What net worth makes you rich? Don’t look to Shawn (not his real name) for any inspiration.

Shawn has a BMW 5 series.

His wife has an Audi A7.

The lawn is perfectly manicured, and he spent over $30,000 on the nightscaping. I know how much he spent because he told me. I didn’t ask.

Both his daughters attend the best private schools. Shawn’s got a large mortgage on his home and has almost more debt than his assets. I know because he told me. I didn’t ask.

For whatever reason, Shawn likes to brag about how well he’s doing and how much he spends on things. He has this insatiable desire to brag about everything.  One day we were speaking about investments, and he happened to mention that he has so far saved $200,000 in his retirement savings account and that he figured his total net worth wasn’t much beyond $250,000.  He mentioned this number to me figuring I would be impressed.

Shawn is 52, and he’s living large. And he has a spending problem.

The Millionaire Next Door:  What Net Worth Makes You Rich?

In the book, The Millionaire Next Door, Thomas Stanley describes someone like Shawn as, “big hat, no cattle.” That’s Stanley’s expression for someone who, by all appearances, looks like they have wealth, but has accumulated well below their potential.

** As a complete aside, The Millionaire Next Door is one of the best books on wealth creation I’ve read in the last 20 years.

Stanley actually puts this into an equation he calls the wealth equation, which looks at age and income, and then groups people into one of three categories: UAW, AAW, or PAW.

What net worth makes you rich? Let me explain.

The wealth equation suggests that you take your household’s annual income, multiply that by your age, and then multiply that by 10%. Someone who has this amount fits into what Stanley calls an AAW (Average Accumulator of Wealth).

It looks like this: Household Annual Income X Age X 10%

In Shawn’s case, although he didn’t outright tell me his and his wife’s salaries, I can surmise based on some conversations that it’s approximately $300,000 per year. In Shawn’s case, and in order to be an AAW, he should have a net worth of:

$300,000 (annual household income) X 52 (age) X 10% = $1,560,000

According to Stanley, Shawn is a UAW, or Under Accumulator of Wealth.

In order to make it to the category of what Stanley calls PAW (Prodigious Accumulator of Wealth), then you need to have twice the number, or in Shawn’s case: $3,120,000.

Stanley’s Points on Millionaires

Stanley has a few points that he discusses in his book in regards to how to accumulate wealth, and no surprise, one of his main points is that you need to spend less than you make. The traditionally spoken of number is that you should save and invest at least 10% of your salary, although that alone probably won’t get you into the PAW category.

I speak with entrepreneurs all the time, and I am often surprised by not only how little they have saved and how little personal wealth they have created—especially in compared to the size of their business—but even more so by the lack of financial discipline, especially as it relates to removing profits from the business. This problem has become even more apparent since publishing my book, as I’ve received no fewer than 20 emails from business owners asking me how they can save more of their business’s profits. They also want suggestions I might have on ways of accumulating their dollars strategically so that they can keep better track of their savings.

To the entrepreneurs, I follow the same 10% rule that’s discussed for individuals, and it is as follows:

Put 10% of your revenue aside in a separate savings account (or holding company). This is part of a more detailed strategy that I discuss in my larger book (you can pre-register for a free copy here), and discussing cash flow is something I will continue to write about on my blog. It’s not a topic I’ve delved into much yet, but I definitely intend to do so.

Regarding the notion of building wealth, what net worth makes you rich, and following Stanley’s discussion about the wealth equation, it should come as no surprise that the way to make it into the PAW category is to take some level of risk beyond investing in the stock market, and that’s typically through business ownership.

I found an interesting chart at Visual Capitalist net worth chart:

What this chart suggests is that the more affluent one is, the more business ownership represents a part of the total wealth equation.

The Three Contributors to Becoming a Prodigious Accumulator of Wealth (PAW)

According to Stanley, and based on what I discussed, there are three primary contributors to wealth creation and to becoming a PAW:

1. Save as much as you can
2. Earn as much as possible
3. Inherit the wealth

For those that want to know where they stand on the PAW spectrum, I created a chart that shows how much you should have saved based on your age in order to make it into the PAW camp. I’ve covered the ages between 25 to 65, and three income levels: $100K, $200K, and $300K.

What Net Worth Makes You Rich?

Based on the above chart:

• Age 25 = $1,500,000
• Age 35 = $2,100,000
• Age 45 = $2,700,000
• Age 55 = $3,300,000
• Age 65 = $3,900,000

If you’re not a PAW yet, don’t despair. Becoming wealthy, or as Stanley calls it, a PAW, is territory open to anyone that either saves and invests, accumulates profits from a well-run business, and/or inherits their wealth.

