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The One Metric to Rule Them All

Net worth is the one metric you need to understand to build wealth
Building Wealth, Guest Post 0 Comments

Today’s Guest Post comes from Richard Sawyer.  Richard is a mild-mannered software developer by day, and saves household finances whenever possible. He can be found at, and occasionally on Facebook @SawyerPF. He also volunteers as a youth coach and Treasurer with a local non-profit, and enjoys the outdoors in his spare time.

How do you know if what you’re doing is working?

If you’re like most people, you have lots of things going on with your finances: you have debts that you’re trying to pay down (hello, student loans), taking on new debts (cars, houses), you’re trying to save for lots of different priorities, and on top of everything your spending and income is different each month. One thing goes up and another goes down. So how do you know if your actions are having a positive impact? Do you need a budget? Do you need to grow your income? Calculate your savings rate? Get outside help? Yes, those things may all be useful, but that’s not what I’m going to talk about today.

What if I told you there was one metric that took everything into account- all your current cash flows, plus every financial decision you’ve ever made? A simple, single number to measure your overall financial health, that’s so easy to calculate it can be done in 5 minutes with a couple lines on a spreadsheet. No complicated formulas involved.

One Metric

The One Metric To Rule Them All is Net Worth (abbreviate as NW), and the basic formula is this: [Net Worth] = [Total Assets] – [Total Liabilities].

Typical assets include homes, cars, investments, and cash. I think of the value of an asset as how much cash you could turn it into right now. For instance, if you purchased a Beanie Baby for $100, but could only sell it for $10, then it’s value is $10. Similarly, if you could currently sell your car for $10,000, then that is it’s current value. However, after sitting in your driveway for 10 years, you may need to actually pay someone to haul it away; it is no longer an asset, but a liability.

Liabilities are debts or obligations to owe money to someone. Examples would include your credit card balance, home mortgage, student loans, and the $10 you owe Joe for lunch last week.

Every financial decision you make, or have made in the past, will get reflected in this metric. If you spend $1, your NW will go down. If you earn $100, your NW will go up. If you take on a debt, your NW will go down (though sometimes this will be balanced by an additional asset).

If your net worth is rising consistently, then you’re on the right track. If it’s falling, you’d better change something quickly! I recommend you track your net worth at least annually. More frequent tracking will give you better feedback on your progress, but watch out going too often; more than quarterly and you’ll likely see some negative swings, say around the holidays or after a vacation.

How do you compare?

While not terribly useful, it’s always fun to see how you compare to others, so here are some interesting statistics:

  • If your NW is above zero, you’re doing better than 12% of the population (aged 18-100), and better than 29% of 18-30 year olds!
  • The median NW of 18-30 year olds is $8,000
  • To be in the 90th percentile of 18-30 year olds, you’d have to have $99,000 or more

(For more NW statistics, check out the great calculators over at

Final thoughts

If you ask anyone who’s been able to accumulate a significant amount of money, they’ll likely tell you that the first $100k in NW is the hardest, and after that it become significantly easier. In my case, it took my wife and I nearly 10 years to hit that first $100k, but the next one took less than 2 years!

I can also attest that the adage “What gets measured, gets improved” definitely works- most of my own family’s progress came after we started tracking our finances closely. If your own numbers make you cringe, don’t worry, we’ve all been there!

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