Do you have above or below average wealth?

jon3001

In the book "The Millionaire Next Door", Stanley and Danko describe a formula for determining the average wealth for someone in a particular age/income cohort. Based on the regression of statistical data it's:

Average Wealth (excluding inheritences and housing equity) = 0.1 * Age * Gross Income (from all sources including employment and investments).

E.g. For A 30-year-old earning £25K/yr: 0.1 *30 * 25 = £75,000

If you're in a relationship you may wish to use the averages of you and your partner's age and income.

From this people fall into one of three categories:
UAW (Under Accumulator of Wealth). They have less than 50% of the average wealth.
PAW (Prodigious Accumulator of Wealth). They have double (200%) of the average wealth.
AAW (Average Accumulator of Wealth). Everyone else. They have 50%-200% of the average wealth.

e.g. for our 30-year-old earning £25K/yr:
Under £37.5K of wealth = UAW.
£37.5K to £150K = AAW
>£150K = PAW

Which category do you fit in? Feel free to expand on your decisions that lead to that situation. E.g. did you delay entry into the workforce, accumulate lots of graduate debt and spend your earnings on toys? Did you live frugally, preferring wealth accumulation over consumption? Did you make shrewd investment or business decisions to accumulate wealth above that of your peers?

musclesza

I think I am doing pretty well and am earning above avg BUT i am nowhere near the average wealth - I havent earned my average wealth in wages in fact I havent earned even half!!!! I came to the uk with nothing to my name apart from clothes and golf clubs (the essentials) and a few quid

I think this formula is skewed as If my salary was 1000 a year I could be in the average wealth category but if I was earning 1 000 000 a year it would take a while to get there!!!

Uncertain

I've not read the book but as far as I can see this formula is nonsense!

Wealth is what you have, regardless of how you came by it. Also, you might well choose to "invest" by buying a bigger house than you need with the intention of downsizing at retirement. Until recently this made a good deal of sense and is free from CGT.

Also you might have had a high pressure job and saved lots of money then changed to something less pressured or more worthwhile.

Where does this get us?

superstar_2

I don't understand this formula. I'm 23 and still at the Uni. When i start work at 25, that would be my first year of working but the formula would calculate as though I have been working for the last 25 years.

jon3001

superstar wrote: »

I don't understand this formula. I'm 23 and still at the Uni. When i start work at 25, that would be my first year of working but the formula would calculate as though I have been working for the last 25 years.

The formula doesn't imply that you've been working for 25 years. It is used to measure your accumulation of wealth against others in your age/income bracket. Some will be heavily in debt. Others may have skipped Uni and built a profitable business instead. Or they may be self-employed people that have saved and invested well.

sparrer

did you delay entry into the workforce
no I left school on a Friday, 2 days before my 15th b/day and went straight to work on the Monday

accumulate lots of graduate debt and spend your earnings on toys?
working class parents couldn't afford to send their kids to uni back then

Did you live frugally, preferring wealth accumulation over consumption?
One always lives frugally with 3 children. We bought a house, private ed for the sprogs with DGP's assistance, took one holiday a year, the children got one present and a stocking at Christmas and b/day parties did not include hired entertainers, bouncy castles and all the other nonsense which is spent on todays little darlings


Did you make shrewd investment or business decisions to accumulate wealth above that of your peers?
Oh yes I did indeed! I saved like crazy and bought a business. MY now ex-h did the accounts. BIG mistake! He saw the money coming in and decided to use it for boys toys etc. Long story follows but in brief bankruptcy, his leaving and my being left with 10's of £k's to repay means I will spend my retirement in this little HA house, drive my old banger, shop for my new outfits in the charity shops, scrimp to give my DGC their presents...I could go on..

So IMHO how can anybody fit into these catagories? It's like saying someone or something is 'normal' when there is in fact no such thing. However I'm richer by far than had I not had my children, grandchildren, wonderful friends, the best neighbours...formulas? Bah, humbug! :rotfl:

Lokolo

sparrer - have you actually read the book? Try it, its a good read.

Its basically saying if you want to be rich or whatever, and you know you're not going to be a great businessman/woman, you can still become that rich person, if you use your money wisely.

