The Confusing Process Of Measuring Net Worth & Financial Progress

net worth and financial progress

I have been searching the web for months, looking for ways to measure my financial progress, and have come up pretty empty handed. By merely looking at my peers and neighbors there is no doubt we are far ahead of the curve. On the other hand, when compared to some people in the financial forums I visit, it’s obvious that they have much more than we do. It is enough to make me question how well we are really doing.

To try and answer this, I started a wide search looking for where we should be and, more importantly, how to measure our financial progress. I guess with time and wisdom we all realize the answer to this question is dependent on many factors, and is different for everyone.


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8 Responses to The Confusing Process Of Measuring Net Worth & Financial Progress

  1. Matt says:

    I don’t put much stock in that equation that is supposed to tell you what your net worth should be. I’m only two years out of college and it tells me that my net worth is supposed to be $220,000. I haven’t earned that much money over the course of my entire life, let alone been able to save and invest it.

  2. Debbie says:

    This entry is awesome. I have been looking at issues like these for many years.

    I love that idea of measuring your progress based on your spending rather than your earnings (though it’s harder to calculate) and I like the other website’s equation and progress chart (though I want to retire much earlier).

    I ended up making my own chart based on income and the assumption that I had saved 15% of my income (which is what millionaires supposedly do) and got old income numbers from the IRS mailing, but I like your plan better. It makes more sense, and your numbers look better if you find ways to spend less!

    I also like your thoughts on including your house value in your net worth. I ended up deciding I want to track three measures of net worth! Two of them are the same as yours. But some of my money is in a pension. I include the money that I can withdraw as part of my net worth, but in real life it is unlikely that I will ever actually withdraw that. I can keep track of how that is impacting my financial future by reading the latest policies on my pension plan! One of my big goals is early retirement, even if this pension plan gets ruined. So for my third measure, I look only at retirement savings minus the amount in my pension plan.

    I like your idea of using your house purchase price in your net worth equation, but not quite enough to steal it. For a while I was using, but then I decided that those values seemed a bit high. My compromise is to use the estimate provided by my tax assessor, which I suspect is a bit low. It still fluctuates, but now that my house is worth double what I paid for it, it seems more reasonable to me than using the purchase price.

    I also use a spreadsheet. I really like to graph my progress and I like to compare that to my ideal progress with another line on the same graph, so I recommend that.

  3. samerwriter says:

    Check out the wealth score:

    By taking into account both your net worth and your lifetime earnings, it implicitly considers your spending habits as well (the less you spend, the more you’ll be saving).

  4. James says:

    Very well-written entry. Although dividing progress in 10 years by 10 is not entirely accurate. Wealth accumulation is a compounded growth, initially slow, then exponential increase.

  5. Pingback: What Is The Worth Of *Net Worth* If It Is Not Usable?

  6. Hello. I agree that net worth is unhelpful but I also dislike counting imaginary income (future income). I posted “Biggest Net Worth Mistakes” (click my name link) a few days before this article, so feel free to visit and comment.

    Thank you.

  7. Pingback: Queercents » Almost Debt Free: Confronting and Understanding the Purpose of Net Worth

  8. Kellen says:

    All quantitative measures of “economic reality” are going to be flawed, but they do allow a basis for comparison that we wouldn’t have otherwise.

    I like the calculation to figure out where your net worth “should be” but I like better the idea of figuring out your spending, how much you’ll need at retirement, what big purchases you’ll make along the way, and use that to figure out how much you need to be saving.

    For example, I’d like to retire on 100 acres of farm and woodsland, but maybe my neighbor wants to retire driving an RV around the country. If we are both using the same metric to measure our progress, one of us will be off the mark in our savings goal. (Since a large acreage anywhere decent will probably run a few million, while an RV… shouldn’t.)

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