Thursday, March 29, 2007

The 20 Dumbest Personal Finance Questions of All Time

Author: Nick
Category: Money

even a toy monkey knows the answers to these questions

Ah, spring. The birds are chirping, the grass is growing, and the TV networks are trying out new reality programming. Since it premiered a few weeks ago, I’ve found myself strangely addicted to FOX’s latest game show, Are You Smarter Than A Fifth Grader?. A person more sophisticated than me might recognize the hidden message within the show–that most adults today are products of our moron factory public school system. Me, I just like seeing grown-ups struggle on questions like “If the radius of a circle is 2 inches, what is its diameter?”

If there’s one subject area where today’s American adult population is sorely lacking in knowledge, it’s astrophysics. But if there were two subject areas, the other would definitely be personal finance. Don’t worry; it’s probably not your fault. After all, they don’t teach things like budgeting, using credit cards, or starting retirement plans in most schools.

As a result, I often read or hear the same stupid questions about personal finance repeated endlessly–basic questions to which we should all know the answers. Here are some of the most inane personal finance questions I’ve ever run across. Chances are you’ve heard some of them before… or even asked one or two of them yourself.

The 20 Dumbest Personal Finance Questions… and 20 Awesome Answers

  1. Why can’t I ever seem to save any money?
    Answer: (I usually just point to the person’s vast collection of ceramic roosters.)
  2. Why should I pay off my credit card in full each month when I can just pay the minimum balance?
    Answer: You shouldn’t. By the way, thanks for funding my credit card rewards and sign-up bonuses.
  3. How should I invest my money?
    Answer: Take a trip to Vegas; put it all on black.
  4. I have two loans: one small one at 5% and one large one at 21%. Which one should I pay off first? The small one, right?
    Answer: Only people who are bad at math pay off lower interest rates first.
  5. Why should I bother going to college?
    Answer: If you have to ask that question, then you need college more than most people.
  6. Will I have enough money to retire?
    Answer: If you have to ask that question, then you won’t.
  7. Somebody told me about a great opportunity to make lots of money. Is it a scam?
    Answer: Yes. I’m the only one who’s allowed to tell you about marvelous money-making schemes.
  8. Hey, can you lend me X dollars?
    Answer: Can I hold your first-born child as collateral?
  9. I’m really trying to impress my new girlfriend. Got any ideas for a great cheap date?
    Answer: Taco Bell and a monster truck rally should do the trick.
  10. How will doing ____ affect my credit score?
    Answer: I’m not sure, but I bet IT’S OVER NINE THOUSAND!!!
  11. How much is my house worth?
    Answer: You’ll find out when you sell it. Or I’ll give you 50 bucks for it right now.
  12. Why can’t I get a loan when I don’t have a job?
    Answer: And you’re going to pay back that loan how?
  13. Extended warranty? How can I lose???
  14. How much money should I spent on _____?
    Answer: Probably a lot less than you’re planning to spend.
  15. Can I avoid paying taxes on interest by stashing my money in a foreign bank account?
    Answer: Shh! Keep this a secret or all the domestic banks will go broke!
  16. If I don’t pay this bill, will anything bad happen to me?
    Answer: Of course not. All companies are gentle and loving, so they won’t care if a few people don’t pay their bills. They certainly won’t turn your account over to a collections agency and ruin your credit. So toss that bill in the trash and don’t give it a second thought!
  17. Are there any jobs where I can work from home and make over $100,000 a year?
    Answer: Yes, but you must be really hot, uninhibited, and have a webcam.
  18. I read that the economy is heading toward recession/depression/ annihilation. Is this true?
    Answer: My crystal ball says yes. Better sell all your stocks and load up on canned food and bottled water.
  19. How much money do I need before I can start investing?
    Answer: Exactly $100. InvestorLand won’t even let you in the door without a Benjamin in your pocket.
  20. Why do hookers cost so much?
    Answer: It’s a simple matter of supply and demand. There just aren’t enough to go around.

