Thursday, September 17, 2015

Are You Wealthy?

I received "The Millionaire Next Door" in the mail today. (referenced in a post last week) Only 14 pages in, I am really enjoying the way the Authors explain their definition of wealthy. I also really like their definition of wealthy. Normally wealth is thought of in terms of material possession and the total sum of money you have in savings. They define it based rather on percentages. How much do you save compared with how much you earn?

Here's the fun formula you can use to find out if you are wealthy:
Take your age and multiply it by your before tax total yearly income, this would include income from investments. Then you divide that number by ten. The example, "a 41 year old makes $143,000 a year, and has investments that return another $12,000 a year. He would multiply 41x155000 and then divide by 10. This 41 year old SHOULD have a net worth of $635,500. That net worth would classify him as an "average accumulator of wealth." A greater net worth would classify him as a "prodigious accumulator of wealth," WEALTHY! And a smaller net worth would classify him as an "under accumulator of wealth."

You may ask, how can someone be considered wealthy if, for example he is only worth $460,000? After all, he's not a millionaire. Charles Bobbins is a forty-one-year-old fireman. His wife is a secretary. They have a combined annual income of $55,000. According to our research findings, Mr. Bobbins should have a net worth of approximately $225,000. But he is worth much more than others in his income/ age category. Mr. and Mrs. Bobbins have been able to accumulate an above average amount of net worth. Thus, they apparently know how to live on a fireman's and secretary's income an still save and invest a good bit. They likely have a low-consumption lifestyle. And given this lifestyle, Mr. Bobbins could sustain himself and his family for ten years without working. Within their income and age categories the Bobbinses are wealthy [at $460,000 net worth]. 
The Bobbinses are quite different from John J. Ashton, M.D., age fifty-six, who has an annual income of approximately $560,000. How much is Dr. Ashton worth? Is he wealthy? According to one definition, he is, since his net worth is $1.1 million. But he is not wealthy according to our other definition. Given his age and income, he should be worth more than $3 million. With his high-consumption lifestyle, how long do you think Dr. Ashton could sustain himself and his family if he were no longer employed? Perhaps for two, at most three, years.
-excerpt from The Millionaire Next Door

So maybe you don't have $1 million or $3 million in net worth (maybe you do), are you a prodigious accumulator, an average accumulator, or an under accumulator of wealth? Are you wealthy?

We are very much "under accumulators of wealth." We are in debt and our net worth is very low, although it has just recently rose from a negative amount. I read these past few pages in this book though and I have to be slightly impressed not only with the progress we've made in getting out of debt but the fact that I've learned to live such a very low consumption level lifestyle. We ARE on the right track! This is the exact sort of lifestyle that it takes to become wealthy; living within your means and saving a great deal along the way. It will take awhile to get there but we ARE on track! Yay!

Spending rundown today: $1.68 on lunch. $15.01 on groceries. 

My budget for the month is $513.62 which leaves $203.92

Average daily spending for 2015: $18.00

10 comments:

  1. I would say we are average accumulators right now - we had to hit our retirement HARD when hubby got laid off, but we are saving again and trying hard (although, we COULD be trying harder) to build that back up along with trying to deal with a 50 year old house that has decided it needs a new......oh EVERYTHING.

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    1. I'm curious did you actually do the math (plug your numbers into the formula)? I was surprised with how love of a number it said we should have as a net worth in order to be considered average accumulators. It honestly was a "sigh of relief" type moment.

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  2. I didn't - too lazy....but I'm pretty sure it would be UNDER accumulators because of our age - better off not knowing for sure :)

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    1. I get what you're saying. The calculation was super encouraging to me though. According to the formula we "should' have WAY less then I thought. That means we're not so far behind as it often feels. Woohoo!

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  3. Glad you are headed in the right direction!

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    1. Thank-you! Every little road sign that indicates we're going the right way is very inviting.

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  4. At last! This must be the most wonderful book out! You are at last impressed with the progress you have made! Keep reading that book.

    And I am impressed that you've got back down to that $18 target once again.

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    1. Thank-you! I am impressed. I really thought we were so much worse off then we are. The book so far has simply helped me see that although we were living very poorly (with the credit cards) we're actually living very very well financially now. It doesn't feel that way when I'm struggling to pay bills on time but in all respects considering we are doing what it takes: Spending way less than we make. Its really just a matter of getting rid of the debt so we can start saving. We're getting there!

      When I figured out the daily spending average last night and it was exactly $18, I did grumble a little bit. That darn penny :) Its sure looking like I'm going to end this year at that $18 mark though, huh

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  5. Apparently I am above average singularly and average as a household
    I've always had better retirement investments than my husband. My kids though-fearful of their longtime future.

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    1. There was a lot of study and surveying and calculations that went into their formula. This book is numbers, numbers, numbers. Great job over accumulating. You know that means all the plans you have for the future and all your day dreaming about retirement, simple living, and happiness are going to be all the more possible. Good for you SAM!

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