TIP
Start by calculating your net worth today, and track it monthly. Over time, small steps lead to big changes!
Managing your personal finances effectively is the foundation of financial success. Learn these four essential calculations—Net Worth, Savings Rate, FIRE Number, and the Rule of 72—to achieve your financial goals and build lasting wealth.
Key Formulas for Personal Finance
1. Net Worth
Your net worth is a snapshot of your financial health and is calculated as:
Tracking your net worth over time helps you evaluate if you're increasing your wealth or accumulating debt. A positive and growing net worth is a sign of financial progress.
2. Savings Rate
A strong savings rate is crucial for financial security. Use this formula to calculate yours:
Aim for at least 20% to 30% savings rate for a secure future. Higher savings rates accelerate financial independence.
3. FIRE Number
The Financial Independence, Retire Early (FIRE) number represents the amount you need to retire comfortably:
This calculation is based on the 4% safe withdrawal rule, helping you plan for a stress-free retirement.
4. Rule of 72
The Rule of 72 estimates how long an investment will take to double based on its growth rate:
For example, with an 8% annual growth rate, your investment will double in 9 years.
Final Thoughts
These personal finance formulas are practical tools for managing your money effectively. Regularly applying them will help you track your financial progress, plan for the future, and achieve your goals. Whether you're saving for retirement, growing your wealth, or planning major investments, these calculations empower you to take control of your finances.