Are you a PAW (Prodigious Accumulator of wealth) , or are you an UAW (Under Accumulator of Wealth)?

It has been a few weeks since my last post, so dear reader, my sincere apologies. I promise to make up for this time off with three or four more articles in the next two weeks!

If you have read My Story, you will know by now that I am a finance geek. One area that I always found quite interesting is our personal & family finances.

In today’s post, I want to explain to you a couple of concepts that can make a huge difference in your future savings. To do this, I am going to use a fantastic book called The Millionaire Next Door. Quick reminder, we have an excellent Library section where you can find my TOP passive income books. The writer, called Thomas J. Stanley was an American respected researcher, advisor, and author of several highly regarded, award-winning books on America’s wealthy population.

In this must read book, Thomas defines two types of ways to deal with the income generated by an individual or family:

  1. Prodigious Accumulator of Wealth (PAW), are builders of wealth, this means they are the best at building net worth compared to others in their income/age range.
  2. Under Accumulator of Wealth (UAW), on the other hand, are constantly burning any income that comes into their bank account, and they are not building net worth.
  3. Of course there is always a middle point on any scale; this category is called Average Accumulator of Wealth.

Thomas J. Stanley spent over 20 years studying the way wealthy American people would build their financial empire. In his book, he flags seven common characteristics:

  • The lives of the majority of millionaires are not glamorous. Many self-made millionaires have normal backgrounds and have built wealth by saving their earnings and not spending money on unnecessary items.
  • They invest their time, energy and money in an efficient way, with only one goal: accumulate wealth.
  • Millionaires prioritize financial independence over social standing.
  • Their parents didn’t help them financially.
  • Their grown children are financially independent.
  • Money is spent wisely by millionaires. They choose good financial options.
  • They also choose a good professional path.

Lastly, I would like to share with you the way Thomas J. Stanley proposed to determine if you are wealthy: Multiply your age by your realized annual household income before TAX from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

For example, if a person is 45 years old, and makes £75,000 a year, and has some passive income that returns another £2,000, he would multiply £77,000 by 45. This equals £3,465,000. Dividing by 10, his net worth should be £346,500.

Why am I sharing these highlights of this book with you? Because when I read it, it was really a wake-up call for me, in terms of how to manage my personal finances. Believe me when I tell you that I was in shock when I discovered that I was closer to a UAW than to a PAW! It has also triggered some actions that now have become part of my routine:

  • I now invest more time in reviewing our family budget. We have set up a % of monthly savings that we want to achieve.
  • Because of the first point, we have also reviewed all our expenses with care, and we now have a much better balance between income and expenses. You would be surprised by how many Direct Debits you can have, where the service you have contracted, is either not needed, or the quality is poor, or you could find a much cheaper provider for the same product.
  • As mentioned in my previous post, I now invest more time investigating ways to generate wealth, mainly through passive income.

I’ve got a challenge for all of you: why don’t you try to determine if you are on the correct path of generating wealth, by doing the calculation suggested above?

(Your age x realized annual household income before TAX) / 10

It’s an easy calculation that will show you where you are. From there, you can build a family budget and set up a goal of monthly savings. It will surely help you a lot to better control your family income and expenses!

I am aware that we live in a world where we get loads of information about new attractive products all the time: phones, new clothes, cars, watches or any other item that might be of our interest, is always available for purchase. And the sellers make it easy for you: you can buy it online, with a phone, maybe just by following a link on Instagram. That’s why in my next post I am going to share with you some tips on how to be resilient and not give into temptation.

Hope you enjoyed this post! Please feel free to subscribe if you like this content, and don’t forget you can contact me anytime here, with any suggestions.

Thanks for reading!

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