Are You a Prodigious Accumulator of Wealth?

This article is an excerpt from the Shortform book guide to "The Millionaire Next Door" by Thomas J. Stanley and William D. Danko. Shortform has the world's best summaries and analyses of books you should be reading.

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Who is a prodigious accumulator of wealth? How do you calculate to see if you are a prodigious accumulator of wealth (PAW) or an Under Accumulator of Wealth (UAW)?

A prodigious accumulator of wealth has a net worth (excluding inheritance) at twice the expected level for their age, while an under accumulator of wealth has a net worth less than half of the expected level. You can calculate your expected net worth by multiplying your age times your annual household income divided by 10.

Read more about prodigious accumulators of wealth below.

The Definition of Wealthy

Most people would say someone with a lot of expensive material possessions is wealthy. But most people living high-consumption lifestyles have little accumulated wealth; they spend all they earn. Instead of acquiring material possessions, especially status symbols, the truly wealthy focus on building financial assets that appreciate or increase in value.

Net worth—the current value of your assets minus liabilities—is one way of defining wealth.

In this book, being a prodigious accumulator of wealth is defined in two ways: 1) having a net worth of at least $1 million, and 2) having a high net worth for someone of your age and income. 

(Shortform note: at the time this book was published, 3.5% of U.S. households had a net worth of at least $1 million. In 2018, the figure was 3%, or 11.8 million U.S. households.) About 95% of millionaires have a net worth of $1 million to $10 million. They are the focus of this book because their level of wealth is attainable by many Americans.

Are You Wealthy Enough to Be a Prodigious Accumulator of Wealth?

A way to assess your own wealth is by calculating what your net worth should be based on your income and age.

The greater your income, the greater your net worth should be. Also, the older you are—that is, the longer you’ve been earning income—the greater your net worth should be. For people your age who earn what you earn, there’s an expected level of net worth. If your net worth is significantly below that level, you’re probably an under accumulator of wealth; if your net worth is significantly above the level for your age/income category, then you’re a prodigious accumulator of wealth.

We’ll explain how to calculate that in a moment. First, consider two examples—the first is a lower-income household that’s wealthy because they spend less, and the second is a high-income household with a less-than-expected net worth because they spend much of their income:

1) A 41-year-old firefighter and his wife, a secretary, make $55,000 a year. They spend modestly, save, and invest, resulting in a net worth of $460,000. The expected net worth for this age/income group is $255,000—so for their category, this couple are prodigious accumulators of wealth.

2) A 56-year-old doctor makes $560,000 a year. His net worth is $1.1 million, but it should be more than $3 million. He lives a consumption-oriented lifestyle and isn’t wealthy for his category.

Prodigious Accumulator of Wealth Formula

Here’s how to calculate how much you should be worth:

  • Multiply your age by your realized (taxable) annual income
  • Divide by 10
  • Subtract any inherited wealth
  • The result is your expected net worth, or what you should be worth, given your income and age.

For example, for a 61-year-old with an annual income of $235,000, her net worth should be $1,433,500 ($235,000 X 61 divided by 10).

Similarly, for a 41-year-old with an earned income of $143,000 plus $12,000 investment income, his net worth should be $635,500 ($155,000 X 41 divided by 10).

  • If you’re in the top quartile (25%) for wealth accumulation in your category, you’re a PAW or “prodigious accumulator of wealth.”
  • If you are in the bottom quartile (25%), consider yourself a UAW, or “under-accumulator of wealth.”

To be solidly in the PAW category, you should be worth two times your expected level of wealth. Often, prodigious accumulators of wealth have four times the wealth of UAWs in their category. If you’re at half or less than the expected level for your category, you’re an under-accumulator. Here’s an example of each (both people are in the same income/age category):

  • Prodigious accumulator: Richards, 50, owns a mobile home dealership and his income is $90,200. Using the prodigious accumulator of wealth formula his net worth should be $451,000, but it’s actually $1.1 million. He lives a modest, blue-collar lifestyle.
  • Under-accumulator: Davidson, 51, is an attorney with an income of $92,330. Using the prodigious accumulator of wealth formula his expected net worth is $470,000, but it’s actually $226,511. He lives above his means, spending significantly more than Richards to maintain the lifestyle/status associated with attorneys. 
Are You a Prodigious Accumulator of Wealth?

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Joseph Adebisi

Joseph has had a lifelong obsession with reading and acquiring new knowledge. He reads and writes for a living, and reads some more when he is supposedly taking a break from work. The first literature he read as a kid were Shakespeare's plays. Not surprisingly, he barely understood any of it. His favorite fiction authors are Tom Clancy, Ted Bell, and John Grisham. His preferred non-fiction genres are history, philosophy, business & economics, and instructional guides.

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