Are You Good in Accumulating Wealth?
September 27th, 2009
This will be a fair comparison of how good a wealth accumulator you are. Rather than comparing the dollar amount of your net worth, we will stack you up against others in terms of your net worth over income.
If a person makes $100k/year and has $500k in net worth, he’s definitely a much better wealth accumulator than another person who makes $500k/year but has only $1m in net assets (i.e. assets minus liabilities, which is the same thing as net worth).
The first person’s networth to income ratio is 5x, while that of the second person is a measly 2x.
So you have no more excuses. (Yes, you still have one – if you’re just starting out, you will need time to build up your wealth.)
What is your networth to your income ratio?
To calculate your net worth, you can use this net worth calculator. You can also treat you and your spouse as one entity, and combine both your net worth and both your incomes in the calculations.
inheritance Says:
September 27th, 2009 at 9:40 pm
I inherited a significant portion of my wealth, but I consider myself a good wealth accumulator even without help from the inheritance.
To be fair in this comparison, I suggest that participants do not include inherited wealth, as well as any wealth derived from such inheritance. That said, I must admit it’s easier said than done, cos if you have more to start with, you would be able to dabble in higher-yielding investments like property and commercial ventures.
pay cut Says:
September 27th, 2009 at 10:54 pm
Good point. Additionally, if one’s just got a pay cut, his ratio would seem deceptively high. I suggest using “career-high” annual income.
35 Says:
September 27th, 2009 at 11:03 pm
I’m 35. My networth/income ratio is 5.2. No inheritance, no pay cut.
broadmind Says:
September 28th, 2009 at 8:26 pm
Your wealth accumulation computation should take into account the age of the individual.
One measure of a wealth accumulator i’ve seen: Networth > (age / 10) * current annual income. So, someone at age 30 with 100K income should aim for a net worth of 300K.
superman Says:
October 1st, 2009 at 5:40 am
the absolute amount is more important than multiple. I don’t mind have a multiple of 2 if my annual income is 5m/year and my net worth is 10m. what is the point of having say, multiple of 8 times, when your monthly income is 50k? I rather choose the former even though I am deem as a poor wealth accumulator.
middleclass Says:
October 1st, 2009 at 9:21 am
superman: i think the ratio will still be more important no matter what amount you are earning.
on a straight forward level it just shows how well you manage your money.
for example if i’m earning 5m/year and my net worth is only 10m then i would be very worried where all my money has gone to?
this ratio though does not take into many other factors since everyone is different.
also people probably would be better wealth accumulators at a certain stage of their lives.
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