The Millionaire Next Door

How Wealthy Should You Be?

Many people have contacted me since I first published the Wealth Equation in Marketing to the Affluent, aka marketing to the millionaire next door.  They seek yet another form of special dispensation.  Most often these people are in their 20s, 30s and some 40s.  They argue that they haven’t been working long enough to accumulate what the Wealth Equation predicts they should be worth.  This is a case where special dispensation can be granted.

Simply stated your household’s net worth should equal 10% of the age of the main breadwinner times your household’s annual realized income [adjusted gross income is a good substitute]. In short it is 10% X Age X Income = Expected Net Worth.  If you are in the Balance Sheet Affluent category, also known as prodigious accumulators of wealth, your net worth should be twice the expectation.

The Wealth Equation was developed from national surveys of households with incomes of $80,000 or more.  The typical millionaire is in his/her late 50s.  In fact, in my most recent national survey, the typical millionaire was 57.  Those who are significantly younger than 57 should be aware of the fact that the Wealth Equation overstates what they should actually be worth.

I worry that given these overestimates of expected net worth young adults will throw up their hands in despair and quit saving and investing.  They should keep in mind that 65% of the millionaires I surveyed began working full time at age 22 or younger.  And the large majority of these people were never out of work other than for vacations.  In essence, they have had 35 years of working full time to build their wealth. 

So what if you didn’t start working until you completed an advanced degree, served in the military or were disabled?   In such cases, you need to deduct those years from your current age when using the Wealth Equation.  Again, if you haven’t reached your 50s, the Wealth Equation is likely to overstate what you should actually be worth.

Perhaps an equally viable rule of thumb was developed by a reporter from U.S. News and World Report who interviewed me about The Millionaire Next Door.  She wrote that in order to reach millionaire status by age 57 one should invest 5% of his income in his 20s, 10% in his 30s, 15% in his 40s and 20% or more during his 50s.  I have yet to verify this statistically, but from a glance it seems like her advice was sound.

18 thoughts on “How Wealthy Should You Be?”

  1. The USN&WR comment seems backwards. Given the effect of compounding, wouldn’t you have a better chance investing more in your 20’s and 30’s than in your 50’s? Get invested early and let the money work.

  2. Professor Stanley:

    This is a question I see cussed and discussed in many forums. I’m curious on your thoughts. When you discuss net worth (especially in this equation) are you including house equity, or only invested assets?

  3. Bruce Benson (

    “So what if you … served in the military ….” I enlisted right out of high school and later got my commission as an officer through ROTC. I lived frugally (one room efficiency, old car I bought from a barracks buddy headed overseas, etc.) while my peers had new cars, condos, stereos, golf clubs, ski equipment, etc.

    You don’t sacrifice your ability to achieve financial independence by going into the military. Just live a frugal life, have goals, save and invest. (No, I didn’t “retire” from the military as an admiral or a general, not even close.)

  4. At age 50, at $80,000/yr salary approx. my net worth should be $400,000.

    I agree with Matt above….I made more bread from 1985-2003 than in the last few disappointing years…my file shows in 1986 my net worth was $20,000 in cash and I reached $1,000,000 in 2007 – about 21 years later…3 years later to date I have cash of under $1,180,000 approx.

  5. Thomas,
    I am a big fan and have read all your books, but in my case I have another question with this formula. Should you really use your current income? I am currently 40, and my income has doubled in the past 2 years and increased 12 fold in the past 18 years. So even though I have a high income now, most of my working career it was much lower so shouldn’t some type of average be used?

  6. My husband and I really appreciate the inclusion and development of your wealth equation. We spent a year getting out of debt (the DR way) and this gives us “the next goal”. We aren’t close yet, but we are moving in the right direction…and quickly at that!

    Thanks for the further thoughts on the subject.

  7. How did the author not realize that the “age” part of the equation should really be “number of years in the work force”?

    A generally applicable equation would be closer to:
    Number_of_working_years * Income / 4

  8. AHA! Finally I learn that the Stanley Wealth Equation is based on a survey universe of households earning $80,000 or greater annual income.

    Nowhere in the blogosphere or traditional media have I seen this figure reported. I’ve looked far and wide for this number because I have believed this equation can’t be realistic for people at very low incomes. (My annual income has ranged from $10K to $17K for the past 20 years.)

  9. To Matt re: better chance by investing more in your 20s and 30s:

    Sure, the math certainly favors investing a higher percentage in your early years in order to build up the base which will be compounded.

    But that is generally not realistic, since most people are relatively low on the earnings curve in their early adulthood, plus they have ‘starting out’ expenses (e.g. household items like furniture) that necessarily must be paid in the early years.

  10. As I see it, the house should not necessarily be a part of the wealth equation, even though ours is paid off. The reason? It is not an income producing asset. It actually continues to cost money in maintenance. Plus, I know too many people who have way too much house and cannot afford to even furnish it. Part of the idea of The Millionaire next Door is that millionaires tend to NOT live like that.

    We are PAW despite the fact that our income was frozen for 15 years at 47k. We put two kids through college. We have never been anywhere close to the 80k income. We have had some lean years with medical expenses but still pulled through. In a book by Ron Blue, there was a story of a man who never made more than 20k per year and had a net worth of 600k! So while financial offense- making more- is great, financial defense is absolutely critical.

    Today is 99 cent day at Goodwill. My millionaire hubby and I will be there after we drop the books and videos off at the library. We may find something a family member can use or we may find something to resell. Our burn rate compared to our income and assets is low. We enjoy seeing how far we can make things stretch.

    So instead of sweating whether or not the formula accurately reflects you situation, your take- away from this book should be to live on less than you make and invest the difference. How much less? As much as you can. And learn to enjoy the process.

  11. There are always variables in any formulas especially as they cover a broad range of scenarios. However I personally feel that “the Millionaire Next Door” is essential reading the Boomer generation and there offspring. I consider myself to be relatively smart and a good “offense” earner but was never really able to put relate this advice to my situation until ready this book. I have read it twice and plan to read it at least once a year to keep focus. I am grateful for this excellent scientific approach to wealth creation.

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  16. Its important to note that savings income and cutting expenses is part of the equation in growing net worth.
    Using real estate as leverage with careful debt has increased my net worth over 21 years @ 11.5% compounded growth to $3,150,000 at age 65. This is done by careful steps in acquisition of property and paying done debt. Its like money on steroids.

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