Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Ratio of total income to net worth
Old 11-05-2007, 03:56 PM   #1
Thinks s/he gets paid by the post
Milton's Avatar
 
Join Date: Apr 2007
Posts: 2,065
Ratio of total income to net worth

The first step in the Your Money or Your Life plan suggests that you "make peace with your past" by tallying up every cent (okay, dollar) you’ve ever brought in. You are then told to calculate and contrast your net worth. The idea is to ask yourself "where did all that money go?" ... which may lead to you to question your wasteful spending habits.

I went through all of my tax returns from the first one (filed at age 17) to last year's, threw in my estimated pre-tax employment and investment income for 2007, and was very pleased to see that my lifetime gross income from all sources totals only 66% of my current net worth. To me, that's a persuasive demonstration of the power of compounding.
__________________

__________________
"To know what you prefer, instead of humbly saying Amen to what the world tells you you ought to prefer, is to have kept your soul alive". Robert Louis Stevenson, An Inland Voyage (1878)
Milton is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-05-2007, 04:52 PM   #2
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 2,676
That's quite amazing! Congratulations
As of the end of 2006, my net worth was around 63% of what we've earned so far (according to our SS statements).
__________________

__________________
walkinwood is offline   Reply With Quote
Old 11-05-2007, 04:58 PM   #3
Recycles dryer sheets
 
Join Date: Sep 2007
Posts: 488
Mostly due to the appreciation of my home, employer stock program and 401K my ratio is about 90%
__________________
Razor is offline   Reply With Quote
Old 11-05-2007, 05:39 PM   #4
Dryer sheet wannabe
 
Join Date: Nov 2006
Posts: 17
Interesting way to evaluate what you've done with your money...

I noticed that Milton used I / NW and walkinwood used NW / I, which sort of confused me at first. Razor didn't specify which ratio he used.

Anyway, congrats on a great job, Milton!
__________________
furpants is offline   Reply With Quote
Old 11-05-2007, 06:58 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Your annual statement from the Social Security Administration is useful in this calculation.
__________________
LOL! is offline   Reply With Quote
Old 11-05-2007, 07:39 PM   #6
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Quote:
Originally Posted by LOL! View Post
Your annual statement from the Social Security Administration is useful in this calculation.
I'd say it's darn near essential since I didn't save those 25-year-old tax returns.

But we do have all our Leave & Earnings Statements, even the ones from our plebe years, so we broke ours down by taxable & tax-free. Our salaries (taxable earnings) are 48% of our net worth, and our total salaries & allowances (non-taxable) are 65%.

Hey, Berkshire Hathaway's having a pretty good year.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 11-05-2007, 09:57 PM   #7
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
approx. 75%.
__________________
Spanky is offline   Reply With Quote
Old 11-05-2007, 11:45 PM   #8
Full time employment: Posting here.
 
Join Date: Feb 2004
Location: Okanagan Valley
Posts: 805
Off the wall... Why would anyone keep tax returns beyond the satute of limitations? I can't get rid of the stuff (and a whole lot of other paper) fast enough to suit me.
__________________
AltaRed is offline   Reply With Quote
Old 11-06-2007, 01:04 AM   #9
Recycles dryer sheets
Linney's Avatar
 
Join Date: Nov 2006
Posts: 262
Quote:
Originally Posted by Milton View Post
The first step in the Your Money or Your Life plan suggests that you "make peace with your past" by tallying up every cent (okay, dollar) you’ve ever brought in. You are then told to calculate and contrast your net worth. The idea is to ask yourself "where did all that money go?" ... which may lead to you to question your wasteful spending habits.
I did this exercise a few years ago but have conveniently forgotten about it since the results were less than flattering. I've always been a saver but only really hit my stride with LBYM in this last decade.

I did use this technique with our son, however. At the end of a year I showed him his end-of-year bank statement, noted how much he received in the past year for allowance (about $800, this is for an older teenager mind you) and smiling expressed my hope that he got good value from the things he bought with all that money. He repeated back "$800?" "Yup", and I showed him the bank statement as proof since we manage his allowance via auto-transfer twice a month. The look on his face was priceless! And.... I noticed in the years since we had that little exchange that he has chosen to save more of his money and use it to buy things that he reallly really wants to have. And his savings account balance is pretty respectable too. Sometimes the little lessons on finances really do work....
__________________
Linney is online now   Reply With Quote
Old 11-06-2007, 05:01 AM   #10
Full time employment: Posting here.
 
Join Date: Oct 2007
Location: New York
Posts: 898
Interesting - my total vested financial assets as of 10/31 are equal to 99.857% of the money I'd earned through the end of 2006. I know thats not what we're supposed to be calculating here but the numbers were so close I couldn't help but notice.


My actual net worth including home equity is about 134% of the money I've ever earned. Pretty cool, especially if you consider that I've probably paid a 30-40% of that income in taxes. Considering that, my net worth is over 200% of the my total lifetime net income.


