Friday, August 22, 2008

The U.S. Gold-Medal Olympian Salary: Zero Dollars… Plus Bonuses

Author: Nick
Category: Money
Topics: ,

comic 52 - olympic spending

Shawn Johnson, 2008 gold-medal Olympic gymnast and pint-sized jailbait, will be taking home a whopping paycheck of zero from the U.S. Olympic Committee this year. The same goes for swimming sensation Michael Phelps, beach volleyball vixens Misty May-Treanor and Kerri Walsh, and fencing champ Mariel Zagunis.

Yet somehow, despite the cost of blowing tiny countries like Georgia off the map, Russia is still finding the extra dough to cough up a $150,000 cash prize to any of its Olympians who bring home the gold. Even Afghanistan just gave the country’s first ever medal winner a free house! In fact, the U.S. is one of few countries whose government provides no regular subsidies or payments to its Olympic athletes.

Somehow, though, I suspect Shawn Johnson and her fellow American gold medalists won’t have to worry about keeping roofs over their heads. Johnson, who attends a public high school in Iowa, is expected to score around $1 million in endorsement as a result of her accomplishments in Beijing. Michael Phelps already has six- and seven-figure deals with companies like Visa and AT&T.

For the typical American, a million dollars can go a long way. In fact, if invested wisely, a person of any age could live a decent life off the interest alone. Of course, tell that to any of the thousands of bankrupt former superstar athletes who may have once owned cars more expensive than our houses. Sadly, for Olympians like Johnson and Phelps, endorsements tend to fade as quickly as the Games themselves. And for gymnasts like Johnson, many of whom only get one shot at Olympic gold in the face of ever-increasing competition from the next generation, the sponsorships that follow from Olympic glory rarely guarantee an easy life.

Remember Kerri Strug from the 1996 Summer Olympics in Atlanta? She still scores the occasional tiny commercial deal, but she’s held a variety of “common” jobs since her valiant performance on the vault that led Team USA to gymnastics gold. She’s been everything from an elementary school teacher in San Francisco and Washington, D.C. to an Olympic news correspondent. Shawn Johnson, despite her gold-medal performance on the balance beam in Beijing, probably won’t see endorsement deals quite as grand as Strug’s. Worst of all, by the time the London Summer Games roll around in 2012, Johnson will be 20 years old—ancient in the world of women’s gymnastics.

At least Johnson’s family has indicated that any money from commercial deals would go straight to her college education. But if she wants to keep living the life of a million-dollar Olympian, Johnson may want to consider a high-paying career track like medicine… or software engineering. How about it, Shawn? Get your comp. sci. degree and we can code the night away together…

Thursday, March 27, 2008

Attention Bored Rich People: I Will Do Any of the Following For One Million Dollars

Author: Nick
Category: Money

comic 6 - if i had a million dollars

One day I hope to be rich enough to be able to pay people ridiculous sums of money to do really stupid stuff—like run around New York City for three hours with a cat in their pants, or paint their house 27 of the ugliest paint colors available.

Unfortunately I am not rich at the moment, but I’m hoping to change that right now. You see, I’ve decided it’s time to claim my 15 minutes of fame on the internet by offering myself up to one lucky, really bored person with a lot of money. Now before you all whip out your checkbooks, I should clarify that this “offering up” is not in a sexual way. Instead, I would be willing to perform any of the totally insane items from the list below for the paltry sum of one million dollars.

As you will soon see, giving me one million dollars will be a bargain to get me to do some of the wacky, crazy things I am offering to do. But if you’ve got lots of millions sitting in the bank and you don’t mind letting go of just one of them, then you can buy yourself some of the purest, most amazing entertainment you’ll ever find in your whole life, featuring yours truly!

Since I don’t know any super-rich people who would be willing to do this, I’m going to rely on you, the Punny Money reading audience, to help connect me with somebody out there who has lots of cash and a strong desire to make other human beings do very strange and/or fantastic things. To that end, if a rich person contacts me to perform one of these actions, and I perform it, and I get paid one million dollars, I will gladly give a 25% finder’s fee to whomever my benefactor says brought him or her to me. For example, if you submit this article to some social media websites or post it on your blog and Bill Gates pays me a million bucks because he saw one of your submissions or articles, you’ll get $250,000. Or if you live next door to an old oil tycoon that you convince to fund my little endeavor, you’ll get $250,000. So call every rich person you know and tell them that Nick is ready to do retarded things for money.

