Fabulously Broke in the City
  • Published: Sep 18th, 2007
  • Category: Money

Calculating your net worth..

COMMENTS: 6 Comments

Trent made a great point about The Millionaire Next Door and their calculation of what your net worth should be at certain points in your life.


Target Net Worth = Age X Annual Pre-Tax Income / 10

So, let’s say I’m a 23 year old, fresh out of college. I am carrying $25,000 in student loan debt and my only asset is my car, but I get a job paying $30,000 a year. According to this formula, this is my net worth:

Target Net Worth = 23 X $30,000 / 10 = $69,000

I don’t know very many fresh college graduates with a net worth that high – most are saddled with a lot of student loan debt and simply haven’t been in the workplace long enough to build any assets

I freaked out when I did the calculation. According to that equation, I should have had a net worth of at least $156,000!!!! But then I reminded myself that I clearly didn’t earn money as a baby :P and I only JUST got this job out of University – I was earning much, MUCH less before.

Instead, Trent offers up this equation instead:

Target Net Worth = (Age – 27) X Annual Pre-Tax Income / 5

By these estimates, I should have -$39,000 as my net worth.

That sounds a lot better. Negative net worth still sucks, but it’s better than seeing that your # should be $156,000!

My net worth right now is approximately -$29,000…. so I’m $10,000 ahead of the game so far.

PHEW.

And by the end of 2008, I should be at a net worth of -$3000, when my benchmark (based on the equation above), should actually be -$26,000.

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COMMENTS: 6 Comments

6 Responses to “Calculating your net worth..”


  1. Lady N
    on Sep 18th, 2007
    @ 7:37 PM

    I totally freaked out when i heard that “net worth” calculation too! I felt so underachieved. Now with new calculation, I feel like an overachiever.


  2. Fabulously Broke in the City
    on Sep 18th, 2007
    @ 7:43 PM

    Phew! I’m not the only one then.

    I thought: .. are you kidding!? $156k?!?

    But I guess it’s meant to be used for when you hit 40 or older, to show whether or not you are a PAW.

    The thing is, if you save more than 15%-20%, you can assume that you’re a PAW. Most people don’t even save 2%.


  3. SavingDiva
    on Sep 19th, 2007
    @ 12:17 PM

    For the MND calculation, I’m supposed to have a net worth of $101,400
    For the other prediction, I’m supposed to have a net worth of -$7800

    Neither describe my current situation, but the MND calculator makes me feel like a horrible under achiever, but I think that’s the point.


  4. Fabulously Broke in the City
    on Sep 19th, 2007
    @ 8:50 PM

    Agreed.. it made me think about how little I’ve been saving – but at least I read the book, it changed my life for the better, and now I’m on the way to killin’ that figure :)


  5. SF Money Musings
    on Sep 21st, 2007
    @ 12:40 AM

    I love the best of posts! The clothing ones were particularly helpful because I’m a bit style-challenged.

    Can you do a post maybe on how to act, carry yourself and talk about yourself if someone asks you something without sounding boastful? That’s something else I struggle with . I don’t talk about myself because I’m modest but it gets into other issues.


  6. Fabulously Broke in the City
    on Sep 21st, 2007
    @ 6:32 PM

    Ahh… SF Money Musings – mais oui :) I’ll post something later on tonight after I come up with a list in my head..!!

    Great idea..

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