As you embark on your wealth-building journey, it's important to track certain key metrics to help you understand if you're making solid progress.
Seeing positive momentum is crucial for staying motivated and taking the right actions to accumulate wealth over time.
In this article, we'll explore the six most valuable metrics to measure at the start of each new year.
Tracking these over time will give you an excellent snapshot of how well you are converting income into assets and passive revenue streams.
1. Inkosi - Your Passive Income Percentage Achievement
Inkosi refers to the Zulu word for "tribal leader" and measures what percentage of your passive income goal you have achieved so far.
For example, if your target is $100,000 in passive income streams and your assets currently generate $34,000 annually, then your Inkosi is 34% ($34,000/$100,000).
Seeing this metric inch upward year after year will give you tremendous motivation and confirmation that your strategies are working.
2. Net Investment Capital
This refers to your total investable assets minus personal-use assets like your home.
It's a measure of how effectively you've built up capital over time, strictly for investment purposes.
For instance, if you have a $2 million net worth but $1 million is tied up in home equity, your net investment capital is $1 million.
This is a better indicator of your true capital allocation abilities than your standard net worth.
3. Average Net Return on Investment
This calculates how much your investment capital grew over the past year, divided by the starting value.
It indicates how well your money is working for you across your portfolio.
In the early wealth-building stages, focusing solely on capital growth makes sense here. Later on, you'd incorporate portfolio income, too.
4. Lifestyle Burn Rate
One of the most critical metrics for wealth builders is this measure of what percentage of your gross household income is spent on maintaining your lifestyle.
For example, if your after-tax household income is $200,000 and you spend $120,000 across debt payments, holidays, entertainment, etc., your lifestyle burn rate is 60% ($120,000/$200,000).
The key is to avoid "lifestyle creep," where spending escalates in line with income.
Instead, proactively budget your lifestyle spending as a percentage of your income. Between 50-60% is a healthy range for most households.
5. Gearing Ratio
This calculates how much of your assets are debt-funded.
For instance, if you have net assets of $2 million and mortgages worth $800,000, your gearing ratio is 40% ($800,000/$2 million).
Seeing your gearing gradually decrease over time means reducing overall portfolio risk - which is crucial as you age.
When starting, though, higher gearing tends to make sense to accelerate your asset base.
6. Wealth Health Quotient
This compares your actual net worth to a benchmark level calculated from your age and gross household income.
It assesses how well you've converted income into investable assets.
The formula is:
Gross Household Income x Average Household Age / 5
If your actual net worth matches this figure, you're tracking normally. 2-3 times higher means you excel at capital creation from your income stream.
Conversely, if you're below the benchmark, it signals your money management needs work.
Use this as motivation to implement better financial habits.
The Key Takeaways
Reviewing metrics like your net investment capital and lifestyle burn rate at the start of each year will help you understand whether you're making solid financial progress.
Paying attention to how these figures have shifted over the past few years will also indicate where to improve.
Proactively targeting specific numbers will help you accumulate wealth faster.
Small, consistent positive changes to these metrics ultimately compound into very large sums over decades.
Be patient and trust the process.
Your wealth will grow steadily as you continually review and refine it.