It seems that everybody calculates net worth differently. For extreme early retirement or financial independence, there is only one way to do it.

The only thing that matters to your net worth are assets that can easily generate income. Sum up the total of these categories

  • All savings accounts and checking accounts.
  • All brokerage accounts.
  • All real estate you own that you rent out. If any are mortgaged, subtract the debt.

Do not include the following

  • Any kind of tax-deferred/locked retirement account (unless you are older than 55).
  • The house you live in.
  • Cars, boats, airplanes, or other big ticket items (unless you rent them out).
  • Bling-bling.

Now compute your expenses level. If you are a home-owner that does not own your home, the mortgage payment is an expense. If you own-own your home, your expense level should be lower.

If you have any kind of pension coming in, subtract that number from your total expenses.

Calculate your annual expenses. Multiply this by 25. Is it lower than your net worth? If yes, congratulations, you are financially independent and historically speaking you can go for a few decades without a job. Now multiply your expenses by 35. Do you still qualify? If yes, then historically, you could go on forever.

If either is a no, then you still have work to do, literally. Work hard to maximize your networth while minimizing your expenses. For most people the latter is far easier since the leverage factor is in the hundreds e.g. $100 saved per month translates into $30000 less in retirement requirements.