Friday, September 15, 2006

Are you wealthy?

Do you think you are wealthy? In the book "The Millionaire Next Door", there is a formula by which you can determine whether you are wealthy.The formula is,
Multiply your age by your pretax income from all sources (except inheritances).
Divide that number by 10 to arrive at what your net worth should be.
I am 22 years of age and my pretax income is around 3,50,000 then my networth right now should be (22 x 350000)/10 = 7,70,000.
The book doesnt deals with why the use of number 10, but my hunch is that, we are discounting the money earned/accumulated till the age of 10.(We would have spend all the pocket money received on ice creams and all those chocolates).
Anyway, assuming that we are accumulating money from the age of 21, my new adjusted formula would be
Multiply your age by your pretax income and divide that number by 21
So my networth should be (22 x 350000)/21 = 3,66,666.66 but my real networth is 48,500 + 15,000 = 63,500.
Well then I am not wealthy.

How much are you worth?