Who wants to be a millionaire?

HOW MUCH money are you worth? And how much is that compared with what you ought to be worth at your age?

I have found the answer in a wonderful American formula that's explained in a book called The Millionaire Next Door. It's all about the rich (and how they got rich).

The formula is simple: take one-tenth of your age and multiply it by your household income. That's how much wealth you ought to have. Wealth is your assets minus your liabilities. Before you get depressed, your assets include the equity you own in your home, your pension fund, any savings and investments you have, and valuables.

This test is useful because it tells you where you stand in relation to your own circumstances - not against the general population. It's easy to look prudent in general terms as Treasury figures suggest only one in four adults in this country has more than pounds 200 in savings.

The formula is not aimed at people who want to be millionaires. It's about making enough provision for yourself in retirement. (If you do want to be a big player, you should be looking to have double the wealth figure generated by this formula).

Virtually everyone in the UK will fail the wealth test, even if they are saving and investing some spare cash. If your assets are less than half the projected wealth figure, the book labels you as an under-accumulator of wealth who will have difficulty making ends meet during your retirement.

It's useful to look at where you stand, but don't get hung up on it. Americans are much more accustomed than we are to making individual plans for savings and retirement. (And they pay less tax than we do.)

The answer to the question of how much you need to save and invest in order to build up a decent pot all depends on what sort of lifestyle you are looking for in retirement (as well as on how much you want to spend enjoying yourself before then).

Maybe now isn't the best moment to mention the stock market, but if you have an optimistic nature and some spare cash, then shares are cheap and probably haven't hit the bargain basement yet. If you can spare pounds 20 upwards a month then you should consider a punt on shares.

If you are feeling especially adventurous, have a look at Asian funds (see the feature on this page for some expert recommendations). Investment trusts are also worth considering as many of them are trading at double- figure discounts to the assets held in the fund. What's more, there are no rip-off initial charges on investment trusts (because they don't pay commission to financial advisers).

If you are interested in finding out more, the trade body the AITC (0171- 431 5222) has a good factsheet on international general investment trusts. Who knows, this could be the star investment that one day takes you all the way up to meet your projected wealth figure.

If you haven't got any spare cash, take a frugal tip from the millionaires in the book. Author Thomas Stanley estimates that 85 per cent of millionaires still cut out and use money-off shopping coupons.

'The Millionaire Next Door', by Thomas Stanley & William Danko, is published by Pocket Books, $11.20 plus shipping. Available from US-based internet bookstores.

i.berwick@independent.co.uk

Start your day with The Independent, sign up for daily news emails
Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
News
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
news
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before