Investment Bites: Net Worth Target
Net Worth Target measures how well you have managed your finance. There are many schools of how you should measure this, but here’s one that I really like. I like it because it’s impossible to achieve a “High” rating without investment, teaching you the fact that saving alone is not the best path. It’s quite a challenge if you’re in your early 20’s but for someone in their 30s, the 40s, the result reflects how successfully you have saved and invest over the years.
- High – Net Worth > Age/10 * Annual Income * 2
- Medium – Net Worth ~ Age/10* Annual Income *2
- Low – Net Worth < Age/10 * Annual Income * 2
Net Worth = Total assets – Total liabilities.
Note: This is not the retirement number or assign any Top Net Worth award. It’s an assessment of your PF decision over the years, purely from an income point of view.
Note 2: Income matters. I have always rated at the border of Low/Medium until the drop in annual income this covid-year that I actually score ” High”. 🙄
For those who want life easy and only look at how well you save, you can use Target Net Worth = [Current Age] x [Annual Income ÷ 10]