According to Stanley/Danko authors of the Millionaire next door your expected wealth can be calculated by taking one tenth of your age and multiplying it with your annual salary. For instance if you are 40 years of age and earning 100 000 p.a. (your local currency) your net worth should be 4*100 000 = 400 000. The problem with this formula is it is too time specific. It works well if you have been earning a relatively constant salary for the past ten years. But if you have a rapidly increasing salary or had an extended down time in the recent past the formula tends to be inaccurate.

By adjusting the formula to take the average annual salary for the past five years we eliminate most anomalies. Say you started on 50 000 p.a. straight out of college, got promoted after a year and got an increase to 58 000. After two years you got fed up with management quit and found another job at 75 000 p.a. doing extremely specialized high tech stuff. It wasn’t long before a headhunter convinced you to go into consulting and now at 35 you are earning 200 000p.a.

Your five year average would be (0 + 50 000 + 58 000 + 75 000 + 200 000) / 5 which gives you 76 600 multiplied with 3.5 (1 tenth of your age) equals 268100 smackeroos.

So, if you add up the value of all your assets and deduct all credit card balances, mortgages etc. you should have close to 268100 in net worth.

This is only a guideline and can be adjusted to specific situations. Other variables not accounted for are the valuation of illiquid assets, big expenses like illness or children and the innate nature of some of us to remain children.

Have fun

Ruan