The conditions for this transaction are simple:

  1. Contact me by e-mail with the subject line “I Will Pay You One Million Dollars To Do My Bidding.” Let me know who you are and which of the things from the list below you’d like me to do.
  2. Once I reply to you, you’ll need to provide verification of your riches. Sorry, no freebies!
  3. We’ll have an attorney of my choosing draw up a legally binding contract saying you’ll give me $1 million if I do X and I’ll get nothing if I don’t do X.
  4. Costs prior to the action will be paid by you, including the attorney in #3 as well as any travel-related fees if you want to come see me in person or you want me to fly out to meet you.
  5. Costs related to performing the action will be paid by me, even if I chicken out halfway through the action, which I won’t do because you’re paying me one million freaking dollars.

All right! Are you ready to see the list of really bizarre, disturbing, or just plain entertaining things I’m willing to do for one million dollars? Okay then, here it is:

  • Speak to any group, on any subject, anywhere, anytime. Put my oratory skills to the test for your entertainment as I deliver a talk to any assembly of people of any size on any topic you choose. I may not be an expert on a lot of subjects, but if you want me to speak about the future of space exploration to your ninth-grade class, I’ll do that. Or if you want me to discuss 21st century sexual positions with your church congregation, I’m game for that too. You can even invite your group to bring tomatoes and other soft foods for throwing should my speech be met with any dissatisfaction.
  • Your own personal protester. Are you angry at a company, government agency, or your next-door neighbor, but you just don’t have the time to stand outside their office or home with a picket sign for eight hours a day? Then hire me to do it for you! I’ll march outside the publicly-accessible location of your choosing with a sign held high to let those people know that you’re mad as hell and you’re not gonna take any more of their animal cruelty, unjustified wars, poorly-written operating system software, or whatever else you want me to protest. Just one million dollars will get you your own private protest army of one for 90 straight days, 10 hours each day. I can’t promise you they’ll change their evil ways, but I’ll do my best to be loud enough to at least get you on page 3 of your local PennySaver.
  • Move to anywhere for a year. Perhaps you think it would be interesting if I lived in the ghettoest neighborhood of Baltimore for 52 weeks. Or maybe you want to see me survive a harsh Icelandic winter. Or you’d like me to try to get through a year in a poor, impoverished nation like the ones you see in those commercials that make you feel bad for not sending just 10 cents a day to those starving children. Or, perhaps worst of all, you could sentence me to live in a Wal-Mart for a year just like Natalie Portman did in that one movie. I’ll go for any of those as long as I can bring my wife, lots of guns (especially if it’s Baltimore), and the largest sack of food you’ve ever seen. You can even watch me suffer via webcam 24/7.
  • Babysit your children anytime you want. Believe it or not, I’m actually very good with kids, and children tend to be fascinated by me. For just a million dollars, I will be your permanent babysitter for up to three children (the fourth and beyond cost $10/hour each) anytime you want from now until they turn 18. A few conditions: no kids under 3 years old; pre-existing children only; and you must give 24 hours notice when you need me to babysit. Price includes me moving to your neighborhood so I’m always just a stone’s throw away. What a bargain!
  • Perform a one-man show of any movie. Just give me a few months to memorize the script, buy some props, and put together some rudimentary sets and scenery, and you’ll have yourself a private reenactment of your favorite film (up to three hours in length) starring me! I’ll do any movie (uh, nothing NC-17 though), but I would suggest some of my favorites: Star Trek II: The Wrath of Khan, Forrest Gump, or any of the first four Rocky movies. Yo Adrian, give me a million dollars!
  • Use me for target practice. Take out the frustration of running your multi-million-dollar empire by unleashing a storm of high-speed tennis balls at me. Play a game of “hit the Nick with a 85-mile-per-hour tennis ball machine” once a week, up to an hour at a time, for an entire year. I’m allowed to move around, and I get a helmet and other protective gear; but I’m not that fast, so you’ll get in plenty of hits and get to hear me scream like a girl each time. Price includes the tennis ball launcher (a $4,000 value) which is yours to keep in case you decide to pay someone else to do this after you’re done with me.
  • Legally change my name to “[Your Name] Presents: Nick.” Assuming the courts let me get away with this one, which they better—free speech and all that—I shall forever be known as, well, I just said it, but insert your name where it says “[Your Name].” People will still call me Nick for short, but if anyone ever asks for my full name, I will give it as “John Smith Presents: Nick,” assuming of course that your name is John Smith. No company or product names, please; I’ll only whore my good name out so far. Also, no fair temporarily changing your own name to something like “Boobieface McFatty” and then changing it back after I adopt it as part of mine.
  • Watch me eat 15,000 calories in one sitting. It’s no secret that I’m a big fan of large amounts of food, but even I haven’t tried to eat 10,000 calories worth of food at a time, much less 15,000. If watching someone make a total obscene pig out of himself will put a smile on your face, then whip out your checkbook because I’m your man. I get to pick the food, but you don’t pay a penny if I don’t manage to eat 15,000 calories in less than four hours.
  • Infinite sandwiches for a year. If I already had a million dollars, this is the first thing I’d buy. With this package, I’ll move to within a five-minute drive of you and will come over whenever you call (even if it’s at 3am) to fix you the sandwich of your choosing. Included in the price is the first $100,000 worth of sandwich ingredients. The only condition is that you have to eat the whole sandwich while I watch (no food wasters!). I’ll even fix sandwiches for everyone in your family at no extra charge. So if you can eat 20 sandwiches a day, I will come over 20 times a day and fix you a sandwich… a sandwich filled with my love… my love for a million dollars, that is.
  • Or choose your own event! I’m open to considering any proposals for things you’d like me to do, so long as they’re not highly illegal and you’ve got the million bucks to pay for it. So let your imagination run wild!

