Sunday, December 26, 2010

Show Me the Money

Simple is not always simplistic.

I ran across a simple and elegant benchmark at Get Rich Slowly.  The author attributed the idea to the book The Millionaire Next Door :

  1. Calculate your annual pre-tax household income.
  2. Divide your age by ten.
  3. Multiply these two numbers together.
Ignoring inheritance, your expected household net worth is the product of this calculation.
Being both simple and simplistic, I wondered how to calculate net worth.
Here's an easy way to figure that.
I found out we're not doing too poorly.  We're a bit above average accumulators of wealth as described in the Get Rich Slowly blog piece.  While I was thankful not to be an under accumulator (those whose net worth is less than half what the calculation suggests it should be), I wish we were prodigious accumulators (those whose net worth is double or more what the calculation suggests).
Or maybe I don't.  Thinking about what we would have had to do differently to be prodigious wealth accumulators, there are only a couple large, stunningly foolish actions I wish we could have a do-over for.  I suspect we could easily tighten up a few dripping faucets in the budget that might produce a large effect over time.
But to truly be a prodigious accumulator, I'd have to give finances a larger portion of my thought life than I want to.  I like our financial life to be based on good habits and automated so that it doesn't have to dominate my thinking.  I don't want money to be more important or less important than it should be.
To achieve prodigious status, I'd have to give up some things I don't want to.  Well, I take that back.  I'd give up most things to have more wealth, but I am unwilling to give up most people and experiences.  To be a prodigious accumulator, I'd almost certainly have to give up at least a kid or two.  And even though they are smelly, high maintenance and occasionally ungrateful, I remain ridiculously attached to them.  Furthermore, to be a prodigious accumulator, I'd almost certainly need to give back some of our experiences.  Flying a family of 7 to Arizona for a niece's wedding was foolish--I could have gone alone.  We didn't need to take the side trip to the Grand Canyon.  DisneyWorld is expensive.
Not that every experience must cost a lot of money, but travel with my family is a category I value despite its expense.
What do you think of the formula?  Would you trade anything to be further along in your financial journey?

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