If you are even slightly interested in financial independence (and why wouldn’t you be?) there are two numbers you must begin tracking immediately. The good news is that both are simple to calculate. Even better, just being aware of them will help you make progress. In this post, we’ll go through how to calculate and use these two critical FI numbers.
What Two Numbers Drive Your FI Journey?
Net Worth
Savings Rate
These two numbers play very different roles in the pursuit. Net worth is the metric you track over time. But, it’s not that useful as a short term measure. Its main use will be as your longest-term goal, and then as a progress marker along the way.
Savings rate, on the other hand, is a number you can affect immediately. It is what you should use to set your short- and medium-term actionable goals.
A Simple Analogy
(Warning, simple and imperfect analogy ahead)
Let’s say you are going on a road trip. Your destination is Financial Independence City. Sounds like a fun place, right? (Everyone is relaxed in the FIC!) You look at a map and discover that your destination is 1000 miles away.

You need to get to 1000 miles on your odometer in order to reach Financial Independence City. You’re starting at 0, and halfway there is 500 miles, etc. Useful to know, right? Think of your Net Worth as measuring the number of miles on your FI road trip, and your Net Worth Target as your destination. You need to know where you are, but it isn’t your primary lever.

So, you hop in the car and start driving. You control the speed. Your speed is how fast you’re going to get to Financial Independence City. This is your savings rate. If you push on the pedal to accelerate (increase your savings rate) you’ll get to FIC faster. If you let up, you’ll still get there, but more slowly. If you throw things in reverse (negative savings rate!) you’ll get farther away rather than closer.
Net Worth provides a destination and mile-markers along the way. Savings Rate is the lever (or in this analogy, pedal) you control to adjust the speed of your journey. Again, this analogy is far from perfect, but it’s a conceptual start.
You can also change the destination, but that’s a topic for another post.
These are not the only two numbers you’ll need to build your FI plan, but knowing them will confer immediate benefits. Though we weren’t yet even thinking about financial independence, TFI and I started roughly tracking net worth five years ago. Then we started checking in annually. Without setting a single goal or working to intentionally raise it, it adjusted our attitude toward spending.
Now, let’s dig into the numbers.
How Do We Calculate Them?

Fortunately, the calculations are straightforward. There is nuance to each, which I will touch on, but you can improve your measures over time.
For now, don’t get too bogged down in accuracy. Start measuring, and you will adjust as you learn more and build your FI plan. Getting started is the point.
Also, unlike many sites, I am not starting you with a calculator. I believe there is a benefit to doing the work yourself initially. It will help you understand the inputs and make you better equipped to adjust your path later.
At the end of each section, I do link to a calculator for those who just have no desire to do the work yourself. To each his own. But, trust me, you’ll be better off if you take the first run. (I know, spoken like a teacher. It’s what I am!)
Net Worth
Net worth = Assets – Liabilities
Yes, it’s that simple. What? You don’t know the total of all your assets and liabilities? Okay, neither did I.
Assets
There are several definitions of assets out there:
- Investopedia: An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit.
- Robert Kiyosaki (Rich Dad.com): The simple definition of an asset is something that puts money in your pocket.
- Another definition via Google: property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.
Those are just a few examples. In general, I think of assets as anything owned that I can convert to usable value. Some people stretch this concept to get their net worth as high as possible. I prefer to keep it simple, and realistic.
There are two questions most people have:
- Do I count my cars? I don’t. I count the liability if I’m paying down a car loan (thankfully, I no longer have one) but not the value of the car. This is because I own my cars until they’re done. Their value trends toward zero. If you’re going to sell your car for cash soon and not replace it, then you could consider counting it. Otherwise, its value doesn’t really do anything for you.
- What about my house? This is a debate! I actually calculate net worth both with and without my primary residence included. Since downsizing our house, or renting in retirement is a consideration for us, it is helpful to have it included. However, I believe it’s also important that you calculate net worth without your primary residence to provide a picture of your investible assets.
(Tip: For house value, I use my home’s Zillow estimate *.9 to provide a quick reasonable estimate)
Include all cash, bank accounts, and investments. Do not include collectibles, clothes, household items, etc. If you convert them to cash, then include them. Before that, including them is likely to falsely inflate your net worth. They won’t generate income, and they’re unlikely to appreciate, no matter how much you love collecting them.
(A special note for educators: A pension is an asset. Including it in your financial plan is complex. For now, calculate net worth without your pension. Here are 4 ways you can include it in your plan.)
Liabilities
This one is much simpler. (Whew) This is everything you owe. Hopefully, you’ve started dealing with your debt already and have a good idea of what this list is.
Make sure you include everything you owe! Remember, debt is poison. We need to pay close attention to it.
Your first calculation may look something like this:

