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 😛 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.
Just a girl trying to find a balance between being a Shopaholic and a Saver.
I cleared $60,000 in 18 months earning $65,000 gross/year.
Now I am self-employed, and you can read more about 
You make $21K a month? What in God’s name do you do for a living at 30 years of age? You say you’re a “consultant”? What do you exactly consult on? I’ve been following you and read in the past that you are in computers. I’m in computers, quite advanced actually and I don’t know anything in the States or in Canada that will pay anything close to the consistent level of what you bring in monthly unless you are super techie or in Quant programming.
What exactly are you using to calculate your total NW as well? I am curious to see how you come up with that number. Your specific work info and net worth calculations are vague. I’m inclined to call BS so you can sell more of your budget tools on your blog.
FB was probably not making $21K a month at the time of post. This post was created in Sept 2007.
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..
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.
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 🙂
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.
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%.
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.