Do You Have As Much Wealth As You Should Have?

Defining wealth is pretty tricky. 

A guy with a hundred goats in Morocco, who leases his land, could be considered wealthy.  But if you bought 100 goats in Canada and leased land for them to graze on, you’d be a pauper, if you didn’t have (another) day job.

Thomas Stanley, author of The Millionaire Next Door, takes a crack at determining a couple of things:

  1. How much wealth you should have
  2. How much wealth you should have… to be considered wealthy

This is how he calculates it:  Multiply your age by your pre-tax household income.  Divide it by ten, and that’s what Stanley figures your net worth should be.

For example, if you’re 40 years old, with annual, household  pre-tax income of $100,000 per year, you should have a net worth of $400,000.

To be considered “wealthy” according to Stanley, you’d need double the expected net worth level.  And when you’re counting your income, you have to include everything.  If you get bonuses, include them.  If you get money for housing (as an overseas employee) then you have to include that too.  You might be off the scale below, but I hope it gives you a rough idea.

Again:

Expected Wealth = Age X total household pre-tax income divided by 10.  Canadians in Canada, add about 15% to your net worth to equalize the tax issue.

You’re wealthy if your net worth is double the expected level.

Your Age

Pre-Tax Household income

Expected Net Worth

You’re considered wealthy if you have at least…

30

$30,000

$90,000

$180,000

30

$50,000

$150,000

$300,000

30

$70,000

$210,000

$420,000

30

$100,000

$300,000

$600,000

35

$35,000

$122,500

$245,000

35

$55,000

$192,500

$385,000

35

$75,000

$262,500

$525,000

35

$110,000

$385,000

$770,000

40

$55,000

$220,000

$440,000

40

$80,000

$320,000

$640,000

40

$140,000

$560,000

$1,112,000

45

$70,000

$315,000

$630,000

45

$90,000

$405,000

$810,000

45

$150,000

$675,000

$1,350,000

50

$90,000

$450,000

$900,000

50

$120,000

$600,000

$1,200,000

50

$180,000

$900,000

$1,800,000

55

$120,000

$660,000

$1,320,000

55

$160,000

$880,000

$1,760,000

55

$200,000

$1,100,000

$2,200,000

I have four main questions:

But let me preface them by suggesting that I recommend anonymity here.  If you have your own blog, and you’re anonymous, like my friend Young and Thrifty, then go ahead and answer these questions as you normally would.

But if your identity is obvious (as mine is, or Mark  and Kevin’s  are ….thanks to The Globe and Mail’s profiles this summer) then perhaps you could go incognito for this.

It would be interesting to see where finance bloggers/readers rate, financially.

So……

  1. Do you meet your expected level of net worth?
  2. Are you below it?
  3. Would you be considered “wealthy” by this definition?
  4. And what do you think of Stanley’s calculation?  Valid, or not?




Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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21 Responses

  1. I don't meet the expected net worth (including house value). I am short and I used a conservative income. With the 15% I get close to it but still short.

    I would not consider myself wealthy if I matched it. Too much intangible. Net worth doesn't imply accessible funds.

    My definition of 'Wealthy' means I don't concern myself with the day to day bills… I am not quite there. Much more to go.

  2. Hey Passive,

    Ultimately, your definition is the one that counts. Interestingly, before I moved to Singapore, I would have been categorized as "wealthy" on that scale, but with an increased salary that came with my new job, I was then immediately below the "wealthy" scale, despite having more wealth. If I go two years without working, then I become freakishly wealthy, according to Stanley. Hmmm.

  3. Hello! I didn't know you mentioned me 🙂

    Oh man.. I don't even meet my expected net worth! Mind you, I do have a few more years to go before I hit the big 3-0. I feel inadequate now 🙁

    Time to work even harder!! And here I was thinking I was doing alright for myself.

  4. @youngandthrifty

    Hey Young,

    I think you're doing really well. I was hoping for some people to poke some flaws in the whole numerical categorization, but it really didn't catch on, I suppose. I do think there are some flaws to this.

    Either way, it won't be long before you're well above this expected scale anyway. And then onwards and upwards from there!

  5. We're about half way between expected and wealthy. I think the calculation is valid if you are in a stable situation.

    I mean if I quit working in 2011, our income would drop by 2/3 and we'll be super wealthy with this calculation… Seems wrong.

  6. Jean says:

    Andrew, I did the Stanley exercise this morning, and I'm under the 'ideal' for my age and pre-tax income, but I do trust I'm headed in the right direction to reach my investment goals. What would you say about the calculations for those US expats who pay less in taxes vis-a-vis Stanley's formula? Should our Net Worth be even higher than Stanley suggests?

  7. Hey Jean,

    I think he'd agree that it should be even higher for expats paying lower taxes. But again, if you took a job paying half of what you make, next year, and run the calculation then, he'd suggest that you'd be wealthier, despite making less. Does that make sense?

  8. Jean says:

    Andrew. . . hmm, I think I get what you're saying, with the way his table presents the figures, but doesn't it ultimately have to do with your earning power and your saving habits? One of the lessons I have learned in reviewing my pattern for investing in the past is that I truly never contributed enough of what I was earning toward my retirement funding. You've helped me put a different perspective on that, and I've since seen the path I need to be on. As you know, I am moving more fully toward indexing, and the biggest step I've taken is to double my retirement contributions each month (at least double of what I used to do before).

