Thursday, 2 April 2015

Networth Calculator

Earlier I had posted a web article, describing how much net worth you should have accumulated by a certain age, with a table showing how you can calculate your expected networth, based on a few assumptions that you can make.  Here is a online calculator that you can use to estimate your expected networth with any starting assumptions you want to make, suitable to your personal situation.

Here are some recommendations on how to use this online calculator
Remember to put down your "take home" salary, which is the annual amount you get after taxes are deducted.  The taxes paid are lost anyways, so don't include your pre-tax salary.  The salary number is in Lakhs

The salary increment, is the average annual increment that you have received or expect to receive over the course of your career.  Salary increments tend to be fairly random in my experience, highly dependent on the economic environment, your performance in a particular year, or if you switch jobs a high uptick that you get from that change.  However, you can still use an approximate average salary increment, which I would suggest should be in the 6% - 8% range to be conservative.  Usually in the early parts of your career, you might see better pay hikes, but later these tend to plateau out.

For the savings rate, just put down the percentage of your take home pay that you expect to save and invest every single year.  Again, remember this percentage will be used for every single year in the computation, so go conservative on this one.

Similarly, the corpus growth percentage represents how much you expect your entire investment portfolio to grow every single year.  Since an average persons net worth is distributed across FDs, equities, MFs, insurance investments, ULIPs, real estate, gold etc, you need to figure out an average growth rate based on your asset allocation.  For an Indian context, I would recommend somewhere from 8% to 12% for this number based on how aggressively you invest.

The answer that you will get from the calculator is your expected networth, for the assumptions you have put in.  Use that answer as a benchmark, to compare your actual accumulated corpus, to check if you have been keeping up with the desired accumulation rate, or if you are falling behind!

By the way, this calculator can be used for non-Indian scenarios as well, of course with the right assumptions.  The salary amounts in the table can be in any units; for example if you want to consider US dollars, for a take home salary of say $50,000, you can enter 50 in the starting salary (assuming we are working in 1000s)  The annual salary increment and net worth growth should be toned down to say 3% and 5% respectively to reflect the low inflation situation in the US.  This will give you your final expected networth in US $ (in 1000s, same units as starting salary) 

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