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Find your ideal

Determine your target net worth - where you want to be in the near-term and long-term future.

The following formula is helpful:

Target Net Worth=[Your Age−25]∗[1/5∗Gross Annual Income]

A 50-year-old with a gross annual income of $75,000 might aim for a net worth of $375,000 ([50 - 25 = 25] x [$75,000 ÷ 5 = $15,000])
Your net worth can be much more or much less than the amount indicated by the guideline.

@joa71

MORE IDEAS FROM THE ARTICLE

Net Worth = Assets - Liabilities

Your net worth gives an overview of your financial situation at this point. It is the difference between what you own and what you owe.

Your net worth is positive if your assets exceed your liabilities.

A negative net worth is when your liabilities are greater than your assets.

Assets are anything of value that you own that can be converted into cash. Examples include:

  • Investments
  • Bank and brokerage accounts
  • Retirement funds
  • Real estate
  • Personal property: vehicles, jewellery and collectables.
  • Cash

Your liabilities represent your debts, such as loans, mortgages, credit card debt, medical bills and student loans.

It can help you to determine when you are and how to get where you want to be.

  • You can identify areas where you spend too much money. Do you need it or merely want it?
  • Pay Down Debt. You can develop a plan for paying down debt.
  • Your net worth figures can motivate you to save and invest money.

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RELATED IDEAS

  • Knowing your net worth provides you with an actual state of your finances.
  • It can also tell you how close you are to achieving financial independence.
  • Tracking over time helps you know if you're spending too much month after month.
  • When opening a bank or brokerage account, your net worth will be considered. Knowing up front can help you see whether you're eligible for certain investments.

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IDEAS

Manage your Debt wisely
In case you have a lot of debt to shoulder, start paying off the most expensive one. 

The credit card has been regarded as the most expensive form of debt. As soon as your salary gets credited each month, pay off your credit card balances in full. Don’t fall for the lure of paying off the minimum balance. 

Measure the total amount of time you invest each year to earn money. It includes the time you spend to commute to and from work, and time spent working on a side hustle or dropping your kids at daycare.

If you're unsure how much time you spend working, use 2,500 hours per year as a starting point as most full-time employees or entrepreneurs will fit around that amount.