How Rich Are You? Here’s An Easy Way For You To Benchmark

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Hey you, my beautiful reader, there’s one question I want to ask you today – just how rich are you?

Have you ever determined how much you’re worth? Well if you’ve been meaning to answer that question, let this post bring clarity in determining how rich you are.

A lot of people don’t know how rich they are, let alone their net worth – and it’s okay I’ve been there too. But I want to tell you today that it’s not that hard to figure out your net worth and just how rich you are based on your net worth.

I know some people find it troublesome to look for the values in the equation in finding their net worth. But with the help of the internet, everything you need to find can be done so with ease. Checking investments, knowing the value of your properties, looking up your savings and retirement accounts can now be done online.

I’ll also be sharing a book that can change your financial position for the better. It’s a best seller and has changed the lives of many. It discusses how you can achieve financial security and what are the things you need to financially focus on.

So if you’re ready to determine how many dollars are connected to your name, then let’s get right to it. 🙂

How Rich Are You? Here’s An Easy Way For You To Benchmark

Sometimes it can be much of a hassle and headache when you calculate your net worth – when you don’t know what to look for. But it’s actually really easy. Look at the formula below.

Net worth = (Total Assets – Total Liabilities)

Pretty simple, right? If your assets go beyond our liabilities, you have a positive net worth. But having a positive net worth DOESN’T mean you’re already in a good financial position. There’s still calculation that you’ll need to do to analyze just how good your current financial situation is.

If you’d like a FREE Net Worth & Cash Flow Printables, you can grab one below. I’ve also included easy financial calculations that you can do to analyze your finances! 🙂

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But if your liabilities are greater than your assets, this means that you currently have a negative net worth. You can also think of it as you owe more than you own.

For businesses that have a negative net worth, it can be an indicator of bankruptcy. But luckily if a person ends up with a negative net worth, they still have the chance to turn it around.

But let’s back up a bit, what are personal assets and liabilities?

Assets And Liabilities

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An asset is anything that you own that has value. Examples of assets could be:

  • Cash – physical cash that you have right now (any currency).
  • Funds in your bank – the value of all of the savings, checkings, money market accounts under your name.
  • Retirement Accounts – all your 401(k), IRAs, and others.
  • Investments – this includes your investments in stocks, bonds, mutual funds, and other investment vehicles.
  • Vehicles – the current value of your cars, motorcycles, bikes, boats, etc.
  • Real estate – the current value of your homes, apartments, condos, and lands.
  • Personal things – your laptops, shoes, jewelry, collectibles, furniture, paintings, etc.

These are the most common assets that any individual can immediately think of and write. Once you’ve written them, it’s time to write your liabilities. The most common liabilities are the ones below:

  • Credit card debt – any balance you owe to a credit card company.
  • Student loans – the balance that’s left on this loan.
  • Mortgage – the amount left to pay for your mortgage/s.
  • Auto loan – the balance left to pay for your cars, motorcycles, or any vehicles.

Now that you’ve determined the value of your assets and liabilities, it’s time to use the formula above. Whatever number you end up with, it’s always recommended to take it with a grain of salt because that equation alone doesn’t accurately tell you your financial situation.

You’ll need more financial calculations to analyze your net worth number.

To understand your wealth, we will be adding the variable of “time” in the equation. I’ve actually learned this from KC Lau – thanks KC Lau!

Wealth = Amount of time we can live and maintain our lifestyle without working (and not being worried)

It’s not much of an equation but it can also act as a gauge on how you’re doing financially.

If you want a more scientific approach to knowing your net worth, I highly recommend the book – The Millionaire Next Door.

The Millionaire Next Door: The Surprising Secrets of America’s Wealthy is a number 1 bestseller book that teaches readers what financial habits do the rich do to attain their status and wealth.

In the book, you’ll learn different lessons such as:

  • Millionaires don’t become rich overnight – in most cases it took years and even decades.
  • They live below their means – learning how to live on a budget is a must.
  • The rich choose to spend time and energy in building and creating wealth.
  • They know how to capitalize on market opportunities.
  • Going through a tough time is normal.

