The Right Asset-To-Liability Ratio To Retire Comfortably

The right asset-to-liability ratio is important if you want to retire comfortably or achieve financial independence. If your ratio is too low, you may stress too much about your finances because you have too much debt. If your ratio is too high, you might not be taking enough advantage of enough cheap debt to get richer.

As interest rates stay depressed, the propensity to take on more debt increases. Low interest rates also encourages more investment. This can be good for economic activity, but it can also create asset bubbles that end up destroying a lot of wealth. Be careful.

Stay On Top Of Your Debt Load

On the corporate finance side, companies are taking on more debt to fund operations, investments, and acquisitions. The hope is that the return from various corporate activities will surpass the cost of debt in order to bring even more wealth to shareholders.

On the government side, the Treasury Department is issuing more Treasury bonds to pay for more government spending. It is logical to conclude that tax hikes are on the horizon. Luckily for us, the U.S. government can also print an unlimited amount of money to in essence pay back the debt.

On the personal finance side, consumers are taking on more debt to live a better life today. Below is a chart of my favorite type of debt, mortgage debt. Mortgage debt is the least bad type of debt because it generally improves the quality of your life and can often help build wealth through an appreciating asset.

As mortgage interest rates drop to record-lows, millions of Americans smartly refinanced their existing mortgages to increase cash flow. Meanwhile, there's a growing number of Americans buying new homes to live a better life.

But now, interest rates are ticking up as the economy recovers and the Fed tapers. Therefore, paying attention to your asset-to-liability ratio has become increasingly important.

How Much Debt Is Too Much?

With interest rates so low, the risk is that corporations, the government, and consumers take on too much debt. Too much debt brings down entire economies.

Nobody wants to invest in a company where a couple of bad quarters could lead to bankruptcy. Just look at what's happening to China Evergrande. Its stock was down 90% at one point this year because of too much debt.

If a government has too much debt, not only is there a greater chance that tax rates might go up, but inflation might also surge due to too much monetary stimulus. Both are likely to happen in the following years under the Biden administration.

But what I really care about is how much debt is too much on the personal finance side. We can't control what overpaid CEOs of public companies or power-hungry politicians do. However, we can only control ourselves.

Focus On Percentages As Well As Debt Amounts

Being a million dollars in debt may sound terrifying, but it all depends on your overall net worth. Therefore, it's important to focus on debt as a percent of assets or overall net worth.

Let's say you meet someone with $2 million in liabilities. You might think that person is doomed to work forever since the amount is so large and the risk-free rate has declined. However, we must also understand the person's asset level.

Despite having $2 million in debt, this person also has $10 million in assets. His assets generate over $250,000 a year (2.5%) in passive income, easily covering the $50,000 a year in liability costs (2.5% interest rate). This person has an asset-to-liability ratio of 5:1.

In other words, with a net worth of $8 million, this person is fiscally sound. His assets would have to decline by 80% before he can no longer liquidate enough assets to cover his liabilities.

On the other hand, if this person had an asset-to-liability ratio of 100:1, but only had $100,000 in assets and $1,000 in liabilities at age 40, that's not very good. It is likely the person failed to appropriately use debt to boost his wealth for the past 20 years.

Let's discuss what may be the appropriate asset-to-liability ratio for various age groups. The ultimate goal is to leverage cheap debt to improve the quality of your life and maximize your wealth creation without taking on excess risk.

This exercise should help you review your net worth and come up with a plan to get to the ideal ratio.

The Right Asset-To-Liability Ratio To Retire Comfortably

Not all assets are created equal. Some appreciate faster than others. Some assets, like cars, depreciate.

My hope is that readers can accumulate assets that have historically appreciated over time: stocks, bonds, land, real estate, fine art, commodities, antique cars, rare coins, and so forth.

Not all liabilities (debt) are created equal either. Credit card debt and payday loans are the worst. Stay away. Personal loans are an alternative because interest rates are often lower than credit card interest rates.

However, personal loan rates are still higher than student loan and mortgage rates. A personal loan should only be used to consolidate more expensive debt.

Average Personal Loan Interest Rate

Ideally, the main types of debt we should focus on are mortgage debt, student loan debt, and business loan debt. These three debt types are tied to assets the have a chance of appreciating in value. Whereas all other debt types are not and should, therefore, not be carried or eliminated ASAP.

With the understanding that there are various types of assets and liabilities, let's go through a rational framework to determine the right asset-to-liability ratio by age.

Your 20s: Little Assets, Perhaps Lots Of Debt

Unfortunately, our 20s are often encumbered by student loan debt and consumer debt. Not a lot of time has passed yet to accumulate wealth. As a result, it's common to see liabilities greater than assets, i.e., negative net worth.

For those who are fortunate enough to have no student debt or personal debt, then you can probably accumulate an artificially high asset-to-liability ratio simply by saving and investing your money.

But remember, a high ratio might not mean much if you don't have a lot of assets in the first place, e.g., 20:1 ratio, $20,000 in investments and $1,000 in credit card debt.

Therefore, it's good to also have a net worth guide by age target, together with a target asset-to-liability ratio. Below is a review of various net worth targets by age based on a multiple of earnings. The net worth multiple targets can be considered stretch targets.

Net worth targets by age combined with a asset-to-liability ratio

For example, by age 30, you should strive to have a net worth of 2X your annual gross income. If you are making $100,000 a year at 30, then your goal is to have a $200,000 net worth or greater.

A reasonable target asset-to-liability ratio by 30 is somewhere between 2:1 to 3:1. In the above scenario, a person with a $200,000 net worth may have assets of $400,000 – $600,000 and liabilities of $200,000.

With plenty of working years ahead, people shouldn't be afraid of taking on mortgage debt or have student loan debt. After all, one of the reasons why we're working is to find a nicer place to shelter. In our 20s, we more easily have the ability to work through our debt.

Your 30s: More Assets, Still Lots Of Debt

By the time you turn 30, you should have a clear idea of what you want to do with your life or where you want to go.

If you haven't bought a primary residence by 30 yet, this is the decade to get neutral real estate. If you put a standard 20% down payment, you get to control an asset worth 5X more. So long as you follow my 30/30/3 home buying rule, most of the time you should be fine.

By age 35, strive to have a net worth of 5X your annual gross income. By age 40, shoot to have a net worth equal to 10X your annual gross income.

Another good goal to have by age 40 is to have paid off all liabilities except for your mortgage. If you can also pay off your mortgage by 40, then great. But this is rare since the median homebuyer age is now about 33.

Let's say you're earning $100,000 a year at age 40. Hopefully, you will have accumulated a net worth of about $1 million through aggressive saving and investing after 18-22 years post high school or college.

A fair target asset-to-liability ratio by 40 is between 3:1 to 5:1. For example, a $1 million net worth could be comprised of $1.5 million in assets and $500,000 in liability.

Your 40s and 50s: More Assets, Hopefully Way Less Debt

Total debt balances among U.S. households

Depending on whether you want to keep accumulating assets using debt, your 40s should be a decade where you've been able to accumulate a hefty amount of savings and investments. Your earnings power is generally the strongest during your 40s and 50s as well.

