Net worth is basically the total value of all your assets minus all your debts. It is the one number that represents a singular measure of your financial success. And what net worth you need to have to be considered wealthy? To many people, wealthy means having an abundance of material possessions. For me, I would consider myself wealthy when income from my assets can cover all my family living expenses and a few luxuries. There is no magic number. But when both my wife and I can choose to live without working, that’s when we are wealthy.
How to Calculate Your Net Worth
At any given moment, I know my net worth. All I have to do is log into my Personal Capital account and see the number. Personal Capital works by linking your investment accounts, bank accounts, credit cards, and loans and aggregating all the data into one place. You can also list any other assets and liabilities that cannot be linked. Once this is all set up, the software will show you what your net worth is currently.
In addition, it will provide you with many valuable information that you can use to manage your finances.
How Do You Compare to Others
The Millionaire Next Door Method
From The Millionaire Next Door by Thomas Stanley and William Danko, you net worth should be:
If you have twice that, you are indeed on your way to become wealthy! Stanley and Danko call them Prodigious Accumulator of Wealth or PAW
I did a quick calculation and our net worth should be about $900,000 according to the formula. Right now, we have well above that amount, so we are a pair of PAW! However, this calculation only works well if your income has been steady. For that reason, it’s probably better if you substitute “Your Pre-Tax Income” with your Average Pre-Tax Income for the Past 5 Years.
CNN Net Worth Calculator
The CNN Net Worth Calculator is a calculator that let you enter your age and income. It returns the median net worth for people in your age group and salary range. I punched in my numbers and I am glad to say that I am doing quite well compare to people at my age and income (according to the calculator anyway). Here is how I stacked up against other 45 years old in the United States.
Actually, it’s kind of scary that the median net worth for the 45-54 age range is only $98,350! Overall, the median net worth based on age and income both seem low. Is the calculator accurate, or is the reality of our finances so grim that this is a true reflection? In any case, I encourage you to check it out — punch in your age and income to see how you compare.
DQYDJ Net Worth Calculator
The DQYDJ Net Worth by Age for the United States Calculator is a different take on looking at your net worth. Here your current net worth (which you can get by following the step above), your age group, and whether or not you’re counting the equity your primary residence in your net worth. The calculator returns the Wealth Percentile ranking which shows you how you compare against others in the same age group in the United States.
Net Worth of the Top 1%
According to DQYDJ, here is how you stack up against the top one percent by household net worth:
- Top 1.0% = $10,374,030
and top top 0.1% is 43 time higher at $43,090,281, versus the top 10% at $1,182,390.
I think tracking your net worth is an important exercise that everyone should do — like the great Peter Drucker said: “If you can’t measure it, you can’t improve it.” And there is no reason not to do it because a tool like Personal Capital makes it super easy to do. As far as how you compare against others, I think it is less important. However, if you’re behind the curve, I think it is a good motivator for you to get started with a plan to improve your personal finance.
Before I end this post, I want to leave with you a quote from The Millionaire Next Door:
Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high.
Pinyo is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.