At the end of 2013, I discussed the importance of knowing your Net Worth. Hopefully, you took the time to calculate this important number and are ready to do it again. This year I’m recommending you also complete the wealth test introduced by Stanley & Danko in the book “The Millionaire Next Door” (a great stocking stuffer for the holidays!). The wealth test will allow you to see how you compare, as a wealth builder, to others in similar household income and age ranges. Having your dream house, cars, and vacations may give the illusion you’re doing everything right with your finances. However, your test results may paint a different picture of your financial reality.
1. Your net worth (assets minus debts) ________________
2. Your annual household income (from all sources including realized capital gains, excluding income from inheritances) ________________
3. Your age (if both spouse work, average your ages) ________________
4. Multiply your income by your age ________________
5. Divide line 4 by the number 10 to get the expected net worth for someone with your age and income ________________
6. Divide your net worth (line 1 by line 5) to get your final score ________________
Interpretation of your Score
- 2.0 or higher, you rank in the top 25% of wealth builders and are one of Stanley and Danko’s PAWs (prodigious accumulators of wealth)
- 1 to 1.99, you rank in the top half of Americans in your wealth building prowess.
- 0.51 to 0.99, you’re a below average generator of wealth for your age and income level.
- 0.50 or lower, you are one of Stanley and Danko’s UAWs (under accumulators of wealth)