An Interesting Number

How Much Money have I made VS. How Much Money do I have?

It occurred to me the other day that this question in answerable with a little digging.

 First off, we know that somebody, besides us, keeps track of all the money we make. I am talking about Uncle Sam. The tax man is good at getting his and he uses our paychecks to keep track of us.

If you want your Social Security checks when you are nice and old, you need to have paid into the system. The Social Security Administration keeps track of your Taxable wages and Medicare wages since you started working.

Anyone can go HERE and set up an account to access your Social Security Statement.

Now this plan is not full proof. All of you who get paid under the table, or rely on tips, are All Liars and you made more money than this. But Hey, it is a pretty good indicator of how much money you have made since High School.

Add it all up, this is How Much Money you have made.

by ponyhallo1 @ deviantart

Next, we need to do a Net Worth Calculation. The long and short of this formula is Total Assets MINUS Total Liabilities. For those of us who regularly keep track of This Number, just go and fetch it. Those of you who do not have your Net Worth handy, you need to get aboard the financial awareness train.

Your Net Worth should give you a good idea of How Much Money you have.

by John Hala/Joy Batchelor

Once you get both halves of this equation some interesting notions come up. Things that make you go huh?

Here are My Numbers;

How much I have made:   $ 2,523,374   

VS. 

How much money I have: $ 1,641,556 

Now of course, nobody keeps all of what they make. We pay taxes, we buy stuff, kids gotta eat right? But there should still be a METRIC for what percentage of our total ‘How Much Money I have made‘ we still have in the form of assets.

What is a good percentage? Mine is 65%. Is that Good or Bad? We will need more input to determine where my 65% falls compared to others out there in the world.

Well Folks, turns out this is no NEW CONCEPT. Thanks to some helpful fellow on Reddit, I learned that this idea is actually called the Lifetime Wealth Ratio. It was cooked up by none other than J Money at BudgetsAreSexy and Retireby40. They both wrote greats posts about this metric.

So let’s not reinvent the Wheel. J Money even produced a scale to score yourself;

I would suggest rankings as so:

  • 0%-10% – Meh
  • 10%-25% – Now we’re cooking!
  • 25-50% – You’re on fire, baby! Give me your number!
  • 50-100% – Marry me.
  • 100%-1,000% – How do I get into your will?

My 65% has me sitting pretty in the ‘Marry Me’ category.

Not counted in your ‘How Much Money I have‘ is usually Personal Property. Things like clothes, furniture, gadgets, and personal items worth something to you at least. We should come up with a general number for this, just to be thorough. Maybe we use the same number your Home Owner’s insurance policy throws in there as replacement costs?

Shouldn’t we also add something to our ‘have’ pile even when it only has an intangible value?

I am talking about things like my legal education here. We wasted spent over $200,000 on mine and my wives student loans. I paid them all off already. Should that ‘Value’ count towards How Much Money I have?

Still even if I threw a few hundred thousand into the Mix, I am not exactly Even Steven.

Plus you need to figure that a large portion of your ‘How Much Money I have‘ pile comes from gains and not from the original investment. For some of us, there is also a passive income pile that does not show up in those SSA calculations.

I wonder if we keep going long enough, the ‘How Much Money I have‘ Pile will/should eventually overtake the ‘How Much Money I have made‘ pile. Is this a reasonable conclusion?

Hopefully some of you out there will do this calculation for yourselves and chime in on what you are finding. Please also included your age so I can graph all this information eventually.

Don’t forget to try finding your own SWAN FIRE PROWESS GAUGE as well.

 

 

13 thoughts on “An Interesting Number

  1. $402k net worth and $840 gross earning, and $624 net earnings after removing taxes (fed, SS medicare and state). So 48% at your measure, and 64% comparing to my net income, which is slightly more of a fair measure IMHO.

  2. Ran the numbers and I come out with a 140.2%.

    Throughout most of my career I had a Profit Sharing Plan that I maximized. This skews the numbers somewhat, as that portion of my income was sheltered from taxes in that current taxes and will be recaptured when I do Roth conversions or MRD’s. So, that portion of my income is not reflected on the annual SSI statement.

    Therefore, I feel that my percentage is a little high because it does not reflect total income generated throughout my career, and so my net percentage is increased.

    Also, I am older, and as such, compounding over time has helped me out. These things being said, my net worth is well over total dollars generated by income alone. I guess I was a F.I.R.E. guy before F.I.R.E. guys were cool. I didn’t know the rules of the game, and continued to work into my early sixties.

  3. How do you factor in money as a couple? We combined our Net Worth (and are a few years a part in age) 🙂 Would you take both of our incomes compared to our Net Worth and average our age?

    • sounds like a plan to me. The important thing at this stage is to take in as much data as possible and sift through it later.

Let's get things nice and sparkling clear