I ran across a simple and elegant benchmark at Get Rich Slowly. The author attributed the idea to the book The Millionaire Next Door :
- Calculate your annual pre-tax household income.
- Divide your age by ten.
- 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?