Interestingly, even the top number in the chart—$3,900,000—wouldn’t even qualify someone to be considered UHNW (Ultra High Net Worth, or the 0.1%), which requires a total net worth of over $25 million, or according to the chart above, more than 10 times the age/income number from Stanley’s wealth formula for most people.

The 8 Steps to Become Ultra High Net Worth (UHNW). What net worth makes you rich?

The difference between PAW and UHNW is extremely large.

So what net worth makes you rich?

It’s a long-distance from $3.9M, the top number from the chart, to $25M, the minimum number required to be considered UHNW. The road to UHNW must come from more than just saving and running a small business. It invariably includes some, or most, of the following:

8 Steps to Become an Ultra-High-Net-Worth Individual (UHNW)

1. Taking some significant risks in business
2. Making lots of profit in business
3. Investing the profits strategically
4. Selling your business as a one-time cash infusion
5. Having multiple sources of revenue streams
6. Diversifying assets across multiple asset classes (as discussed extensively in my book which you can download free here)
7. Investing in revenue-producing real estate
8. Winning the lottery or inheriting a fortune from your long lost uncle

I wouldn’t necessarily count on the last one—lottery or inheritance—to make it into the UHNW camp, which leaves one of the many other, albeit not so easy choices to help you climb the wealth ranks. In the end, though, it means being prudent with investments, taking strategic risks, and having the power to compound assets, which Einstein declared as the 8th wonder of the world.

The 7 characteristics of PAWs: Prodigious Accumulator of Wealth

Thomas Stanley identified seven characteristics of PAWs:

1. They live below their means
2. They allocate their money, energy, and time in ways that contribute to building wealth
3. They believe that financial independence itself is more important than the display of appearing to have a high social status
4. The average PAW’s parents did not provide what Stanley calls “economic outpatient care”
5. Their adult children are self-sufficient economically
6. They understand how to target economic opportunities
7. And they choose the right occupation

Of course, there’s never a guarantee of one’s ability to create wealth, but, these 7 traits are what Stanley determined to be the attributes that were most common amongst the PAWs.

Notice that of the 8 steps I listed above, a few of them are consistent with points six and seven from Stanley’s list, in particular, an individuals ability to understand how to target economic opportunities, and then, having the wherewithal to seek out those opportunities, take appropriate risk, and then profit from that risk.

That’s the key. Understanding risk, and then taking appropriate action to profit from that risk.

Now that we understand what you need to do in order to get rich, let’s review some basic personal net worth statistics:

The Average Net Worth by Age

The average net worth by age for American families:

• Under the age of 35 = $76,200
• Ages 35 to 44 = $288,700
• Ages 45 to 54 = $727,500
• Ages 55 to 64 = $1,167,400
• Ages 65 and older = $1,066,000
• Average Net Worth by 40 = $242,000
• Average Net Worth by 50 = $590,000
• Average Net Worth by 60 = $920,000

High Net Worth by Age

To be considered high net worth by age group, here is how much you need to have:

• Age 25 = $380,000
• Age 35 = $1,500,000
• Age 45 = $3,400,000
• Age 55 = $6,000,000
• Age 65 = $9,100,000

How Much Net Worth Makes You Rich, and What is the Net Worth To Be Considered Wealthy?

To be considered “rich”, or in the top 1% of wealth for Americans, you should have approximately $10 million. Broken down by age, here is what is required by age to make it into the Top 1% of Wealth in America.

• Age 25 $390,000
• Age 35 $1,500,000  
• Age 45 $3,400,000
• Age 55 $6,000,000
• Age 65 $9,120,000

Prodigious Accumulator of Wealth Calculator

The formula for prodigious accumulator of wealth is:  ((annual household income) X  (age) X 10%) X 2 

Hopefully you now better understand what net worth makes you rich, and more importantly, how to get there.

Here’s a video I think you might enjoy on how to become rich.

Good luck with your wealth-creating journey.

And before you go, you might also enjoy this blog post:  My Response to an 18-Year-Old Who Wants to Become a Millionaire by the Time He’s 30.

And this one:  How Do You Teach College Students About Money? A Message From a Father to His Daughter

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Want to know more about me and read some of the other interesting small business growth, profit and wealth stories I’ve written.

Here’s one of the first articles I wrote:  My Journey Post Business Sale as I Sail Into a New Harbour.

My goal is to help entrepreneurs scale their business, improve profitability, and then, use those profits to create massive wealth. Subscribe to my blog to receive my latest thought on scaling your business and creating wealth.

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