I read the book "The Millionaire Nextdoor" last month, and found it absolutely fascinating. Now before you go out and pick this book up based on my recommendation, I need to tell you...its unusual. Its a book full of facts on American Millionaires....and it may not be what you think.
It is breaking through the idea that most millionaires received a giant inheritance, or work on Wall Street in big corporate jobs...becoming a millionaire is so much more about lifestyle choices than your income or where you came from.
For most of us, we aren't going to be Millionaire's by 30...so how can you tell if you are on the right track for living within your means and becoming wealthy? Well, I loved this formula that the book provided:
1. Multiple your age times your realized pretax annual household income form all sources (including your side hustle). Do not include any inheritances.
2. Divide by 10.
3. This what your net worth* should be today
4. If your net worth* is significantly less than that number, you may want to evaluate your current money habits. If your net worth is significantly more, you are doing great and should consider yourself "wealthy"!
*Net Worth means you take all of your assets (bank accounts, home, cars, retirement, savings etc.) and subtract it from all your liabilities (debts, credit card, mortgage, loans, etc.).
Let's look at an example.
Jane is 30. She makes $45,000 a year teaching, and an extra $5,000 a year on Etsy sewing her side business.
30*(45,000+$5,000)= $1,500,000
Divide by 10= $150,000.
Assets: Home worth $140,000. Retirement of $45,000. Checking account of $5,000 and a savings account of $10,000
Assets = $200,000
Liabilities: She has $80,000 left to pay on her mortgage, and a credit card debt of $1,000.
Liabilities= $81,000
Assets-Liabilities= $200,000-$81,000= $119,000
For her age, she would not be considered "wealthy" although clearly she has the opportunity change some of her habits to be considered wealthy! If she works to pay down her mortgage by cutting back on some of her spending she can certainly make a huge difference in her "wealthy" calculation! And you can tell she is making strides towards doing that, with her current balance of her mortgage!
This is by no means a hard and fast rules of what is considered wealthy, but if you are anything like me you are constantly thinking "...but am I doing enough to feel secure later in life?" I found this to be a very reasonable rule of thumb to help you know how you are doing! (because maybe you are like Lorelai and love to shop just a little too much for your own good!)
It is breaking through the idea that most millionaires received a giant inheritance, or work on Wall Street in big corporate jobs...becoming a millionaire is so much more about lifestyle choices than your income or where you came from.For most of us, we aren't going to be Millionaire's by 30...so how can you tell if you are on the right track for living within your means and becoming wealthy? Well, I loved this formula that the book provided:
1. Multiple your age times your realized pretax annual household income form all sources (including your side hustle). Do not include any inheritances.
2. Divide by 10.
3. This what your net worth* should be today
4. If your net worth* is significantly less than that number, you may want to evaluate your current money habits. If your net worth is significantly more, you are doing great and should consider yourself "wealthy"!
*Net Worth means you take all of your assets (bank accounts, home, cars, retirement, savings etc.) and subtract it from all your liabilities (debts, credit card, mortgage, loans, etc.).
Let's look at an example.
Jane is 30. She makes $45,000 a year teaching, and an extra $5,000 a year on Etsy sewing her side business.
30*(45,000+$5,000)= $1,500,000
Divide by 10= $150,000.
Assets: Home worth $140,000. Retirement of $45,000. Checking account of $5,000 and a savings account of $10,000
Assets = $200,000
Liabilities: She has $80,000 left to pay on her mortgage, and a credit card debt of $1,000.
Liabilities= $81,000
Assets-Liabilities= $200,000-$81,000= $119,000
For her age, she would not be considered "wealthy" although clearly she has the opportunity change some of her habits to be considered wealthy! If she works to pay down her mortgage by cutting back on some of her spending she can certainly make a huge difference in her "wealthy" calculation! And you can tell she is making strides towards doing that, with her current balance of her mortgage!
This is by no means a hard and fast rules of what is considered wealthy, but if you are anything like me you are constantly thinking "...but am I doing enough to feel secure later in life?" I found this to be a very reasonable rule of thumb to help you know how you are doing! (because maybe you are like Lorelai and love to shop just a little too much for your own good!)
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