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How To Know When You're Wealthy
by Keith Rawlinson
Volunteer Budget Counselor
There is a book entitled The
Millionaire Next Door by
Thomas J. Stanley and William D. Danko. In this book, Stanley
Danko did a study of who millionaires really are, where they really
live, and how they really live. Believe me, the way
live is far different than most people think. If you enjoy
reading, and are serious about becoming wealthy, I strongly recommend
that you read this book. Do you need to read this book in
to become wealthy? No, but it sure does give you some
perspective on the whole concept of wealth.
In this book, Stanley and Danko give a formula for determining if you
are wealthy; but, before we can apply their formula, we have to first
determine our net worth.
Net worth simply means what you would be worth, financially, if you
sold everything you own
and paid off all money you owe.
In other words, add up the value of everything you own, and
subtract the total of everything you owe. Here's an example
how to calculate net worth:
What you own:
Your house is worth $120,000
Your car is worth $12,000
You have $3,000 cash in the bank
The total of your personal possessions (TV, stereo, clothing, etc) is
What you owe.
You owe $80,000 on your house.
You owe $10,000 on your car loan.
You owe $8,000 in credit card debt.
You owe $15,000 on a student loan.
Total of what you own:
Total of what you owe:
Your net worth is what you own
minus what owe
which is $139,000 (what you own) minus $113,000 (what you owe).
$139,000 - $113,000 = $26,000
So in this example, your net worth would be $26,000
The formula given in Stanley and Danko's book says that, in order to be
your net worth needs to
be greater than (Age x Gross income) ÷ 10
Let's say that in our example you are 35 years old and earn $40,000 per
year gross income. We have already calculated that your net
worth, in our example, is $26,000
so, we have to see if (Age x Gross income) ÷ 10 is
greater than $26,000
35 x 40,000 = 1,400,000
[Age x Gross income]
1,400,000 ÷ 10
[Divide the results by 10]
(35 x 40,000) ÷
10 = $140,000
Since $26,000 is less than $140,000 you would not be
considered wealthy in this example.
In other words, at age 35 earning $40,000 gross income per year, you
would have to have a net worth of $140,000 or more to be considered
Do this same calculation using numbers from your own life to determine
if you are mathematically wealthy.
Don't be surprised if your net worth is a negative number.
people owe more in debt than what they own is worth so their net worth
is actually negative.
talk about wealth.
Keep in mind, that this calculation merely reflects financial
wealth. It is possible to have financial wealth but poor
a family that is falling apart, no friends, and so forth.
person like this be considered wealthy? Financially yes, but
are lacking in the kinds of wealth that really matter--health and
Also please notice that this calculation takes into account your age
and income level. The older you are, the more time you have
to accumulate wealth, so the more you would need to have to be
considered wealthy. Also to be considered wealthy, if your
is $20,000 per year, you would need far less in net worth than someone
making $400,000 per year. In other words, you may not have as
much money as someone else, but you may still be considered wealthy for
your age and income level. That's why it is impossible to say
something like "if you have a million dollars, you are wealthy."
It depends on how old you are and how much you have to work
What this means is that anyone can become mathematically
for their situation.
So, if someone who is say 26 years old and only earns a poverty wage of
$12,000 per year has a net worth of $32,000 then they are
But, someone who is 46 years old and earns $50,000 per year who has
$32,000 in net worth would not be considered wealthy even though they
have the same net worth. Why? Because at their age
income it is reasonable to expect them to have accumulated a higher net
worth. In fact, at this age and income, they would need to
net worth of $230,000 to be considered wealthy!
What this all means is don't compare your situation to someone else's
to see how well you are doing. You don't need to have
someone else has in order to be doing well financially. What
trying to say is always
compare yourself to yourself to see how you are doing.
Don't worry about the guy who has a million dollars in the
If you have saved up $1,000 in emergency savings and have
yourself completely debt free,
are doing great compared to where you were when you started.
That's how you need to look at it. If you are going
compare yourself to others to determine if you are well off, than you
would need to have more money than the richest man in the world;
otherwise, there would always be someone else better off than you are!
Look at where you are now, look at the things you need to accomplish
financially and start working on them. As you make
in your life and accomplish each goal, you can feel great about
doesn't matter what others have--it only matters what you've
accomplished in your own life.
If your goal is to become mathematically wealthy, then use
Stanley Danko formula to figure out what your net worth would need to
be. If your goal is to be debt free and better off than you
now, then ignore that number and ignore what other people have.
Follow the techniques and strategies you are learning here on
Eclecticsite.com's Financial Page, and the wealth will take care of
itself. Worrying about keeping up with what other's have will
make you wealthy. You don't need to keep up with others to
wealthy, you need
savings and you
need a plan to
become wealthy. And never forget that financial wealth is
important, but it is not the most important kind of wealth.
"What good is it if a man gains the whole world, but loses his eternal
soul?" Mathew 16:26
learn a lot more about saving, investing,
eliminating debt and
becoming wealthy, please read the articles
on the Financial Page.
There, you will find a veritable treasure of what to do and
how to do
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and techniques given on this site are nothing more than the author's
the matter being addressed. Do further research before making
This article copyright © 2007 by Keith C. Rawlinson
(Eclecticsite.com). All rights reserved.
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as long as you
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