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How To Calculate What Your Net Worth Should Be
I was doing some reading in the book The Millionaire Next Door and it gave a formula to calculate what your net worth should be.
I found it incredibly interesting and find that it serves as a very good way to evaluate your spending habits in your life thus far.
But before we get to the formula, you first have to know what your net worth is! Now, how does one go about doing that? Well, you can do it the simplest way possible. And that is to take the amount of money that you currently have and subtract it by how much money you owe.
Doing this will give you a general estimate of what your net worth currently is. If you don’t care that much, that estimate will be close enough for now. However, I suggest that sometime you give this a try…
Go to MSN’s Net Worth Calculator or simply type in “net worth calculator” into your favorite search engine. It will walk you through a step-by-step guide on how to determine your actual net worth.
If you have never done this before, it’s something fun to try! After all, isn’t it cool to know how much you are really worth? But anyways! No matter which path you choose, find your net worth and write it down on a piece of paper.
It’s now time to calculate what your net worth should be. Here is how you do that (according to the book)…
Multiply your age by your yearly household income. Then, take that number and divide it by 10. So if Jane was 42 years old and makes $50,000 a year. Her net worth should be…
(42 * 50,000) / 10 = 210,000
$210,000 is what Jane’s net worth should at least be at thus current stage of her life. How does yours stack up? Give it a try right now! I’ll wait…
The Results Are In
If you meet the formula, then congratulations! You have been pretty smart with your money so far in your lifetime.
If you, for some reason, fall below what your net worth should be, I would suggest that you take this formula to heart. Let it be a serious reminder that maybe you haven’t been as smart with your money as you should have been.
After all, around half of the people in America under age 50 have less than $10,000 saved up for retirement. You don’t want to add to this figure do you?
Saving up and building your nest egg is not as difficult as you might think. It takes a plan and commitment on your part. Start saving up a percentage of your income. I don’t care how much you are currently making. Or how badly in debt you are! If money is tight, you can start by only saving 1% of your income. You can save 1% can’t you? I know you can! Do that for a few months. Get control over some of your financial problems. Then…
Start saving up 2%. And keep building and building from there. Until eventually, you are putting away 10-15% of your income.
This idea may sound crazy to you. But it’s what tons of people are doing in this world to become millionaires. It’s not hard. It’s simply living a little below your means.
I know that if you really looked at it, you could save a dollar here, a dollar there. Buy a couple less coffees at Starbucks. A few less lottery tickets.
Stop wasting your money on little things and start putting it in situations where it will earn you more money over time.
You have everything that it takes right now to become a millionaire in your lifetime.
Start making the commitment so that you can be on the positive side of the net worth calculation. Start getting more control over your finances.
You don’t want to work forever do you? Wouldn’t it be nice to retire in luxury?
Get your net worth to where it should be. And I’ll drive by your new luxury home when you’re sixty.
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