Net Worth = Total Assets − Total Liabilities

Total Assets:
  Cash & savings:         $25,000
  Investment accounts:    $185,000
  Retirement (401k/IRA):  $320,000
  Home equity:            $180,000
  Vehicle value:          $22,000
  Other property:         $15,000
  ─────────────────────────────
  Total Assets:           $747,000

Total Liabilities:
  Mortgage balance:       $220,000
  Auto loan:              $12,000
  Student loans:          $18,000
  Credit cards:           $3,500
  ─────────────────────────────
  Total Liabilities:      $253,500

Net Worth = $747,000 − $253,500
Net Worth = $493,500

Update monthly. Include everything — even that old savings bond from grandma.

Expected NW = (Age × Pre-Tax Income) / 10

Example: Age 40, Income $120,000
  Expected NW = (40 × $120,000) / 10
  Expected NW = $480,000

Classifications:
  Actual NW ≥ 2× Expected = PAW
    (Prodigious Accumulator of Wealth)
  Actual NW = Expected = AAW
    (Average Accumulator of Wealth)
  Actual NW ≤ 0.5× Expected = UAW
    (Under-Accumulator of Wealth)

Our $493,500 example:
  Expected: $480,000 → Ratio: 1.03
  Classification: AAW (on track!)

Note: This formula works best for ages 30+
and excludes inherited wealth.

Thomas Stanley's formula from The Millionaire Next Door (1996). Still the most-cited NW benchmark.

Liquid NW = Liquid Assets − Total Liabilities

Liquid Assets (convertible to cash in < 30 days):
  Checking/savings:       $25,000
  Brokerage accounts:     $185,000
  Money market funds:     $15,000
  ─────────────────────────────
  Total Liquid:           $225,000

NOT Liquid (exclude these):
  Home equity:            $180,000 ✕
  Retirement accounts:    $320,000 ✕ *
  Vehicle equity:         $10,000  ✕
  Business equity:        $0       ✕

  * Pre-59½ withdrawals = 10% penalty

Liquid NW = $225,000 − $253,500
Liquid NW = −$28,500

This reveals the TRUE financial cushion.
Many "high NW" people are house-rich,
cash-poor.

Liquid NW matters most for early retirees and emergency preparedness. Target: 2+ years expenses.

NW Growth Rate = ((NW_end − NW_start) / NW_start) × 100

Annual Example:
  Jan 2025 NW: $420,000
  Dec 2025 NW: $493,500
  Growth = ($493,500 − $420,000) / $420,000
  Growth = 17.5%

Breakdown of growth sources:
  Market gains (investments):  +$38,000
  Debt paydown:                +$14,000
  New savings/contributions:   +$28,000
  Home appreciation:           +$8,500
  Vehicle depreciation:        −$5,000
  Spending & misc:             −$10,000
  ═══════════════════════════
  Net change:                  +$73,500

Healthy growth rate targets:
  Ages 20–30: 50–100%/year (small base)
  Ages 30–40: 15–25%/year
  Ages 40–50: 10–15%/year
  Ages 50–60: 5–10%/year (larger base)

Decompose your growth — know how much comes from savings vs. market gains vs. debt reduction.

FI Number = Annual Expenses × 25
  (Based on the 4% safe withdrawal rate)

Example:
  Annual expenses:  $60,000
  FI Number = $60,000 × 25 = $1,500,000

Progress check:
  Current NW:        $493,500
  FI Number:         $1,500,000
  Progress:          32.9%
  Remaining:         $1,006,500

Years to FI (at various savings rates):
  Save $30K/yr + 7% growth = 15.2 years
  Save $40K/yr + 7% growth = 12.8 years
  Save $50K/yr + 7% growth = 11.0 years

Coast FI: amount that will grow to FI
  with NO more contributions
  Coast FI = FI Number / (1.07)^years
  At 20 yrs: $1.5M / 3.87 = $387,600
  You've passed Coast FI at $493K! 🎉

The 4% rule comes from the Trinity Study. Adjust to 3.5% for early retirees or conservative planning.

Debt-to-Asset = Total Liabilities / Total Assets

Example:
  Total Liabilities: $253,500
  Total Assets:      $747,000
  Ratio: $253,500 / $747,000 = 0.339 (33.9%)

Benchmarks:
  < 20%:   Excellent (low leverage)
  20–40%:  Good (healthy balance)
  40–60%:  Caution (high leverage, common
           for recent home buyers)
  60–80%:  Concerning (asset decline = 
           negative NW quickly)
  > 80%:   Danger zone (underwater risk)

Trend matters more than absolute:
  2022: 45% → 2023: 40% → 2024: 34%
  Direction: Improving ✓

Target: Reduce by 3-5% per year minimum
Goal: < 20% by age 55, 0% by retirement

Focus on paying off highest-rate debt first (avalanche method) or smallest balances (snowball method) for motivation.