I will also gladly perform any of the above actions naked or in a woman’s dress at no extra charge if you so desire.

I’m sure I’ll have offers coming in left and right for this, so all you multi-millionaires out there better get cracking if you want to be considered because I’m only doing this once. Serious offers only!

And don’t worry, I’ll still keep writing Punny Money even after I get my million because, well, a million dollars just doesn’t buy you that much these days.

Tuesday, April 10, 2007

Your Total Measure of Wealth: Job Status

Author: Nick
Category: Money
Topics: ,

get your job status quotient at punny money

Chances are that you’re one of those poor fools who has to work for a living. You wake up five days a week, stumble into the bathroom, emerge slightly more awake than you entered, schlep your way to work, do something of some benefit to someone somewhere, get paid for it, crawl your way back home, make love to your beautiful spouse if he or she is in the mood which is more often not than so, and go to bed.

Before we continue, I have a confession to make: I’m one of those poor fools, too. Except my wife is always in the mood, though I often work six or seven days a week. But you get the picture.

Ever since God invented the first job when he told Noah to build his ark, the exchange of labor for goods or money has been a basic part of the world’s economy. Without paid jobs, we’d all have to be our own farmers, carpenters, doctors, and tax accountants. Jobs also serve as a way of giving our life meaning. We find something we’re good at, we do it each day, and we’re rewarded with the means to support ourselves and our families. It’s a pretty neat deal we’ve got going here.

And yet, what’s the one thing people complain about the most above all? (I mean, more than the War in Iraq, gas prices, and Britney Spears.) That’s right: their jobs. Most people hate their jobs. They either hate what they do, they hate their coworkers, they hate how little they are paid, or they just hate having to wear pants every single day.

As much as we might “hate our jobs,” most of us can’t live without them–at least not for very long. That’s why another fundamental component of Your Total Measure of Wealth™ is your job status quotient, or the measure of your job’s impact on your wealth.

