Tag Archives: The Millionaire Next Door

Measuring Wealth: UAW, PAW, & AAW

How do you measure wealth?  There are many different approaches to measuring wealth.  Do you have $1,000,000 in the bank?  Some would say that makes you wealthy.  It might unless you have excessive spending habits and spend $1,000,000 or more per year.

Another way to measure wealth is based on years of annual living expenses that you have in savings.  I once read that if you have 10 years of living expenses in the bank, you can consider yourself rich.  If you have 25 years of living expenses in the bank, you are financially independent.  Any dollar amount beyond 25 years of living expenses would make you wealthy.  That scale is logical to me.

One of my favorite ways to measure wealth was created by the late Dr. Thomas J. Stanley.  In his book The Millionaire Next Door, he introduced three categories for people to measure how they stack up as creators of wealth.  Dr. Thomas J. Stanley refers to these three different groups as UAWs, PAWs, and AAWs.

Under Accumulator of Wealth (UAW)

An Under Accumulator of Wealth or UAW is a person who has a low net worth in relation to their income.  A person who is 45 years old, earns $200,000, and does not have a net worth of $900,000 would be considered a UAW.  That formula is based on (Age * Income * 10%).

Most Americans fall into this category based on their low savings rate.  Contrary to popular belief, however, many high-earners tend to fall into this category.  Based on Dr. Stanley’s research, many Physicians are not good at building wealth and are classified as Under Accumulators of Wealth.

You might be thinking, that is nonsense, Medical Doctors are rolling in dough.  How could they not be wealthy?  Yes, doctors earn a high salary.  General Practice Physicians earn around $200,000 per year and specialists earn over $400,000 per year.  How could they not be wealthy?

Doctors come out of school with large student loans.  On average, new Doctors come out of medical school with $167,000 in student loans.  I know of one who owes over $300,000 in student loans.  Doctors are faced with social pressures that members of other professions do not face.  They are pressured to look the part.  That requires living in a fancy housing development, driving luxury automobiles, sending their children to private schools, and joining exclusive country clubs.

I am not picking on this noble profession.  Not all Doctors fall victim to those social pressures.  There are many in the financial community who buck those trends including DocG who blogs at diversefi.com.

Average Accumulator of Wealth (AAW)

An Average Accumulator of wealth would be someone who has a net worth equal to the sum described above.  A person who is 55, has a salary of $150,000 plus $50,000 in investment income, would have to have a net worth of $1,100,000 to be considered an Average Accumulator of Wealth (AAW).  If they have a net worth less than that amount, they would fall into the UAW category.

Prodigious Accumulator of Wealth (PAW)

To be considered a Prodigious Accumulator of Wealth (PAW), you would follow the same formula, but multiply it by two.  From the example above, the formula would be (Age 55 * Total Income of $200,000 * 10% * 2).  In order to be considered a PAW, this person would have to have a net worth of $2,200,000.

Age is a Factor

This formula is better suited for people who are more mature in age.  I read The Millionaire Next door when I was age 26.  At that time, I was a student but had a full-time job.  My net worth at that time was $60,000.  Based on this formula, I was an Under Accumulator of Wealth.  In order to be classified as an Average Accumulator of Wealth, I would have had to have a net worth of $78,000.

This aspect of the formula has led it to be criticized.  In its defense, not many people who are in their 20s are focused on building wealth.  Most are in college racking up debt or trying to pay off debt after they enter the workforce.

In my opinion, a person should not focus on these calculations until they are at least 15 years into their career.  It takes time to build wealth as an investor or entrepreneur.  This calculation is more about where you finish the race as opposed to where you start out.

