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Journey to BA: Current Number and Goals

May 5th, 2007 at 12:18 pm

Okay ... call me a chicken if you want, but I'm just not comfortable posting my Net Worth on-line. It's not that it is so low that you all would take pity on me and send me donations, and it's not that it is so high that you would start plotting to kidnap me and hold me for ransom. Smile It's just a matter of comfort.

What I am willing to share is where I am on my Journey to "Balance Sheet Affluent" - a term coined by the author of "The Millionaire Mind." Here's a quick explanation:

Age x .112 x Total Annual Income = Expected Net Worth

If you are 1/2 or less your Expected Net Worth, you are "Income Statement Affluent" (IA)

If you are double or more your Expected Net Worth, you are "Balance Sheet Affluent" (BA)

My goal is to become BA (2.00 expected net worth) by age 60. If you want to know the details of why this goal, please see my previous post in this category.

So ... drumroll please ...

Our current number as of 4/30/07 is: 1.32 times expected net worth (not too bad, but with still quite a ways to go to get to 2.00). I'm 43 years old, so I have 17 years to get there.

Here is my first goal: To bring this number up to 1.36 by 4/30/08.

Anyone else care to share where they stand on the IA/BA scale? We already know ImaSaver is a BA ... And I'm sure none of us are surprised about that! Anyone else a BA? Anyone want to admit to being an IA?

Also, if anyone can tell me how I can post a "BA" graph (instead of Net Worth) on the side of my blog, I'd appreciate it!

If you're interested in details of how I am doing my calculations, here goes:

Income: Average of the past 7 tax years (because of large fluctuations due to self-employment); Income = AGI + Change in Tax-Deferred Retirement Accounts (new contributions +/- change in value ... except that prior to 2007 it only includes new contributions because I don't want to go back and research changes in value ... from 2007 onward, I will include changes in value) + Tax-Exempt Interest @ TEY

Net Worth: Cash Assets + Home Equity (Based on Purchase Price, Adjusted Annually at rate of Inflation, MINUS 8% eventual sales costs) + Estimated Car Value (KBB)

12 Responses to “Journey to BA: Current Number and Goals”

  1. Ima saver Says:

    Where did you get the number 2? Yes, I am a BA and I know you will be one too! I didn't really even start investing until I was 44!

  2. scfr Says:

    If you have double (2 times) your Expected Net Worth, then you are BA. That's why I chose the number 2. I know I could have chosen a higher number, but for us I think that just barely BA by age 60 will be enough.
    Thanks for the positive words!

  3. Dido Says:

    Hey, I'm also at 1.32 Net Worth! I also have variable income and used a 5-year average, and I track my net worth on NetWorthIQ, using Zillow for Home Value and KBB for car value.

  4. Broken Arrow Says:

    I'm BA! Oh wait, I guess you didn't mean my alias in shorthand. Big Grin

  5. PauletteGoddard Says:

    I'm at 1.34. My yardstick for "doing all right" was if my net worth went up by at least 10% each year. Not sure how that would work in a recession though... this isn't one of those Stanley/Danko formulae where most people under 40 fail and most people over 60 do well, is it?

  6. monkeymama Says:

    With cash and investments we are right on. With our house we are double. It will be hard to keep up though. I took our average income for last 5 years for same reason. But I am making a lot more this year so will be harder to stay ahead of the curve. We'll see. Interesting.

  7. monkeymama Says:

    Oh, I found these numbers a little overwhelming, but looking at progress as I always do, I only need to build my net worth $16k/year to stay a BA. Easy peasy. Wink I noticed this because out of curiosity I looked at where I should be at retirement, assuming this income, and it was only $1 mil to be a BA. Since I am only 30 and don't expect social security, etc., my retirement goals are in the $3-$5 mil range. So interesting, like most of these net worth measures, it is hard to exceed early on, but if you are, well, you are doing darn good!

  8. Dido Says:

    I made up an Excel spreadsheet and put in the formulas, including an expected COLA raise in income. The numbers for early ages really don't seem to make sense for early ages. Suppose you're just starting out as a college graduate, age 22, and you've landed your first job for $35,000. Your expected Net Worth is over $86,000??? Not unless you have a huge inheritance, it's not! I don't see how you can use the same constant across the lifespan. I'm curious now to see if Stanley says how he derived this number, or if he just asserts it.

  9. scfr Says:

    Broken Arrow (aka BA): Since there is only one you, my personal journey to BA will have to be not about trying to become you, but about merely becoming "Balance Sheet Affluent!" Smile
    Dido & Paulette: Nice to know there are some fellow 1.3-somethings out there!

    Monkeymama: Way to go being BA already with the home equity included ~ Very impressive! Maybe we'll need to come up with a special new term for "3-times expected net worth" just for you!

    In my previous (long and somewhat rambling) post in this category http://scfr.savingadvice.com/2007/04/28/the-millionaire-mind-balance-sheet-afflu_25416/, I discussed some of the questions raised:

    - In his book, Dr. Stanley does NOT define exactly what he means by some very important terms (such as "net worth" and "total annual realized income") ~ That is quite frustrating.

    - The people profiled in "The Millionaire Mind" have much, much, much, much, much higher incomes and net worths than I have or ever will have. Also, their average age is 54.
    This is why I don't beat myself up over the fact that I'm not BA yet. I know that compared to our peers (same age and income), my DH and I have saved considerably more than average.

    - Nevertheless, as explained in my previous post, for me I believe becoming BA by age 60 is a really useful goal. For me it is not only about a certain number that I want to reach each year, it is also about knowing how much is enough (knowing when I can ease up a bit).

    Next Steps: Well, I just estimated (using same average income figure) how many dollars we need to add to our net worth to get to 1.36 by the time we are a year older ... Yowza!!! Looks like "easing up" will have to wait for awhile! Smile My next job is to come up with some steps that will help us reach that number.

  10. monkeymama Says:

    LOL. I just saw your comment. No, I think I just have to pray that I get to keep my equity and someday we get the guts to move and cash out - LOL. Otherwise just don't mean that much. In general I track our net worth based on the purchase price we paid for our house. Since we put so much sweat and tears to the down payment, have to include it.

    But your post inspired me for an article here:


  11. scfr Says:

    Monkeymama - I enjoyed your article very much! Just one not-so-little clarification about Dr. Stanley's formula --- The income he refers to is total realized annual income, so you have to include not just wages but Schedule A Income, etc. As we get older, our passive income becomes a larger percentage of our total income, so even if wages stayed at $75K, the figure you would need at retirement to be BA would be much higher when you factor in that passive income.

  12. baselle Says:

    1.12. However, you have to remember that the formula you presented is linear, while most economic forces (for example, compound interest) are not. It means that at early earning ages you will be way under (as Dido pointed out) while at older ages and close to retirement you'll hit it or overshoot it.

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