Unlocking the Net Worth Rule: What Is It and How to Calculate It

Hey beautiful moms! 🌟 I’m Viktoria, your trusted financial coach and fellow mom of two. Today, we're diving into something that can help you steer your financial ship towards the horizon of security and abundance: the net worth rule. This isn't just another dry financial concept - it's a beacon guiding us towards financial freedom, tailored for us busy moms juggling a hundred things at once. Ready to transform your finances with a sprinkle of fun and a dash of empowerment? Let's go!

The Net Worth Rule: What’s It All About?

So, what is the net worth rule? Simply put, it’s a guideline to help you gauge how much your fortune should be worth given your age. This rule is a compass that can help you measure where you stand financially and where you need to go. It’s not about comparing yourself to others but about making sure you're on track to meet your personal financial goals.

The Magic Formula

Here’s the magic formula to calculate your expected net worth:

{Expected Net Worth} = {Your Age} x {Pre-Tax Annual Income} / 10

Yes, it’s that simple! You multiply your current age by your annual pre-tax income and then you divide by 10. Now, when you are calculating your family's target net worth, you should add up both partners' ages and incomes. This may be a little confusing, so let's walk through a couple of examples to see how it works in real life.

Example 1:

Meet Sarah, 34 years old, and John, 35 years old, parents of two wonderful kids. Sarah and John have a combined pre-tax income of $100,000. Here’s how they use the net worth rule to check if they’re on track:

{Expected Family Net Worth} = 69 x 100,000 / 10 = $690,000

According to the net worth rule for families, we add up Sarah and John's ages and get 34+35=69. We multiply this number by their combined pre-tax annual income of $100,000 and then divide by 10. So now Sarah and John should aim to have a net worth of $690,000. This gives them a tangible target to work towards and helps them feel more in control of their financial future.

But What If They’re Behind?

Don’t panic if your current net worth isn’t hitting the mark. Life happens - medical bills, unexpected expenses, or career changes can all impact your finances. The goal is to use the net worth rule of thumb as a motivational tool. Maybe Sarah and John are currently at $550,000. They now have a clear target and can start planning how to bridge that $140,000 gap by boosting savings, paying off debt, or investing wisely.

Example 2:

Now, let’s take Anna, a 45-year-old single mom rocking a $75,000 annual pre-tax income. Here’s her expected net worth rule calculation:

{Expected Net Worth} = 45 x 75,000 / 10 = $337,500

Anna’s target net worth is $337,500. This calculation can guide her in making decisions about her spending, saving, and investment strategies.

Celebrating Progress

Anna has been diligently saving and investing, and her current net worth is $300,000. She’s not quite at her target, but she’s getting close. The net worth rule of thumb isn’t about feeling discouraged by where you are; it’s about celebrating progress and setting a clear path forward. Anna can now focus on closing that $37,500 gap with a strategic plan.

Making the Net Worth Rule Work for You

Now that we’ve broken down the net worth rule, here’s how you can apply it to your life:

1. Assess Your Current Net Worth

First, take a deep breath and gather all your financial info. List your assets (home, savings, investments) and subtract your liabilities (mortgage, debts). This gives you your current net worth. If you need a bit more guidance on this part, make sure you read our post on how to calculate your net worth.

2. Calculate Your Expected Net Worth

Use the formula to calculate your expected net worth. Remember, this is a guideline, not a strict rule. It’s meant to give you a sense of direction.

3. Set Achievable Goals

If you’re not where you want to be, set small, achievable goals. Celebrate each milestone, no matter how small. Every dollar saved or debt paid off increases your family's net worth and brings you closer to your target.

4. Adjust Your Plan as Needed

Life is unpredictable, especially for us moms. Be flexible and adjust your financial plan as needed. The net worth rule of thumb is a tool to help you stay on course, but it’s okay to take detours along the way.

Embrace Your Financial Journey

Ladies, embracing the net worth rule is about more than just numbers. It’s about empowering yourself to take control of your financial future. Whether you’re just starting out or fine-tuning your plan, remember - you’ve got this! 🎯💪

So, grab a cup of coffee, sit down with your partner or just yourself, and start planning. Your financial future is bright, and the net worth rule is here to guide you every step of the way. 🌈

Until next time, keep mastering your money game and stay fabulous, because you deserve the financial freedom and stability that only you can create for your family!

With Love,

Viki

P.S. Come check out our Money Master Moms Inner Circle program where you'll find exclusive content, weekly online coaching get-togethers with moms just like you, a weekly email packed with actionable tips, and most importantly - a loving and supportive community that gets you. We're waiting for you!