The Swiss_Mouse uses a variety of calculations to measure his overall financial well being.
One simple calculation that he discovered a few years ago reading a financial book was “Expected Net Worth”. This represents overall current net worth based on age and income (basically how much cheddar you should have stored up by now).
The formula is as follows:
Expected Net Worth = (Current Age in Years * Total Annual Income) / 10
If you subtract Expected Net Worth from Actual Net Worth, you can determine if you are on-track.
While the Swiss_Mouse will not share with you his Net Worth or Expected Net Worth figures just yet, he will tell you that based on his age and income (combined income of Swiss_Mouse and Mrs. Swiss_Mouse), he is currently $18,056 short of where he should be.
3 responses so far ↓
1 Martin // Aug 19, 2007 at 9:07 pm
Wow, not even close. It says my expected networth should be over $150,000. Considering I am in the negative, I am way off. And I doubt that I will even be close since I will have to save 10% of income every year just to keep on track.
And who saves 10% of the income they are making when they are 30 - 40, when they are 2 years old!! Calculation is very misleading.
2 Swiss_Mouse // Aug 19, 2007 at 9:35 pm
The authors of The Millionaire Next Door spent 20 years researching millionaires. I quote from their book:
“…we have developed several multivariate-based wealth equations. A simple rule of thumb, however is more than adequate in computing one’s expected net worth. Multiply your age times your realized pretax annual household income from all sources except inheritances. Divided by ten. This, less any inherited wealth, is what your net worth should be.”
To continue, they site and example of a man who makes $143,000. He has investments that return $12,000 for a total of $155,000 at age 41. So that should man $6,355,000 divided by 10 giving him a net worth of $635,000.
Read my next post for their other calculations.
3 Suzanne of New Affiliate Discoveries // Sep 1, 2007 at 10:43 am
Hey Mouse, fun blog here! What if you didn’t start earning until late in life? I got an advanced degree followed by traiinng at the age of 35, so my Expected net worth jumped about five fold…but my savings didn’t!
BTW, I put away over 30% of my gross each month in savings & investments…I think that should help get me there.
What about a calc that shows how much your net worth should grow per month or per year? I do these figures monthly…
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