Just in case you need genuine answers to these dumb questions, A Penny Saved… is working on real answers to the 20 dumbest personal finance questions of all time.

And Some Really Dumb Questions From Viewers Like You!

  1. (From anon) Can I go to jail if I don’t pay off my loan?
    Answer: Not anymore. The jails are too full of real criminals like terrorists, murderers, and professional football players.
    Answer: Only if your debt is to the IRS.
    Answer: This is American, sonny. We don’t jail our debtors; we just let them starve to death on the streets.
  2. (From UKMoneyPot) Can we put a value on X?
    Answer: I’ll tell you the same thing I told my high school algebra teacher: X always has a value of 7 and I don’t care if your teacher’s edition says otherwise!
  3. (From Money and Such) Should I invest all my money in penny stocks based on a hot tip I just got in my e-mail?
    Answer: Of course! But you have to act fast. Think of how many people get those e-mails–probably 100 billion people! If just 1% of those people decide to purchase the stock, its price will sky-rocket in no time for sure! Buy at 80 cents around lunchtime and it’ll be 80 dollars by dinner! Tons of people do this every day to get rich quick. This helps explain why people without computers are often homeless. You’re probably the only dummy with a computer who hasn’t done it yet.
  4. (From plonkee money) I’m 54 and I haven’t got a retirement fund, how many cruises will I be able to take
    when I take early retirement next year?

    Answer: It depends on your cruise’s destination. If you’re thinking Jamaica, probably zero. If you’re thinking paddleboat ride at an amusement park, you might squeeze in a few of those before you’re broke.

Do you have an even more dumberer personal finance question? Ask it here and I’ll give you a free silly answer!

By the way, the answer is 4 inches. The diameter of a circle equals twice the radius. But you knew that already, right?

Thursday, March 22, 2007

Punny Poll #19: Ever Cheat on Your Taxes?

Author: Nick
Category: Money
Topics: , ,

pay poor tax of $12 - by
Photo by OhioProgressive

Last Punny Poll, you were asked to confess your TV set spendings. Over half of responders claimed that their most expensive television ran them under $500. Another 30% have “invested” more than a grand on their tubes. Roughly 13% either found or stole all of their TVs, or perhaps they just don’t own one like that girl in Bridge to Terabithia whose classmates laughed at her. Don’t worry, non-TV owners, I won’t laugh at you. (Though I might giggle a bit at those of you who spent more than $1,000. Tee-hee.)

You may have heard by now that the Internal Revenue Service will pay you to turn in people who cheat on their taxes. Did you know that the average American cheats the IRS out of $1,000 in taxes each year? Okay, perhaps that figure is a little inaccurate. In reality, it’s just a handful of Americans (mostly corporations) that are doing most of the cheating. We’re talking about individuals and companies skimming millions from the Federal government through illegal tactics. So while the average cheat amount per taxpayer is so high, the median is much closer to zero.

That said, I’m willing to bet that somebody in the vast crowd of Punny Money readers has dabbled in a bit of tax fraud. Maybe you omitted a couple of earned dollars from that week you served jury duty. Or perhaps you “forgot” to declare a few thousand in savings account interest. You don’t even need to be American to cheat on your taxes! Punny Poll #19 asks you to fess up to your cheating ways. Don’t worry; I won’t hand you over to the IRS unless your total fraud bill comes to $2 million or more (the minimum that’ll entitle one to a reward from the IRS).
[Read more…]

Tuesday, March 20, 2007

Your Total Measure of Wealth: Income, Personal Savings Rate, and Rate of Return

Author: Nick
Category: Money
Topics: , ,

your total measure of wallet

If you joined us last week, then you know that we’re well on our way to redefining the way people think about wealth. No longer is net worth alone a worthy sign of one’s wealth. Instead, we’re working on a new, more complete calculation for determining one’s wealth status: your Total Measure of Wealth™.

