Wealth Goal (Based on Amount)

Reasons for Investing

Personally, I believe investing is one of the ways to become wealthy. Currently, I am primarily focused on stock investment, but if my goals are achieved or I find a better method, I believe I will pursue other investment opportunities. So, how much money do I need to make through stock investment to consider myself wealthy?! Since I'm not paying much attention to stock trading through the robot advisor, I've started to think more about my fundamental goals.

Checking Expected Net Worth

The book "The Millionaire Next Door" provides information on the amount based on the wealth equation that is worth referring to.

Multiply your pre-tax annual realized income from all sources excluding inherited wealth at your current age.
Divide the result by 10.
This figure, excluding all inherited wealth, is your expected net worth.

It's a simple yet powerful standard. If this result falls within the top 25%, you are a PAW (person of accumulated wealth), and if it falls within the bottom 25%, you are a UAW (under-accumulated wealth). While it's hard to determine whether the result is within the top 25% or bottom 25%, if it exceeds twice the expected value, it is within the top 25%, and conversely, if it is half or less than the expected value, it is within the bottom 25%, allowing you to assess your current situation. This standard was surprisingly high for me, and while it was shocking, it also served as a catalyst for me to recommit myself.

The definition of net worth states that it is the current asset value minus liabilities. Typically, the house you live in is excluded from assets (and the mortgage debt associated with it is also excluded). My current net worth is around 0.2 billion won. Most of my assets have gone towards buying a house, resulting in a truly meager figure. After calculating this, I've only confirmed that I'm at the very bottom of the UAWs. Fortunately, the book doesn't just end with a harsh reality check but also provides the next steps.

How to Increase Net Worth

The emphasis is on saving, saving, saving. It states that this is the only way to increase net worth. In fact, the first thing that came to mind when thinking about how to increase net worth was to increase realized income. Since increasing realized income increases the expected net worth, it's important to avoid increases in earned income that result in high taxes, and be cautious about excessive consumption to maintain a lifestyle commensurate with your income. By saving, you can increase the assets you can invest, and by consistently increasing them, you can become wealthy. Unfortunately, this isn't a method for getting rich instantly. However, through this step, I was able to simulate when I could potentially become wealthy, how much I need to save to achieve it, and how well I need to invest.

Let me list the assumptions I made.

I have an annual income until the age of 65. Under this condition, if the increase in assets through investment is guaranteed, the lower the annual income, the lower the expected value. While the book emphasizes that most PAWs didn't have high annual incomes, I assumed a 5% annual increase in income up to 100 million won for the sake of difficulty, and assumed the same income thereafter. (To repay the mortgage for 30 years, I actually need to work for 3 more years. Haha!)
I need to leverage an initial investment of 100 million won and achieve a 10% compound annual growth rate for 27 years. If taxes reduce the amount of profit or I fail to achieve that return rate, I need to cover it with other income to enable compounding.
Then, my net worth at age 60 would be approximately 640 million won, and I could become wealthy. However, as mentioned earlier, a PAW needs to achieve twice the expected value, so under this assumption, I cannot become a PAW within the age of 65. Based on the same assumptions, I'd have to endure for about 8 more years to become a PAW.

Even though I think the assumptions are unrealistic, the belief that I could become wealthy if time passed as assumed has emerged. Furthermore, if I can improve the results of the assumed variables at every moment, I can become wealthy much faster. If I can consistently make good investments and achieve an annual return rate significantly higher than 10%, I can accelerate it, and if I can increase my annual income and allocate most of it to investment, my investment capital will increase significantly, thereby enhancing the compounding effect.

As a result of this, several things I need to do to become wealthy have been identified.

I need to generate household cash flow through savings.
If all family members share the same mindset and work together, we can save more than we are now.
I need to find investments that can yield over 10% annually for about 30 years.
To do this, I need to study a lot and go through necessary trial and error without incurring significant losses.
I need to create a structure where I can allocate most of my increased income to investments.
Increases in my main job's salary have limitations in terms of input versus output, and it's not a good income structure because taxes are deducted first.
Therefore, I need to prepare to generate business income.
It won't be easy, but through this contemplation, my goals have become clearer. I won't just stop at thinking but will take action.

Fighting until the day I become wealthy!!