With greater earnings power sometimes comes the temptation to take more risk. However, I've seen plenty of people in their 40s and 50s get let go for younger, cheaper employees. Therefore, you don't want to take on too much additional debt, especially if you have dependents.

Controlling lifestyle inflation is important. After 20 years of work, if you survive multiple rounds of layoffs, you're probably feeling a little burned out. This is where building up a significant taxable investment portfolio can really help your psyche.

By 50, a good net worth target to have is 15X your annual gross income. Therefore, if you still make $100,000 a year, your goal should be to have a $1.5 million net worth.

By 50, strive to have a target asset-to-liability ratio of between 5:1 to 10:1. For example, if you have a $1.5 million net worth, it may be comprised of $2 million in assets and just $300,000 worth of mortgage debt.

At this stage in life, you're no longer afraid of debt because your income and assets are significant. You're used to using debt to build wealth and create a better life. At the same time, you're also focused on completely eliminating all debt.

Your 60s and beyond: Big Assets, Little-To-No Debt

By the time you've reached your 60s, it's a good idea to be debt-free. This is especially true if you no longer work, haven't built enough passive income streams, or barely have enough coming in from Social Security to survive.

But if all goes well, by 60, you will have accumulated a net worth equal to 20X your annual gross income. 20X annual gross income is my baseline net worth target before you will start truly feeling financially independent. Therefore, if you make $100,000 at 60, hopefully, you will have accumulated a $2 million net worth.

By age 60, your goal is to have an asset-to-liability ratio of 10:1. With such a ratio, it would take a 90% decline in your assets before you can no longer liquidate to cover your liabilities. Of course, if you are debt-free (infinity ratio) with a livable retirement income stream, you've got nothing to worry about.

If you do get to age 60 with a net worth equal to 20X your household income, you don't want to robotically start following a four percent withdrawal rate since we don't live in the 1990s. Start withdrawing more conservatively and see how things go. Build some supplemental retirement income through your interests. You could get unlucky and retire into a bear market.

The Ideal Asset-To-Liability Ratio By Age Range

Below is a handy guide that highlights a suggested minimum asset-to-liability ratio and target net worth by age group. The target net worth by age assumes someone or a household is making between $125,000 – $300,000 over their working careers. The target asset-to-liability ratio is independent of income.

Target Asset To Liability Ratio By Age Chart

After going through this exercise, to retire comfortably, I think the ideal steady-state asset-to-liability ratio is 5:1 or greater for the majority of people.

With five times more in assets, you're in a fiscally sound position to weather most economic downturns. Hopefully, your liability mostly consists of “good debt,” like a mortgage or any type of debt to fund a potentially appreciating asset. With liabilities equal to 20% of your assets, you have enough leverage to give your net worth a boost during good times.

If your liabilities consist of credit card debt, you're shooting yourself in the face given the high interest rates and lack of a corresponding appreciable asset. At least there are new consumer loan companies like Credible that are able to offer significantly lower personal loan rates to help people consolidate their debt.

Once you're in your 60s or older, getting an asset-to-liability ratio of 10:1 or higher is ideal. Eventually, I believe everyone should retire debt free.

Calculate Your Asset-To-Liability Ratio

Take a moment and calculate your asset-to-liability ratio. You can do so by hand or by using a free financial tool to automatically tracks your assets, liabilities, and net worth for you.

Calculating your asset-to-liability ratio will likely motivate you to at least pay down some debt to increase your ratio. If you find your ratio above 5:1, depending on age, you might also consider leveraging cheap debt to potentially build more wealth or improve the quality of your life.

Once you get to an asset-to-liability ratio of 10:1 or greater, your debt might start feeling like a nuisance. If you've got a significant amount of assets, the desire to take on more debt may decrease since you have already won the game or are very close. Therefore, you might simply make it your mission to become debt-free.

In 2020, I leveraged up and bought a nicer home. As a result, our asset-to-liability ratio fell from around 15:1 to 9:1. Now, I'm determined to bring that ratio back over 10:1 again by continuously saving, paying down debt, and boosting investment returns.

Before taking on any debt, always think about how the debt can make your household wealthier and/or happier. If you do, you will build your net worth more wisely.

Remember, the goal is to not have the largest net worth. Your goal is to utilize wealth to provide the best lifestyle possible. If you're living your best life, you are truly rich, no matter the size of your net worth.

Build More Assets Through Real Estate

Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Leveraging up with mortgage debt is the only type of debt I like.

Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio. 

After getting rid of $815,000 mortgage debt by selling a key rental property, I reinvested $550,000 in real estate crowdfunding. It's been great to diversify, increase my asset-to-liability ratio, and earn income 100% passively. 

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Readers, what is your asset-to-liability ratio? What is your ideal asset-to-liability ratio? Are you feeling the temptation to take on more debt given interest rates are so low?

It's also important to maintain a good debt-to-cash ratio as well. With interest rates going up, the value of cash is increasing in value.

About The Author

127 thoughts on “The Right Asset-To-Liability Ratio To Retire Comfortably”

  1. Money Ronin

    Uncanny timing. I’m a long time binge reader that visits every two months. I got interested in my debt ratio today (just before reading your article), Googled to see whether there was any guidance, and found this post. It’s hard to come up with generalized guidance on this topic, but I appreciate you making the effort.

    My debt to asset ratio is 41% which is low for me. I’m usually closer to 50%. 45% of my NW is in real estate which explains the debt. I’m usually closer to 50% in RE but I’ve been rotating out of the sector.

    While I agree with you that one’s debt ratio should decrease as one ages, your ratios don’t work for people with:
    1.Large real estate holdings. As we both know, the only way to make real money investing in real estate is through leverage. While I might continue to pare down my real estate holdings over time, I will continue to exercise maximum leverage assuming low rates.
    2. Large NW. My NW is high relative to my expenses. I’m way past the 25x rule, so I can afford to take on more risk with my “excess” NW.

    My best loan is on my primary residence. 2.375% 30 year amortized. 1st 10 years interest only. Next 20 years P+I at the same rate. I wish I could have borrowed even more but I could only go up to 50% LTV due to income limitations.

  2. Mike Tangney

    I am 65 and calculated my assets to debts at 3.53, (assuming my future tax burden on my assets should be included as a debt). If I don’t include future taxes as a debt then it comes out to 9.50. What is the correct position?

      1. assets

        1.2mm in dry powder $
        400k in trading/ira accts
        250k in semi liquid assets (precious metals etc)
        2mm in rental real estate

        3.86mm approx in total assets


        2k in credit card
        1.19mm in real estate loans

        net worth approx 2.668mm

        debt to equity = 3.24

        46.5yrs old

        how we looking? lmk when you can. thx. like all of your articles.

  3. In my mid 40s and have no debt. With rates so low, I have been kicking around the idea of doing a cash-out refinance on our home and bringing our asset:debt ratio to about 10:1. On the other hand, I’m not really seeing any great investment opportunities right now so that cash would likely just sit there for a couple years waiting for the next big market correction.

