Author Topic: PAW vs UAW  (Read 6509 times)

Icecreamarsenal

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PAW vs UAW
« on: June 20, 2014, 02:19:57 PM »
As mentioned in my journal, I just finished reading the chapter in The Millionaire Next Door about doctors.
I'd like to become a solid PAW, which seems to be [(age*income)/10]*2.
Does income mean net, take-home?
And I'm so far off, but I've only been earning at my current level for 2 years. Surely this equation does not apply so early in a career?
I know it's an arbitrary goal to shoot for, but it IS a goal.


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Buxlo122

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Re: PAW vs UAW
« Reply #1 on: June 20, 2014, 02:47:47 PM »
The PAW and UAW is only a guide and I would not take it to seriously early in your career.

I also fell into the UAW category as I am early in my career. My expected worth per the PAW formula is $285,000 and my net worth is sitting at 130K which I consider pretty good for 28.

Fast forward 10 years my expected worth per the PAW formula would be $570K but my expected net worth based on my savings rate is $1M.

I would focus on your savings rate/investing rate and you will eventually become a solid PAW.

John74

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Re: PAW vs UAW
« Reply #2 on: June 20, 2014, 04:14:51 PM »
Based on the formula for an average accumulator of wealth (AAW):

Someone who is 60 years old and makes $!00K a year is only supposed to have a net worth of $600K? Seems low to me.
Someone who is just out of school at age 25 and makes $50K a year is supposed to have a net worth of $125K? Seems high to me.

In addition, income varies over a lifetime. What if you make $50K for a long time. According to the formula, you are a AAW at 50 years old with a net worth of $250K. Then you get a promotion that doubles your income. Suddenly, you become a UAW because the formula says that you are supposed to be twice as rich at that new income level? It sucks.

Anyways, I think that this formula is only a very rough guideline. It probably does not apply in most cases. But if you still want to use it, income means pretax.
« Last Edit: June 20, 2014, 04:17:13 PM by John74 »

arebelspy

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Re: PAW vs UAW
« Reply #3 on: June 20, 2014, 09:15:53 PM »
Yeah, that formula sucks for people too young (20s) or too old (60s).  It's okay for mid-30s through mid-50s.

Still too low for Mustachians though.

I propose what I think is a much better formula here, if you like formulas to measure your progress against where you "should" be:
http://forum.mrmoneymustache.com/welcome-to-the-forum/what-are-the-mustachian-milestones-for-saving/
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dragoncar

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Re: PAW vs UAW
« Reply #4 on: June 21, 2014, 12:24:51 PM »
The formula is based on a long-term assumption of 20% annual savings rate.  So I think if you're above that, you'll eventually make it to PAW (unless your income keeps shooting up).

Blindsquirrel

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Re: PAW vs UAW
« Reply #5 on: June 21, 2014, 04:00:30 PM »
   Given the power of compound interest, the transition from UAW to PAW can be very, very swift. The formula is kinda lame for many as Arebelspy points out.