Another way to look at savings (savings vs lifetime earnings)
Just some food for thought.
Saving is a long term commitment, but I usually only think of it in the short term. How much am I going to save this month, what percent of my income did I save for the year, etc.
But since it is a long term commitment, a long term benchmark is needed to compare it too. What if you compare your savings to your lifetime wage earnings? Most people work for a living, and their paycheck is what they consider “real” money. Investment returns, gambling winnings and real estate appreciation is “free” money to most people.
To calculate this benchmark, take the current valuation of all long term savings and divide by the sum of “real” money earned over the years. The easiest way to calculate this would be net worth divided by social security income (since they provide you with an earning history), as long as your income falls below the SS limit.
Now this number by itself is just an interesting bit of trivia, but I bet if a large sample was collected this ratio would be a very strong indicator of financial health. Not only that, it would an excellent indicator of the evaluating the benefit of loans. I am work up a few examples to show the value of this ratio.
Now, I would be surprised if I was the first person to think of this. I did a quick search on “savings vs lifetime earnings” and did not find an fancy analysis on this ratio.
Maybe I will start a wikipedia page called the qbrain ratio and become famous!