  4. I would agree that the 5:1 ratio is ideal for most that are retired or FI, as leverage can compound your wealth when used strategically. My inner optimizer tells me to always have a mortgage due to the leverage and ability to invest excess equity, while my realist argues the beauty of not having to make any payments. The issue is that finance is rarely a mathematical question, as much as it is an emotional one. Telling someone in their later years to have a mortgage or debt is difficult, even if it makes clear financial sense and cents.

  5. Interesting post Sam. A question for you about you assets-to-income ratio formula. Do you base that only on current salary? At age 50 I am only at 8X right now, but I switched careers a bit later than most and have been very fortunate to see my salary go up about 125% over the last five years.

    If I had been on a more regular salary trajectory, say 5% a year, I’d be right on target at about 15X with the amounts that I have now. I’ve kept my spending pretty much in check, maybe up 25% from where I was before, which means my savings rate has gone up significantly. So on one hand, my salary and savings rate have gone way up, on the other according to your chart I’m way behind.

    My asset-to-liability ratio is high at 12:1. Honestly this feels too high and I’ve been thinking of grabbing a second home to use as a rental or a vacation home to use as mixed user property as a vacation getaway and a nightly rental. This would allow me to use some cash reserves, leverage lower rates and create an income stream.

    1. The ultimate multiple to shoot for is 20X income = net worth. But of course, it’s up to you to decide how much is enough. The reason why I like using income as a multiple is because it keeps you honest and motivated to keep on saving and investing as your income grows.

      A good compromise would be to take the average of your past 3 to 5 years of income and use that as a base for the multiple.

  6. Hey Sam,

    If you are at a 8:1 in your 50’s or 10:1 in your 60’s, are you also investing into bonds? Your bonds are almost certainly returning less than your loan interest. Obviously, bonds are more liquid than money in your home. But if you have enough for liquidity then what would you do with the rest of the money you are borrowing? Should you just be more aggressive in your allocation?

    1. Depends on your retirement income, risk tolerance, and absolute net worth.

      Personally, I have a hefty portfolio of municipal bonds that pay me a nice tax-free passive income. I love this portion of my portfolio bc I know if all else goes to zero, I’ll be alright for years.

      How about you? What’s your multiple and how are you investing?

      1. I am at 13:1, including primary residence. I hold some VTEB, FSKAX, and BSV. But with returns on those being so poor and the future looking bleak as far as returns go, I am tempted to just pay off my remaining debt. You got some great rates on your properties I remember. Perhaps your passive income is greater than your loan costs? Otherwise, wouldn’t you feel more secure by paying off the debt and also not losing money in the process?

  7. Just about 60 and ready for the next step.

    No debt ratio at all, and 20 times our annual wages. We should also have enough passive income that our take-home should remain the same as when working, due to tax advantages and no longer putting money into retirement funds.

    Aside from how much more we might want to get out of savings for some serious fun (and living that elusive best lifestyle, if we ever figure out what it is–we like to think we have fun now, although some extended travel time would be nice), the question that really keeps me scratching my head is how much we want to get out of our 401k plans before RMDs begin as, without any changes or preparation, that will more than double our taxable income the first year (either age 72 or 75, depending on what Congress does next year), and rising sharply each year thereafter up past our nineties.

    1. Your 401K is like funny money isn’t it? That’s always how I view my tax advantages retirement accounts 60. If it’s there, great. If it’s not, because I never relied on it for retirement.

      1. Well. We didn’t have any options at work besides 401k type plans. Other than the 7k per year. With the 401k’s contributions, we avoided going up a tax bracket and remained eligible for Roth contributions.

        More importantly, we also avoided state income tax. We would have been paying 30 to 33% income taxes on that money, otherwise. If we move to a state without state income taxes before we begin drawing, that takes it down from a third lost to taxes, to only a quarter of it.

        My intention was to convert a lot into Roths between retirement and RMDs, but Peter Thiel may have messed that up for everyone. The proposed ten million limit is not bad now, but if I’m not to hit the limit before 80 I will have to limit my conversions each year. And, by that time, inflation will likely have reduced that 10 million to 6 million or less in today’s dollars, depending on how much above 2% inflation goes.

        I also expect they will not increase that limit properly for inflation, and that, with the precedent set, they will keep coming back with schemes to tax more and more out of retirement plans–I mean, it already seems pretty crazy that anyone, state or Federal, is allowed to tax Social Security (I don’t expect there are many readers of this site that will not be taxed on 85% of their Social Security), but Congress knows no shame or they never would have “borrowed” and spent it all in the first place.

        For example, the main advantage I see in Roths is that there are no RMDs. But, in any given year, politicians could take that away in a heartbeat. I anticipate, too, that they will also keep messing with the backdoor conversion rules, eventually eliminating them altogether.

  8. Very helpful examples and analysis thanks! I don’t have any plans on taking on more low interest debt. I’ve actually been focused on paying down more mortgage debt this year. It feels good to pay down extra principal every 2 months or so. My student loans and rolling credit card balances are long gone too thankfully. I’m liking having less debt!

  9. If I have no personal debt, house, car and credit cards all payed for, can I have a larger business debt?

  10. Great analysis.

    I’m right on target for your asset-to-liability ratio for my age.

    My liabilities consist of low interest rate mortgages on our home and my investment properties. I have been paying down the mortgages on my investment properties out of habit, but I think I’m going to change course and focus instead on building up my taxable brokerage account. Does it really make sense to pay down a 2.7% interest rate mortgages in an inflationary environment when I already have more than 50% equity in each property? Why not carry those mortgages into (early) retirement? I think I’m just going to invest rent proceeds into a tax efficient index fund going forward. Not sure….

  11. I totally agree that over 60 with little, or in my case zero, debt is a comfortable way to be. I’m not looking to earn more money or even to grow my investments at a rate higher than inflation and leverage feels like risk to me now even though it is a useful tool for many. It always scared me the level of debt that existed in my corporate sector of big oil. And that was in the days when you had to pay high interest rates at times. It did drive many companies to bankruptcy because as you mentioned, two bad quarters could tank them.

    1. It is crazy that some companies get into so much debt. Like, is the board, and the sea level executives all asleep at the wheel?

      It’s kind of like when all the ratings agencies, like Moody’s etc, All head AA ratings on everything before the 2008 global financial crisis.

  12. My SO and I are age 31 with an asset-to-liability ratio of 5:1 ($275k mortgage, $1.4 mil in assets). Based on this post and the book “The Value of Debt” (which recommends a 25% debt-to-asset ratio), I am considering borrowing more to increase our leverage. I don’t know if I should look into a cash-out refi on our primary to purchase more real estate, or put 20% down on a vacation home in the mountains that we could airbnb when not using. Alternatively, there are some stupid cheap margin rates right now (2% or lower) at various brokers, but those are variable rate and potentially callable by the lender. Seems risky. Any advice for my situation?

