A single person making 100k+ has a ~90% chance of saving enough in 10 years to retire in a cheap location. That is a life changing amount of money.
Living in a cheap location is also not everyone's dream. It would be life changing for me to retire to Costa Rica, but it would not be a positive change. I live in a pretty expensive city (Seattle) because I like it here.
Also, even if you don't move having 500+k / person in the bank is life changing. The median bay area house is 635,000$ which becomes affordable while saving money. Dual income with a 1+ Million down payment and you can actually buy a nice place.
When you repeatedly refer to being single, you imply that it's the better way to save, whether you intend that or not. And when someone asks about it, brushing off the question by pretending they should have applied rigorous logic to the statement is somewhat... let's say silly. Ability to control a spouse's spending and willingness to relocate are legitimate answers that you make weaker with the attempted logical refutation.
Having 500k in the bank also isn't really life changing if your plan is to spend it on a house. With a high income, you could theoretically save for 10ish years and buy a pretty nice home outright. You could also just take a loan out immediately and live in the same home for those ten years, acquiring equity and tax benefits along the way.
Saving to buy outright or mostly outright only makes sense if you are either extremely risk averse or you believe that non-real assets will appreciate much faster than real assets over the medium term. Right now you can get a super jumbo loan at less than 4%. If you want buy a million dollar home and have a million dollars in cash, it's really not a given that you should buy the house in cash. That implies that you believe the stock market will do worse than, say, 3% (reduced due to tax advantages of mortgages and disadvantages of capital gains) for many years.
Further a 100k income simply can't afford to buy a 900k place. 900k * .06 = 54k/year + taxes + repairs + insurance + utilities. Put a 500k down payment on that and suddenly it's a 400k place and much higher taxes. Now you might be able to swing 900k that with a roommates, but again not having them is a major life change.
I mentioned that in another fork of this thread but was being facetious. Adults do not generally share a bedroom unless they're in a sexual relationship. Sharing a bedroom platonically is not a reasonable thing to expect people to do to save money. Sharing an apartment, yes. A bedroom, no.
> Further a 100k income simply can't afford to buy a 900k place. 900k .06 = 54k/year + taxes + repairs + insurance + utilities. Put a 500k down payment on that and suddenly it's a 400k place and much higher taxes. Now you might be able to swing 900k that with a roommates, but again not having them is a major life change.*
Your numbers don't make sense. First, if you're paying 6% on your mortgage, you're overpaying by a ton. Assuming you even try to get a decent rate, you're looking closer to 3% once you factor in the tax advantages. Second, if you can save 500k in 10 years, you're saving close to 50k/year plus paying for housing. So it's a lie to claim you cannot afford 54k/year in house payments.
You do get to deduct interest, but you lose out on the standard deduction you can also play a lot of games with savings. Things like not taking a car loan because use can pay with after tax money saving on the loan and paying less for the car. Financing your own credit card saves money where if your house poor debt is just a fact of life etc. You can also more safely have a high deductible health insurance.
Also, you get interest on savings so your not saving 50k per year to get 500k in 10 years.
Interest on savings is negligible. If you take the highest money market rates, you'll get just north of 1%. If you stick the money in a 5-year CD, you'll get 2% and lower liquidity. Meanwhile the housing market is rising faster (how long that's sustainable is unknown).
I'm not sure what you're talking about with the car loan. If you think it's worth having a cushion of cash in the bank (I certainly think so) so that you can do things like buy your cars in cash, then saving for 10 years so that you can dump all the money into the house is a terrible idea because you've just lost your cash cushion. (Your best bet for saving on cars is to just buy fewer of them anyway.) For the high-deductible insurance, you only need a few thousand in the bank to take the risk out of that. You need enough cash on hand to cover your deductible. After that it basically looks like any other insurance plan. And certainly, a larger cash cushion makes copay/coinsurance easier to handle, but that's not specific to high-deductible insurance.
If you think you should live far beneath your means as a general rule, I can't argue with that. There's no compelling argument for why you should spend all your money if you have the option to save. It insulates you from risk and allows you to retire sooner if that's your goal. But if you are living far beneath your means so that you can just dump all your savings into a house in 10 years that you could afford today with the same income, I think you're wasting your time, especially in a market like SF where home prices are increasing so rapidly.
Also, I am basically assuming your going to get raises over time. So your initial 100k salary might be 150k in 10 years. Thus ~35k savings in your first year + 4% net interest (inducing things like that car loan) and cost dollar averaging etc and 4% more savings next year = 500k at the end.
As to housing prices, they might go up or stall. But, because your not in the market you can time things to buy when the market dips. Further, rent control means renting is divorced from increasing housing price changes so you gain a lot of the upside with fixed payments even if prices increase without the downside. Further, if prices fall you can rent somewhere else.
The truth is people are rarely going to do this, but people are also rarely going to hit big money from a startup.
