I don’t know if any of you have read Your Money or Your Life, but there’s an exercise at the beginning where you have to add up all the income you’ve ever had, and then calculate your net worth. I was a little bored on the train the other week, so I had a go at this in rough.
I ended up with approximate figures of £150k in income after tax since the age of 18 (including wages, bonuses and major gifts) and a net worth of about £12k (depends on share prices so could well be less, but good enough for an approximation). This means that of all the money that has come into my hands as an adult, I have about 8% of it left.
That’s not a lot, especially when you consider that since I graduated, I’ve saved about 20% or more of each pay cheque. To be fair, I assumed that house prices have gone down, and my house is now worth as much as my mortgage, whereas I had a £10k deposit. Also, although I save quite a bit of money each month, some of that is planned savings for specific things like travel, or home maintenance.
Still, to see how I’m doing in the great scheme of things, I calculated my anticipated earnings across my lifetime (assuming only that I get a cost of living increase each year). This came out as £2.6M, but the pot of money that I need to retire on is nearly £1.7M. I need a net worth to total life income ratio of approaching 65% in order to retire.
I’m not panicking yet though. One of the key factors in becoming wealthy is allowing time for the magic of compounding to take place in a good way. A lot of the planned for growth in my net worth is going to be caused by earning interest on the interest rather than me saving three quarters of my income. Although saving more probably wouldn’t hurt.
Anyway, has anyone else done this exercise or something similar? And if so how did your numbers come out?
- house prices, bubbles, and investment returns
- planning for retirement: pensions vs buy to let part 1
- what do you assume?