  9. Geez man, how do I go incognito from here? Kidding of course. I had to laugh when I read your post, in a good way Andrew.

    Absolutely agree with what you responded above – your definition of "wealthy" is the only one that counts. Who cares what others think. Financially, you can measure wealth in many different ways but wealth also means so MUCH MORE than money. That discussion could take thousands of posts and rightly so. I guess I'm feeling a little more philosophical today…

    I don't think pre-tax income is a great indicator for wealth formula. A high pre-tax income only means somebody else is willing to pay you a good sum of money for the work and services you provide. Nothing more. It says nothing about how you spend what you make, overspend what you make or conversely super-save. Increasing net worth rates over time on the other hand, I agree with Stanley on that. Net income, not so much. I mean, if you're 55, you're net worth is over $1 million above, you spend very little and use your 4% withdrawal rate from your $1 million sitting in XBB every year to live off of ($40 K per year), you're pretty darn wealthy I think and it has nothing to do with your net income. I dunno, that's just me.

    I would certainly not consider my wife and I wealthy, but we're getting there with every indexed ETF and dividend-paying stock that pays a dividend each month and quarter. I guess that's our get-wealthy-eventually-plan in action.

    Have a good weekend,

    Mark

    ps – I don't understand the Stanley math or I see some of the flaws; why does the math change from multiples of 3 @ age 30, to multiples of 4 @ 40 to multiples of 5 @ 50? I don't get the logic, not linear, seems inflated.

  10. By this formula we are definitely not wealthy and are barely "on pace" for where we should be. I suspect most people don't meet these standards. Our avg age is 30 and we're on the right track now but far behind.

  11. @retirebyforty

    Hey Retire By Forty,

    I agree with you. That's one of my problems with the calculation as well. By this calculation, in many respects, the higher your salary, the poorer you are. I mean, get an immediate raise of 30%, and you can go from "on track" to well below the expected net worth level for someone your age, with your new level of income. It's a bit bizarre.

  12. @Sustainable PF

    Hey Sustainable,

    Do you think the formula makes sense?

    Whether you agree with Stanley's formula or not, I have no doubt that you'll reach your goals because you're planning to, and you're financially educated.

  13. Shellfish says:

    I'm 32 years old, making a gross 150K a year. It's taken me 8 years to get up here. The first 5 years I spent paying back my college loans and could save very little. As per this formula I should have 480K in savings(I'm in the US.) I have a fraction (third) of that in savings.

    So am I considered in the poor category? Or does the formula penalize me for making too much.

  14. John Papers says:

    Great Post!

    Thanks for the article..

  15. @Shellfish

    Hey Shellfish,

    Ironic, isn't it? If you got a raise to $300K tomorrow, you'd automatically be considered "poorer" than you are today. I'm trying to think of what Stanley should have done, for a formula, instead. And the quesion, I think, shouldn't relate to salary at all. It should relate to how much money you have made in a lifetime, based on your salary. That's tougher to calculate, but a lot more valid as a figure to work a formula with that makes sense. What do you think?

  16. Shellfish says:

    Thanks Andrew for an excellent Blog! I'm fortunate to have come across it and have thoroughly enjoyed reading your articles.

    Please keep up the good work. Regards.

  17. Echo says:

    I think Stanley uses that wealth equation to try and emphasize his point about how most high income earners are also spending more to keep up with their lifestyle and therefore not building any real wealth, where the lower income earner can actually be more wealthy comparatively.

    The equation makes sense, unless you're 30 or you have just received a promotion/raise like you pointed out. But remember, it's about wealth "accumulation", which cannot happen over night. By the time you're 35 or older the equation becomes more believeable.

    I'm currently about $100k shy of where I should be according to this equation (so I'm an under accumulator of wealth at 31), but I project that I will be an average accumulator of wealth in less than 4 years. It's hard to predict future income 10+ years out, but I think I could reach prodigious accumulator of wealth by the time I'm 45.

  18. @Echo

    Hey Echo,

    I have no doubt that you will became a prodigious accumulator of wealth. And I think you're right about Stanley's motive here–showing that most people spend too much money, relative to their salaries. And you're also 100% correct, in my view, that the calculation works far better as a benchmark for people who have been in well-established jobs/careers for a number of years. How many 30 year olds with just a $50K annual salary have $150K? Not many.

  19. We have two years to go? We might hit the expected net worth but not the "wealthy" level for sure.

    Sometimes I wish I had an anonymous blog on the side; being somewhat exposed means that there's some topics that are better not shared on the site!

  20. P.S. My definition of "wealthy" is financial independence — having enough capital to live off of the proceeds without otherwise having to work. This will vary depending on your lifestyle, of course, but if you can draw at least 30K from capital staying within 3% of total portfolio withdrawn per year then I think that's pretty good! Building up side income is a good route to financial independence, too, but it does require that you still take some hours so while you may be able to get out of the rat race at some point, you won't really be "wealthy". It's still desirable to have, though.

  21. ghabby says:

    I see myself meeting my expected net worth and getting close to be wealthy.

    But my proble is Iam in the early 4o's and I have 90% of my assets in cash because Iam so conservative and don't sleep well unless I have it all in FDIC insured products.

    What do yoiu advise me at this moment? I eman with my current finnacial situation and age and family size (4 kids and wife), do you advise me to change my attitude or keep doing the same?

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