This is all hypothetical and a really bad plan for increasing your overall wealth. Car manufacturers are the ones who subsidize the loans. If you see a 0% loan, it's not the dealer who's giving you that, so it's entirely likely that paying in cash will save you nothing. Those 0% loans are also for new cars (I've never seen them for used cars) and if you need to save a few dollars, buying used will do far more for you anyway.
> Thus ~35k savings in your first year + 4% net interest (inducing things like that car loan)
You can't just assert 4% interest and hand-wave it away with "things like that car loan". That's double the interest you'd get on the best 5-year CDs. So somewhere you need to account for that extra 2% interest and how it's going to compound for 10 years. You aren't buying a car every year even if that somehow would double your effective interest. Also, if you buy a car outright, it's presumably coming out of that 35k anyway. So no, your numbers still do not work.
> As to housing prices, they might go up or stall. But, because your not in the market you can time things to buy when the market dips.
Good luck with that. Timing the market is a really bad bet. There's no guarantee that the market will dip during the next 10 years. It could maintain growth for 15 years, or plateau after 5, or crash in 1 year (while you're still saving) but rebound and keep growing for another two decades after that. There's also no guarantee that it won't dip 20% as soon as you decide you're buying at the bottom.
> Further, rent control means renting is divorced from increasing housing price changes so you gain a lot of the upside with fixed payments even if prices increase without the downside. Further, if prices fall you can rent somewhere else.
Lots of places don't have rent control. Also, rent control might help your rent stay "low" (it's definitely not actually low in the bay) but it won't make buying more attainable. Again, if you want to rent because you think it's a better strategy than buying, go ahead. But renting while you try to save a half million in cash to buy a house seems like a really bad strategy. Saving aggressively is generally a good idea. If your goal is homeownership, though, saving to buy in cash has not looked like a good strategy since the government started incentivizing mortgage loans.
As to ROI the car thing saves you around 6% meaning you need less than 4% from everything else to average out. Other options including dividend stocks are very likely to provide 4+% over 10 years ex Coca Cola. Is that 100% well no, but you can also make well over 4%. 450k or 650k is not a major issue vs. being yet another person who pasts on HN 10 years in startups and nothing to show for it.
Much like risking buying a house for the market to drop 40% in 10 years.
I don't know where you're getting the 6% number for buying a car in cash. That's definitely not going to happen. You could get a car loan at a better rate than that from a bank and pay the dealer in cash. Bankrate.com is showing me a rate below 3% for financing a new car over 5 years.
Your belief that you can do better than 4% in the market is exactly why it does not make sense to save and buy a house in cash. If you have 500k in cash and have the option to dump it into a house or dump it into the stock market, and you believe the stock market will perform significantly better than real estate, then you are wasting money by dumping it into the house. If you believe you can get, say, 6% in the stock market, then taking out a mortgage at 4% lets you earn 2% extra each year.
Buying a house was an example of a life changing thing you could do with 500k even with a six figure job. And no you can't buy a house at 100k with zero savings in the bay.
Sure, that's true long before you randomly hit ~500k, but that was chosen as a 'good' return from joining a startup that does not become Google as a non founder.
PS: As to returns, if you can't get 4+% retirement get's a lot harder. 1.04 ^ 40 = 4.8x So, 10% is not even close to cutting it. At 2% forget about it. Best of luck.
Back on topic, we did go down an odd path specifically about the house. My initial point really boils down to what you want to do with the money. It could be very life-changing to save $500k in ten years and retire somewhere cheap. If you're just going to buy a house, it's really not that life-changing, both because you can do that without 500k in cash, and because owning a house is really not that different day-to-day from renting.
I'm not clear what you mean when you say "10% is not even close to cutting it". If your retirement goals depend on a >10% return, you're likely to be disappointed. The S&P 500 has only been ~5%/year for the past 10 years, and that's before accounting for inflation. It wasn't doing so hot before that, either, with ~4%/year over the last 20.
Giving up 500k in salary for a chance to make 500k in stock is a terrible bet. Alternatively, only save up 100k in 10 years, go to Vegas and bet it all at slightly negative odds. You can set things up for a 20% chance of getting ~500k which is better odds than many startups while still having more day to day money.
Wouldn't the employer insist on paying in the local salary range?
Do they have good schools in $cheap_location?
Anyway, if you compare starting a family with ~1M in the bank and 1 income at 50k vs. dual income 220k in the valley and no savings outside of home equity there are benefits on both sides.
This is an outlier and, in my opinion, not representative of any useful demographic for this discussion. The idea that you bank $100k a year (let's even through in compounding) is certainly feasible, but not common.
If you are single, living in the bay, and making 100+k and not saving like a bandit it's because that's your choice.
If you consider Walmart and McDonalds employees then that's a large part of the us population.