Personal Finance FAQ

Twentysomethings: You Have an ENORMOUS Asset! Do You Realize It?

Phat Wad, Break me off some
It’s not this. At least, not yet.

Most recent college graduates feel like they don’t have a dime to their names. They probably have an old beater car, some second-hand furniture – or, better yet, cardboard boxes and milk crates – and probably a hefty student loan debt from their friends at Sallie Mae.

They may be getting a paycheck at the new job, but now they are faced with the costs of living that they didn’t have to deal with back in college – rent, buying a car, furnishing a place, insurance, food that doesn’t come from the student union, etc.

They feel like they have to be adults now, but they feel like they don’t have a dime to their names.

Does this describe you?

Feel like you don’t have anything in the world?

Yet, if you’re a twentysomething who feels this way, you probably don’t realize that you have an enormous asset.

It’s worth about a half a million dollars, and it’s all yours, to choose to do with it what you want.

You can make it worth much more.

Or, you can fritter it away. It’s your choice.

What is it?

Read on to find out.

The HUGE Asset Most Twentysomethings Don’t Realize They Own

While as a twentysomething, you may look at your bank account and see very small numbers and look at your student loan bills and see very large numbers, you do have something that is very valuable.

You have the ability to earn an income.

The average 25 year old in the U.S. earns $44,970 per year. With a graduate degree, he can earn more, but for now, let’s just look at the average 25 year old’s salary.

I ran a simulation to see how much the average 25 year old couple both earning the average salary would earn over the next 30 years. Using the historical ranges and average inflation rates, I did 10,000 simulations, and, assuming that our average 25 year old couple only received pay raises that matched inflation, I looked at how much they would earn.

25 Year Old Total Wages by Fort Worth Financial Planner Hull Financial Planning

On average, over the course of 30 years, this couple would earn $4.35 million dollars in wages.

Because of inflation, we know that a dollar today is worth more than a dollar tomorrow.

To calculate how much tomorrow’s dollar is worth today, we use a formula called net present value. To arrive at a net present value for tomorrow’s dollar, we must solve for how much money is needed today, invested at a given rate of return, to have a dollar in the future.

I calculated the net present value of the wages that our hypothetical average salary couple would earn over the next 30 years, using the average return of the S&P 500 as the discount rate.

Net Present Value of Total Wages by Fort Worth Financial Planner Hull Financial Planning

The average net present value of future income for this couple was $1.05 million dollars.

That means if this couple had $1.05 million at age 25 to invest, they would, getting average returns, be able to convert that money into the wages that they’d earn over the next 30 years.

If you’re a twentysomething earning an average salary in the United States and you plan on working 30 years and only having raises that match inflation, that earning capacity is worth a cool half a million.

Let’s take this one step further, though.

What happens if our hypothetical couple are shrewd negotiators, and they bargain hard in the first job (or they have engineering degrees) and can earn a 5% higher baseline from which those salary adjustments are made? How much of an impact does that make?

Impact of Five Percent Increase on Total Wages by Fort Worth Financial Planner Hull Financial Planning

On average, the total earned by this couple increased almost $218,000 to nearly $4.6 million.

How much does that future earning convert to in today’s dollars?

NPV of Increased Wages by Fort Worth Financial Planner Hull Financial Planning

It’s now worth slightly more than $1.1 million for the couple, or $550,000 per person.

Increasing baseline pay from $44,970 per year to $47,218.50 per year – a $2,248.50 difference is the financial equivalent of someone handing that 25 year old a check for $26,332.

How much does that 5% pay raise play out in terms of overall wealth?

To answer that question, I ran another simulation of 10,000 scenarios. I assumed this couple saved SAFEMIN and was invested, aside from the retirement shoulder years, in a 110 – age allocation to stocks and the remainder to corporate bonds. I used the range of historical returns of the S&P 500 and the corporate bond index to simulate investment returns. At retirement, at age 55, the couple spent half of what they had been spending and used investments to fund all of their expenses.

How did they do on their 85th birthday? How much richer were they for having the 5% raise?

Impact of Five Percent Wage Increase on Net Worth at Age 85 by Fort Worth Financial Planner Hull Financial Planning

On average, they had a little over $331,000 more wealth than they otherwise would have (note: the negative numbers would be because of high inflation right before retirement and low returns right after retirement; I would expect the average person to adjust their spending to account for this).

If you’re a twentysomething who is feeling poor, cheer up! You have an enormous asset! What you choose to do with that asset is up to you. You can help it grow, or you can fritter it away. You control the outcome.


Jason Hull, CFP®, was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business.

You can read more about him in the About Page.

6 replies on “Twentysomethings: You Have an ENORMOUS Asset! Do You Realize It?”

I read a post about how if you invested money from 20 to 30 and then nothing until retirement, you would be better off than a person who starts investing the same at 30 and doesn’t stop until his 60s. Having time on your side to plan your future is the best asset possible. Negotiating a raise is hard once you are at the company, but an entry salary is much easier, then you can change companies every couple of years to maximize the raises.

That sounds about right. Maybe it was this article? 🙂

You have a great point about the difficulty of negotiating a raise versus negotiating a higher baseline salary. I wouldn’t let that stop me from negotiating for a raise, but I also think that, for a lot of people, lateral mobility will be the way to find jobs with ever increasing responsibility (keeping the Peter Principle in mind) and higher wages.

Thanks Jason for sharing this post. I have the same feeling when I completed my graduation and struggling for a new job. You given a flashback of my old memories….:)

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