How to Become a (PAW)

There are plenty of steps that you can take to become a Prodigious Accumulator of Wealth (PAW).  Dr. Stanley has provided a complete outline in The Millionaire Next Door.  Below are some suggestions that will help you to reach these financial heights:

–        Spend less than you earn

–        Save 15-20% of your earnings

–        Invest in equities, bonds, real estate, private businesses

–        Don’t speculate on getting rich quick schemes

–        Invest in yourself by getting a good education and keeping your skills current

–        Avoid luxury items

–        Focus on building wealth for your children


I am a fan of the late Dr. Thomas J. Stanley.  I remember reading about him passing away as the result of an unfortunate car accident the day after it occurred.  His research has helped to spread a message that just about anybody can build wealth if they follow some basic principles and practices.

The UAW, PAW, and AAW classifications do receive some criticism.  It takes hard work to become an AAW and very hard work to become a PAW.  As many of my readers know, I am transparent about my income, net worth, and approach to investing.  With that, we are firmly planted in the Average Accumulators of Wealth (AAW) category.  We will not be in the (PAW) category for some time.  Being an Average Accumulator of Wealth (AAW) at this point in our life has allowed us to reach financial independence and one day retire early.

Are you a UAW, PAW, or AAW?  Use this calculator to find out.

What is your opinion of the formula that determines these classifications of wealth?

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My Uncle Xavier: Veteran, Millionaire, Mentor

I have been thinking about writing this post since I started my blog.  As you will read, Veterans Day might be the most fitting day to publish it.  This post is about my Uncle Xavier.  As the title suggests, Xavier was a veteran, millionaire, and mentor to me.  Below is his story and a little bit about our relationship.

Like many members of the Greatest Generation, my Uncle Xavier had humble roots.  He grew up in West Scranton, Pa during the Great Depression.  His Father owned a small corner grocery store.  His mother was home-bound because she went blind at an early age from diabetes.

After high school, there was not much opportunity for Xavier.  He lived with his parents when he was in his early 20’s.  Jobs were hard to come by in those days.  He used to tell me about taking the Laurel Line Train from Scranton to Pittston to work at McCrory’s Department Store.  He described the scenery as “the outskirts of hell” as the train would pass by the stripping pits where coal was once mined.

When Xavier was age 26, he was drafted into the U.S. Army.  It was the early 1940’s and the world was at war.  While in the Army, he served on 2 major theaters in Northern Africa and in Europe during World War II.  Even though he saw horrific fighting, he spoke highly of his time in the service.

After the war ended, he returned home to Scranton, Pa.  While the economy was booming for most of the country, the good times skipped Scranton as they always seem to do.  He could not find a decent paying job.  He decided to take advantage of the newly created G.I. Bill and went to The University of Scranton where he earned a BS Degree in Economics. He then moved to New York City and went to graduate school at NYU.

My Uncle was a straight-laced guy.  He did not enjoy living in Greenwich Village all that much.  He said the bohemian crowd was not for him.

Following graduate school in New York, he decided to move to the Washington D.C. area.  He said that there was a tremendous amount of job opportunity there.  He had an easy time landing a government job because he was a veteran.

While in Washington D.C., he met and married my Aunt Ann.  They both worked for the State Department.  They settled into a townhouse in Arlington, Virginia.  He said it was a great investment because it was near a new Metro Station.  They also bought a weekend house at Bethany Beach in Delaware.

My Aunt loved to travel.  She made my Uncle Xavier join a travel club.  They took many trips to Africa, Europe, Asia, and South America.  They were truly jet-setters.

Even though they lived the high life, my uncle was a great saver and investor.  This was many years before index funds were available to individual investors.  My Uncle invested his money in blue-chip stocks.  He was a big believer in the consumer staples sector.

My dad would talk about Uncle Xavier from time to time, but I do not remember meeting him until 1998 when I was age 21. He moved back to the Scranton area because he had to move his wife into a nursing home and wanted to be closer to the family.  One Saturday evening, he called my dad and said that he wanted him to come to his apartment to talk about money.  He brought me with him for the visit.

It was a surreal meeting.  My Dad was an Accountant and he wanted him to be the executor of his will.  He also needed help picking out a PC because he wanted to track his investments online.