We’ve already reviewed the two easiest parts of your Total Measure of Wealth: age and net worth. Today we’ll cover three more simple components that belong in your wealth measurements.


wish my paycheck were in there


As its name suggests, income is all of the money “incoming” to you before it’s “outgoing” to someone else. Income can come from a variety of sources: your job, investments which increase in value, interest on your savings account, gifts, etc.

We could put together an exhaustive list of every single place from which you earn money, but we’re really only interested in income you can expect to earn for work you perform. Why are we only interested in earned income? Because just about every other source of income is better accounted for by calculations we’ll perform later (like housing status and rate of return).

Your earned income–your salary–is what you make for committing a large chunk of your day to some form of work. Assuming you continue in your same line of work for the foreseeable future, this amount represents the value of your effort. Unlike passive income from things like real estate or investments, you must work continuously in order to maintain your level of earned income.

How to Calculate It

The most common method of comparing earned incomes is by annualizing it, and that’ll work fine for us. Every tax assessment agency in the world probably has a different way of determining your annual earned income, so we’ll need to come up with a standard formula for our purposes. Fortunately that formula will be very simple.

total annual earned income = sum of all annual earned incomes

Before you scream “duh” at your computer screen, we still haven’t done the hard part of this calculation: determining what qualifies as an “earned income.” In order to put together an accurate depiction of your financial status, we’re only going to be interested in income for work you perform which you reasonably expect will continue into the future. You might have made an extra $20,000 last year working weekends as a stripper, but if you’re only pulling in $100 a night these days, you can’t expect to earn another $20,000 this year. And if your salary is $150,000 and you’re expecting a pink slip any day now, your expected salary is now zero until you find another job. But if you’ve been filling out online surveys diligently for a few years now and bring in an extra $50 a month, don’t hesitate to include that as earned income if you plan to continue filling out surveys in coming years.

How to Use This Number

You probably spend a boatload of your time earning this income, so it should have a big influence on how you perceive your wealth. If you compare it to your instantaneous net worth (or, more simply, the amount of money you have in liquid savings), it’ll tell you how important your continued ability to work is to your future livelihood. And if you compare it to the earned incomes of others in your line of work, it’ll also indicate if you’re receiving compensation commensurate with your efforts.

Personal Savings Rate

no, that is an ATM, not a personal savings rate calculator


Your personal savings rate is a measure of how much money you save out of the money you make. A positive personal savings rate means that you get by on the money you make, and you have at least a little bit left over. If you spend every penny you make, then your personal savings rate is zero.

It is also possible to have a negative savings rate. In fact, not only is it possible, but it’s true for the average American. In 2006, the average personal savings rate was negative one percent. That means for every dollar the typical American made, they somehow spent $1.01! How is that possible?

Credit. Loans. Debt. Dipping into existing savings. People are spending money that they’ve already saved without saving new money, and sometimes they’re even spending money they don’t have.

Don’t confuse your personal savings rate with your bank’s savings account interest rate. These are two very different figures, the second of which we’ll take into account later when we examine your rate of return (ROR).

How to Calculate It

Your personal savings rate is easy to calculate. You’ll need two numbers first: your income (see the section above) and your annual savings amount. You can use last year’s figures for both if you like.

How do you determine your annual savings amount? Savings is simply how much of your income you don’t spend. If you have deductions into a retirement fund, this is savings. If you automatically transfer $100 out of every paycheck into a savings account and you don’t spend it, this is savings. The interest you earn on your savings or investments is not savings; these are returns on your investments which we’ll cover later.

You must also factor in negative savings into your savings figure. The biggest sources of negative savings are credit cards you don’t pay off and withdrawals from savings. Subtract any such items from your annual savings amount.

