Net worth calculator
The last row is the rule from The Millionaire Next Door: age times pre-tax income divided by ten. It is a rough and much-criticised heuristic. It punishes the young severely, ignores whether income arrived recently, and takes no account of housing costs or where you live. It is included as a reference point people ask about, not as a target worth chasing.
A snapshot from figures you supply. It is not advice, and it says nothing about liquidity — a large net worth locked in property does not pay a bill.
Net worth is everything you own minus everything you owe. Assets of 419,000 against debts of 220,500 gives a net worth of 198,500, and a debt-to-asset ratio of 0.526. The debt-to-income row is a separate measure: those debts are 401% of a 55,000 annual income.
How to calculate net worth
Two adjustments keep the number from flattering itself. Property should be valued at what it would realistically sell for less the costs of selling, not at the optimistic end of an online estimate. Pensions should be included even though they are inaccessible, because they are genuinely yours, though it pays to note separately how much of the total is locked away.
Liquidity is the missing column
Run the defaults above and the answer is $198,500. Of that, $140,000 is equity in the house and $42,000 is the pension, so $182,000 of it, 91.7%, cannot be reached this month without selling a home or triggering a penalty. The remaining $16,500 is what actually stands between this household and a bad quarter. Two households with identical net worth and different splits are in completely different positions, and no single figure can express that, so keep the split in view alongside the total.
Three ratios, three different denominators
The rows under the result do not measure the same thing as each other, and they do not measure the same thing as the ratios lenders use. Debt to assets here is total debt over total assets, 0.526 on the defaults. Debt to income is total debt outstanding over annual income, 400.9%, which sounds alarming and is normal for anyone with a mortgage. Neither is the debt-to-income ratio a lender computes, which compares monthly payments against monthly income. Before comparing a figure here against a threshold you read somewhere, check which numerator and which denominator that threshold used.
What people use it for
- Taking stock once or twice a year
- Preparing figures for a mortgage application
- Tracking progress toward a financial goal
- Understanding a debt-to-income ratio
- Separating the part of your net worth you could actually reach
Questions
Add up everything you own at current value, subtract everything you owe. The result can be negative and often is early in a career.
$419,000 of assets against $220,500 of debts, so $198,500 of net worth and a debt-to-asset ratio of 0.526.
Yes, it is yours. Note separately how much of the total is inaccessible: on the defaults here, house equity and pension together are 91.7% of the net worth.
The Department of Labor’s Savings Fitness guide puts the line at 36% of take-home pay for mortgage and non-mortgage debt payments together, and 10% for the non-mortgage payments on their own. Both are ratios of monthly payments to take-home pay. The row in this tool is a different and much larger figure: total debt outstanding against annual income.
Because it counts the whole mortgage balance, not the monthly payment. A household part-way through a mortgage will normally show several hundred per cent here, and that is not the number a lender is testing.
Recent sale prices for comparable homes nearby, less the costs of selling. Online estimates tend to run optimistic, and the sale costs are real money that never reaches you.
Yes, at what it would sell for today rather than what it cost. If it is financed, the outstanding loan goes on the debts side, so a car worth less than its loan reduces net worth, correctly.
Age times pre-tax income divided by ten, the rule of thumb from The Millionaire Next Door. On the defaults it asks for $209,000 against an actual $198,500, so this household is 5% short of a target that is itself contested.
Because it needs both an age and an income and one of them is missing or zero. The debt-to-income row goes the same way for the same reason.
Not necessarily. A recent graduate with student debt and a new mortgage is negative on paper and may be on an entirely sound path. The direction of travel between two annual snapshots says more than the sign does.
Once or twice a year is enough for the trend, and more often mostly measures market noise in whatever assets move. Use the same valuation method each time, or the change you see will be a change in method.