Thomas Stanley's Millionaire Mind defines the expected individual net worth as follows:
Expected net worth = age x annual salary x 0.112
For example, if you are 30 years old earning an annual salary of S$30,000, according to the formula you should have an expected net worth of S$100.8K.
In his book, his respondents have a net worth of more than their expected Net Worth which actually demostrated that they are a group of wealth accumulators.
Somehow I think there should be a qualification to the above equation in terms of the time duration of maintaining the annual salary.
For example, a fresh
NUS female graduate (say Jenny of 22 years old) is getting S$3000 per month. In the first year she gets 3000 x 13 (assuming 13th month with no other variable bonuses) = S$39,000.
Hence her expected networth is S$39,000 x 22 x 0.112 = S$96,096
How can anyone be "expected" to have a networth of at least 2 times more her annual income in the first year?
However if Jenny has now worked for 15 years (now 37 years old) and is commanding a salary of S$4500 per month, her expected net worth is S$4500 x 13 x 37 x 0.112 = S$242.4K
This is more palusible because if we assumed the total income she has brought in over the 15 years since she graduated her total income is S$3000 (using her graduate income instead of her last income for conservative sake) x 13 (number of months including 13th) x 15 years = S$585K
Hence her expected networth of S$242.4 is calculated to be 41% of the total income - in other words if she managed to save only 41% of her graduate income for the past 15 years, she would have hit her expected networth easily.
The key to the above example is to show that if one was to use the expected networth equation to work out his/her expected networth, we must be mindful that it's best to have a number of years drawing/receiving that income for a sizeable period prior to using that equation.
Make Sense?
Income Benchmarks