If you earn £50k a year, don't go buy brand new cars every 3 years because you can, still drive your old banger as such to work, because you can. Shop around, don't go to the first dealer of your car because you're good mates with him, go to a cheaper one and buy it from there etc.etc. and soon enouh you can become a millionaire :cool:

Primrose

Could be an interesting debate. I wonder how many people, just because they have surplus money, feel they are duty bound to spend it on something. If you consider how much surplus cash you could accumulate over a lifetime of working if you saved/invested it, instead of spending it on regular holidays abroad, new cars, technie gadgets, updating your furniture regularly, eating out, etc. I think we would all be astonished. I knew somebody who was a millionaire years ago. He drove a 20 year old car, rode around on a rusty ancient old bike wearing frayed trousers and grubby plimpsoles and doubled glazed his house by sticking polythene sheeting over all the windows. That was his lifestyle and he was perfectly happy with it so monetary wealth has to be balanced with lifestyle wealth, and each of us will make a different choice as to where, and to what extend our priorities lie.

Lokolo

Primrose wrote: »

Could be an interesting debate. I wonder how many people, just because they have surplus money, feel they are duty bound to spend it on something. If you consider how much surplus cash you could accumulate over a lifetime of working if you saved/invested it, instead of spending it on regular holidays abroad, new cars, technie gadgets, updating your furniture regularly, eating out, etc. I think we would all be astonished. I knew somebody who was a millionaire years ago. He drove a 20 year old car, rode around on a rusty ancient old bike wearing frayed trousers and grubby plimpsoles and doubled glazed his house by sticking polythene sheeting over all the windows. That was his lifestyle and he was perfectly happy with it so monetary wealth has to be balanced with lifestyle wealth, and each of us will make a different choice as to where, and to what extend our priorities lie.

Thats exactly what the book is about..... and describes.... its what I aspire to be. I know I will never been an entreupernuer (sp?), I come up with whacky ideas yes, but when I talk to them with friends and family they all say its a crap idea so I never do anything :rotfl: I very much doubt I will earn £100k pa but I do know I can save and budget which is going to be my way of becoming a millionaire next door.

Also it states that kids are the worst thing ever but I do want them so... meh!

hyposmurf

Surely your wealth is what you value,doenst have to be all financial,health is incredibly important.It also depends who you are measuring your wealth against and how youre measuring it.Bit like an IQ test,youre only measuring certain aspects of someones intelligence.
Another aspect would be that someone on a low salary may be alot more frugal and be putting more away each month.Its quite common that people who increase their income, then find more things to spend their money.
Also surely youre more wealthy if you have assets after spending,such as cars and property than if you blow it on something disposable such as alchohol.

sparrer

Lokolo wrote: »

sparrer - have you actually read the book? Try it, its a good read.

No I haven't actually read the book, but have read many in a similar vein. Thanks but I don't think I'll bother now, I trust age and experience these days.

Its basically saying if you want to be rich or whatever, and you know you're not going to be a great businessman/woman, you can still become that rich person, if you use your money wisely.

Ah, but I did want to become rich, as my previous post explains. I was a good businesswoman, no two ways about that! I scrimped and saved and used my money wisely to purchase my business but what I wasn't, was a good judge of character, so didn't expect to be ripped off by a member of my own family who couldn't keep his hands off the meagre 1st to 4th year profits that needed to be ploughed back into the business. He called it creative accounting, I call it not knowing what he h*ll he was doing :rolleyes:

If you earn £50k a year, don't go buy brand new cars every 3 years because you can, still drive your old banger as such to work, because you can.

I earned a lot less than that, didn't take a penny from the business for myself and didn't have car. The car I drive now is 7 years old and won't be changed until 2012 at the earliest.

Shop around, don't go to the first dealer of your car because you're good mates with him, go to a cheaper one and buy it from there etc.etc. and soon enouh you can become a millionaire :cool:

There's no such thing as a friend in business, keep them as separate as you can. Business people are all out to make a profit for themselves - not complaining as I was the same.

As primrose said, a good debate. From my point of view and with my experience, I'd do it all again - although a bit late now, unfortunately - but would never go into business with family or friends.