Your Financial Report Card - Rate Your Wealth

2006-08-23

Return to Part 2 of Your Financial Report Card

Wealth Return Rate
Your wealth base should be producing investment returns. If your wealth base is stagnant or not producing the returns you are expecting, then adjustments need to be made. Funds placed in retirement and non-retirement accounts should be earning some rate of return. This is important because, your wealth should be growing at a bare minimum the rate of inflation. This will only maintain the value of your wealth against the rising cost of living. A return above inflation will grow your wealth as long as the interest earned is reinvested and allowed to compound over time.

The Wealth Yardstick
According to Thomas Stanley and William Danko, authors of The Millionaire Next Door, average household wealth is a function of household income and age. The wealth yardstick is a tool used to determine the appropriate amount of wealth you should have based on these factors.

Average Net Worth = (Age X Annual Income) divided by 10

So for a family with a household income of $60,000 and the oldest age is 35, their Average Net Worth should be $210,000.

If your Average Net Worth is twice the “average wealth” calculated result you are a Prodigious Accumulator of Wealth (PAW). Your wealth is in the top 25 percentile of all people in your financial situation.

If your Average Net Worth is less than twice the “average wealth” calculated result you are a Under-Accumulator of Wealth (UAW). Your wealth is in the bottom 25 percentile of all people in your financial situation. If you find yourself in this category, don’t be discouraged. Age tends to have a big determining factor here. Families in the 30’s tend to have children and save less due to the financial demands on their income. Just be aware of your situation and make adjustments to increase your wealth as you can.

Related Articles:
» Building Wealth
» The Four Financial Baskets
» The Power of Present Value

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