Wednesday, October 10, 2007

A different measure of success

I recently conducted a poll on, and asked people to calculate the percentage of adult earnings that their current net worth represents. Although I haven't received an overwhelming number of responses, I think it is a rather eye-opening exercise. If you're like me, it really makes you think about what you've done with all the money you've earned over the years, and what you have to show for it. By being consciously aware of these things, you may be able to alter your spending and savings habits to keep more of what you make.

So as you progress throughout your working career, keep track of your earnings. For example, I maintain a spreadsheet that lists, by year, my gross income, 401(k) contributions, and net take home pay. All of this information is readily available and/or easily calculated from your W-2 statement or year-end pay stub. This allows me to see, at a glance, my annual earnings, contributions to employer sponsored retirement plans, taxes withheld, and what I got to take home. I can then compare how well I've done at saving (and growing) what I've brought home over the years. It also makes it easy to find out how well my 401(k) plan is doing, since I know the cost basis, which can be helpful in determining whether I need to make any adjustments.

Look at your results regularly, and maybe it will help you stay focused on your savings goals. Good luck!


Anonymous said...

The book, The Millonaire Next Door, has a somewhat similar calculation to determine whether you're a PAW or UAW. Have you seen it?

Here's my ratio info:

1) What is the ratio of your net worth to your total adult gross earnings, expressed as a percentage?

104% ($1,583,476 net worth, $1,516,000 lifetime earings)

2) Number of adult working years?

25 years (age 18 to 43)

3) Secrets?

Visit my blog where I share everything!

Notes: Numbers include my husband and I (married for 20 years). The earlier years are estimates based on memory. I expect that our ratio will grow over time, since we now work only when we want to-- and we spend less than our investments return.

Have you shared your ratio yet?

azphx1972 said...

Millionaire Mommy Next Door, I read "The Millionaire Next Door" in my 20s, and it was a great read from what I remember. I was an UAW back then (at the beginning of my career), but I reached PAW status in my mid 20s. Thanks for your comment! Your story is a great example for the rest of us.