Are you richer or poorer than other people your age?

What does it mean to be rich and how can you tell whether you are richer or poorer than other people your age?

Most people look at net worth when assessing their wealth. This is the value of your assets minus liabilities, such as credit card debt and mortgages. Sometimes you can also look at your income. If you earn a lot of money, you have the potential to be wealthy — although what you do with your cash may matter more than how much you earn from it.

If you want to see how you fare on both metrics, look at average income and average net worth by age to see if you are wealthier than your peers.

Do you earn more or less money than people your age?

If you estimate your wealth based on your earnings, the table below will help you see whether you are richer or poorer than other people your age.

Data source: Bureau of Labor Statistics, table created by author.

You might think that a higher income means you are richer or poorer than others. But the truth is that income is not a good way to measure wealth. If you earn a lot of money but spend most of it on unnecessary things, you can be a high earner but never become wealthy in terms of having a lot of money in the bank.

In fact, if you earn a fortune but live beyond your means and constantly take on personal loans or other debts, you can be poor despite your higher salary. Having a higher income than your peers gives you better chance to get rich because your large paychecks will allow you to acquire assets that actually build your wealth.

Specifically, if you earn enough to have disposable income, you can take the following steps to improve your financial situation:

• Investing in the stock market: The S&P 500 has historically returned an average of 10% annually, so you can grow your savings by that amount each year by buying an ETF that tracks it.
• Paying off debt: If you eliminate your financial obligations, you will be able to become the full owner of your property and accumulate more wealth.
• Emergency savings: Putting money into a savings account gives you a financial cushion, making you less likely to get into debt in the future. You can also take better care of your assets if you have the money to do so—for example, paying for regular car maintenance so your vehicle lasts longer.

Do you have a higher net worth than others your age?

Net worth is a more accurate measure of wealth than income. Net worth is what you own, not what you earn. You can earn a fairly low income and still be wealthy if you have millions of dollars in the bank and a large, paid-off mansion to live in.

The table below shows the median net worth of people in different age groups.

Data source: The Motley Fool, table created by author.

If you have a higher net worth than others your age, it probably means you are on the path to financial independence. This may be because you have paid off debts and used your income wisely. Of course, it could also be luck if you have inherited a lot of assets or received help from family members to purchase real estate.

If your net worth is lower than your peers, a good goal is to focus on improving it over time. The more assets you buy, the increase the more you are worth, the faster you will accumulate enough wealth to achieve financial independence and enjoy the freedom it provides.