UAW, AAW, PAW...the millionaire next door
January 29th, 2007 at 07:01 pmI just read the article cited by MonkeyMama at
The article says, according to Fidelity, the average 401(k) account balance is $62,000. This lead me to feeling like I'm on a good track, being at age 25, with about $42,000 saved for retirement.
Then I thought about that pesky net worth (http://en.wikipedia.org/wiki/Net_worth) calculation presented in the book The Millionaire Next Door.
I haven't read the book, but, know from online information that it describes under accumulators of wealth (UAW), average accumulators of wealth (AAW), and prodigious accumulators of wealth (PAW).
To determine if you are a UAW, AAW, or PAW you apply the following formula:
Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.
If you net worth is about equal to the number you are an AAW.
Try your own with the calculator here:
http://www.retireearlyhomepage.com/millbook.html
And more info about the book here
http://www.washingtonpost.com/wp-srv/style/longterm/books/ch...
My case
Age: 25
Pretax annual salary: $76,600
Pretax annual other income: $3,000
Total pretax annual income: $79,600
Result for AAW: $199,000
With a net worth of about $33,000 I rank as a UAW.
Bummer!
It is fairly discouraging to see that I'm a UAW and to notice that my net worth isn't even close to an AAW for my income/age. So much for feeling like I'm on the right track...now I just feel a compelling need to save. I want to transform myself into at least an AAW, but it seems like there will be a long road ahead.
How does everyone else rank on the UAW, AAW and PAW scale??