In their book The Millionaire Next Door, Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D. detail their study of over one thousand millionaires and write about the personal, ethical, and business traits that most have in common.  If you have not read The Millionaire Next Door, it is a must-read if you ever intend to become financially independent.

I have spoken with many people about money and budgeting and the one question that I often hear is:  Am I on track to becoming wealthy?  In The Millionaire Next Door, there is a simple formula to use that will help you determine what your net worth should be right now, at this point in time, regardless of your age or income.

The formula is:

(Your Age x Annual Pretax Household Income) / 10

For example, Callie is 30 years old and has an annual pretax income of $65,000.  If Callie hopes to become wealthy one day, her net worth at this moment in her life should be (30 x 65000) / 10, or at least $195,000.

Remember that net worth is calculated as your assets minus your liabilities.  In simple terms, net worth is what you own minus what you owe.

If you add up the current value of all of your assets (cash, investments, home, vehicle, etc.) and then subtract any debt that you have (credit cards, mortgages, home equity loans, car payments, student loans, etc.), the result will be your net worth.  If your net worth is $1,000,000, then you are a millionaire.

Given your age and income, how does your net worth match up?  If it does not match up as well as you had hoped, what are you going to do about it?