When we were at his apartment, he showed my dad his investment portfolio.  He had $1.8 million dollars invested in stocks with Merrill Lynch, tax-free bonds with Fidelity, and mutual funds with Vanguard.  I think my dad almost had a heart attack when he found out he was worth so much money.

I never met a millionaire before.  I was taken aback.  It felt surreal.  I thought that this would be a great opportunity to learn more about the markets.

Moving forward, my dad felt obligated to spend time with Xavier.  It was truly a pleasure to hang out with him.  We went out to the local diner for breakfast almost every Saturday for many years.  We took him to see a Notre Dame football game at FedEx Field in Washington D.C. and my parents took him to Las Vegas twice.

I was already saving and investing for over one year when Xavier came into my life.  Meeting him enhanced my desire to become financially independent.  He taught me so much about living below your means and investing.  He was worth almost two million dollars and lived in a one-bedroom apartment.  He spent his days reading the Wall Street Journal, watching CNBC, and taking two trips per day to the nursing home to have lunch and dinner with his wife.

Uncle Xavier was in my life for seven years.  I spent a great amount of time with him.  Other than going out to eat, I would take him to his appointments as he was getting older.  I was in college, so I had some free time to do so.  My Aunt passed away in 2001 and he passed away in 2004.

I have experienced death before, but never mourned anyone the way I mourned when he died.  It hurt.  I felt like I was punched in my chest.  I remember crying for a good 10 minutes when he passed away from a heart attack.

I miss him.  It has been a while since I gave him this much thought.  He was my Uncle, but also my friend.

While other 21-year old kids were out messing around, I was learning how to live and be a man from a guy who truly was the millionaire next door.  Spending time with Xavier has shaped my life.  I am truly grateful for the time that we spent together.

I hope you enjoyed this special veteran’s day post.  It is a tribute to my uncle, my father, as well to all the men and women who served in the armed forces.  Thank you all for your service.

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Wearing Success on Your Sleeve

“Wearing success on your sleeve”.  That is an interesting phrase.  My close friend Chris told me a story about when he was a teenager. When he was 16, he had a job working at Burger King.  With his first paycheck, he bought a 14-ct gold bracelet.  When his dad saw the bracelet, he asked Chris why he wanted to “wear his success on his sleeve”.  Chris was just a teenager and wanted to be cool.

Chris’s dad is a highly successful personal injury lawyer.  He earns over $400,000 per year, but you would never know it.  He drives a 5-year old Toyota Camry and lives in a modest house that was built in the 1960’s.  He suggested to Chris that it is not wise to display your wealth for others to see.  He said that it just stirs up economic envy in people.  In other words, don’t make yourself a target.  There are people who find it easier to rob you than to work to buy their own stuff.

Over the past year, I have read a few articles on Stealth Wealth.  There is a great post on The Retirement Manifesto as well as Financial Samurai about this topic.  Both articles provide some tips as to why you should not wear your success on your sleeve.  Below are the reasons why I feel that it is smart to be stealthy when it comes to your success:

Be Classy

In my opinion, it is not classy to talk about how much money you have or to put it on display.  It is like talking about religion or politics with other people.  It is polarizing.  Even if you have a college education and a professional career, it will not make you more popular at work, with friends, or relatives for them to know that you can afford to buy fancy stuff.  It will just make others feel envious while you pump up your ego.

Are You Wealthy

To be considered wealthy, you need to have zero debt and have 25 years of living expenses in savings.  Yes, you might have a good job and a large salary.  Don’t confuse a healthy income statement with a healthy balance sheet.  If you do not have 25 years of living expenses in savings, you should be focusing on acquiring wealth and stop pretending to be something that you are not.