How Your Job Affects Your Wealth

man with a big broom

Your job has some pretty obvious impacts on your personal wealth. Imagine your wealth as a big blue lake full of fish. Now let’s say that your job is a river that feeds water into that lake. As long as the river keeps flowing, the lake has water and all the fish are happy. But if something happens to your job river and the flow to the lake is cut off, your lake will start to dry up. The fish will be okay as long as you restore the river before the lake dries up completely.

A few people are fortunate enough that they can pump millions of gallons of reserve water into the lake if their river ever stops flowing. A lot more aren’t so lucky–their lakes are already so small that even a week or two of river stoppage will turn their fish into fish sticks. In short, your job means your survival. If you don’t have a job, or you can’t work, your lake will disappear and your fish will die (or be forced to live in a tiny government-sponsored fishbowl).

why is nobody in the copy room where i work this hot?

Just having a job doesn’t mean you’re going to get by. Your job must match your lifestyle. If you’re that girl whose job is to make sure my Whopper is situated in the center of the wrapper, don’t make any plans to live in Beverly Hills. Similarly, if you’re a $500-an-hour attorney, you can probably do a bit better than Compton. Your job helps dictate how you can live right now.

Your job also has a direct bearing on your personal savings rate. If you make $2,000 a month and the sum of all your expenses is $2,000 a month, you will have a savings rate of zero. And if your job has no room for growth, your lifestyle will likely stay fixed too. Your job helps dictate how you will be able to live in the future.

Your job has lots of effects on your life other than where and how well you can live. It affects your mood, your health, your family–practically every aspect of your life.

Hopefully you realize that your job status is of great importance to you. Now let’s find out how important.

Determining Your Job Status Quotient

caution: watch for gopher holes

WARNING: This section is a work in progress. Suggestions for improvement are welcome; you can leave them in the comments section below. Check back often for changes to this section. Any updates will be listed at the end of this article under “Revision History.”

Unlike wealth criteria like income and net worth, “job status” doesn’t immediately evoke images of numbers or calculations. You could say something like, “I have a job status of 312!” but people would just laugh at you or have you committed.

Now if Donald in Mathmagic Land taught us anything, it’s that anything can be turned into a mathematical equation. You will soon see that coming up with an equation to describe job status is not that hard. First we’ll need the common components of any equation which are:

  • Input(s)
  • Output(s)
  • Plus sign
  • Equal sign
  • Magic

We know what most of these are already for our job status equation, especially output–it’s the number we end up with that’ll tell us what our job status is. But what about the inputs? Figuring out those will require some creativity. Below is the list I put together; please feel free to suggest additions to it.

Job Status Quotient Inputs

  • Employment. Do you have a job?
  • Financial independence. Do you need a job to survive?
  • Self-employment. Are you your own boss?
  • Job-to-life ratio. Is your job suited to your lifestyle?
  • Job-to-hopes ratio. Is your job suited to your desired lifestyle?
  • Job satisfaction. Do you like your job?
  • Job security. How safe is your current job?
  • Opportunities in your field. If you lose your current job, can you easily find another?
  • Job growth. Do you have opportunity for advancement/promotion?
  • Job history. Do you have a respectable resume?
  • Relevant education. How many pieces of paper are hanging on your wall?
  • Job stress. Ever rip out your hair over work?
  • Work-life balance. Does your job monopolize your life?
  • Job benefits/perks. Does your job come with any nice extras?

Now let’s transform these inputs into numeric values we can use. We’ll take care of that, along with calculating the final job status quotient, by putting together a questionnaire that turns input criteria into a standardized assessment of your job status.

Job Status Questionnaire

If you’re reading this via Punny Money’s RSS feed, click here to take the Job Status Questionnaire.

(Please note that your answers to this questionnaire may be recorded to help improve the quality of the questionnaire. No identifying information is stored, and questionnaire results will only be publicized in aggregated form.)

  1. My Total Measure of Wealth:
    Job Status Questionnaire

  2. Instructions: Select the most appropriate answer to each question. After answering all questions, click “Give Me My Job Status Quotient” to obtain your job status quotient.

    If you have more than one job, select the answers which most closely reflect your entire job picture.

