Age and financial position calculation?

[china]

When I first read the above, I was in complete agreement. But I have been listening to a number of things lately including bob proctor and think and grow rich. He talks about if you want something then you need to think about it.

In fact a lot of the discussion centers on minimizing your limiting beliefs, hence seeing oneself being better than the Joneses is a perfectly valid and in fact commendable trait.

If one does not continually set higher standards to achieve and increase one's expectations, there can be no progress, only mediocrity. So let the Jones keep up with me.

 

[aussierogue]

I agree we should always seek contunual improvement but not just material wellbeing but also spiritual and ethical.

 

[truong]

Just to add to the debate

https://www.wealthbenchmarks.com.au/index.php?option=com_content&task=view&id=16&Itemid=40

In 1996 US academics Thomas Stanley and William Danko published the famous The Millionaire Next Door. The book summarises the habits of wealthy individuals and points out that many became wealthy by living a modest lifestyle. Indeed, your neighbour next door who lives in a modest house, drives a pick up truck and owns two or three Laundromats could be a such an individual. In their work they suggested that people’s expected Net Worth can be predicted by their age and income accordingly to the below formula.

Expected Net Worth = Age X Income / 10

For someone aged 35 earning $100,000 pa their Net Worth should be $350,000. According to Stanley and Danko, if your wealth was greater than this, then you were a prodigious accumulator of wealth (PAW) and if below, you were and underachieving accumulator of wealth (UAW).

We have analysed this correlation and find it does not describe the Australian situation very well, and we suspect it always was an oversimplification for the US system. The latter you can imagine as it penalises the newly employed 20 year old.

We are finding an emerging correlation between wealth (Net Worth) and income for Australians as follows:

Expected Net Worth = ¼ X Income X (Age – 20)

Statistically this relationship explains about 50% of the variation in the data so far analysed. For a couple aged 40, earning $150,000 pa this relationship suggests their expected Net Worth may be $750,000. This relationship is intuitively more correct as in essence it says Net Worth, is equal to one-quarter of the number of years of income an individual or family has earned since age 20. Age 20 seems reasonable as this is when many start work. For those who stay in school longer, then perhaps they enjoy a higher income, savings and investing capacity which makes up for their later start. For those of you anxious about your 20 year old children living at home and not working, maybe you can tell them the clock has started ticking!

The one quarter factor aligns with a gross savings capacity which in early years might match that for a younger person pre-mortgage and pre-kids. Those in their middle years while paying off a mortgage are still adding to their net worth by making principal payments. In later years investment compounding plays an important role buttressing finances.

Re the debate about whether it's linear or exponential - Well, it's both!

The formula is linear if you look at certain point in time (eg. now) and compare the net worth of several individuals of different ages at that point in time.

However if you look at the net worth history of one particular individual (eg yourself) over the course of your life, then it's clearly exponential due to the fact that one variable (income) grows exponentially with time.

 

[Dazz]

Of course, what the formula fails to take into account is any investment or transaction involving a capital gain.

The really wealthy folk become so from capital gains on property & shares....not through earning a wage, paying off their mortgage and food and gas bill, then putting a few pennies away. I don't know any multi-millionaires who did this.

This largest factor of CG on investments is totally ignored by every formula listed above.

 

[truong]

This largest factor of CG on investments is totally ignored by every formula listed above.

Maybe not “totally”.

Share or property ownership not only produces CG but also income, and that goes into the formula.

 

[china]

Of course, what the formula fails to take into account is any investment or transaction involving a capital gain.

The really wealthy folk become so from capital gains on property & shares....not through earning a wage, paying off their mortgage and food and gas bill, then putting a few pennies away. I don't know any multi-millionaires who did this.

This largest factor of CG on investments is totally ignored by every formula listed above.

Besides CG on shares/property, the third way to truly crushing wealth is via a successful business.

 

[sash]

Shillings son!...not pennies...I made all by tucking away pennnies.

Of course, what the formula fails to take into account is any investment or transaction involving a capital gain.

The really wealthy folk become so from capital gains on property & shares....not through earning a wage, paying off their mortgage and food and gas bill, then putting a few pennies away. I don't know any multi-millionaires who did this.

This largest factor of CG on investments is totally ignored by every formula listed above.

 

[Jtkumnick]

Don't know why this is important.

Where I am now matters. Where I want to be matters. How I'm going to get from where I am now to where I want to be is the most important.

Where someone thinks I 'should be'? Meaningless. How I measure up to my peers? Also meaningless, unless it's to learn from them.

If you have all the cashflow to fulfill all your goals, and someone else thinks you're poor, does that matter?

If you haven't reached your goal yet, but other people (because there are always those better and worse off than you) think you're rich, does that matter? Does it matter to you that someone else is a billionaire? Not really. It only matters in the general sense that the average affects you relatively, but individuals don't.

In the same vein, if you haven't reached your goals yet, saying 'well, it's because I used to be on low pay' doesn't help. Making excuses to yourself is the worst thing you can do.

i like it. plus 1 from me.