Why Your Net Worth Matters More Than Your Income

Most people obsess over income. "How much do you make?" is the question everyone asks. But income tells you almost nothing about financial health. Net worth is the number that actually matters.

Income vs Net Worth: A Tale of Two People

Person A earns $200,000/year, spends $195,000, and has $50,000 in savings. Net worth: $50,000.

Person B earns $80,000/year, saves $25,000, and has been doing so for 15 years with 7% returns. Net worth: ~$670,000.

Person A has 2.5x the income. Person B has 13x the wealth. Income is the engine. Net worth is the destination.

How to Calculate It

Net Worth = Total Assets - Total Liabilities

Assets: cash, investments (401k, IRA, taxable brokerage), real estate equity, car value (use trade-in, not retail), business equity.

Liabilities: mortgage balance, car loans, student loans, credit card debt, personal loans.

Do NOT count: furniture, electronics, collectibles (unless they're genuinely liquid and you'd actually sell them).

What's a "Good" Net Worth by Age?

The classic formula from The Millionaire Next Door:

Target Net Worth = (Age × Annual Pre-Tax Income) ÷ 10

If you're 40 and earn $100,000: target = (40 × 100,000) ÷ 10 = $400,000.

This is aggressive — most Americans fall below this. The median US household net worth is $192,000 (all ages). Don't panic if you're behind. The trend line matters more than the absolute number.

The Only Rule That Matters

Track it quarterly. Watch the trend. If your net worth grows 5-10% per year, you're building wealth, regardless of income. If it's flat or declining, something needs to change — even if you earn a lot.

What to Do If It's Low

1. Kill high-interest debt first (>10% APR). No investment beats a guaranteed 22% return from paying off a credit card.
2. Build an emergency fund (3-6 months of expenses in a HYSA).
3. Max tax-advantaged accounts (401k match → IRA → 401k max).
4. Invest in low-cost index funds (VTI or equivalent).

The calculators at https://finikit.com make all of this math instant and free. Compound interest, debt payoff, savings goals — no signup, runs in your browser.