A simple formula on net worth

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I mentioned before that I was wanting to read Thomas Stanley’s The Millionaire Next Door. Well, today I took my girls to the bookstore so they could play and I could do some reading. Sure enough, they had this book and I couldn’t wait to dive in! While I only got to read a few chapters, I did come across one very interesting formula on calculating how much net worth you should have…

What should your net worth be at?

The formula is simple:

Take your age multiplied by your yearly pre-tax income (including money earned from investments) and divide by 10.

That is how much net worth you should have accumulated.

So for me – I’m 29 years old, times pre-tax income of $70,000 (total estimate) divided by 10 gives me $203,000. Ummm, I am no where NEAR this number for my net worth. But that’s OK! My husband and I are getting serious with investing, looking into buying a rental home, focusing on growing our annual income and really working on saving money, so I know we’ll be able to catch up. I definitely wished we would have focused on investing when we were in our early 20s, but it’s better to start now than wait another 5 years.

Have you seen this formula before? Does it ring true for your situation??!

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Comments

Jayleen Zotti says
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I recognize this book! I know the hubster has read it. Just did the math and …. ummmm …. I don’t think we’re quite there. Actually, I better ask the hubby as I don’t keep track of our 401k. There might be hope;0)
Genevieve @PFTwins says
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His estimate seems high to me, but then again my mental reference points are people who’ve spent 4 years going to college and have debt. Many of the millionaires in his book are entrepreneurs who didn’t necessarily spend four years of college spending money instead of earning it.
- sbrooks52111@yahoo.com says
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  Exactly!! I think his formula is a little off, too. Plus, we all have different end goals – so it’s really hard to say where we “should” be. If you want to retire and live a simple life, you’ll need significantly less money than if you planned on traveling the world in style!
Glen @ Monster Piggy Bank says
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According to that equation I am a little bit ahead of where I am supposed to be, but I have been fairy active with investments over the last 5 years, so I suspect that might have a lot to do with it.
- sbrooks52111@yahoo.com says
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  That’s good to know!! I hope we can be ahead within 5 years. We’re just now really getting into investing which I’m excited about. I mean, making your money make you money really is the best way to acquire wealth!
Suburban Finance says
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I’ve never heard about the book, but I’m curious about how he based on his calculation from… I think everyone has different circumstances even though they have the same income, and to think that this calculation rings true for everyone is too much of a generalization.
- sbrooks52111@yahoo.com says
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  I agree – it is a huge generalization. I feel like a lot of people would either be way ahead or way below, and there really is no “set” formula for everyone because we all have different goals. If you want to retire and travel the world in style, you’re going to need a lot more money than if you plan on staying in your hometown living in your paid-off house.
  Thanks for the insight!! Appreciate it!!
brian @ Debt Discipline says
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Love this book. One of my favorites. I’m a bit under the calculation, but we are just really beginning o build wealth with just recently paying off our debt.
Bill in NC says
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Love the book as well, but IIRC it has a lot of business owners who if they went at all, went to college in the 1960s & 1970s and so paid a fraction of current college costs.
E.g. my oldest is on a full 4-year Army ROTC scholarship at a local private college, but it only covers about 75% of total cost.
So I’m still paying, annually, what it cost for me to go to college 25+ years ago.
- sbrooks52111@yahoo.com says
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  College expenses are insane nowadays. I graduated only 7 years ago, but my little sister is currently in college and it’s still almost double what it was when I went! I have two little ones and I’m terrified of how much it’s going to be when their time comes. If it gets anymore expensive there’s going to be a huge decline in graduates, that’s for sure.
  Thanks for the comment 🙂 I hope you have a great weekend!!
MoneyMiniBlog says
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I’ve never seen this formula before, but that’s awesome! I calculated it and I’m way behind too! lol. I need to play catch-up.
Ashley Brooks says
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According to this, my husband and I are actually ahead of where we need to be. Woohoo! It’s only because we have no debt (aside from the mortgage) and our house is a huge asset, though. We bought it as a foreclosure when the housing market was at rock bottom. My husband is a woodworker by profession, and we’ve DIY-ed high-end upgrades to the entire thing. We’ve probably only spent 25k sprucing it up, but we’ve added well over 100k to the value. If you do it right, real estate is really where it’s at!
(P.S. Can you tell I’m slowly perusing all your past posts? This stuff is fascinating to me!)
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