Measuring your financial health using the net worth approach 

As individuals, it is very important to pay particular attention to wealth creation more importantly as we advance in age. It is critical therefore to understand the concept underlining wealth creation, it calculation and determination. This will help you to determine your current financial status and how to plan into the future by taking into consideration your age and the effort you need to put in, in order to enjoy your retirement and to create a better future for your children.

You can use this calculation to keep your future and retirement plans moving in the right direction.

How To Calculate Your Net Worth
Net worth is simply the amount by which assets exceed liabilities. It’s a concept that can be applied to companies and to individuals and serves as a benchmark for measuring financial health. Calculating your net worth is easy. The formula is simply:

Net worth = Assets – Liabilities

With that as your starting point, it’s time to figure out your net worth. To do this, you will need to calculate your assets and your liabilities.
Assets simply put it are the things you own. These may be liquid or illiquid.


Determining Assets

Liquid assets are simply those that can be turned into cash quickly. Bank accounts, certificates of deposit, stocks, bonds, mutual funds and similar investments fall into this category.

Illiquid assets are assets such as your primary residence and other real estate holdings. All of these items should be included in your calculations. Personal property, such as jewelry, vehicles and clothing should be excluded. These items may cost a lot to acquire, but are likely to be worth little from a resale perspective.

Liabilities in its simplest term may be define as your Owings

Determining Liabilities

On the other side of ledger are your debts. Car loans, home mortgages and business loans all fall into this category. The liability side of the equation is particularly interesting because this is where most people get into trouble. Lifestyle-related factors, such as a person with a low income but frugal spending habits or a person with a high income but higher spending habits can skew the net-worth calculation.

Where Do You Stand?
Mitigating factors play a major role. A university education versus a senior high-school education generally has a doubling effect on a household’s net worth. Being self-employed versus working for an employer can triple net worth.
Because of these mitigating factors, net-worth calculations are not universal in terms of their usefulness as a benchmark


Consider, for a moment, geographical disparities in Ghana, It costs more to live in the Southern part of the country  than in the North, and more to live in a city than a small town, etc., so net-worth calculations need to factor in lifestyle. A million Ghana cedis in Northern region is not the same as a million in the Greater Accra region. This then posses the question of what then is the ideal net worth.

See Also:  The year

The Ideal Number
How much should you be worth? Every individual has his or her own unique lifestyle, so there is no one-size-fits-all, universally agreed-upon number. However, Thomas Stanley and William Danko, authors of “The Millionaire Next Door” (1998), proposed a general formula:

Net worth = Age * Pretax income ÷ 10

Using this formula and a basic salary of GH₵25,000, we get the following results.

Age Income Net Worth
20 GH₵ 25,000 GH₵ 50,000
25 GH₵ 25,000 GH₵ 62,500
30 GH₵ 25,000 GH₵ 75,000
50 GH₵ 25,000 GH₵ 125,000
60 GH₵ 25,000 GH₵ 150,000
Figure 1. Net worth, income constant

Right now the numbers obviously look a little bizarre. Finding a 20-year-old (especially a university student) with a net worth of GH₵ 50,000 may not be impossible, but most gamblers would bet against it. At the other end of the spectrum, finding a 70-year-old homeowner with a net worth of GH₵ 175,000 isn’t particularly difficult, particularly in areas where real estate has appreciated significantly over time.

Since few professionals work their entire lives without getting a raise or a better job, factoring in rising income dramatically changes the numbers. Consider the following:

Age Income Net Worth
20 GH₵ 25,000 GH₵ 50,000
25 GH₵ 35,000 GH₵ 87,500
30 GH₵ 50,000 GH₵150,000
50 GH₵ 55,000 GH₵ 275,000
60 GH₵ 75,000 GH₵ 450,000
Figure 2. Net worth with increasing income

In both cases, the estimates are high for young workers. In the steady-income scenario, the estimate is particularly low for a worker approaching retirement age. Still, the numbers provide a benchmark for consideration. If you are doing better than the benchmark, you are least moving in the right direction. Interestingly, under the scenario where income rises with age, the net-worth estimate delivers results similar to those generated by a formula put together by David John Marotta, a widely-quoted financial advisor.

Marotta recommends instituting a savings plan that results in building net worth to the point where it reaches 20-times annual spending by the time a person reaches age 72 and retires. Under this plan, the older you get, the more you need to save. Ideally salary increases with age. So, by these calculations we can put together a fairly accurate measuring stick to compare your net worth against.

Age Income Savings
vs. annual spending
Annual Spending Net Worth*
30 GH₵ 25,000 1x GH₵15,000 GH₵ 15,000
35 GH₵ 35,000 2x GH₵ 20,000 GH₵ 40,000
42 GH₵ 50,000 4x GH₵ 35,000 GH₵ 140,000
51 GH₵ 55,000 8x GH₵ 40,000 GH₵ 320,000
66 GH₵ 75,000 16x GH₵ 50,000 GH₵ 800,000
Figure 3. Ideal net worth and spending targets.
*Net worth = savings amount x annual spending
See Also:   Connecting the dots

Building Your Net Worth
While the theoretical formulas provide some insight into the issue of net worth, absolute truths are harder to find. At the basic level, having a positive net worth is preferable to a negative net worth and having a higher net worth is better than having a lower net worth.

If your net worth is negative, strive to get it on the positive side of the ledger. While a low income makes it harder to build your net worth, if the numbers come up negative, spending is the culprit. Cutting your spending is the first step toward turning your situation around. Paying off debts is the next. If your net worth is low, strive to build it through saving and investing. Focus on maximizing the amount you save and minimizing the amount you spend.


If your net worth is high, keep building on your momentum. The amount that you have saved may enable you to change your lifestyle, providing enough money to travel during retirement or engage in hobbies that you could not afford during your working years. Work to save enough to fund the specific lifestyle that you desire.






Omega Capital Limited is an Investment management, private equity and   investment advisory firm. The Company is authorized and regulated by the Securities and Exchange Commission of Ghana.

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Nana Kumapremereh Nketiah (JP)

Sophia Obeng-Aboagye


Omega Capital Research

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Additional information is available upon request. Information has been obtained from sources believed to be reliable but Omega Capital Limited                           (“Omega Capital” or “The Firm”) do not warrant its completeness, accuracy or veracity. The firm is licensed and regulated by the Securities and Exchange Commission of Ghana (SEC). This material is for information purposes only and it is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and estimates herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information.

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