  3. How much do you need a job to survive?
    I could not last even a month without a job.
    I could get by for a month or two without a job.
    I could survive an extended period of unemployment.
    I do not need a job to survive.
  4. If you lose your current job, how easily could you find another like it? If you are unemployed, answer according to how easily you expect to find a new job like your previous one.
    Very easily.
    Somewhat easily.
    It would take some work.
    It would be very difficult.
  5. Are you currently unemployed?
    Yes. (If you answer yes to this question, leave the remaining questions blank and submit your questionnaire for scoring.)
  6. Are you completely or almost completely self-employed?
  7. How well does your job support your current lifestyle?
    Very well.
    I barely get by right now.
  8. How well would your job support the lifestyle you desire?
    Very well.
    Not at all.
  9. How much do you like your job?
    I love my job.
    I like my job enough.
    I tolerate my job.
    I do not like my job very much.
    I hate my job.
  10. How likely is it that you could/will ever lose your job?
    Very unlikely.
    Somewhat likely.
    Very likely.
  11. How much opportunity for advancement or promotion does your job offer?
    A lot.
    Not much.
  12. How impressive would your resume appear to potential employers?
    Very impressive.
    Somewhat impressive.
    Not too impressive.
  13. Do you have a college degree relevant to your job?
  14. How stressful is your job?
    Very stressful.
    Somewhat stressful.
    Only a little stressful or rarely stressful.
    Not stressful at all.
  15. Does your job take up too much of your life?
  16. Does your job offer benefits or perks beyond your wage/salary?
    Yes, many.
    Yes, some.
    Not much, if any.

Job Status Quotient Scale

To keep things simple, the maximum score you can receive on this questionnaire is 100. A job status quotient of 100 means your employment situation is rockin’ for at least one of many reasons. Perhaps you’re a retired millionaire who doesn’t need a job to get by. Or maybe you love your low-stress, well-paying, highly secure job. As you can see from the questions, there are many factors that go into determining your job status. Some are more important than others, but you don’t need to ace every single question to come out with a “perfect” score. I fully suspect 5-10% of people taking this questionnaire will score 90 or above.

On the other end of the scale, there are also a few ways to score a 0. Unemployment pretty much kills your score unless you don’t need a job to survive. You can avoid a 0 score and still be unemployed if you state that you can easily find another job or you can get by for a while without a job. There are also ways to completely bomb the questionnaire even if you are currently employed, but you’d have to give an awful lot of negative answers on the questionnaire.

Most people should have a score between 30 and 90. This range will typically indicate someone who is employed but not financially independent. Where these people fall in that range depends on the various aspects of the job itself–pay relative to their lifestyle, job satisfaction and security, etc.

In case you’re curious, I scored 65 on job status.

Job Status Questionnaire Breakdown

This section is sort of a “behind the scenes” look at the questionnaire meant to show the impact each question and its answers have on your job status quotient.

As you’ll see, each answer has a corresponding point value. The job status equation is simply the sum of all the point values for the answers you select. Some answers add to your score; some subtract from it; some have no effect.

It is possible to finish the quiz with a negative score, though such scores are rounded up to zero. It is also possible to finish with more than 100 points, but the maximum score you can receive is capped at 100.

How much do you need a job to survive?.

I could not last even a month without a job: +0
I could get by for a month or two without a job: +5
I could survive an extended period of unemployment: +10
I do not need a job to survive: +120

Comments: If you don’t need a job to survive, you automatically get tons of points that make it pretty hard to score under 100. Congratulations on your financial independence! This question also covers cases such as college students and younger children who are financially supported by their parents.

If you lose your current job, how easily could you find another like it? If you are unemployed, answer according to how easily you expect to find a new job like your previous one.

Very easily: +10
Somewhat easily: +5
It would take some work: +0
It would be very difficult: -10

Comments: Even the most secure jobs could disappear in the wrong circumstances, so being able to find another quickly is a good thing for anyone.

Are you currently unemployed?
No: +10.
Yes: +0.