Once you have your income and savings amount figures, just drop them into this equation:

personal savings rate = savings / income

So if you made $100,000 last year and saved $8,000 of it, then your personal savings rate is:

personal savings rate = $8,000 / $100,000 = 0.08 = 8 percent

But say you made $100,000 last year, saved none of it, put $3,000 of purchases on credit cards you didn’t pay off last year, and took $2,000 out of your savings account that you didn’t replace. Your savings rate is:

personal savings rate = ( -$3,000 + -$2,000 ) / $100,000 = -0.05 = -5 percent

How to Use This Number

If your personal savings rate is above zero, congratulations! You’re already well ahead of most Americans. But how far above zero are you? Are you saving 5% of your income every year? How about 10%? The reason I mention 10% is that this is a figure popularly tossed around for how much you should save each year toward retirement. In reality, the percentage you should be saving depends on other factors: your age, your expected life span, your current savings, and many other factors. It might be much higher than 10%, and it probably won’t be much lower.

Visit for a handy calculator to help you determine your suggested personal savings rate based on your specific situation. Compare your suggested figure to your actual figure in order to panic because you are probably not saving enough.

Suffice it to say that your savings rate should be as high as you can make it. Otherwise, you might have to work every day for the rest of your life. Even Bob Barker doesn’t want to do that, and he’s 83!

Rate of Return (ROR)

invest in barrels


In order to have a rate of return (ROR), you must first have savings or investments. Some examples of these include savings accounts, certificates of deposit (CDs), stocks, retirement funds, and real estate. If you do not have savings or investments, your rate of return is zero; please go sit in the corner for the remainder of this article.

For you cool people with savings or investments, your ROR is simply a measure of how much money your savings and investments are making you. You put money into a CD or a retirement plan and you expect that money to magically grow. There’s nothing magical to the growth–it’s just banks lending your money to other people and giving you a cut of the interest they charge the borrower. But that growth is the basis for your ROR, so let’s compute it now.

How to Calculate It

Your ROR is just another rate of change. It can be positive, negative, or zero. Hopefully it is positive or else you’re picking really bad places to stash your cash.

You may have multiple savings accounts and investments. You can compute your rate of return individually for each one, or you can combine them all and come up with an across-the-board ROR.

To determine your annual ROR for any one investment, use this formula:

annual rate of return = interest earned / amount invested

You might vaguely recognize this formula from grade school. It’s just the familiar simple interest equation solved for the interest rate with a time of one year.

The formula above is only useful for a single year and doesn’t take into account one very powerful factor–compounding interest, or the amount of interest earned on the interest itself. So you may instead wish to use this formula:

annualized rate of return = [(ending value of investment / beginning value) ^ (1 / # of years) ] - 1

For example, let’s say you invested $10,000 in the stock market on January 1, 2005 and rang in New Year 2007 with your investment valued at $14,000. Your annualized rate of return would be:

annualized rate of return = [ ($14,000 / $10,000) ^ (1/2) ] - 1 = 18.3%

You’ll sometimes see the above formula referred to as a compound annual growth rate (CAGR) formula. I think some people just like saying CAGR. Kagger. Kagger. Heh.

Once you apply the formula to all of your investments and savings accounts, you’ll probably notice that they vary. You might have a savings account earning 3%, investments earning 12%, and money in a piggy bank earning 0%. To calculate your overall rate of return across all investments, use this formula:

overall annualized rate of return = [(sum of investment values at end / sum of investment values at start)  ^ (1 / # of years)] - 1

So if you start with $3,000 in savings, $10,000 in stocks, and $200 in a bottle on the nightstand, and you finish with $3,100 in savings, $12,000 in stocks, and $200 in a bottle on the nightstand, your overall rate of return is:

overall annualized rate of return = [ ($3,100 + $12,000 + $200) / ($3,000 + $10,000 + $200) ^ (1/1)] - 1 = 15.9%

How to Use This Number

Your ROR is one of the best health indicators for your savings and investment portfolio. Looking at your ROR by itself isn’t that useful; you need to compare it to other RORs since a “healthy” ROR can change from year to year.

