When can you peak financially? *Hint* Maybe sooner than you think

It's best to understand how your financial life is likely to change over the decades.
It’s best to understand how your financial life is likely to change over the decades.

We all make assumptions about how our financial life will play out. We will first get an education, learn a skill or trade, begin our working careers, and work our way up the ladder to a higher income where we can afford the life we want. But is this really true? At what point do most people actually reach their financial peak? Let’s look at what the statistics say about how your financial life is likely to play out.

The 20s and 30s

Most people will start their careers in their 20s and work their way up the corporate ladder.
Most people will start their careers in their 20s and work their way up the corporate ladder.

You will most likely spend more money than you earn. Expenses can take the form of credit cards, car loans, or student debt. Obviously, spending more than you earn is not a sustainable way to build your wealth, but at this age, you understand that it can often be a necessary evil. As a result, you might still be relying on some help from your parents to make ends meet and survive the early stages of your career.

At this stage, you may have just begun your working career. But just because your career is only getting started doesn’t mean you can’t quickly work your way up the income ladder. Most people will see their biggest wage increase in their 20s and 30s, with women’s incomes increasing slightly faster than men’s.

Unfortunately, for women, there is prejudice against them. Having children and taking time off from work can hold back their earning potential. Dominie Moss, the founder of the London-based executive search firm The Return Hub, says, “Once women come back to work it can often be assumed they are no longer as focused, ambitious or committed as their male counterparts and [are] therefore not given the best accounts [or] juiciest deals to work on.”

The 40s and 50s

If you are a woman with a college degree, you will most likely reach your peak earning potential at 40-years old. For men, peak earning happens later, generally in the early to mid-50s. This also depends on your career path. For instance, physical laborers will likely see their earnings peak at an earlier age and subsequently decline as their bodies age because they cannot keep up with the physically demanding work. Alternatively, those seeking executive positions like CEOs might see their earnings peak in their late 50s or later, as they finally achieve their careers’ pinnacle position.

As you approach the peak of your income, you could be making 127% more than when you first started your career. This might sound like a significant sum, but it’s to be expected given that you have been working for several decades.

At this age, you are more likely to take on the biggest expense of your life: a home purchase. By your 40s, you have saved enough for a down payment on a house and can reasonably afford to make a monthly mortgage payment. Just don’t overextend yourself by purchasing a house you can’t afford.

The 60s and 70s

Can you afford the retirement you have been dreaming of?
Can you afford the retirement you have been dreaming of?

You have finally reached your highest net worth as an individual. Your retirement accounts have had decades to accumulate compound interest, and you might be close to or have already paid off your house in full. With your children out of the house and your expenses slowing, you can begin to think about retirement.

What does it all mean?

It’s all well and good to look at these facts by themselves, but what do they mean for your financial future? Let’s take a look at some things we can learn from looking at these numbers:

  1. Speed up your savings earlier – As your earnings quickly rise in your 30s, you should consider increasing your savings even more. Your income will not increase this fast in the coming decades, so it’s better to save now to get ahead.
  1. Compound interest is your friend – If you want to hit peak financial wealth in your 60s, you better take advantage of compounded interest early on. The magic of compound interest is that you will begin earning interest on top of your already earned interest, thereby exponentially growing your wealth over time.
  1. Affording retirement – When you finally reach the golden years of your life, will you be financially prepared to retire? Can you expect that your biggest expenses (like your mortgage) will be completely paid off, and your retirement accounts will be enough for the rest of your life? It’s best to think about these questions early in your career so you can budget and plan for the future.
  1. Time can be your friend or your enemy – As you can see, when you lay out the decades of your life, it becomes apparent that time can work for or against you. If you save early, budget for the future, and work your way up the income ladder, you should have no problem planning a secure financial future. But should you not take these steps seriously, you may wake up one day wondering why you can’t afford the life you really wanted.

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