Are you wealthy?
I’ve started reading a book called The Millionaire Next Door. It has an interesting definition of wealth. It doesn’t define wealth only as specific dollar value. Instead, it considers your age and annual realized income. So given what you make each year and your age, what should be your total net worth? (Net worth = assets – liabilities). Here’s how the book defines wealth:
Multiply you age imes your realized pretax annual household income from all sources except inhertiances. Divide by ten. This, less any inherited wealth, is what your net worth should be.
For example, suppose you are 25 and earn $100,000 a year. Your net worth should be 25 x 100000/10 = $250,000. Are you wealthy?
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