The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Icecreamarsenal on June 20, 2014, 02:19:57 PM
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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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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.
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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.
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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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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).
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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.