Wealth is subjective.
You can be wealthy depending on how you view your needs regardless of your age and income, but realistically you can quantify them.
Based on the book “The Millionaire Next Door”, author Thomas Stanley and William Danko talks about the concept of prodigious accumulator of wealth. This is the highest level of wealth you can achieve in your life and beyond that you are considered the super glamorous rich.
Based on the formula, if you are near this target, you are considered an average accumulator of wealth.
If you have less than half of the target, then you are considered an under-performer accumulator of wealth.
But if you have twice the target, then you are considered the prodigious accumulator of wealth.
I quickly calculate my target and it came to about $207,350. Since I do not have double this amount, I am considered an average accumulator of wealth. Come to think of it, it’s actually quite difficult to meet the target.
Since this formula consists age as one of the factor, this is hardly applicable to younger age for students who just graduated and might have student loan debts in their balance sheet. Let’s assume Mike, who is 25 and just graduated with a job landing him $40,000/annum. Based on the above formula, his target net worth should be at $100,000. How the hell would a 25 year old person who just graduated has so much money to begin with.
This formula assumes that as one grows older, their income (through various means such as active/passive) would compound and work harder for the individual at the later stage of their lives.
There are always exceptions to every formula. So now that you know it, which category do you belong?