What number truly defines your financial health?
Net worth often stands in the spotlight when discussing personal finance, and it’s simple to see why: it’s your total assets minus your total debts. But the story doesn’t end there.
Consider this: two individuals might both boast a net worth of $1 million, but one could have inherited their fortune, while the other might’ve saved and invested to reach that mark.
To gain a deeper understanding, I propose shifting our focus to the lifetime wealth ratio.
The Lifetime Wealth Ratio
This idea originates from the financial blogger J.Money. Your lifetime wealth ratio (or LWR) compares how much you have today with how much you have earned throughout your life.
Lifetime Wealth Ratio = Net Worth / Total Life Income
The first thing you need to know is your net worth. You can calculate your net worth by adding everything you own (investments, bank accounts, car, real estate, etc.) and subtracting it by everything you owe (mortgage, student loan, credit card debt, etc).
To calculate your lifetime income, sum up all your earnings over your working years, including any inheritances received.
You can find lifetime earnings by creating a my Social Security account here. After logging in, select “Earnings Record” on the right to view your annual Taxed Social Security and Taxed Medicare earnings. The display will appear as follows (excluding the black boxes):
Given that there’s a cap on earnings subject to Social Security tax, you should use your Taxed Medicare earnings for calculating your total lifetime income.
The next step is divide.
For instance, if you have a net worth of $500,000 and you’ve earned $2,000,000 in your career, then you’d divide $500,000 by $2,000,000 to get a lifetime wealth ratio of 25%.
In his original article,, J. Money proposed the following scale for ranking your lifetime wealth ratio:
0%-10% – Meh
10%-25% – Now we’re cooking!
25-50% – You’re on fire, baby! Give me your number!
50-100% – Marry me.
100%-1,000% – How do I get into your will?
Though this ranking system might not be textbook material, it’s a better way to determine your financial competence than net worth.
Understanding the Importance of LWR
I like using the LWR more than just looking at income or net worth. Think of net worth like a snapshot of your money today, and income as a flow of how your money grows over time. Both are helpful, but they have their limits.
LWR combines the two. It shows how well someone is saving and investing their money. A higher LWR shows more wealth accumulated relative to earnings. A lower LWR suggests less wealth accumulation or increased spending.
However, a primary drawback of the LWR is that it tends to be less favorable to younger individuals. Their brief financial journey means there’s been little opportunity for assets to compound, often requiring years, even decades, to witness significant investment growth.
There is no single financial metric that is perfect. Though LWR serves as a gauge for financial progress, the true goal of personal finance is to attain your ideal lifestyle. If you feel off course, focusing on boosting your LWR could get you back on track.
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