    1. I am personally considering the airbnb option .. especially one i can use myself (similar to what Samurai is doing with the Tahoe condo)

  13. Hi Sam –

    I may be splitting hairs here, but what if your debt is a mix of home mortgage (non-revenue generating debt) and a commercial mortgage (office building with tenants paying the mortgage and generating a small amount of income)? With our total debt, the asset/debt ratio is around 9:1, but if I exclude the income property debt, the ratio is more like 14:1 – again, not a huge deal, but would like to know how you would treat that? Thanks

  14. Sam, what about margin debt? Didnt see anything related to that.
    Ive been adding a decent amount of margin debt, something ive always been against but the market has done welll for me.
    Any ratios in the that regard?

    Also, considering adding more given the optimism and your optimism on the market given your latest email letter

      1. Yessir, thank u.
        I did find your article on margin debt – If you want to trade on margin, limit this margin account to 10% or less of your entire investment portfolio amount.

  15. Agree, some level of debt that is helping produce income is useful. We learned this a number of years ago when we had the ability to pay in cash for a new house but financed it and invested the difference in stocks. Over time we tracked the stocks purchased and the effective dividend (divdend rate to purchased price) is well above the interest rate on the mortgage, the stocks vales are significantly higher, and the home value is higher leading to a higher net worth compared to if we had just paid for the house in cash to begin with (and we had the additional tax deduction in the meantime!) — you can back test situations over a 7 or 10 year period of what if’s in your own life that way and see the differences. The key is reasonable leverage (not getting over leveraged), the right kind of leverage that is working for you generating income and net worth, giving the leverage time to work for you (as a real estate investor you know the rents covering expenses up front are one thing but the growth in rents and growth in asset value over a period of time is where you see the biggest net worth increases), and sufficient liquidity to cover expenses including mortgage payments for those times when maybe tenants are not paying rent/properties are not rented, stocks are taking signficant hits, or some other event (take your pick: lost job, fire, recession, natural disaster and so forth).

    1. Chuck Sarahan

      Smart. If you can pay loan at 3% but get 6% you are using other people’s money to move forward (I left out taxes which would certainly impact your gain). However, the other question is: Does the extra three percent pay fully for the debt? People forget that. In your case the answer is affirmative based on your statement. Probably not so for others.

  16. Question: When calculating our Net Worth (Asset/Liability Ratio, etc.), while married, would we use our joint assets or individual?

  17. Hi Sam,

    It depends on the individual’s circumstance.

    My view is that it’s better not to include debts in the computation of FIRE. It will be prudent for one to avoid debt if possible. Simplicity is the way to go as per my perspective.


    1. Concur. I’m told it is not optimal but, approaching what looks to be an extremely comfortable retirement, it seems good for my peace of mind to be keeping assets to liabilities at 1:0 and to be paying off all the credit cards during their grace periods each month (even if the credit card companies are calling me a deadbeat behind my back for doing so).

  18. Thanks, Sam, good article and you make great points. I think the key is to pay off your high-interest debt as fast as you can and then work to pay off your other debt considering what type of debt it is and if you receive any benefits from having it. I know I am a little higher than it says I should be based on your ratios but a lot of our debt is for rental properties and each property is profitable and is building equity for us. There are other tax benefits such as writing off the interest which makes me not want to pay it off as fast as I can. Over time we will move into the ratios but until then the debt is actually working in our favor. Not only that we could still sell and make a profit on each one. What I am trying to say is depending on the debt you have it may be beneficial to have more than the stated ratios. I agree everyone needs to be very careful how much you take on but I think depending on the debt they may have room to take on more. I liked your analogy of “Nobody wants to invest in a company where a couple of bad quarters could lead to bankruptcy.” This is very true, but people also want to invest in companies that are using debt to their benefit, if they can. As the money might be better used for investments instead of paying off debt.

  19. Nice post Sam. Interested in your take on the Gross income multiples. For those of us who didn’t make it to the higher ranks of income generation until a bit later in our careers, those numbers are harder to reach, unless we were super vigilant in our younger years. Unfortunately, I was not.

    I feel a little better about things when I use multiples of our annual spending (or at leas the gross income I need to have that amount post tax). Since I’m saving 50% of gross income each year (yes, I wish it was 50% of my net income, but 3 kids + expensive coastal city) in theory, I won’t need that “extra” 50% once I decide to stop the full time gig.

  20. Sam,

    Hi; 1st time coming to this site (bucked it up by accident)..
    Looking at these Figures shown, at age 50’s, I don’t have anything ‘near’ those millions quoted (frowning)..

    Company work at gives us a Pension (Grateful); and offer 401k, but gives No match (due to the Pension given); and unfort my Salary couldn’t afford doing 401K over the 23yrs working there, I only could/started it 12yrs ago; so I am waaaaay behind..

    I have a little money in a Roth (60G) from some stocks I’d bought; and so my question is??; would it be a Good idea to take 1/2 my Roth (FYI; -> I can without Penalty etc), in order to Live on next Yr; so that I can MAX OUT my ConTrib to the Two (2) 401K plans I’m allowed???
    (so in essence, I’d be withdrawing 30G from the ROTH; in order to save 50/52G next yr (26G in 401K & 26G in 457K))..

    Would this move be ‘Financially’ Smart (since trying my Best to ‘catch up’); OR, would this be a DUMB move??

    Thanks Much Sam..

      1. Got yu Sam; Thanks much..
        (as I feared company go down, and can’t give our Pension (the ‘what if’); hence reason why I was thinking of trying to ‘move’ the 401K Amts now)..

        Have only been working here (the US) for 23yrs (immigrant); so 401K was New to me etc; and Salary was below back then, so couldn’t Contrib (so instead, had opted for buying few stocks (Srius) here there (when market crashed in 2007/8)); so hence how comes I have money in Two (2) Roths..

        Have contrib-to-date 214G in 401K (over the 12yrs); and ‘this’ yr, I’m doing 40G; last time checked, it was at invested value 450G (I had thought by now (12yrs after), would have been waaaay more than that (LOL); -> Prudential (Alloc (3 things)-> 35% Large Cap Index/20% Small-Mid Cap Index/45% InTl Index)..

        I’d LOVE to do some of that Fundrise/CrowdStreet & EquityMultiply; 10G Each; and just set it, and forget it (smile); leave it there for them to do-their-thing; but I’ll ‘think’ some more and see; as due to ‘CoVid’ that ‘commercial markt’ space ‘thinking’ is gonna change abit, for going fwd; so, I’d be more leaning towards non-commercial real estate ventures..

        Anyway, Thanks much again, for your Help; gonna now go to the link (yu sent), and read/plug in my Pension (will be (roughly) 48% of 90G)..

        Thanks again Sam..

      2. You did not mention margin debt. I have always used margin, but I don’t have any other debt. Mortgage is paid. Plus, in
        2000 I learned the horror of margin calls. Now I am no longer foolish.

