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Computing one's expected net worth
(Excerpt from "The Millionaire Next Door") 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. For example, if Mr. Anthony O. Duncan is forty-one years old, makes $143,000 a year, and has investments that return another $12,000, he would multiply $155,000 by forty-one. That equals $6,355,000. Dividing by ten, his net worth should be $635,500. Given your age and income, how does your net worth match up? Where do you stand along the wealth continuum? If you are in the top quartile for wealth accumulation, you are a PAW,or prodigious accumulator of wealth. If you are in the bottom quartile, you are a UAW, or under accumulator of wealth." Mr. Duncan in the example above is an AAW, or average accumulator of wealth The authors have developed a simple rule of thumb: if your net worth equals the average calculated by the formula above, you are an AAW, if your net worth is twice the average, you are a PAW, if your net worth is half the average, you are a UAW. Whatever your income, if you want to Retire Early you must be a PAW.
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