Monday, October 19, 2009

Are You Wealthy?

Are you wealthy?

The term wealthy means a host of things to different people. Some people define wealthy as having an abundance of material possessions.

In the book The Millionaire Next Door, the definition of wealthy is defined based on one's expected level of networth.

A person who is earning only 1K per month and a person who is earning 10K per month should not be expected to have the same amount of wealth. If they do happen to have the same amount of wealth, it simply means that the person who is earning less is doing a much better job at accumulating wealth that the person who earns more.

What should you expected networth be?

In the book, your expected wealth should be calculated as such:

(Annual pre-tax household income multiply by your age ) divided by 10

So if a person who is 20 years of age is earning $100,000 per year, his expected networth is $200,000. If his networth is more than $200,000, he is building his wealth.

PAWs versus UAWs

PAWs are prodiguous accumulators of wealth versus UAWs who are under accumulators of wealth.

PAWs are simply defined as those whose actual networth are twice their expected networth

7 Factors

Eighty percent of America's millionaires are first generation rich! That is comforting news for us who were not born with a silver spoon in our mouths. The authors also discovered seven common denominators amongh those who successfully build wealth. They are:

1. They live well below their means
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth
3. They believe that financial independence is more important than displaying high social status
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.

Conclusion

I would also like to think that this method of defining wealth might be flawed in some ways. If a person has a sudden change in income over the recent years, this way of calculating wealth might not be accurate. Nonetheless, it still provides a pretty good gauge at how well we are accumulating our wealth.


The author is happy that based on the expected networth calculations and his actual networth, he is actually in the category of a wealth builder. However, he has not reached the stage of being a PAW where his actual networth is twice his expected networth. The author also hopes that he is in the right occupation.


Read Related Articles:
1. My Flat is Worth Half A Million?
2. Passive Income Update for October 2009

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