  21. RockyMountainsOutdoorsFan

    Great charts for affirmation of my FIRE goals. 49 years old, single, no kids. Mortgage paid off in May 2019 and I’m so glad to be mentally free by being debt free. Had no idea of implications of COVID, but being mortgage free is a pure relief. $2.7 million Net Worth which consists of $2M in mostly low cost index fund investments. I’m waiting for the corporate early retirement or separation package in next 3-6 months!

  22. Up until two months ago I was planning to pay off my mortgage and be debt free within the next three years. I am currently 39, $1.6M net worth (not including my business), three kids under the age of 7, and my wife is a stay-at-home mom.

    I felt that being debt free would take some pressure off. However, when interest rates plummeted I cash-out refinanced our home at 2.75% and bought house nearby which we are renting to family. Our ratio went from 7:1 to 4:1, but I actually feel much better and more secure since we have higher monthly cash-flow and grandparents living just down the street.

    If there was ever a good time to take on extra debt, it seems like now is as good a time as any.

    1. Nice job utilizing debt to improve your cash flow! Cash flow really is key here.

      Thanks for declining mortgage rates, I can live in a nicer home and pay less than I did when I first bought one of my homes in 2005.

      But since 2005, my net worth and I’m assuming the vast majority of peoples net worth have increased tremendously. Therefore, affordability has gone way up and that is really helping us live better lives.

      1. As I was reading through the comments I saw this and thought… “Wow this guy is in an insanely similar situation as me.” Then I realized this comment was written by me last year! So here is an update:

        My Net Worth has gone from $1.6M to $2.25M. I refinanced the mortgage debt from a 30-Year @ 2.75% to a 15-Year @ 1.875%. My payment went up, but the forced savings & real estate appreciation has really accelerated my Net Worth over the past twelve months.

        I turned 40 this year and my asset-to-liability ratio is around 5:1. My Net Worth is approximately 6.5X my annual income.

        Your blog has helped me realize my goals and I appreciate what you’ve done in creating and maintaining it.

  23. I Happen to be almost exactly at your target levels being 30 years old, having NW about 2 x annual pay, and Asset to Liability ratio of 3 : 1.

    Considering though taking more risk in this low risk environment. I’m located in Finland and just got an offer for 25 year 1,5% fixed rate offer for investment apartment loan amounting 2 x my annual income. Variable rate loan would be 0,5% + 1 year Euribor. That would take my Asset to Liability ratio to about 1,75. My current strategy is to go for it if I find great opportunity but not to rush to market at any price. The housing market is quite overheated naturally as rates are so low and state is subsidizing rents quite heavily. Price to Rental income ratios of 25 are not uncommon here.

    1. Such a low rate. If the house improves the quality of your life and you are confident about your income streams, then I say it’s fine. Of course, you want to find the best deal possible.

  24. I love your blog. Posts like these though do tend to put a damper in my stride. Post divorce, at age 38, I have $250,000 in retirement. I contribute 15% of my salary to retirement, plus a 5% match, and I put away 25% of my take home pay in a blend of stocks and bonds as a long-term goal toward a future down payment on a home after successfully saving six month’s worth of emergency fund. I have zero debt, but am not amused with the steadily increasing rental prices after having enjoyed a relatively flat mortgage payment. I make just north of $100,000 though, so I am well below your 5X net worth of current salary goal. I do freelance work outside of my full-time job. I suppose I could push toward my next promotion at the office and pick up steam with the freelance gigs, but it can feel a little discouraging to feel so behind. I am very blessed to have a secure job. I am by no means complaining, but to work hard and still come up short can feel like a long road ahead. :)

    1. Sorry Joe. How would your finances look like pre-divorce?

      You can cut down my ratio to account for your situation if you wish.

      Who knows, you might marry someone who makes as much as you if not much more with a lot more assets and really good ahead. That’s the beauty of life. Embrace the unexpected.

  25. As always, these ratios are quite aggressive Sam. But very realistic if you want financial independence and wish to get out the rat race in good health. If you want to enjoy life at a young age, say 50s, you have to be aggressive in your goals and stay 20x ahead of the rest of the pack. You ratios are on target. I have seen couples in their 50s with about 200k in savings and a mortgage loan with 20 year life left in it. Not pretty.

    For the moment, the only liability I carry is my mortgage loans. Zero credit card debt. My student loan back in the day, I paid it in three years right out of college. Yes you have to leverage debt but you have to make sure it is wisely utilized. People get loans just for the sake of getting loans because interest rates are low, lower than inflation. But what will you do with that loan? It is all about return on investment and return on liability.

    The Economy Chief

  26. I have been debt free for over 5 years now (I’m 49). Even though I know you can use debt to your advantage via leverage I really do not have the desire to do so.

    For me there is a financial peace of mind that everything I have is 100% owned. The low interest rate environment is of course tempting but I am pretty content with what I have in terms of net worth and income producing assets.

    1. I think you are doing yourself a disservice given you can deduct interest expense and that lowers the true interest rate and then when you account for inflation.. it’s literally free money except if you have a high risk or low paying job then different story.

    2. Being content is the key to happiness and wealth! Definitely don’t take out debt if you have no need for it or it doesn’t improve the quality of your life. For us, we just want a bigger house given we don’t have two kids and we plan to hire some help. Five people in one house from two quiet people just 3 1/2 years ago is quite a big change.

      As for Ted, I see it almost like a game. Take on debt to improve the quality of your life and then pay down debt. If feels great paying down debt bit by bit or by a lot.

  27. It’s still a bit hard to believe how low rates have come down now in 2020. I’m working on paying down my highest interest debt for the foreseeable future. I’m not really feeling like investing more this year, so it feels good to pay down debt.

  28. I’m a young investor (25 years old) and have recently been interested in investing. I work a dead end job and realized it’s time for something new to supplement my income. I was interested in dividend stocks until I stumbled upon your blog and became more interested in growth stocks. Since I’m extremely new to the investing world, how do you suggest I jump into investing in a growth stock? Which company can I start small with, and gain more confidence along the way? I’ve looked into commission free programs like RobinHood and Loyal3, would this be a goo starting point to get my feet wet into the investing field?

    Thanks for all of your help.

    1. Christophhh

      So I am just going to give you my personal opinion. I am also 25, have been investing for 7 years and have a six figure net worth. I don’t use any of that to “supplement” my income. In my mind you don’t get to supplement your income from your investments until you’ve built up a big enough nest egg to live off of dividends, capital gains, rental income, etc.

      I would work on getting out of your dead end job and finding a job with good financial opportunities (a job that pays you by your performance not just a set wage). Keep reading this blog and read books on investing. I would not recommend signing up for a cheap brokerage account and jumping into trading.

      Wealthfront and Betterment would probably be your best option to start until you’ve learned enough to branch out. I personally have a diversified portfolio of index funds through Vanguard and a few individual growth stocks as well as some real estate.

      Good luck on your journey and good for you looking into a better financial life so far ahead of most people!!


      1. Thanks for your response Christophhh. I wish I could say it would be easy finding another job, but easier said than done. That’s why I’ve been looking into other ways of making money.

        Do Wealthfront and Betterment charge comission fees? I don’t feel comfortable paying fees until I fully understand the investing process, in other words, I wish I could afford to. Where do you suggest I end up investing first? Sorry for the plethora of questions, I appreciate your help.

