making back in Boston. Considering that I got 25% raise largely due to the cost of living, that’s a good help towards my net worth. I’m not going to be chasing after further appreciation in this market.
The other thing that hit me is that $100,000 is probably close to what two incomes bring in other places of the US (perhaps it’s more). It seems like two incomes are increasingly necessary in the US. So I have to ask, is the $100,000 a result of two incomes in Silicon Valley? If so, it would seem you may be underpaid to live there. If not, perhaps you should consider how you’d do on $50,000 in another part of America. Would that be enough to raise 2 children, buy a home, etc. or would that be stretching it?
I think you have two factors… 1) a single income family can be tough to begin with 2) you live in an area where purchasing a home is obscenely more than renting (in which case, I’d recommend renting if you aren’t already doing so).
Lazy Man, great points. Right now, our cash flow relies on one income while one of us strives to try to hit the elusive startup jackpot. We live in a home secured under attractive terms relative to many we know. We’re not counting on our situation being this way for the long term. If the startup thing doesn’t work, someone’s going to get a new job! But yes, we expect to remain in a cash tight situation for another 2 years. Thanks for your insights — it’s always great to hear from another Valley resident.
Hello from another Silicon Valley blogger! What is interesting from the graphs is that anyone making more than $75k has a median net worth greater than those in the highest (55-64) age category. Just out of curiosity, have you read the net worth formula (as a function of age and income) outlined in The Millionaire Next Door? And, good luck on the startup thing.
Thanks pfstock, nice to hear from a “neighbor” and fellow engineer.
I have read The Millionaire Next Door and will probably expound further on that sometime. Thanks too, for your good wishes.
The median networth for my age was a lousy $2,145!!!!
thats pretty sad.
I think someone in the thirties should have atleast 10,000 in savings!
This calculator – I’ve seen it elsewhere – is pretty silly. It says that according to my age, my net worth should be some really huge number, and according to my income, my net worth should be $1,100. Which should I believe?
This calculator is based on median stats, so based on your income or your net worth, you could presumably get different results. These are median numbers anyway so what’s important is to see how you fare relative to these numbers. If you’re doing better, then you’re in better shape than many people out there.
Interesting.
I agree the first part is achievable even in the nightmare that is Silicon Valley by the sound of it, but the second figure seems a bit “pie in the sky” to me?
I’m trying to determine the great variance between the two figures (median net worth for age versus income). I’m going to say that the median net worth for income is way off and that the net worth for age is a more accurate number.
@Tim: That was pretty much my experience with this experiment!
For what’s it worth ( no pun intended ). I’m 34, the sole breadwinner in my family, make $80,000 a year and I work in the tech industry in a major midwestern city. I’ve easily achieved the numbers for my age and income range on CNNs site. This may sound harsh, but I think the lot of you are destroying your futures by chasing a remote dream in a very expensive spot. There are easier ways and places for amassing wealth.
@Christian,
I agree with you. I feel that as I grow older, it has become more and more apparent that living in the West Coast with such crazy cost of living numbers is becoming less alluring. I’ve enjoyed living here when jobs were aplenty, when I was young and had the energy to pursue big dreams in tech — maybe strike it big one day? Well, in many ways, things are no longer the same (okay, these days, a LOT of stuff sucks for us here — our state is broke, our schools are broke, we’ve got sky high unemployment and our homes are still inflated in price), but what I have keeping me here are still mighty important — extended family and the weather. Now if only I can convince everyone in my family (in laws, sister, etc) that we should all just up and leave and move to somewhere more affordable!