Comments: Unemployment destroys your job status quotient. But if you can get by for a while without a job and/or can find another one pretty easily, you can still avoid a score of zero. And if you don’t need a job to survive, this question won’t have much effect.

Are you completely or almost completely self-employed?
No: +0
Yes: +15

Comments: Working for yourself gives you a nice bonus since it puts your job’s destiny in your own hands rather than someone else’s. The self-employed are also generally happier and have the potential to earn a lot more (or a lot less).

How well does your job support your current lifestyle?

Very well: +5
Adequately: +0
I barely get by right now: -5

Comments: If your job does not sufficiently support your living habits, you either need a new job or new living habits… or both!

How well would your job support the lifestyle you desire?
Very well: +15
Adequately: +10
Barely: +5
Not at all: +0

Comments: I imagine most people will answer “Not at all” to this since they would probably be living their desired lifestyle if they could. This question rewards you for choosing to live below your means.

How much do you like your job?

I love my job: +10
I like my job enough: +5
I tolerate my job: +0
I do not like my job very much: -5
I hate my job: -15

Comments: Since your job is likely such a big part of your life, it’s important that you like what you do. If you don’t, even if it supports your lavish lifestyle, you get a penalty on your quotient.

How likely is it that you could/will ever lose your job?

Very unlikely: +10
Unlikely: +5
Somewhat likely: -5
Very likely: -10

Comments: Job security is a definite plus, but job insecurity is an even bigger minus. If you gave one of the two bottom answers, make sure you keep your options open in case the ax ever falls.

How much opportunity for advancement or promotion does your job offer?

A lot: +10
Some: +5
Not much: +0

Comments: This one is pretty self-explanatory. Without the potential for job growth, you are more likely to have a stagnant salary and eventually come to dislike your job. New challenges help keep your job exciting, and a bump in pay can mean a better lifestyle in the future.

How impressive would your resume appear to potential employers?

Very impressive: +10
Somewhat impressive. +5
Not too impressive: +0

Comments: I was on the fence as to whether I should include this question since the previous one already asks about your ability to find another job if needed, but this one covers some additional, subtle nuances of job searches. You may be able to find another job easily, but an impressive job history could get you an even better one than you had before.

Do you have a college degree relevant to your job?

Yes: +10
No: +0

Comments: A college degree instantly makes you more marketable than a mere high school graduate. This is true for virtually every job out there, even though for many of them a degree is just a piece of paper and the real learning doesn’t start until you’re actually on the job.

How stressful is your job?

Very stressful: -5
Somewhat stressful: +0
Only a little stressful or rarely stressful: +5
Not stressful at all: +10

Comments: Most jobs are at least a little stressful, but a very stressful job can impact your health and your desire and ability to work.

Does your job take up too much of your life?

Yes: +0
No: +5

Comments: I bet a lot of people for whom the answer to this question is really “yes” will still answer “no.” Many of us must sacrifice our free time, our hobbies, our families, and many other things all for the sake of our jobs. A job is meant to give you the means to live, so if you instead live for that job, you’re not really living for yourself… unless you love your job that much in which case you’re probably going to come out of this with a high job status quotient anyway.

Does your job offer benefits or perks beyond your wage/salary?

Yes, many: +10
Yes, some: +5
Not much, if any: +0

Comments: Great benefits are a key ingredient of a great job. Things like medical benefits, stock options, and foosball in the break room are nice perks and act as the icing on your job cake. (I would have used the river and lake metaphor again, but someone just walked in with a yummy looking slice of cake.)

Final Thoughts on Your Job Status

Obviously this is all just a work in progress (because I said so earlier!), so I welcome your comments on the questionnaire, the scoring, or anything else you see in this article. Hopefully I’ve captured most of the important data points into the job status quotient, but I’m sure I’ve missed one or two things, so it’s your job (pun intended) to catch me on it!

Also note that your job status quotient can change over time, so I recommend retaking the questionnaire periodically or whenever you have a major change in your employment situation.

If you answered the questionnaire, you now hold one of the keys to Your Total Measure of Wealth. Coming up, we’ll take look at the next one: your housing status.

Revision History

April 10, 2007. First version (1.0) released!

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.