Sunday, November 9, 2014

Here's a test to check whether you are wealthy

Wealth is subjective.

You can be wealthy depending on how you view your needs regardless of your age and income, but realistically you can quantify them.

Based on the book "The Millionaire Next Door", author Thomas Stanley and William Danko talks about the concept of prodigious accumulator of wealth. This is the highest level of wealth you can achieve in your life and beyond that you are considered the super glamorous rich.


Based on the formula, if you are near this target, you are considered an average accumulator of wealth.

If you have less than half of the target, then you are considered an under-performer accumulator of wealth.

But if you have twice the target, then you are considered the prodigious accumulator of wealth.

I quickly calculate my target and it came to about $207,350. Since I do not have double this amount, I am considered an average accumulator of wealth. Come to think of it, it's actually quite difficult to meet the target.

Since this formula consists age as one of the factor, this is hardly applicable to younger age for students who just graduated and might have student loan debts in their balance sheet. Let's assume Mike, who is 25 and just graduated with a job landing him $40,000/annum. Based on the above formula, his target net worth should be at $100,000. How the hell would a 25 year old person who just graduated has so much money to begin with.

This formula assumes that as one grows older, their income (through various means such as active/passive) would compound and work harder for the individual at the later stage of their lives.

There are always exceptions to every formula. So now that you know it, which category do you belong?



30 comments:

  1. Born wealthy

    or

    be accumulator of wealth over our working life but can shorten this period with the help from our investment portfolio.

    :-)




    ReplyDelete
    Replies
    1. Hi Uncle CW

      Born wealthy it means the asset will have to be under the baby name, so that would put he or she under the pow. LOL

      Investment income can be accounted under this formila I suppose so most of us will go for both routes under active and passive income.

      Delete
  2. According to the formula, I'm not wealthy. =(

    ReplyDelete
    Replies
    1. Hi Henry

      Neither am I too

      I know you're looking good with your net worth so I'm sure there's not much worries on your part ;)

      Delete
  3. B,

    Sometimes we should just trust our feet and not rely on the "measurements" of others on whether our feet is small, average or big ;)

    http://singaporemanofleisure.blogspot.sg/2011/07/man-who-wants-to-buy-new-shoes-soft.html

    ReplyDelete
    Replies
    1. Hi SMOL

      That's a very good story on the size of the shoes. I've never read that before previously.

      The way I see it is shoes have size so people can come up and find their "measure" accordingly. Reach home, we then find fault with our shoes, either they are too small or too big, but we don't blame our feet and judgement in doing so.

      Formula of wealth is everywhere. Some fair some not fair. Or maybe one fair to you but not fair to another. Meditate in the mountain alone and suddenly we find ourselves the richest in the mountain :D

      Delete
  4. Hi B,

    I think this formula is more applicable towards people who are at least 35 and above.

    Otherwise, it's really impossible for a young adult to be classed as a PAW, and more so especially if he's earning a good income.

    I remember seeing a better metric in one of our local blogs recently.

    ReplyDelete
    Replies
    1. Hi 15Hww

      Absolutely agree with you.

      This is more applicable to someone whose income extrapolate exponentially with age. There must be a better metric to gauge, but again it is subjective.

      Delete
  5. :) accordingly, I am a PAW. But it doesn't really matter to me. I will still live simply and enjoy everyday :)

    Somewhat envious of a friend who drove past me yesterday in a Audi A4. Wonder what is her measurement :) haha

    ReplyDelete
    Replies
    1. Hi An9elfire

      Wow, you must be a high net worth individual!!!

      Good to know that status doesn't matter to you. You probably had lived the values for very long.

      Maybe your friend who is driving her Audi A4 are in debt buying them. You never know. It's always beautiful on the outside but question marks on the inside.

      Delete
  6. Man's wealth is beyond any measurement yet man creates formula to box themselves in and feel miserable that they fall short of the mark or surpass it.

    The distinction between what is real and what is imaginary is not one that can be finally maintained…….. all existing things are in an intelligible sense, imaginary John S Mackenzie

    ReplyDelete
    Replies
    1. Hi Desmond

      Thanks for visiting the site.

      There's a very thin line between real and imaginary, and the same goes for every measurement we see in life.

      Corporates are known to use this to measure performance and KPI and giving out bonuses. Individual does it to satisfy our own selfish desire to compete against friends and neighbours. Human and greed, we deserve where the world leaves us at.

      Delete
  7. hmm...

    Target net worth? Include property and CPF?

    If yes, I doubt B you did not meet your target.

    I am poor. LOL

    ReplyDelete
    Replies
    1. Hi Sillyinvestor

      I think it does include properties owned (net assets - liabilities) as well as Social Security CPF.

      Hahaha, I still didn't really meet the pow target.

      Everyone here is not poor, I guess we belongs to the middle group :D

      Delete
  8. I think many working adult will be under (1) or (2) categories. But it really doesn't matter as the quality of life doesn'y rely on this measure alone ;-)

    ReplyDelete
    Replies
    1. Hi Richard

      You are right. We can become an under-performer all our life but still be rich of fullness in our life.

      Delete
    2. Anyone came across a cooking recipe without ANY measurement?

      Anyone watch how your mum cook her rice?

      No measure arh?



      Delete
  9. The best asset is our health. So many people chase after wealth when they are young only to lose it all when they are old and in poor health.

    Nevertheless, an interesting formula.
    Thank you.

    Regards,
    SG Wealth Builder

    ReplyDelete
    Replies
    1. Hi Gerald

      You are right.

      When they are young they have the health but do not have the money. When they are old its the other way round. Life is a cycle.

      Delete
  10. The poor is normally the one who needs a lot to live.

    ReplyDelete
    Replies
    1. Hi Eye White Shut

      The poor is never satisfied with what they have so ita possible that they are poor in their lifetime.

      Delete
  11. i am PAW, but i think cashflow is much more important ...

    ReplyDelete
    Replies
    1. Hi PIB

      Wow there you go another PAW we have in here.

      I agree with you. Cashflow ensures that you have what you need to do anything you want in life.

      Delete
  12. According to the formula, I am a PAW, but I still live a simple life.

    Hopefully I am not a POW in the battle of wealth accumulation. :)

    ReplyDelete
    Replies
    1. Hi Sanye

      Looks like we have got a bunch of rich people here :)

      Its good to know that you guys are living a simple life despite obtaining a gold status in life. This should be the way everyone is living.

      Delete
  13. Hi B,

    No one single formula applies to all. I think the best formula is to find your own formula.

    What is great for me may not be great for you, vice versa.

    Essentially I reckon that in living life, there is no distinct correct or wrong (exclude crimes, factual things etc)!

    Most important is what works well for you, and you feel great doing it!

    ReplyDelete
    Replies
    1. Hi rolf

      Is stealing right or wrong? Even robin hood steals for the poor. Hehehe

      I concur that everyone has their own formula. For some 1 million is enough but for others 10 million is not enough. On owns turf I guess.

      Delete
  14. There is no one size best fit formula for everyone.

    But, we should be able to use About Right Formula to guide us and then err on the downside with some buffer to be conservative. The Formula may become more useful to us as individual.

    ReplyDelete
    Replies
    1. About right formula should be there for an indication for those who doesnt really know how to measure. There are always flaw in the formula but we are full of flaws anyway ;)

      Delete
  15. Maybe should use average income since you started work and not latest one

    ReplyDelete

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