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No. of Recommendations: 12
I have just re-read The Millionaire Next Door. It's one of my favorite book in my book shelf. I agree with almost all the points in the book except some minor ones and one big one.

I have a lots of trouble of the definition of PAW and UAW. The book defines the average accumulator of wealth as someone having a networth approximately equal to the annual salary multiply by the person's age and divide by 10.

annual slary * age / 10

Thus, a person age 50 having an income of $50,000 would be expected to have a networth of $250,000.

This seems to work fine except if you are 25 you would be expected to $125,000. One would not be able to save that much even if one does not spend any money. If some one graduated from college at 22, one would have worked 3 years since and would have less than $125,000 after tax.

I would like to propose a new formula to calculate one's expected networth. Number of years worked * annual salary / 5.

annual salary * # years worked / 5

Thus, the same person would only be expected to be worth $30,000. This formula is softer on younger people, but more strict on older people compare to TMND's formula. Here's the comparision:

Let's assume a person started working at age 22 and makes $50,000 per year:

Age TMND formula My formula
---- -------------- ------------------
25 125,000 30,000
30 150,000 80,000
35 175,000 130,000
40 200,000 180,000
44 220,000 220,000
45 225,000 230,000
50 250,000 280,000
55 275,000 330,000
60 300,000 380,000
65 325,000 430,000

What do you think?
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