Calculating your net worth..

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.


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.

About the Author

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 my story here, or visit my other blog: The Everyday Minimalist.