How to Determine If You're Wealthy

[alfreda89]

From "The Millionaire Next Door" by Stanley and Danko. (Highly recommended, by the way--you will learn a lot about who really has money in this country, and what they do with it, and why. It's not who you might think.)

"Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be."

If you have this figure, you are an AAW or average accumulator of wealth. If you have 2x or more, you are a PAW or a prodigious accumulator of wealth. If your net worth is 1/2 what the AAW of your age and income has--or less--then you are an UAW, an under accumulator of wealth.

In other words, income is no guarantee, possessions are no guarantee that a person is wealthy. Why read this book, if you feel you're not in the running?

Because they tell you how it's done. And anyone with discipline can do it. True American millionaires usually become millionaires because they don't want to be held hostage to a job, to fears of losing a job or to health problems--they never want to fear poverty in old age when they can't work. So they save, or they live well below their means and invest--and they get clever about passive sources of income, which I'm trying to learn about.

This is not offered to depress people. I thought I was in horrible shape--but I've found out I'm a PAW, and although I may have to spend some of it to try and keep ahead of the illness, I have some money to spend. You may not be in as bad a shape as you think--most people are in average to horrible shape. Can I retire yet? Heck, no.

You can catch up. I bought this book used for eight bucks, and you can find the paperback even cheaper. Check your library for it. This year--plan for your future.

Comments

[alfreda89.livejournal.com]

Good question. I think it means the money that actually goes to your hand up front--like a company saying they're going to pay you $40k a year. Notice this formula doesn't account for taxes in any form, which makes me think you don't take the taxes out first. Because depending on what you do to protect your investments, have deductibles, etc. your taxes can vary.

Realized--Being reflected in a transaction, such as a conversion of goods into cash, cash equivalents, or receivables. opposite of unrealized**." (From http://www.investorwords.com)

**Having occurred but not yet reflected in a transaction. This refers to unrealized gains and losses, which have not happened but would happen if the investor sold the security or asset that he/she currently holds. Unrealized gains are usually not taxable.

The point is--if you do everything right in taking care of the realized pretax annual household income, this is what you *might* have.

[kristine-smith.livejournal.com]

Welp, if we go by unadjusted gross, I'm average or slightly better, but nowhere near 2x. If I was at 2x, I'd be retiring about now.

[alfreda89.livejournal.com]

I'm 2x, but my income has been in the toilet for seven years, so the basis was pathetic. A *long* way to go, I fear... Congrats on the average or slightly better category. I have several friends and acquaintances who can't save money to save their lives, so I am always cheered by those who CAN save.

[kristine-smith.livejournal.com]

Congrats on the average or slightly better category. I have several friends and acquaintances who can't save money to save their lives, so I am always cheered by those who CAN save.

Well, they take it away from me before I can spend it, which really is the better way. The only way, actually.

I've really clamped down these last few months, after having gone a bit haywire this last year. Some of it was house-related expense, and justified, but part of it was me going through a Future, What Future? phase. They say you shouldn't make any major financial decisions during a period of bereavement. Well, you shouldn't make too many smaller ones, either.

We will now confine any major spending (fingers crossed) to the house--should have the wiring looked at this month, and have some exterior outlets installed. I have Wiscon coming up in May, followed by WFC in November--that will probably be it for cons. Hoping for a promotion in the next year. The writing gets tucked in amid all this, which explains why the wip is flowing like frozen treacle.

I need 8 more hours in a day, and a windfall of say, half a million.

[alfreda89.livejournal.com]

I need 8 more hours in a day, and a windfall of say, half a million.

You know, if the Mega Millions Megaplier was for time, I'd buy it every time...

I was wondering how the book was coming. Grief marks us, my friend--be gentle with yourself. Spend good time with your Mom, and see how creative you can be on little money. Some of my best house ideas arrive that way.