The millionaires talked about in this book are the ones that are “under the radar” or “lowkey”. They are the rich that don’t flaunt their wealth on luxurious items but instead they flex their knowledge and habits.

It’s an excellent book to read to know how millionaires use their time and money to become more rich and wealthy. This is also the book that introduced me to another way of calculating my wealth.

There will be 2 numbers that we will need in order to benchmark our wealth:

  1. Net Worth (formula above)
  2. Expected Net Worth (formula below)

ENW equation -min

Once you’ve gotten both numbers of your Net Worth and Expected Net Worth, it’s time for you to divide your Net Worth to your ENW.

  • If you come up with a value of less than 0.5, you’re an under accumulator of wealth (UAW).
  • Now if the value is at 0.5 to 2, you’re an average accumulator of wealth (AAW).
  • If the value is above 2, you’re a prodigious accumulator of wealth (PAW).
Example:

Let’s say my Net Worth is at $300,000 and my ENW is $226,800
In order for me to exactly know how wealthy I am, I will divide $300,000 by $226,800 = 1.32
This means that I’m an average accumulator of wealth. I’m in an OK zone but it’s not too late for me to start building up more assets under my portfolio 🙂

Understanding The Values

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The terms UAW, PAW, and AAW are coined by the authors of the book – Dr. Thomas J. Stanley and William Danko.

They mentioned that UAW represents people who have low net worth compared to their income. So if a person earns $230,000 annually yet his net worth is way below his earnings, it raises the question – is he truly rich?

These are the people who live beyond their means and even go into debt just to support their lifestyle. According to Dr Stanley, they are the ones that can’t consistently save and invest for their future.

If you fall under AAW, it just means that you’re not bad but not excellent either when it comes to building wealth. It’s time for you to focus on accumulating more income-generating assets.

PAWs are the real builders of wealth – they’re great at building their net worth compared to the other groups. They invest their money for good returns and consider risky investments only if it gives a high reward.

Knowing whether you’re a UAW, AAW, or PAW can tell whether you need adjustments financially or you’ve been doing the right things and making the correct financial decisions.

How To Achieve PAW status?

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To achieve PAW status you need to be doing the opposite of what the UAWs are doing. You need to live within your means, stay frugal, invest wisely, and spend more time on creating wealth.

If you’re able to increase your monthly income, don’t fall into lifestyle inflation – wherein your lifestyle also increases as your income goes up as well. That’s a recipe for becoming a UAW. So if you do achieve a higher income, make sure to keep your lifestyle steady and well below your means.

According to the book, the contributors to becoming a PAW would be saving as much as you can, earn as much as possible, and inherit the wealth. The real millionaires don’t splash money on fancy things, rather they are humble and probably live next door.

That’s why I highly recommend you read this book. It might be lengthy but it’s packed data and statistics coming from numerous interviews of millionaires.

You’d learn how they were taught the mechanics of money at a young age and how they’re doing the same for their children, how frugal are they and their partners when it comes to spending on things, and how these people would choose financial security over social status.

If you’d like a FREE Net Worth & Cash Flow Printables, you can grab one below. I’ve also included easy financial calculations that you can do to analyze your finances! 🙂

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Calculating How Rich Are You

Now that I’ve shared different formulas for you to compute your net worth, it’s time to calculate yours.

Knowing how much dollars are connected to your name will make you realize if changes or improvements are needed to be done.

Let me know in the comments below which group do you fall under 🙂

If you find the post helpful, please share it around!

2 thoughts on “How Rich Are You? Here’s An Easy Way For You To Benchmark”

  1. Hi Wina !

    Glad I stumbled across this useful article !

    Thank you for sharing such useful insight and tricks which will definitely help me in attaining my goals and calculating my net worth .

    Look forward to seeing more content like this from you .

    Cheers

    Reply

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