When new friends learn that I am a wealth adviser, they sometimes ask me this question before they even know me (or before I know them very well). In answer, I tell them about Tom Stanley’s formula.
The late Dr. Tom Stanley penned several great books about the affluent in America and how they developed their wealth. His books The Millionaire Next Door and The Millionaire Mind have been required reading for my students at the University of Nebraska-Lincoln.
He offered a simple rule-of-thumb formula to measure wealth accumulation: Your age divided by 10, then multiplied by your annual income. This is the amount that you should have accumulated in your working career to be “on track” with reasonable accumulation.
For example, if you are 50 years old and earn $100,000 per year, your net worth (assets minus liabilities) should be equal to or greater than $500,000. If you are 60 years old and earn $200,000, your net worth should be at least $1,200,000 to be “on track” as an accumulator.
If your net worth is double the amount the formula gives you, you are an extremely accomplished saver and investor!
Realistically, this formula doesn’t always work well as a measure in your early career or later in life. However, in my view, anything that helps us think about our accumulation efforts is valuable, if only as a fun exercise.
Learn about measuring your wealth in my book The Eight Points of Financial Confidence. Develop your own “net worth statement” and measure your financial progress regularly.