That has two explanations - growth in asset values as well as 'founder shares' in an IPO that have never been taxed or counted as income.
__________________
Money's just something you need in case you don't die tomorrow.
Maurice is offline   Reply With Quote
Old 11-06-2007, 05:35 AM   #11
Thinks s/he gets paid by the post
OAG's Avatar
 
Join Date: Jun 2006
Location: Central, Ohio, USA
Posts: 2,598
No records of total income but 30 years of Gross Retired Pay (Military) and 7 Years of SS totaled and and divided by current "net worth" is 32%. Must be pretty close since I did not earn much after "retirement" and conversely did not save much up to the point of "retirement". If I include "interest earned" into the total income number it goes "down" to 48%. Interesting exercise. Of course if one "discounts" it for inflation, drop in the value of the dollar, etc., etc., it gets kind of discouraging, but as long as we are eating "real" food all is well.
__________________
Vietnam Veteran, CW4 USA, Retired 1979
OAG is offline   Reply With Quote
Old 11-06-2007, 08:49 AM   #12
Thinks s/he gets paid by the post
 
Join Date: Apr 2006
Posts: 1,487
my nw is 114% of what ss reports as my lifetime "medicare earnings" ... but these earnings are understated due to the previous earning cap ... "soc sec earnings" are even more grossly understated.
__________________
d is offline   Reply With Quote
Old 11-06-2007, 09:38 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,164
Quote:
Originally Posted by furpants View Post
Interesting way to evaluate what you've done with your money...

I noticed that Milton used I / NW and walkinwood used NW / I, which sort of confused me at first. Razor didn't specify which ratio he used.

Anyway, congrats on a great job, Milton!
And it looks like Milton even included investment income and perhaps even realized capital gains so that's even more impressive. I guess he's got a lot in a 401K, long held assets, and/or unexercised stock options.

I guess back in 1999 before I exercised stock options I had about 300% net worth over total SS taxed medicare earnings. I had to exercise much of those at the highest rax rates in 1999 and 2000 so that picture changed quickly, then I didn't diversify well so the bubble tagged me too.

Now I'm at about 62%, but the good news is that probably 75% or more of my net worth has already been taxed.
__________________
RunningBum is offline   Reply With Quote
Old 11-07-2007, 08:30 AM   #14
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Quote:
Originally Posted by AltaRed View Post
Off the wall... Why would anyone keep tax returns beyond the satute of limitations? I can't get rid of the stuff (and a whole lot of other paper) fast enough to suit me.
Force of habit, lack of time. Just stuff 'em in the box and get on with life.

Now in ER we have the time to take care of that stuff, but there's so much else I'd rather be doing than combing through old paper records. I throw out the oldest stuff only when it's necessary to fit the new in the box. Good thing I didn't just buy a bigger box.

Speaking of "statute of limitations", I never would've thought to keep an 18-year-old record of the sale of a home in order to document the deferred cap gains on the potential sale of a subsequent home. An extremely experienced realtor did me a big favor by asking that question, and I just happened to have it on file. Now I know to save it.

Quote:
Originally Posted by Linney View Post
I did use this technique with our son, however. At the end of a year I showed him his end-of-year bank statement, noted how much he received in the past year for allowance (about $800, this is for an older teenager mind you) and smiling expressed my hope that he got good value from the things he bought with all that money. He repeated back "$800?" "Yup", and I showed him the bank statement as proof since we manage his allowance via auto-transfer twice a month. The look on his face was priceless! And.... I noticed in the years since we had that little exchange that he has chosen to save more of his money and use it to buy things that he reallly really wants to have. And his savings account balance is pretty respectable too. Sometimes the little lessons on finances really do work....
It's made a big impression on our "only the best shampoo will do" teenager.

Another effective tactic was having her calculate how much of her life she's willing to work (at $8.50/hour before taxes) for clothing & toiletries. Wait'll she has to figure out her gas money, too... I've told her it's not about persuading Mom & Dad anymore, it's about deciding if she wants to spend the rest of her life working for that stuff.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 11-07-2007, 09:33 AM   #15
Thinks s/he gets paid by the post
Milton's Avatar
 
Join Date: Apr 2007
Posts: 2,065
Quote:
Originally Posted by RunningBum View Post
And it looks like Milton even included investment income and perhaps even realized capital gains so that's even more impressive.
Yes, I included everything except unrealized capital gains.

Quote:
Originally Posted by RunningBum View Post
I guess he's got a lot in a 401K, long held assets, and/or unexercised stock options.
Unfortunately, I don't get stock options.
__________________

__________________
"To know what you prefer, instead of humbly saying Amen to what the world tells you you ought to prefer, is to have kept your soul alive". Robert Louis Stevenson, An Inland Voyage (1878)
Milton is offline   Reply With Quote
Reply

Tags
net worth


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Share: Age, Salary,profession, Total monthly expense, net worth, and stuff! Wealth Health Young Dreamers 176 01-19-2008 10:51 AM
Magic Number to Income at Retirement Ratio bbuzzard FIRE and Money 24 04-10-2007 05:20 AM
Net Worth:Life Time Income Ratio? mb FIRE and Money 11 03-24-2006 01:38 AM
Calculating your net worth justin FIRE and Money 59 07-02-2005 10:18 PM
Net worth sunrunner4@hotmail.com Life after FIRE 23 08-11-2004 12:23 PM

 

 
All times are GMT -6. The time now is 02:54 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.