Ideal Net Worth (Based upon a Formula): How do you compare?

[justlearning]

Although I've seen some guidelines that provide a lower figure than this one, Thomas Stanley and William Danko, authors of "The Millionaire Next Door" (1998), provide a general formula for ideal net worth:

Ideal Net worth = Age * Pretax income ÷ 10

So I'm curious, how does your actual net worth compare to this recommendation? (I calculated ours based upon my DH's age--he's older than me--and our gross household income this year.)

[queenmama]

We're a long way off! Yikes.

Lara

[justlearning]

For fun, here's a calculator to see how you compare to the median net worth based upon age alone and then based upon income alone:

http://cgi.money.cnn.com/tools/networth_ageincome/index.html

[westwoodmom04]

For fun, here's a calculator to see how you compare to the median net worth based upon age alone and then based upon income alone:

http://cgi.money.cnn.com/tools/networth_ageincome/index.html

We are pretty far off the formula but would be pretty much there if our house was worth now what we paid for it. The formula seems to get you to the median for your income, which for us is way different than the median for our age.

[BabyBearsMom]

For fun, here's a calculator to see how you compare to the median net worth based upon age alone and then based upon income alone:

http://cgi.money.cnn.com/tools/networth_ageincome/index.html

The median net worth for my age $8,500, so we definitely pass that. The median net worth for my income level is $1.1M, which we definitely aren't (unless we were dead and you included our life insurance policies). According to the formula from the OP we are pretty close to the net worth in the formula, but probably a little shy.

[AnnieW625]

The calculator in the OP says I have a net worth of $213k. If that includes the value of our real estate we pay a mortgage on that is low unless you are just considering the land the house is built on. If that is only your net worth based on savings and investments then our net value is much lower, by about $160k. DH's figure is $311k so that would be a little bit less than what our real estate is worth, but would be over $260k less than what our net worth including 401ks and savings accounts are worth. Because we live in a higher col area it is very hard to save extra cash. My DH and I do contribute to 401k plans though.

I am 35, and my yearly gross income is $61,000 per year. The median for my age is $57,000 so I make slightly more than that. DH is 38 and he makes around $82k per year and the median income for him is still $57,000.

BabyBear'sMom, your income will go up in a few years once you hit 35;).

eta: both DH and I have a pension through our employer and I have no clue what that is worth right now, but have calculated that if I retire at 55 to get the best minimum benefit then I will be getting 66% of my monthly salary based on having 33 yrs. of service when I am able to retire. If I can push it and retire at the same time as my DH (assuming he is with the same employer) when I am 58 and he is 60 I will get 70% of my pay based on 35 yrs. of service. Unless DH really wants to work past 60 the max he will be able to draw from his pension will be 60%.

[emily]

we are way off based on the formula in the OP.

According to the CNN one that PP posted, the median net worth for my age is about $51K. I'm way past that #. However, it also says median net worth for my income is $644K!. No where near that!! Insane!

[KrisM]

I remember reading that years ago. It is about impossible if you are young and at the beginning of your career. I was 28 and 2 years into work when I read it. No way could I have 2.8 times my income already. Now at 42, our net worth is more than twice what the calculation comes up with. But we were older when we had kids, had very little debt, and like to save. Overall,, it is an interesting calculation that I enjoy using to see how our nw changes, but I don't think it is very useful for all.

[abh5e8]

so how do I know what my net worth is? is there a formula to figure that out?

i'm guessing its the value of any assets I have minus my debts?

[justlearning]

so how do I know what my net worth is? is there a formula to figure that out?

i'm guessing its the value of any assets I have minus my debts?

Exactly. You'd add up the value of your assets (cash, 401Ks, IRAs, other investments, house and cars value, etc.) and subtract out any debt.

[justlearning]

I remember reading that years ago. It is about impossible if you are young and at the beginning of your career. I was 28 and 2 years into work when I read it. No way could I have 2.8 times my income already. Now at 42, our net worth is more than twice what the calculation comes up with. But we were older when we had kids, had very little debt, and like to save. Overall,, it is an interesting calculation that I enjoy using to see how our nw changes, but I don't think it is very useful for all.

Good point. I don't think it's relevant for everyone either but last night I had calculated our net worth and was trying to find some guidelines for what it ideally should be and saw this formula mentioned many times. FWIW, we're in our early 40s.

[HannaAddict]

The income scale tops out at $150k so no matter how much more you make, the same net worth comes up and that is not that useful above that amount.

[justlearning]

The income scale tops out at $150k so no matter how much more you make, the same net worth comes up and that is not that useful above that amount.

Interesting--I didn't realize that.

[buttercup]

I have negative net worth, does the formula contemplate that? I should steer clear of the 401k/ net worth posts here for certain!

[dogmom]

Ideal according to whom? Would someone please post some financial post that does not make me feel poor? And here's the weird part, we have a much higher than median income. We are doing OK. But no, we don't have 6 months emergency fund, and do not fund our 401K at 20%, and do not fully fund our kids education like so many here do. But we do OK, especially compared to the real, live median income family. How much money do you all make? Seriously. Even if my mortgage was half what it is I still could not manage to do all that, and I make more than the vast majority of Americans. No amount of coupons and cutting cable is going to make up the distance between my net worth and the ideal net worth. I feel like so much of this financial advice is complete BS for 80% of the population.