I, like many people, prefer to compare my annual personal rate of return to the S&P 500 index–a listing of 500 large company stocks used to gauge the performance of the stock market in general. Many folks set a goal of “beating the S&P” each year, and they are satisfied with the health of their investments if they do so, even if it’s just by a little.

The final example in How to Calculate It above which showed an overall ROR of 15.9% just squeaked by the 2006 S&P 500 ROR of 15.8%.

There are some years in recent history where you might not want to use the S&P 500 for your comparisons. You may recall the S&P breaking 1500 points in 2000. Thanks to the bursting of the dot-com bubble, it was back below 800 two years later. Lots of people lost a ton of money, but there were plenty of safer investment avenues available to the smart investor (like a savings account earning zero interest, for example!). “Beating the S&P” was not such a hot achievement during these two years, that’s for sure.

With the easy keys to your Total Measure of Wealth out of the way, it’s time to start exploring the new frontier of wealth calculations. Next time, we’ll talk about your job status and how to determine its influence on your financial health.

Wednesday, March 14, 2007

Your Total Measure of Wealth: Age and Net Worth

Author: Nick
Category: Money
Topics: , ,

ben franklin - highly sought after old guy

Now that we’ve established that net worth is inadequate for wealth determination and have come up with a suitable list of alternative wealth measures, it’s time to start looking at each of the criteria and put together a new formula for deriving one’s Total Measure of Wealth™. (Seriously, where’s that book deal??? Don’t make me trademark more stuff.)

Today we’ll start covering the easy stuff–the keys to your Total Measure of Wealth that already have established, standard metrics associated with them.



time is ticking, er, shadow... uh, moving

For those who haven’t touched a calculator since grade school, we’ll start off easy. Your age is how old you are. It’s the number of years between today and the day you were born. I could say more about this, but a long paragraph here might confuse you into thinking this is more complicated than it really is. Oops, too late.

How to Calculate It

If you don’t know your age, ask somebody who does. Or just assume that you’re 37.

How to Use This Number

Despite its extreme simplicity, age is perhaps the most important factor in determining your Total Measure of Worth. That’s because age is the factor over which you have the least control. In fact, you have no control over your age until you build a time machine, and I just don’t see you doing that anytime soon.

Age can mean the difference between a bright financial future and a hopeless financial meltdown. $100,000 does a lot more for a 20-year-old who has a lifetime to invest it than a 65-year-old retiree who must spend it to survive. Age won’t tell you too much about your wealth picture alone, but you’ll see shortly that it can have a big impact on the other measures of wealth.

Net Worth


line up all your assets

Net worth has long been the de facto standard of wealth determination. If my net worth is higher than yours, then I am richer and you are poorer. But how can we say that a starving orphan with a net worth of zero is richer than a person with a home, a job, and a promising outlook but who currently has a negative net worth due to a few thousand dollars in student loan debt?

While net worth can’t demonstrate wealth on its own, it is still suitable as a snapshot of your current financial status. It is even more useful when compared to your historical net worth calculations; a rising net worth may suggest smart financial decisions, while a plummeting net worth could indicate out-of-control debt or rapidly depreciating assets.

How to Calculate It

There are really two parts to any net worth calculation: instantaneous net worth and historical net worth growth. Computing your instantaneous net worth is simply a matter of tallying up all of your assets and subtracting all of your liabilities:

instantaneous net worth = sum of assets - sum of liabilities

Historical net worth growth is a little trickier to compute because you must decide over what span of time you would like to calculate your net worth’s change. On the one hand, we’d like to look at data over a long period to see how your finances have progressed over the years (and maybe decades). On the other hand, long-term data might not place enough emphasis on more recent smart (or stupid) financial transactions.

