What is your net worth based on the "Millionaire Next Door"

[maddythebeagle]

This is a fun and easy calculation to see where you stand at least in the authors of the Millionaire Next Door theory.

http://www.banksite.com/calc/wealth

 

[dex]

Do you use gross household income or net household income - after taxes?

 

[maddythebeagle]

I believe it is gross.

 

[Texas Proud]

Slight problem with the calculation.... My salary increased significantly the last 5 years and it made me go from PAW to AAW even though I have not had time to save as if I was making that amount for a long time.....

 

[Martha]

The MND test also doesn't work well for those just starting out. They might have a negative net worth from school loans and the like and as soon as they have a job, they are underaccumulators of wealth.

 

[maddythebeagle]

"Slight problem with the calculation....  My salary increased significantly the last 5 years and it made me go from PAW to AAW even though I have not had time to save as if I was making that amount for a long time..... "

- I would suggest that you are probably a paw, then and would use an average salary.

Yep, on the younger folks not bothering to look at this.

 

[brewer12345]

IIRC, the authors of the book indicated that the very simple formula was a derivation of a much more sophisticated formula for predicting net worth. I bet the full model does a much better job of handling the youngsters, and its probably floating around out there in the academic literature.

 

[Newell]

I've always had a problem with questionnaires that ask a retiree what their annual income is. How does a retiree determine their income? Is it pensions? Does it include interest and dividends on investments? What if the interest and dividends are reinvested? What about realized or unrealized capital gains? Social Security?

Typically, I assume a non-retiree would consider their income to be their salary - they would probably exclude other income as reported on IRS forms like gains, interest and dividends. If a retiree without a pension (living on investment income) tried to do something comparable, it seems their income would be $0.00.

 

[TromboneAl]

That link didn't work for me, but if you go to Banksite.com, click to the calculators, and find the Wealth calculator, you'll get there.

What you'd really need to input is your average income for the last x years.

 

[justin]

As a recent college grad, I have a very positive net worth (given my age and having just started out), yet due to my age and income, I am an UAW. I'd say the MND rule of thumb probably isn't very accurate if you went to college and are under 30. But assuming by the time you're 30, making $50,000, it shouldn't be too hard to accumulate the "average" amount of 30*50000/10 = $150,000.

In a more extreme example, an MD just getting out of med school and interning/residency would be making big bucks, but would likely have a negative/low net worth, so they may not even be able to use the general guideline till age 40!

 

[Nords]

IIRC, the authors of the book indicated that the very simple formula was a derivation of a much more sophisticated formula for predicting net worth.  I bet the full model does a much better job of handling the youngsters, and its probably floating around out there in the academic literature.

Boy I'll bet Stanley regrets publishing that chapter.

He had a bunch of data. He ran a curve fit on the data and then forced it into a formula. He presented it as a way for PAWs to pat themselves on the back or for UAWs to consider the need to change their habits. I don't think he ever imagined in his worst nightmares that people would be dissecting it under a microscope...

So if you're running your own business and trying to decide where you fit among your "peers", his data might possibly be relevant. For anyone else it's just an entertaining story. As Freud said, sometimes a cigar is just a cigar...