Thomas Stanley and William Danko, author of “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy”, created a formula to help you determine whether you are indeed wealthy based on your income. The formula is as follows:
(Age x pretax annual household income from all sources except inheritances)/10
This formula is what your expected wealth should be. So for instance, Jane is 34 years old. She earns pre-tax $120k annually and has investments which give her $20k income every year, she also inherited $300k from her parents. What is Jane’s expected wealth?
Her expected wealth is $476,000 (34 x $140k/ 10). This means if Jane has a networth of around $476,000, she is well on track or an “average accumulator of wealth (AAW)” . If Jane has less than $238,000 (one-half of $476,000 ), then Jane is considered an “under accumulator of wealth (UAW)”. However, if jane has more than $952,000 (double her expected wealth), then Jane is considered a “prodigious accumulator of wealth (PAW)”.
Give it a try and see if you are a AAW, UAW or PAW. 🙂