The attorneys I can understand as profiled in the Millionaire Next Door.  They can be under pressure in their field to consume, wear and exhibit high-status artifacts.  Whether they have the means to do so or not is irrelevant.  

Now, college professors on the other hand is a different story.  My inclination is to believe they are so educated in their chosen field or area of research that they may not have learned basic money skills.  If you think about it, a college tenured position is recession-proof, layoff-proof and has nearly guaranteed annual raises.  A professor may be inclined to have no fiscal restraint in tough economic times because he or she knows a pay increase will be coming each year regardless of the economy.    The longer you are in that “ivory tower” environment the less knowledgeable you become on the perils of high-interest loans and spending more than you make.  

My experience in meeting people in life is that advanced formal education although generally helps your money skills, it’s no surefire way to accumulate wealth.  As a matter of fact, for most college graduates the degree itself is initially a significant hindrance to the graduate early in life.  Also, I have met plenty of business owners who exceled financially with no college degree and barely any other formal education.  

Bottom line:  formal education is no guarantee of financial success.

After reading the Millionaire Next Door three times (I currently own five copies and give them as gifts to friends and family when they graduate from high school/college) it had a profound impact on my life. I think following the seven principles of millionaires covered in that book can drastically increase your odds of becoming FIRE [Financially Independent Retired Early.] They are:

1. They live well below their means.
2. They allocate their time, energy, and money efficiently in ways conducive to building wealth.
3. They believe that financial independence (the FI in FIRE) is more important than displaying high social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.

The book explains in full detail each of these principles and how they achieved their net worth. And by the way, Fools, the back of the book lists the professions of those interviewed for the book. Among some of the surprising careers on the long list:

Accountant, ambulance service, auctioneer, citrus fruit farmer, geologist, horse breeder, janitorial services contractor, lecturer, meat processor, oversize vehicle escort service, trader, timber farmer.

Also shocking–> the impression I got from the book is that doctors and lawyers statistically have the odds stacked against them of achieving great wealth. This is due to their expected high lifestyle and status artifacts they are expected to own. The more I think about this, my son’s pediatrician is probably only in her 30s and she drives a Lexus. Good luck, becoming a FIRE.

Anyway, the whole reason for this post is that I wanted to share with my fellow Fools a simple formula I’ve developed to evaluate how “on track” you are to becoming FIRE. Here it is…

At what age in life did you (and your spouse) achieve a net worth equal to that of your household income?

For example, if your household income is $60,000 per year how old were you when you had that much built up in your 401k, IRA, stocks, home equity, etc?

For some of us, it happens in our 20s, others in our 30s and so on. For some of us, it happens in our 50s/60s and some of us never build up a net worth equal to our household income.

For me and my spouse, we hit it at age 27.

Now, what’s amazing about this formula is that it has ABSOLUTELY NOTHING to do with your income, career or starting net worth. If you make $200,000 per year imagine how long it will take you to build up a net worth equal to that amount. Obviously LBYM and maximizing your investing will drastically speed up hitting that goal.

Here’s an even neater concept I love sharing with co-ops/interns/recent grads in our office:

If you stick 15% of your salary per year under the mattress you will have saved up an ENTIRE YEAR’S salary in 6 years, 8 months. Plus, you will be accustomed to living off 85% of your income (from saving 15% per year). So, in theory, you could quit your job for a year at age 29 (assuming graduating at age 22) and have a BETTER lifestyle than to which you are accustomed (you’ll have saved up 100% of your income, but you’re used to living off 85%, remember?). Pick any age for yourself and this still works.

Now, here’s where it gets really fun:

-invest it in stocks with a 9% annual return
-get a raise at any point during those 6 years, 8 months
-have a company that matches your contribution in any way

…and you can very easily reduce that build-up-a-year-of-income goal to a mere 4 or 5 years. Of course, in a retirement account you can’t touch it until until 59 ½ or thereabouts, but you get my point.

Remember……..two quotes by which I live my life:

“It has nothing to do with how much you make, it’s how much you save.”

“Invest until it hurts.”

And talk to my wife….she claims we’ve burn hurting for quite a while now!

Just my .02

Matt

Note: the original post on that well-known website can be found here.