That one includes the value of the house. If you remove the value of the primary residence, it has an impact. Your liabilities stay the same (you still owe the mortgage) but your investible assets are left.
So, in this scenario your starting Net Worth would be:
Net Worth (including primary residence): $74,095
Net Worth (primary residence value excluded): -$105,905
You now have a starting point!
As promised, here is a calculator at Bankrate. You’ll note it includes some of the things (cars, household items, etc) that I do not.
Another popular way to track your Net Worth in the FI community is to use Personal Capital. We recently started using it and have found it to be a great tool to provide a quick and easy overview of your net worth. If you sign up using the link below, this blog will get a small fee. As always, half of any profit goes to charities
Savings Rate
Savings rate is simpler. (Mostly)
Savings Rate = Total Savings / Total Income
Savings Rate is usually expressed as a percentage. Just multiply the result by 100 to convert it to a percentage.
Let’s take a look at the two major components of the equation.
Total Savings
This is any money you are not spending and are using to build your path to financial independence.
Examples of things to include:
- Savings account
- Emergency fund
- Retirement Accounts
- Taxable investments
Some people include the principal portion of a monthly mortgage payment under the theory that it is helping build an asset. I do not.
However, I do include any EXTRA money you are applying to a debt in order to pay it down faster. For example, if your required mortgage payment were $1100, but you were paying $1500 to accelerate paydown, I would include $400 in my total savings. The same is true for other debts you are paying down faster.
Some may disagree with this, but I believe it is important to recognize all actions you are taking to build your path to FI. These payments are increasing your net worth by reducing your liabilities faster. Unless you are doing this while borrowing money elsewhere – stop doing that!
An example:

This example includes an extra $150 a month applied to mortgage principal.
Total savings is $1800/month.
Total Income
This is all the money you earn. The big question here is whether to use GROSS (pre-tax) income or NET (after taxes.)
I use gross income. I believe this is the best choice for two reasons:
- It is easier.
- The gross savings rate is a lower number. This creates more incentive to stretch it further. For me, this is a psychological advantage.
I do not include earnings from investments (dividends, etc) because those are automatically reinvested. I count them as investment return, subject to compounding.
If you are not reinvesting all investment earnings, then you should include all earnings in your income and any portion you reinvest in your total savings.
Again, I like to keep it simple. Gross income only. All investment earnings reinvested.
In this scenario, total earnings might look like:

Remember, savings rate = savings/income * 100.
1800/4250 – .424
.424 x 100 = 42.4
Savings Rate = 42.4%
The higher your savings rate, the faster you’ll reach financial independence! As promised, here is a savings rate calculator.
Now What?
Build a System
Now you have the two most important numbers to track on your journey to financial independence. Calculate yours now if you haven’t.
Recognize that these first numbers are imperfect. That’s okay! It is most important to start tracking them and to build a system that allows you to continuously track them. As your final act, set a schedule for reviewing your Net Worth and Savings Rate.
We’ve set up the following schedule and system for our FI journey:
METRIC | GOAL SETTING | CALCULATE | TOOL |
Net Worth | Once (review yearly) | Quarterly | Spreadsheet |
Savings Rate | Annual | Monthly | Spreadsheet |
This schedule works well for us. I know others who track as often as weekly, while some check-in less. I like calculating in a spreadsheet, but there are other tools out there. Over time, you’ll discover what system works best for you.
Next Steps
If you are tracking these two numbers and have a system for updating, you have taken important steps on the path to financial independence! Now, you are ready to start making important choices to control your journey.
In the next post, we’ll look at a powerful FI lever: your spending.
Update: Here is the index of the entire FI Basics Series if you’d like to hop around other posts in the series:
- Financial Independence Primer
- Dealing with Debt
- Sort Your Spending to Speed Your Journey
- Two Powerful Numbers to Track (You are Here)
- Setting Your FI Targets – How will you know when you are financially independent?
- Strategic Savings: Create, Secure, Deploy
- Investing: 5 Keys and 2 Examples
Contact me if you have any questions or feedback, or leave a comment below.
I agree that Net Worth is a critical number. I agree that Savings Rate is key, especially the younger that you are b/c compounding your savings is one of the most powerful things you can do. I would also add ROI as a key metric to track. When you’re older, Return on Investment, becomes much more important than Savings Rate b/c you have less time for compounding and saving from scratch.
My husband and I are in our late 40’s so our net worth is now significant enough that improving our ROI provides a significant boost in income. If you have a $1 MM net worth, a 1% increase in your ROI produces $10k additional income — that’s a pretty good side hustle, and if you don’t spend it, that figure compounds. ROI is less powerful the smaller your net worth (more typically the younger you are) so savings rate is that much more of a factor.
Yes, I agree that ROI is important. Your point about it mattering more when you have a healthy amount saved up is a good one.
I think there can also be a danger of someone building their FI plan and assuming they can jack their ROI higher to make up for lower savings. Unwise. So, track ROI for sure, but a heavy emphasis on savings rate.