He says, "My wife and I are 29 and have increased our income by 150 percent from $115k to $290k over the last five and a half years, which is great. But we're always behind on our millionaire next-door savings rate, despite saving 33 percent. How do we stay motivated?"
So maybe this is your first time tuning in, and you might be wondering about the 'millionaire next door savings rate.' What in the world is that? What's that?
We have this really cool tool that we make available at learn.moneyguy.com. It's our net worth tool
and one of the... No, we don't have that one. Did you see a jump for it? I was like, 'Oh my God!' The problem is I've added so many sheets over here. I'm on call. I don't think you want to print that one out, necessarily. It's an interactive tool that tracks... Am I an average accumulator of wealth, an under-accumulator of wealth, or a prodigious accumulator of wealth?
Where am I on what we call the journey to abundance?
Well, this problem that James is laying out, based on the mathematical formula that we use to explain how to arrive at your number, is a problem that a lot of our folks who have high-income trajectories face. For those of you who don't know, the formula is pretty simple. It's age times your income divided by 10. Or if, in James' situation, you're someone who is below 40, it's your age times your income divided by 10 plus the number of years until you get to 40. That's the math to figure out where you are: an under-accumulator, average accumulator, or prodigious accumulator of wealth
Well, if your income has gone up a ton, but in all the years prior, it was a lower income, you probably haven't been able to save based on anything because that income is artificially pushing up where you should be from a wealth metric. So, we think that there's a solution to that, which might make it a little bit easier.
Yeah, I mean, it's a time component. That's why we've tried to address this. Bo already gave it to you. If you're under 40, we've already built in a proration part that every year you get older gets you closer to just using the ten as the formula. But there's another one that we don't have built into the tool, and we actually had a lot of debate on this when we were creating it. If you are somebody who's had your income rise very quickly, and you shared $115k to $290k, you could take the average of the last three years. That would smooth out the income because you have two things working against you: you're young and successful.
We've already addressed it with Bo's adjustment on the formula, and by the way, the tool does that automatically if you're under 40 years of age. But what we don't have built into the tool is if you have a trajectory of your income going straight up, you might want to do an average of the last three years to get a better understanding of what you should do because it will smooth out that trajectory slightly.
Now, I'm going to talk to my young folks here. I am actually okay. Are you feeling a little bit behind? Yeah, I'm okay, especially if you're a 29-year-old and you and your spouse are making 300 grand a year. I want you to feel a little behind because it's going to be real easy for you to feel calm and comfortable. It's going to be fulfilling real easy if you're like, 'Man, I'm okay. Things are great. Things are awesome.' What you need to realize is you have an amazing opportunity to do something pretty stinking incredible at a really young age. I want you to aggressively attack saving, aggressively attack building. So, I think it's okay if you have a little bit of that 'the wolf is scratching, he's coming' thinking. I'm going to keep saving; I'm going to keep building. I don't think that's a negative motivation, especially for a young high-income earner to have. Because far too often, I see them get too comfortable too soon because they did a projection and they figured out what the money will be worth when they're 60. But you've got to actually get there, right? So, I think that a little bit of motivation is not bad.
I look... I don't want you to live a miserly life. I want you to go, create, bedazzle your basic life, and have great memories so you look back at your 20s super excited and happy. You look back at your 30s. But for most Financial Mutants, you're not going to really start feeling really comfortable, reaching that boiling point of success until your early 40s. And that's okay. But because of that, I just want you to get maximized every bit of it. If you go to moneyguy.com/resources, we have the money multiplier
. Of course, if you see how much exponential growth you get in your 20s and 30s, you'll see why you need to be very deliberate with what you spend your money on but also how much you save and put to work.