Let’s start with a look at your long-term net worth change. How far back should we look? That depends on how old you are. Older people have more financial history and should look back further than younger people. For now, we’ll set up a rule of thumb stating that long-term net worth is over the course of the last one-third of your life. So simply take your age, divide it by three, and compare your net worth from that many years ago to your net worth today. (If you don’t have exact figures from that long ago, just estimate.)

beginning date = today - age/3

For example, since I’m 24, my beginning date would be:

beginning date = 2007 - 24/3 = 1999

Once we have our dates set, we determine our rate of change:

long-term net worth growth = net worth today - net worth beginning / net worth beginning

Now we need a short-term net worth change formula. Let’s say that the short term is fixed for everyone and just looks at your net worth growth over the last year.

short-term net worth growth = net worth today - net worth 1 yr ago / net worth 1 yr ago

How to Use These Numbers

You should view your instantaneous net worth merely as an indicator of where you are financially today. Without the change rates, there is no way to tell based on this number what you should start doing differently, if anything, with your money. Then again, if your net worth is a few million dollars or more, you could try writing me a check.

The long-term and short-term net worth growth figures are much more useful to us. The long-term change provides a summary of how you have handled your finances over the years and indicates what sort of net worth goals you should set for yourself in the next stages of your life. The short-term change lets you know if you’ve made any dumb mistakes lately.

You can also annualize your long-term change rate and use it as a starting point for setting future net worth goals. Simply divide your long-term net worth growth by that age-divided-by-three number to get your annualized long-term net worth growth rate.

annualized long-term net worth growth rate = long-term net worth growth / age/3

So if you’re 24 and your net worth tripled (i.e. increased by 200%) over the last 8 years, your annualized long-term net worth growth rate is a healthy 25%.

While some may argue that maintaining a steady long-term growth rate is a smart goal, I’d like to see my rate increase every year. Comparing your short-term net worth growth to your annualized long-term growth rate will tell you if you’re hitting your target of meeting or beating your growth rate each year.

Tomorrow we’ll look at the other three “easy” wealth indicators: income, savings rate, and rate of return.

Tuesday, March 13, 2007

Net Worth Is NOT Wealth: How to Determine Your Total Measure of Wealth

Author: Nick
Category: Money

your total measure of wealth

Yesterday I rocked the personal finance world by claiming that net worth is a poor measure of wealth. The classic net worth calculation of assets minus liabilities simply omits too much important information to provide a useful picture of your financial situation.

A lot of people like calculating their net worth, watching it grow, and feeling a sense of accomplishment if it goes up by a certain amount. I wouldn’t dream of robbing anyone of this pleasure, but I would like to propose a more complete set of criteria from which you can determine your Total Measure of Wealth™. (What, did you think I was kidding about turning this into a book deal eventually?)

The Keys to Your Total Measure of Wealth

To start putting together a complete measurement of your wealth, let’s come up with a list of all the aspects of your life that have some sort of bearing on your financial status. Here are the ones I came up with off the top of my head:

