Comments on: What Should My Net Worth Be?

By: getagrip

getagrip — Tue, 15 Nov 2011 16:25:19 +0000

The millionaire next door formula is a good ideal to shoot for, but IMHO it’s more for being in mid career in your 40′s and onward where it makes more sense. That said there should be one metric for your net worth. Are you generally better off this year than last year? If not, is because of something you’ve done wrong, or did the market tank, you just have a bad year with illness, etc. If so, was the increase actually due to your actions, are you making things better or taking positive steps. Can you make positive adjustments or are you kind of going overboard and not enjoying things.

To me, while rules of thumb may be okay to give you some goals to shoot for, for me the bigger value is how are you doing from year to year and are your decisions paying off so that in general, though you may have some dips and bumps, your net worth is rising over time.

By: Danielle

Danielle — Tue, 15 Nov 2011 13:58:37 +0000

We’re just slightly above trent’s calculation…and we consider ourselves pretty heavy savers, although I can’t see how my family of 5 could live on 25k a year after taxes. Our mortgage alone is $15k a year!

By: Steve

Steve — Mon, 14 Nov 2011 20:50:03 +0000

The calculation is fundamentally flawed because it is too linear and simplistic. It should both be exponential (as your assets accumulate, the interest becomes bigger, while your contributions go up slowly with increased income) and piecewise (for those who go to college, who start with negative net worth, and those who don’t, who start with zero and go up from there).

I think that your “minimum living wage” change is a red herring, because everyone needs some savings, no matter how poor they are. Zero (or negative) savings just puts you further and further behind the 8 ball.

By: Tom

Tom — Mon, 14 Nov 2011 14:36:19 +0000

That calculation is Expected Net Worth, not the hypersaver equation (multiply x 2 to be a Prodigious Accumulator of Wealth). The most common complaint of that formula, and I’m not sure if Stanley ever addressed this) is that its never going to work for someone who has just started earning money. I doubt that it was really intended for a 25 year old who probably doesn’t have property, a succesful business, or significant retirement assets and he specifically ignores inheritance for the calculation.

By: S01

S01 — Sun, 13 Nov 2011 22:25:49 +0000

Any additions to the rule of thumb if you have a spouse or partner? You can’t both count your gross assets as for each of you, but splitting them in half seems a little harsh, as when you retire it tends to be slightly cheaper to live as a couple than as a single.

Assuming you don’t end up divorced at some point….

By: Telephus44

Telephus44 — Sun, 13 Nov 2011 16:40:23 +0000

I’ve been around long enough to see/read several people offer suggestions on how to tweak the formula to make it more “fair.” I agree that it’s not realistic for many situations, most notably recent college grads and retirees.

The problem I find when you start tweaking the formula is that somehow I feel people start trying to justify why their net worth isn’t that high. Oh, I’m too young. I only make minimum wage. I have too many student loans. Etc.

I am at just about 2/3rd where I’m supposed to be according to the original formula, but I’m 3 times higher than Trent’s formula. I like to use the original formula as a goal to strive for – guess what, not everyone’s going to get there, and not everyone’s going to be a millionaire. I find it motivating because one of my personal goals in life is to be a millionaire. If your goal is simply to pay off your debts, or quit your job, or travel full time, then it’s not particularly useful to worry about where some random formula thinks you “should” be. You should have your own goals to compare yourself to.

By: her every cent counts

her every cent counts — Sun, 13 Nov 2011 11:43:34 +0000

I saw that formula in the book and realized it’s a dumb calculation. It assumes you’ve been making the same amount of money you’re making today since you started working, and that your income won’t change for the worse later in life. So my networth is supposed to be $250k at age 28… maybe I could have done that if I was extremely frugal, but I’m at $150k and think that was a pretty big accomplishment. And that was without any student loan debt.

By: deRuiter

deRuiter — Sun, 13 Nov 2011 10:00:14 +0000

One thing the (handy) net worth information doesn’t cover is how well a person handles money in general. If a thrifty person and a profligate person end up with the same social security payment, and the same net worth, the thrifty person will generally live more a secure and comfortable life in retirement than the spendthrift because he / she will make better use of what they have, not waste money. I mean “comfortable” in the sense that the money will not run out as easily as for the person who spends carelessly. The ability to grow some of your own food in a small garden, to shop estate sales and yard sales for fine quality barely used or still NWT clothing, buying furniture at estate sales, recycling, cooking good meals at home, do some of your own repairs, mow your lawn yourself, all contribute to a more prosperous retirement, and make retirement more agreeable.

By: Doug

Doug — Sun, 13 Nov 2011 03:06:47 +0000

Trent, although I don’t have the book in front of me, I believe that calculation was to be used as a target for the hyper-savers. That is, if you want to be a hyper-saver, you should compare yourself based on this calculation.

Also, I think they acknowledge that the extreme ends of the spectrum don’t hold up to this rule of thumb. Recent college graduates, extremely low-paid people, etc.

By: jackie.n

jackie.n — Sun, 13 Nov 2011 02:52:57 +0000

i submitted a comment in your post “a mindful life”–10 hours now in moderation! either my name is flagged or you have serious issues with your website trent. i suggest you fix them.

By: krantcents

krantcents — Sun, 13 Nov 2011 00:49:36 +0000

There is no comfort knowing I exceed the target net worth! I am still contributing and trying to make it grow despite the volatility of the market. My retirement will consist of a pension, Social Security and my retirement savings.

By: moom

moom — Sat, 12 Nov 2011 22:55:54 +0000

PS – the original calculations says we should have $1.1 million and we only have about half that.

By: moom

moom — Sat, 12 Nov 2011 22:54:59 +0000

This depends on what the purpose of the calculation is. You seem to be saying it should be a measure of what someone could reasonably have saved whereas the original ones seems to be more one of what one needs to save to retire. The main flaw with the original one to my mind is it should be based on annual spending rather than income.

By: Becky

Becky — Sat, 12 Nov 2011 20:28:28 +0000

Interesting. I find that using multiple rules of thumb for questions like this is pretty useful, because the range of answers for my situation tells me more than how I match up against one specific number.