One of the most tricky things about personal finance and retirement saving is having clarity on where we stand at this exact moment. Have we not saved enough and therefore are “behind schedule” on our retirement savings? Have we saved more than we need to and are “ahead of schedule” on our retirement saving? And exactly how far or behind are we?
Enter Dr. Thomas J. Stanley, author of “The Millionaire Next Door” who came up with a simple equation that can be used as a rule of thumb for how much wealth you have created, if you hope to one day reach “millionaire status”.
Put simply, the wealth equation states that a household’s wealth should be equal to 10% of the age of the highest income earner in the household multiplied by the household's combined income.
Wealth Equation= (10% X Age of breadwinner) X Household income
Let’s illustrate this with an example, let’s say you are 45 years old and you have an income of $55,000 and your spouse is 49 years old and has an income of $60,000, how much wealth should your household have?
Wealth equation= 4.9 (10% X 49) X $115,000 ($55,000+$60,000) = $563,500
According to the wealth equation, your household net worth should be $563,500
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The under 30 crowds out there probably just did some quick mental math and said “OH…
