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Are You On Track To Be The Millionaire Next Door?

Are You On Track To Be The Millionaire Next Door?
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The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley, William D. Danko. One of the first and most eye opening finance books I read was The Millionaire Next Door. It is a compilation of research into the financial lives of American households with a greater than 1 Million Net worth. Lets take a look at the formula discussed in the book to determine if you are on track to be the millionaire next door.

The first step is to calculate your net worth. Your net worth is all of your assets (house, vehicles, investments etc.) minus all your liabilities (mortgage, car loan, credit card, student loan balances etc.)

Now that you know what your net worth is you can see where you fit into the following three categories.

Average Accumulator of Wealth (AAW)

The authors define an AAW to have a net worth of 1 tenth of your age multiplied by your current total annual pre tax (gross) income not including any inherited wealth. The general idea behind the formula is that the expected level of wealth is based on your income.


A 30 year old earning $50,000pa should have a $150,000 net worth. 30 x 0.1 x 50,000 = 150,000

Under Accumulator of Wealth (UAW)

A UAW is defined as having around half the net worth of an AAW.


A 50 year old earning $150,000 with a net worth of $500,000 is considered a UAW. 50 x 0.1 x 150,000 = 750,000.

Prodigious Accumulators of Wealth (PAW)

A PAW is defined as having around two times the net worth of the AAW.


A 45 year old earning $40,000 with a net worth of $375,000 is considered a PAW. 45 x 0.1 x 40,000 = 180,000

Flaws in this formula

In my opinion there are a number of flaws in this formula as with any rules of thumb. You must remember it is very generalised and best applied as a rough guide and thought provoking tool!

The formula is not very accurate for someone that has just entered the job market with low income and large student loan debt. The formula is also skewed if you have had significant changes in your income in recent years. A lot of people also believe the figures are too low to provide a suitable income in retirement compared to something like the 4 percent rule.

The book also covers the following traits of millionaires:

Traits of the Millionaire Next Door

  • Live well below their means.
  • Allocate time, energy and money efficiently in ways conducive to wealth building.
  • Financial independence is more important than displaying high social status.
  • Parents did not provide economic support.
  • Their children are economically self-sufficient.
  • They are proficient in targeting market opportunities.
  • They chose the right occupation.


This book really opened my eyes to the fact that the people that look like millionaires are more than likely not! According to the authors “more than 80% of U.S. millionaires are ordinary people who have accumulated their wealth in one generation.”  The Vast majority of millionaires live in modest homes driving second hand vehicles working average salary jobs.

I highly recommend reading The Millionaire Next Door if you haven’t already. Let me know If you are on track to be the millionaire next door and how you scored. Do you have any suggestions that might help to improve the formula’s relevance and accuracy in modern times?

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