What Does My Net Worth Mean?
When you make it through your net worth statement the first time, a question naturally will occur. “What does my Net Worth mean?” So here are a few guidelines on where your net worth may land and some guideposts along the way.
What Does my Net Worth Mean?
Once you have calculated your net worth, the next question that comes up is…”Ok so how am I doing?” or “What Does my Net Worth Mean?”
The common answer point most people will refer to is the amazing book “The Millionaire Next Door” By Thomas J Stanley Ph.D. The book gives a great insight into what most millionaires are and it was a personal launching pad for me. It’s a little on the dry side, but the takeaway knowledge was huge.
Anyway, the formula for calculating if you are on track with your net worth is:
Your AGE multiplied by Current Wage Divide by 10
So if you are 30 years old and making $100,000 a year your net worth should be $300,000 (30 x 100,000/10). If you are higher great! If you are lower, you know what to shoot for. This is a good idea, but it has its flaws. For instance: if you just started making this amount it would be nearly impossible to get your Net Worth to this amount. It’s a good rule of thumb, but everyone’s situation is different, I found it works best with people who have been in a job for a long time around the same pay.
Below are the different levels of Net Worth and some thoughts as you go along the way
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Negative Net Worth
This is when you owe more than you own. Hey, it happens! School loans, excessive shopping, failed businesses, and a million other reasons. The point is everyone starts somewhere and this is just a starting point for you. When you find yourself here, the best thing to do is to set your sights on.
This is when your Net Worth is 0. If you have been in a negative net worth it’s time to celebrate. Congratulate yourself with a pat on the back and start focusing on the next level.
I can think of several people I know that live their entire lives. They make their money and they spend it, over and over , month after month, year after year. They never clue in to the idea of wealth or have never been educated on the topic and that’s why they never change. Luckily you are already destined to be beyond this because you are educating yourself. Well done!
This was a big one for me when I was starting out. 4 digits! Wow! I remember saving and saving to get there when I was younger. First jobs and side businesses helped. This was when I started to get more entrepreneurial with my efforts and realized that trading my time for money wasn’t the greatest idea.
5 Digits! This is a great moment. Because it usually doesn’t happen without a little bit of effort. This was huge, mostly because the next stop was $50,000
Memorable marker- As a side note, when I got a net worth of $50,000 I realized that all I needed to do was replicate what I had been doing 20 times and I would be a millionaire.
6 Digits! Way to go, this is a big step because the next digit puts you in to an elite class. You have clearly demonstrated some financial smarts. Make sure to celebrate this is a huge milestone.
WOW $250,000 is an awesome stepping stone, at this point you have usually been able to demonstrate some financial smarts, you have a plan in place and are following it. Keep up the good work!
Hitting this level is huge for a lot of reasons. It’s clear you have been working at it (possibly over several years, depending on when you started tracking everything). You have a keen sense of wanting to be wealth and now you just have to the same thing one more time and you will be in the Millionaire club.
$750,000! WOW! You are getting close, so close you can taste it. Steady is the name of the game, just keep doing what you have been doing and it should all work out.
This could be your starting point, or your last stop before become a full-fledged Level 2 Millionaire. See Levels of Millionaires to learn more.
You now have a net worth of $1,000,000 and are already climbing to bigger and better things. Good for you!
As you progress through these levels in life. Always take time to celebrate every achievement along the way. Getting to be a Thousand-Aire was huge for me way back when. Probably because it felt incredibly hard to do at the time. Find a way to celebrate and if you can’t think of anything here is a High-Five for keeping on the road to financial freedom.
For more on my personal story about how I started to climb the Net Worth ladder you can read about it here. If you are already into the Millionaire category, first of all congratulations, second you may want to look at our Levels of Millionaires for some new targets to shoot for.
If you have any questions about How to Calculate Your Net Worth Statement? I would love to help you out. Just let me know below.