  • Net worth. Alone, net worth provides only a small fraction of your complete wealth picture. But that assets minus liabilities figure does give you a useful starting point for your calculations.
  • Income. Which would you rather have: a net worth of $100,000 with an income of zero or a net worth of $20,000 with an annual income of $100,000? Just looking at the net worth figure, you’d think the first case is better than the second. Then you throw in the incomes and suddenly you might be comparing somebody who’s unemployed to someone with a six-figure job.
  • Job status. Even income isn’t enough to give a full picture of your employment situation. Do you like your job? Will you still have it in six months? If you lost your job tomorrow, could you find a comparable one quickly? You might have a high salary, but if you hate what you do, your boss doesn’t like you, there’s little room for growth, and no other company is hiring for your position, then you’re on financially shaky ground.
  • Personal savings rate. The U.S. personal savings rate fell below 0% last year which means Americans are spending more than they earn. How much of your paycheck do you save? A positive net worth means nothing if it’s accompanied by a negative savings rate–well, except that you’ll be broke sometime in the future.
  • Rate of return (ROR). Which is more money: $500,000 with an annual ROR of 10% or $1 million sitting under a mattress? Your answer will be different today than it will be ten years from now. A high net worth is great, but an increasing net worth is even better.
  • Housing status. I’m a big proponent of owning your own home as a cornerstone of building wealth, but there are plenty of homeowners out there who are worse off than renters. Maybe you bought at the peak of the housing market in a “bubble” city, and now your house is worth 30% less than you paid for it. Or perhaps you have one of those fancy mortgages where you never pay a dime toward the principle. In these cases, a renter with a good job and money in the bank might be in a better financial situation than you.
  • Family status. A $50,000-a-year income goes a lot further if you’re single and without kids than if you’re married with six children. Determining how many people count on you for their financial well-being is a vital aspect of a true wealth calculation.
  • Self-reliance. You may have few people depending on you bringing home the bacon, but how many people do you rely on for your livelihood? Furthermore, do you rely on just one person or entity for your entire livelihood? Things that help make you more self-reliant: being self-employed, growing some or all of your own food, or diversifying your income sources.
  • Locale. I think it goes without saying that a dollar will get you more in Atlanta than it will in Beverly Hills. But there are other factors to consider than just cost of living. What sort of services does your local, state, or national government provide? How much do you pay in taxes? What are the bankruptcy laws like? At what rate is real estate appreciating in your neighborhood? How oppressive has your local warlord been lately?
  • Age. $100,000 in the bank does a lot more for a 30-year-old than it does for someone nearing retirement age. Throwing age into the wealth equation is a great way to ensure that worth calculations can be used by anyone, young or old.
  • Financial education. Here’s one key to wealth that few ever consider, but it can have a huge impact on what you do with your money. Even a moderate level of financial education (e.g. you read Punny Money frequently) can set you apart from those who were brought up to spend every penny they make. You wouldn’t need an MBA to score high here–just a basic understanding of concepts like credit, investing, the economy, and similar topics.
  • Health. Unless you’re fantastically rich and legally dubious, you can’t buy good health. Then again, all the money in the world can’t undo a lifetime of poor health choices. And while certain health issues are hard to prevent, being prepared with adequate insurance can go a long way toward financial stability.
  • Credit. This one should be easy to figure out thanks to credit scores, right? Maybe not as easy as you think. Which credit scoring scale do you use? How would you apply the score to your wealth measurement? And how do you account for things a credit score doesn’t consider, like cases where your score reflects that you messed up years ago with some unpaid bills but you have since committed to a life of financial harmony?
  • Personal outlook. Remember our hypothetical dictator friend from yesterday’s episode of Which Person Is Richer? He may be filthy rich, but he probably isn’t enjoying a life of looking over his shoulder, waiting for an assassin’s bullet. As many a celebrity can tell you, a life of fame and fortune doesn’t guarantee a life of happiness. And I know plenty of people who absolutely love their lives yet they live paycheck to paycheck. Your personal outlook, your financial aspirations, your dreams for the future–these things give your life meaning and direction and are a crucial part of your fiscal picture.

If you can think of any other criteria that should be on this list, please leave a comment with a quick explanation and the best ones will join this list.

Putting a Number on Your Total Measure of Wealth

It wouldn’t really be a measure if there weren’t some kind of number that came out of doing it. Net worth, income, and age are all straightforward to compute; but how do we enumerate things like family, health, and personal outlook?

Putting a number of these things is actually easier than you might think. Corporations assign numbers to you for these and other parts of your life all the time. For example, if you apply for a life insurance policy, the underwriter will examine your medical history and come up with a score that represents the likelihood that you’ll live long enough to be profitable to the company. These “scores” might not be as trivial to calculate as net worth, but isn’t a little extra work worth the reward of getting a complete picture of your finances?

In coming weeks, we’ll start looking at the keys above individually and come up with a mathematical formula for calculating your Total Measure of Wealth.