        1. I would turn that around and say that you can’t afford not to. It is likely to cost you a lot more if you try to jump in and start buying and selling individual stocks. Wealthfront and Betterment will build you a diversified portfolio based on your risk tolerance and charge a relatively small management fee.

          The problem I see is with your intent..”other ways of making money” “supplement my income”. To me this sounds like day trading and prospecting which to me is a dark road that I have no knowledge of and hence would not recommend.

          Most of the readers of this blog (from my observations) are like me. We spend less then we make and invest the difference for the long-term. Think 40 years. But you have to keep reinvesting all of your dividends to really grow your portfolio and eventually make real income from it. Which means you can’t be pulling those dividends out to supplement your income.

          I may be misunderstanding your goals so this is just my interpretation. Hopefully the big man upstairs will chirp in before too long as well.

          1. Thanks for your advice! I’m actually very close on starting my first investment! Your advice really helped me readjust my goals towards investing. However there are just a few things still a little fuzzy for me, how do taxes work on the $ made from investing? Thank you so much!

          2. If your a true real estate investor and your assets are more than your liabilities, then your doing it all wrong. Who would be putting 70% or more down? Ive gained about rental 200 units in about 10 years by leverage. It’s quite the opposite in my humble opinion.

    2. Don’t try to pick a growth company. Choose an ETF like SCHG (or plenty of similar ones), which will diversify your risk across a bunch of companies.

  29. My two cents on this topic. Should you really count your (freed/unmortgaged) home as your asset to offset your debt? Sure you could sell it when the market is up and make a profit but in a downturn it may only partially cover the debt. Besides that’s where you live, your sanctum!

    In my un-financial, un-professional, heart on sleeve opinion, your home should be excluded from your nett worth because if you lose it, where do you go?

    Being at zero debt and then selling it for another home, makes more sense to me, then selling a home to pay off a debt.

    I’m probably sensitive to this as a result of growing up in rental homes, knowing that if my dad ever lost his job, we’d be on the street or living in the car with no one (especially not family members) coming to the rescue.

    Unless I’ve totally missed the point of this being a paper only exercise.

    1. I’ve seen a lot of people disagree about this issue. In my opinion, I count my home equity as an asset, because if I needed to sell it or reverse mortgage it or refi and pull cash out to invest somewhere, I can. It’s usable money that can be leveraged for an investment or something else. I wouldn’t ever sell my house just to pay off debt. I might sell it to downsize and use the extra equity to either pay down debt or as a down payment on a rental property.

      I see your point, though. If your plan is to sell your house and pay off your debt and no longer have a place to live, you’re shooting yourself in the foot.

      An alternative approach might be figuring out the cheapest housing you could stand to live in. Let’s say that would cost $200k. Let’s say that your current house is paid off and has $600k in equity. You could say that the first $200k of equity is strict necessity for housing and only count the “extra” $400k as part of your net worth. That way, if you downsized in retirement, which a lot of people do, you could use the excess equity for your own support.

  30. I always enjoy reading your posts but I do think at times you paint a bleak portrait for too many of us…even those diligently saving and investing. I know very very few people with 250k at 30. And I live in DC. Even half that would be probably top 1% of people 30 y/o. either way your advice is spot on generally and I definitely gain by reading your posts.

    1. Christine Minasian

      I would agree. To have in your 50’s 15X your gross income for your net worth- that seems high. But Sam is trying to get us all to be financially prudent so I take it with a grain of salt. I want to enjoy some of my income based on what I’m seeing around me- people passing away in their 50’s!

  31. BeSmartRich

    I don’t have any debt so I am one of your 30% of readers who voted who do not have any debt at all. Although I want to buy a house at some point, considering significantly over-valued housing market, I will pass for now. Thanks for sharing!


  32. Trying to get ahead

    My spouse and I are in our early thirties and have no children. We earned approximately $316,000 this year and expect to earn approximately $400,000 next year. We saved about $1,500,000 over the past 8 years, starting from a negative net worth due to student loans. Currently, we have about $1,450,000 in assets (of which $600,000 is in the stock market and $800,000 is our home) and $150,000 in liabilities (which is a combination of a mortgage, student loans and a car loan). This puts our asset-to-liability ratio at about 9.7. By YE2016, we plan to bump our net worth up about $300,000 ($220,000 from savings and $80,000 from asset appreciation) to about $1.6 million and payoff all debt, thereby raising our asset-to-liability ratio to infinity. We are not sure if this is the best way to go about it, but this is where we are headed… Any thoughts?

  33. totally debt free at the moment, but that’s because we don’t have a mortgage anymore and sold our house (we’re renting). Future plans might involve buying a house again, and take on a mortgage…

  34. I’ve recently started looking at debt differently than most. Most people go into debt when times are good, and expose themselves to problems if times turn bad, like if they suddenly lose their cash flow, or the asset depreciates, etc. I’ve used recent good times to get out of debt, basically no mortgage, car loans, or margin debt. I now am sitting pretty if and when assets like real estate, or the stock market, go on sale and carry less downside risk when at lower prices. Currently in my early 50’s, 1.6 MM liquid net worth (not incl. house). If real estate takes a tumble, or we get a 20% or more correction in the markets, it might be time to borrow some dough and do some shopping!

  35. We are sitting at about 2-1 ratio in our mid 20’s right now. I’m okay with where we are currently and not too fixated on this specific measurement, just more focused on growing our investable base each month.

    This post makes me think of “Rich Dad, Poor Dad”. Not having infinity as your asset-to liability ratio doesn’t mean you are in a better or worse position, it all comes down to your end goals, values, and risk tolerance. While some people value the reality to become completely debt-free, others believe in leverage and use it to magnify income & wealth growth (hopefully!).

    And even the same person can shift on this scale throughout time. Still trying to figure out exactly where I fit on this continuum, though I don’t feel like I need to be too risk-adverse, being so young.

    -Fire Guy

  36. If you buy a home and immediately after the transaction you are left with 0 dollars and 0 cents (or close to it) then you shouldn’t of bought the home. Unfortunately, too many people in the community do this because they want home ownership so badly.

  37. I donno Drew. I encourage you to think beyond credit card usage as a way to build wealth. Just look at it as a default tool.

    I’d love to learn more about how you plan to retire in 10 years starting at a $0 net worth. Will be interesting!

  38. Its great to calculate and know your ration, but I think there needs to be an additional distinction for people that rent vs. people that own a home. As an ex. a couple years back I was renting and my ratio was about 30:1, now a couple of years after buying my first house, my ratio is 2.2:1.
    I think 2.2:1 is more in-line with your article, but if I were to look at 30:1 a couple years back, I would have got the wrong idea. My current mortgage is only a couple hundred more than the rent I used to pay. You might have to factor in a few years of rent (10?) to get a real picture.

