The last couple of days I’ve been playing with some different formulas for calculating what my net worth should be right now.  I’m looking for a goal to meet since having a quantifiable target makes it easier for me to put things in perspective with how well or how bad I’m doing.

I stumbled onto an article at The Simple Dollar that made me really stop and think about where I should be in my 30s.  A nice simple starter-formula was discussed that I think is a pretty good estimate for what a net worth goal should be.  Obviously anything higher than what this formula calculates would be great as well, but this certainly gets the brain thinking.

The formula discussed in the article is:

Target Net Worth = (Age - 27) X Annual Pre-Tax Income / 5

or with my actual values plugged in:

(30-27) X $80,000 / 5 = $48,000

48K?  Yikes!  Knowing my current Net Worth, it looks like I’ve got my work cut out for me.  Let’s put this goal in perspective with my current get-out-of-debt plan though.  Let’s plug in this equation for 5 years from now and assume a 3% annual increase (to be conservative):

(35-27) X $93,000 / 5 = $148,000

Phew!  Talk about a moving target!  What this essentially means for you is that it’s a much better idea to get on top of this as early as possible AND STAY THERE.  Getting behind from the beginning means you lose out on the compounding.  Even when I do get out of debt in the next 5 years (beside the mortgage) and start pumping the net worth into the positive values, I’m going to have yet another struggle to catch up to the values this formula calculates.

We’re talking a difference of about $20K/yr here for every year I’m just trying to get out of the negatives.  DON’T LET THIS HAPPEN TO YOU!!!  Learn from my mistake and hammer the debts down quickly so as not to get behind on the net worth potential.

So, are you above or below in net worth when using the above formula?  How did you get where you are?  How do you plan on catching up if you’re behind?  For anyone that’s ahead, how did you intend to stay there?  Share your experience and let’s get motivated to get rid of the debt so we’re not stuck chasing positive net worth from way behind the curve!