Millionaire Next Door: Are you a PAW, AAW, or UAW?

[Eagle]

The idea of measuring and celebrating miletsones came up recently in another thread.

I've been reading a book called The Millionaire Next Door by Thomas Stanley and William Danko.

1. In the book, the authors defined a millionaire as someone with a net worth of over 1 million.

2. The second category the author's measured was a formula determining how well a person accumulates wealth.

3. Plug in this formula to determine if you’re a PAW, AAW, or UAW:

Accumulation of Wealth Formula = (age) x (pre-tax income) / 10

Are you a PAW, AAW, or UAW?

[Eagle]

The book defined the terms in the following manner:
PAW (Prodigious Accumulator of wealth) 2 x level of wealth expected; best at building wealth in their age & income brackets; typically at least 4 times the wealth of UAW’s
AAW (Average Accumulator of Wealth) greater than 1 x level of wealth expected
UAW (Under Accumulator of Wealth) less than 1 x level of wealth expected, worst at building wealth in their age & income brackets; average income of $32,000 and a net worth of $36,000…


As an example:
Imagine you are 45 years old and single income family earning $75,000 per year. Your total assets total are say $300,000. By the authors' definition, are you a PAW, AAW, or UAW?

45 x 75,000 = $3,375,000
$3,375,000 / 10 = $337,500

So if you were 45 years old earning $75,000 a year with total assets of $300,000 you would be a UAW. Makes you think doesn’t it?

For further comparison, see the average net worth charts of the above average person on this link on Financial Samurai.

One of the charts is pictured below:



Also for comparison, See married couples net worth charts with this link on Financial Samurai.

[corn18]

I am a solid UAW. I have 1/5 of what I need to be an AAW and 1/10 what I need to be a PAW. I had a negative net worth 3 years ago, so I am at least heading in the right direction now.

Eagle, what are you?

[disneysteve]

AAW here. I've got more than 1x but well under 2x.

[disneysteve]

Your total assets

It's been a long time since I read the book. How do they define total assets? Are they just looking at savings and investments or are they including home equity? Adding the house still wouldn't get me to 2x but I'd be closer.

[Eagle]

I am a solid UAW. I have 1/5 of what I need to be an AAW and 1/10 what I need to be a PAW. I had a negative net worth 3 years ago, so I am at least heading in the right direction now.

Eagle, what are you?

Tom, that's good! Having a positive net worth is better than a good portion of U.S. citizens today. And yes you're headed in the right direction!

That's why this book surprised me. I'm barely an AAW Tom by the Millionaire Next Door formula. Nowhere even close in the comparison chart with Financial Samurai.

[Jluke]

Using the table above in another post to determine net worth... savings only; debt excluded (83k).

I am 1.6 AAW

[Eagle]

It's been a long time since I read the book. How do they define total assets? Are they just looking at savings and investments or are they including home equity? Adding the house still wouldn't get me to 2x but I'd be closer.

According to the authors, net worth is defined as the current value of ones assets less liabilities. Exclude principle and trust accounts.

So the assumption is your house is included into the equation.

The formula is supposed to apply to:

For most people with 50k income or more.
People ages 25-65

[bjl584]

The book defined the terms in the following manner:
PAW (Prodigious Accumulator of wealth) 2 x level of wealth expected; best at building wealth in their age & income brackets; typically at least 4 times the wealth of UAW’s
AAW (Average Accumulator of Wealth) greater than 1 x level of wealth expected
UAW (Under Accumulator of Wealth) less than 1 x level of wealth expected, worst at building wealth in their age & income brackets; average income of $32,000 and a net worth of $36,000…


As an example:
Imagine you are 45 years old and single income family earning $75,000 per year. Your total assets total are say $300,000. By the authors' definition, are you a PAW, AAW, or UAW?

45 x 75,000 = $3,375,000
$3,375,000 / 10 = $337,500

So if you were 45 years old earning $75,000 a year with total assets of $300,000 you would be a UAW. Makes you think doesn’t it?

For further comparison, see the average net worth charts of the above average person on this link on Financial Samurai.

One of the charts is pictured below:



Also for comparison, See married couples net worth charts with this link on Financial Samurai.

I wonder how these numbers were derived. I'd have to think that these figures would vary greatly based on where in the country someone lives. I'd also wonder if these numbers are somewhat dated. This book was written some time ago.

[rennigade]

As of 8-1-2015 im $13k short of being in the PAW group. Actually probably more than that now since the market has been taking a hit the past 2 weeks.

Assuming I did the math correct.

[scfr]

PAWs up here.

[scfr]

I wonder how these numbers were derived. I'd have to think that these figures would vary greatly based on where in the country someone lives. I'd also wonder if these numbers are somewhat dated. This book was written some time ago.

While it's true that The Millionaire Next Door was written quite awhile ago, the Financial Samurai numbers are pretty current. They are from a 2015 blog post (which goes in to quite a bit of detail about how the numbers were derived).

[phantom]

My husband and I are at 0.7 (using our combined salary, combined net worth, and average age). So, we're in the UAW category. If I were to quit my job to be a SAHM, we would instantly jump into the AAW category with a 1.3.

I've never been a fan of the formula due to its use of current yearly income. If you have large raises in your recent work history, you get a lower score. If you have a recent big pay cut or quit working entirely, you get a higher score. If you really want a good idea of how well someone has saved and invested money earned, you should use the money they have actually earned, not make assumptions based on current salary. (I get equally annoyed with formulas that tell you how much you need to save for retirement based on current salary rather than projected spending.)

[scfr]

I've never been a fan of the formula due to its use of current yearly income.

Agree. I had the goal of becoming "Balance Sheet Affluent" (another Stanley formula, from his book The Millionaire Mind) and used our average income over the preceding 7 years due to income fluctuations (almost always the case when self-employment income is involved). I chose 7 because every 7 year look-back period for me personally included peak and valley years.

[Bob B.]

So if you were 45 years old earning $75,000 a year with total assets of $300,000 you would be a UAW. Makes you think doesn’t it?

I'm a little confused if you're talking total assets or net worth. Above, you talk about total assets. But later in the thread you seemed to switch to net worth. Net worth would make more sense to me...

If we're talking about total assets, I'm AAW, if we're talking net worth I'm UAW.

My calculated value was 249,480. My total assets are $289,896, and my net worth is $243,793. So I'm 16% over using total assets, and 2.3% under using net worth.