  39. Isn’t the target of “Target Net Worth By 50: $1,250,000” ridiculously low? If someone really has $250k by 30, then based on the rule of 72 at 7% a year, one would have 500k by 40, and 1 million by 50. Is Financial Samurai suggesting that someone would only save 250k (1.25 million – 1 million) in two years?

    I enjoy the blog. Keep it up.


    1. Not sure why going from $250K to $1,250,00 by 50 is “ridiculously” low. The larger your net worth, the more conservative you become. You don’t want to risk your large nut vs a small nut.

      What is your current age and net worth?

      Read: Is Your Investing Tolerance High Enough To Invest? Follow The Slaughter Rule

      In this environment, a 2-3% annual rate of return is much more appropriate than 7%.

      1. I think Ted meant saving $250K in 20 years. His point is that the $250K you have at age 30 would grow by itself with no additional savings to $500K by age 40 and $1M by age 50 (doubling every 10 years). So to only be at $1.25M by age 50 you wouldn’t have to have much of a savings rate at all over those two decades if you did start at $250K.

        I agree that 7% a year may be an aggressive forecast, especially if you factor in the necessary cash holdings over a lifetime. However we are also talking about net worth growth, not pure asset growth, so with the help of a bit of leverage a 7% a year net worth increase doesn’t seem to far fetched.

        Anyway, I’m just over 2:1 at age 32, although my net worth just passed the 7 figure mark so I’m ahead on that side of things. I do want to de-lever a bit over the next few years. I have a bunch of real estate with fixed rate mortgages, but also healthy retirement balances and cash. I really want to pay off a rental mortgage over the next couple of years.

          1. Thanks Elizabeth. I could have explained that better. I accidentally wrote “two” not “twenty” at end. My point was that assuming you did nothing, and got an average rate of return of 7% over the 20 year period, you would have $1 million at age 50.

            7% is potentially rather aggressive. CalPERs the California retirement system is looking to reduce their expected rate of return to 6.5%.


            Also congrats on passing the 7 figure mark at 32. If you’ve got any advice on how to achieve that let me know.


            1. No special secrets or tricks, I’m afraid. 1) I have always saved a portion of my income and have boosted my savings percentage steadily (currently it’s 40%), 2) I was lucky enough to have my education paid for by grandparents and a few hundred grand left in the college after graduation, which I used to buy a small home and several rental properties, 3) I chose a well paid major/career (finance) and steadily moved up and boosted my income during my 20’s, and 4) I married a driven, relatively highly paid spouse and combined finances to optimize our net worth growth.

              1. Elizabeth,

                Having a “few hundred grand” left over after they paid for college is a lot of money! Especially if we are to believe that many students graduate in debt. I’m assuming few hundred grand means $300,000 or more? I think I had almost $3,000 when I graduated after squirreling away my summer internship money :)

                Questions for you:

                * Do you think everything will be OK since there is a massive generational wealth transfer on the way?
                * Do you think there is a student loan crisis?

  40. I am so close to the 650,000 by 40, just need to push myself a little more, and spend a little less. I think I also need to convert some of my “funny money” into real assets as you mentioned to me earlier to help me lock it in. Thanks for the goal Sam.

    1. No problem! Or, other real assets out there. I can easily see a scenario where a lot of wealth accumulated in equities just vanishes over the next couple years. Find defensive income producing real assets.

    2. I wish you good luck and let us know when you do! It’s always nice to hear about someone escaping the rat race! It makes it seem more believable/achievable for me.

  41. I’ve been debt free my entire adult life, but I don’t think it’s the asset-to-liability ratio that matters. It’s the returns on your assets vs your total borrowing costs that matters. For example increasing your asset-to-liability ratio by paying down your mortgage may work against your financial interests if you’re selling high-yielding investments to pay off a low interest rate mortgage.

    In stock market terms you may find that many cash-rich companies are “value traps”– sure they have a balance sheet that can survive armageddon, but they don’t produce any returns during the best of times. By contrast many companies that are deep in the hole in terms of tangible book value are cash generating machines that churn out dividends far above prevailing interest rates. What’s in your portfolio?

  42. I am above your recommended net worth, but my asset to debt ratio is about 2.5:1, so I am probably more leveraged than I should be. A 5:1 ratio does sound like something to shoot for.

  43. 30 and infinity. Sometimes I worry that since I’m not leverage owning an appreciating asset, I’m making the net worth accumulation too hard on myself…

    but I just enjoy the freedom of ‘not owing nothing to nobody’ so much, that it is a price I’m willing to pay.

    1. I think if you’re happy with no debt, then that is what matters most. It’s tough for me to not be fully invested or levered in a bull market. The key is to DELEVERAGE when the good times are ending. I’m deleveraging right now.

  44. I’m working on writing a post outlining my net worth soon so this is a perfect timing topic! I haven’t really thought about my ratios so I’m gonna run my numbers so this will be a good exercise for me to figure out where I am.

  45. Provocative as usual.

    Being still relatively recently married, with a prenup, we’re in an interesting situation in that we each have separate money from before the wedding, and combined money from after. So I have a general idea of my wife’s total net worth, but not a detailed one. Once we move and buy a new house together in the next 3 years, I’ll have a clearer picture of the total asset – liability ratio.

    Looking forward to buying some rental property once I’ve freed up some of the capital in our current home.

  46. This is a great topic! You’re right on. We are at 5:1 asset to liability ratio. All the liabilities are in real estate so I think we are in great shape. We’ll work on getting that down, but I don’t know if we’ll get to 8:1 by the time we’re in our 50s. Maybe late 50s…

    1. 5 years later, our asset to debt ratio is 10:1. We consolidated our rentals a bit so we have less debt.
      I think your chart is reasonable.

  47. “If you put a standard 20% down payment, you get to control an asset valued at 5X your liability. ” I think it is actually 1.25x the liability. If you buy a $100k house and put down $20k, your liability is now $80k. $100k/$80k = 1.25. If you are talking about leveraging the 20% down, you do gain control of an asset that is 5x the amount of cash used, but since you are talking about assets AND liabilities I think it sounds funny.

  48. I’m 1.7 to 1 right now; however, a lot of the debt has been used for investment opportunities at work.

    Having the ability to pull cash out and use it for these opportunities is what I believe will allow us to retire earlier.

    I’ve written about use of leverage here:

    That said, I recognize it brings risks with it and as much as it can help me gain financially in the coming years, it may also wipe out what we’ve worked hard for. Ideally with good planning and proper asset selection, that won’t happen.

    1. Just curious. Are you taking out debt for investment opportunities in real estate? Or are you leveraging up for some other work related investment? Everyone uses leverage for real estate, but far less seem to use it for stocks or businesses (at least your average Janes and Joes).

      I’m with you on the taking risks; done properly it can be quite lucrative. Especially if you are young and have low living expenses, you can be quite aggressive with your investments. That said, I don’t think I am manly enough to go much below 2:1 right now. I like a little wiggle room between my rental income and its expenses, just in case.


  49. It’s always good to have benchmarks and then adjust based on your own situation. I think standard rules are always tricky (like a common one now of “kill all your debt!”) but benchmarks are valuable.