It is None of Their Business

I am a private person.  I have a few close friends and relatives who I chat with often.  I have learned that they do not need to know my business.  It is fine if they know that I am passionate about personal finance and ask me for financial advice, but they do not need to know the details of my situation.  Maya Angelou wrote that “only equals make friends”.  If they know that we are in similar income brackets, but I have more money than they do, it could only hurt the relationship.  I value these relationships too much to put them at risk over something like that.


I do not want to be robbed.  Big houses, fancy cars, and other forms of bling will draw attention to you.  As a fisherman, I know that shiny lures attract predator species of fish.  Humans are not different.  Shiny objects attract predator species of people.

By driving a modest car and living in a modest house, you are more likely to not be detected by criminals.  You and I might know that people who lease European luxury cars and live in upscale housing developments tend to not be wealthy.  They just appear to be wealthy due to their financed success.

Odds are, most criminals do not read personal finance blogs or books.   They do not know who the true millionaires are. They just see people with fancy stuff and want to take it.  A criminal would be much more interested in jacking the BMW X5 that my neighbor drives than my Subaru with 130,000 miles on the odometer.

There’s an Accounting Coming

I am a big fan of the TV Show Fargo.  In episode-4 of season-3, there was an exchange of dialog between the antagonist V.M. Varga and the victim Emmit Stussy that captures the importance of stealth wealth in a way that is based in both fantasy and reality:

V.M. Varga: You see it, don’t you?  Millions of people bought houses they couldn’t afford, and now they’re living on the streets.  Eighty-five percent of the world’s wealth is controlled by one percent of the population.  What do you think is going to happen when those people wake up and realize you’ve got all their money?

Emmit Stussy: Hey, I just charge for parkin’!

V.M. Varga: You think they’re going to ask question when they come with their pitchforks and their torches?  You live in a mansion.  You drive a $90,000 car.

Emmit Stussy: It’s a lease, through the company!

V.M. Varga: Look at me.  Look at me. This is a $200 Suit.  I’s wearing a second-hand tie.  I fly coach.  Not because I can’t afford first – because I’m smart.  So, look at you, look at me, and tell me who’s the richer?

Emmit Stussy: Well, I-I feel like this is a trick question.

V.M. Varga: There’s an accounting coming, Mr. Stussy, and you know I’m right.  Mongol hordes descending.  Now what are you doing to insulate yourself and your family?  You think you’re rich.  You’ve no idea what “rich” means.  “Rich” is a fleet of private planes filled with decoys to mask your scent.  It’s a banker in Wyoming and another in Gstaad.  So that’s action item one, the accumulation of wealth, and I mean wealth, not money.

Emmit Stussy: What’s action item number two?

V.M. Varga: To use that wealth to become invisible.

Does life imitate art or does art imitate life?  I think that it is a little bit of both.  The Mongol hordes are not the second coming of the Bolsheviks.  These hordes are already here.  Some might be closer to you than you realize.  They are people who want to take what you have.  They are the ones who confuse your effort, sacrifice, and intelligence for luck.  They feel entitled to judge your financial success and see it as a negative.

No, the author of The Financial Journeyman has not become an extremist.  I am as moderate and apolitical as ever.  My goal is to reach financial independence and to help you do the same.  To reach that goal, we must make both smart and safe decisions along the way.

I do, however, love the great dialog that the Coen brothers produced in Fargo.  The above dialog from Fargo is meant to drive home a point.  That point is to focus on building wealth, protect yourself, and don’t buy things that will draw negative attention your way.


Wearing success on your sleeve is not a good idea.  It can alienate you from the people who truly matter to you.  It also draws attention from undesirables.

Instead of wearing your success on your sleeve, practice stealth wealth.  The best way to do that is to assimilate into your community.  Always try to blend in.  Be unassuming.  It is better when people do not give you a second look.

It is also helpful if people like you.  Gain popularity by being humble.  Show empathy for others.  Develop a positive reputation by volunteering, being charitable, and by being a good neighbor.

You had to be prudent to build your wealth.  You also have to be prudent to keep it.

Please share how you practice stealth wealth in the comment section.