  50. sorry copy and paste in the wrong spot.

    You can just sell the property tomorrow and be

    I’m debt free. So infinity baby! (29%, 17 Votes)

  51. Around 1:1 (zero net worth) (8%, 5 Votes)

    I don’t think 1:1 ratio means zero net worth. You can have 1 million in debt and 1 million in cash. You can just sell the property tomorrow and be

    So, you may re think that in other terms. I think you mean you can’t retire with a liability of 1:1 but gain doesn’t mean you have zero net worth.

    I’m debt free. So infinity baby! (29%, 17 Votes)

    1. Andy, 1:1 does mean zero net worth. You forgot to count the value of the asset that you have debt on. So if that 1 million of debt is on a property that is worth 1 million dollars then technically you have a 2:1 ratio.

      Now if that 1 million is credit card debt and you paid that off with your 1 million cash… you are left with zero net worth…hence 1:1.

      If I am incorrect here please correct me. Cheers

      1. If you had a house worth $1 million, and made no down payment so your mortgage would be $1 million, you have ZERO net worth (1:1). Assests equal your debts. Because if you sold the house for $1 million, then paid off your $1 million debt, you have zero dollars left.

        Now if you had a house worth $1 million, and made a down payment of $500k and took out a $500k mortgage, then your ratio would be 2:1. Meaning you own twice the assets ($1 million worth of house) than the liability ($500k). $1 mill = 2*($500k)


    2. I made the same mistake at first. Calculating my house net equity, instead of total value. I think Chris made a small mistake also. What I believe he meant to say was that if you owe 1 million$ on a house that is worth 2 million, than you have a 2:1 ratio. If the value of the house was equal to do the debt (i.e. the entire value is mortgaged) than it is valueless from the perspective of a debt ratio calculation.

      1. I keep my house separate from this calculation because it is not a liquid asset. FMV is probably 450K and we have 203k left on the mortgage. There is no term with the house in regards to the holding period and, your personal home at least, does not generate income. Therefore, I include the mortgage as debt but don’t list FMV as an asset.

  52. I consider credit cards in the United States a leveraged asset under the right circumstances.
    By using them for all pre budgeted expenses and immediately paying them off, I incur no debt and generate a healthy return from bonuses and perks. Being able to take the equivalent of several ten thousand dollar vacations a year for free is a major lifestyle upgrade.
    Or even just liquidating the points for gift cards could earn me thousands extra a year.
    Then again, you have to treat them as a risk and have a plan going in.

    Other then that, having a net worth of zero as of 30 doesn’t worry me. With a low interest mortgage, dual high incomes and at least one guaranteed wage, I’m comfortable we can retire by 40.

    1. 9 to 1. I turn 50 in 3 months. $1.8m in investable assets. The only debt is mortgage debt.

      I also use credit cards and other programs to save $ on travel. I estimate we have saved $30k over the last 8 years. You have me beat though. I would love to know how you achieve so much benefit. I want to copy what you are doing!

      1. Sign up bonuses, cash value perks, and outsize redemptions. We are flying to Sydney over Christmas and New year’s, flying business class in flat beds and staying at Hyatt, Radisson and four seasons hotels. So far out of pocket costs are about 900 bucks, but if we had purchased with cash would have cost us around 15 grand.

    2. I donno Drew. I encourage you to think beyond credit card usage as a way to build wealth. Just look at it as a default tool.

      I’d love to learn more about how you plan to retire in 10 years starting at a $0 net worth. Will be interesting!


      1. Oh I don’t use it to build wealth, I just won’t say no to free money with little effort on my part.

        Right now net worth is 0 with 300,000 in liquid assets and 300,000 left in the mortgage at 2.8%.

        With an annual combined income of 250k and only living on abt 33k a year, we should be debt free and up a couple million by 40. Age is more important then a concrete number.

        1. If you have $300k in stocks, and own a home worth $400k but have a $300k mortgage, then you are worth $400K. The house is still worth something, even if it has a mortgage.

          If all you had was your house at $400k and a $300k mortgage, you are still worth $100k. Unless you REALLY don’t want to include your primary residence in your net-worth calculations. I would calculate both.

          $300k at 2.8% is ridiculously awesome! Congrats on the rate. Is it an 3/1 ARM or something? I would hold on to that mortgage as long as possible, provided the rate doesn’t go up too much. If you consider the interest deduction (and if you earn a relatively high income) that is almost free money after inflation!

          1. I dont really like adding in my house until it is completely paid off. For now it is just a tax advantaged place to live.

            We were lucky to get a 5/1 arm that is capped at 7% over the life of the loan. I agree with Sam that interest rates don’t really have the headroom they used to have and wont increase to a particularly high level at any point.
            And yes, at 2.8% i consider it basically a free money loan. It allows us to own a house much nicer in our area then the equivalent rent could get while not shorting the property market, which here in the Seattle area is going up exponentially.

          1. Sam – how about 3.5 month syndrome? That is how long I have left. Yesterday, just further confirmed my decision. 3 people now view themselves as my boss. All with conflicting priorities. Do what boss A says and boss b and c get upset. Boss then denies everything. Insanity.

    3. I assume no plans for kids. Other thing to watch for is with more free time if you retire at 40 comes often more spending.

  53. Well my wife and I are way ahead of schedule according to your net worth goals and debt ratio goals. We do have about $800k of debt right now but all tax deductible interest on investment properties (2 commercial and one short term vacation rental).

    I agree $3 million is the new $1 million!!

  54. We are at about a 5:1 ratio right now, after spending the last few years aggressively crushing our debt and saving. Just five years ago we were sitting at a negative net worth, so I’m feeling like we have made huge progress. I’m 36 and hubby is 41. We are almost done paying off our student loan debt, and after that we look forward to lots of saving and investing to help grow our net worth even more!!

  55. What do you think of having a higher debt ratio if your balance sheet is bigger? Such as 2:1 asset/debt ratio, but with a net worth of 10mm? Growing worth @5% per year, but spending @2% per year. I see this scenario as possibly healthy for a real estate investor where leverage is used more than with other investment classes. And why ever pay off the debt if net worth continues to grow faster than annual expenses?

    1. Your question is partly addressed in the intro of this post. I think there can be more leeway for a lower asset/debt ratio with higher figures, however, $10M assets and $5M in debts would scare me. One swift downturn in the real estate market and it could be game over.

      Seldom are growth rates just 2%-5% a year.

    2. Higher leverage for profitable real estate can be very helpful early on. I’m a 24 year old (two years out of undergrad) with a few properties and $500,000 of mortgage debt. These 30 year mortgages have been used to purchase only cash flowing properties (targeted 8-12% cash-on-cash returns at purchase).

      Cheap debt opens many doors in a strong market like ours. This kind of financing has left my asset/debt ratio at 1.4 unfortunately. Risks like this may be appropriate for a household of one 20-something- definitely not a couple in their 40’s or 50’s. My risks from high leverage are minimized by strong liquidity to some degree.

      Would you consider this asset/debt ratio of 1.4 to be over-leveraged?

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