...where retiring rich is defined as spending $300,000 annually.
I'd personally move somewhere cheaper once my income no longer depended on my location.
I'd personally move somewhere cheaper once my income no longer depended on my location.
http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/d...
Don't bother to buy it: Get it out of the library and skim it. It's not a difficult read and it belabors its own point a bit. My own summary:
The secret to retaining a high net worth is the same as the secret to accumulating it: Control spending. Don't waste money.
Most of the people you know who look like they're wealthy -- fancy cars, country club memberships, stylish clothes -- are actually spending money as fast as they can get it, or faster. They have no savings and are living paycheck to paycheck.
Meanwhile, many of the wealthiest people in your town are wearing four-year-old work clothes and driving ten-year-old trucks that they bought used.
It doesn't do your future any good if you make $300k per year and spend $325k per year. Contrariwise, if you make $75k per year and only spend $50k per year you'll be a millionaire in under forty years.
Of course, fast cars and country clubs are all superficial, but being a miser just so you can die with millions isn't that much better...
That's one very good reason why plenty of rich people are seen as 'misers', if they let it roll then they'd stop being rich pretty quickly.
The secret to that is to not make it plain what your financial situation is and to live well within your means.
There's a sense in which dollars saved are like tax-free income.
You can belong to a country club and still live within your means.
You can certainly drive a fast car and live within your means. Fast cars can be bought for well under $10k, especially in California where a fast car can last for thirty years and more without rusting. Most of the stuff on more expensive cars is just bling, or comfort features that have nothing to do with high performance.
What you have to do is pay attention. Don't spend more money than you have. Don't spend at an unsustainable rate. That doesn't mean "spend no money at all". There's a happy medium there.
And you don't have to be a miser. Though, in fact, you probably do have to die with millions, or at least several tens of thousands, unless you plan your own suicide and stick to that plan. To ensure that you're living as comfortably on your last day as your first, you need a bunch of money in the bank. And you don't know which day will be your last. So, die with a million in the bank and endow an amusing trust fund in your will.
A $10K fast car you buy might cost you a good bit of money per year to drive and keep in shape. Especially when it's thirty years old.
That's mostly the reason it's only $10K to begin with (and the fact that the market for impractical cars is not too large).
sure if you buy some unreliable piece of crap...but there are plenty of fast cars that only require regular oil changes to keep in shape.
granted there are different definitions of fast, some people are fine with 14 second cars, others need 12s...and others don't consider anything fast that doesn't run 10s.
But overall, $10K is plenty to get yourself a reliable 6-7 year old car that's quick/fast.
It is marginally less fuel efficient than many cars, despite its tiny size, and one does go through tires when one is tearing off the starting line at the entrance ramp to 101. Fast cars are more expensive than regular cars. But not necessarily much so.
Of course, if your definition of a fast car includes the word "Chevy" or, god help you, "Porsche" I take back everything I said. ;)
People that drive those usually push them as far as they'll go (and further) whenever they get the chance.
MR2 is a great little car and about as reliable as sports cars come.
The average 2010 soul-less imported sedan will easily show its taillights to a 1986 MR2 in a stop-light grand prix (and most will give the MRS2 a good run).
I drove this little thingy for years: http://pics.ww.com/v/jacques/cars/copen/dscf1074.jpg.html , 700 cc, not even 80 HP and an absolute hoot to drive. On the straights not the fastest car (about 175 real km/h), but very quick of the mark because it's so light and absolutely unbeatable in corners.
It's also RHD which helped a lot in not having it stolen.
Most fun I've ever had driving a car.
Or you can live a little bit cheaper, still doing most of that stuff but maybe skipping out on the country club membership or something, and become a rich old guy who can leave a huge estate to his kids... and still not be a miser.
The key is to position yourself in that middle ground.
And so on. You don't really have to eschew the pleasures of the flesh entirely to be a "miser" nowadays; you can eat well (cooking yourself), drive adequately, be entertained for a reasonable price, etc, and still save enough money to retire comfortably. You do have to avoid credit card debt, not overcommit on your housing, and there's some tricks and issues (can you psychologically deal with having $10K+ in the bank without spending it, without relenting on the discipline?), but the days of actually facing the choice you outline are gone for most of the people who would be on HN in the first place.
Oh, recently internalized "trick": Take all "monthly fees" and mentally multiply by 12 to get the yearly cost, then treat that as the real cost. $24.95 a month for a service may sound reasonable; does $300 a year sound just as reasonable? I've been using this as part of my cell-phone upgrade resistance; there's a lot of ways I'd personally rather spend $300 than on a cell plan upgrade, up to and including not spending it at all. My Netflix savings is ($70 - $9) x 12 yearly, or $732/yr. My only regret is that I didn't do it about a year earlier!
This approach may not scale, and may carry certain other disadvantages. (I like the Michigan part, honestly, but your mileage most assuredly may vary.)
Millionaire next door is more for people running a landscaping business in the suburbs, and saving every extra dollar instead of blowing it on a new home theatre system or an expensive vacation to somewhere that isn't as boring.
I.e. it's more for lower middle class people trying to get a leg up. In my experience it's better to become a "millionaire next door" ... next door to multimillionaires or billionaires. It's way easier if you're around a bunch of people with a lot of extra dough.
I hang around with two distinct groups of people a lot: grad student types with essentially no money and young professionals (doctors, lawyers, etc) with nice, solid salaries. From my experience, it's much easier to not spend money when I hang out with the first group, because they have no expectation of spending a lot of money. On the other hand, you'd feel out of place with the other group if you don't spend some higher base level for doing "normal" things like going out to eat, trip to Vegas, whatever.
I assume this scales if you are just the millionaire and you hang out with multimillionaires.
That's his problem. When we moved to this country, my dad had an H1B visa and was making far below what an entry level Google employee is making. Nonetheless we had quite a comfortable life: rented an apartment in a suburb with a good school. Later, my parents (both of them finally rising to market rate) were able to afford a house and send me to college (two years of community college and then transferring to a university) without taking a penny of financial aid.
This isn't just a rant against the OP and this has nothing to do with "fuck you money" (I have my own opinion on it, but I am not qualified to state it). I am sick and tired of the premise that these days a comfortable family life is two six digit incomes. No, you don't need a private school, no you don't need to live in San Francisco or a New York (try a suburb instead, which also solves the "private school" problem), no you don't need a single family home, no you don't need two BMWs. Even if you don't retire, it makes sense to live below your means to have money available for a rainy day.
If you know how to live below your means than even as an employee (looking to make a few hundred thousand from options) you have the chance of earning de-facto "fuck you money": the sum of money which means you no longer have to accept a boring/stifling job just to have a job; the money you need to take the time off to work on a "science project" (a technical project that doesn't have an immediate business model).
Because the quality of life in US apartment buildings is appalling. I don't want to hear every step that my upstairs neighbors take. I don't need to know when they go to the restroom in the middle of the night. I don't need my downstairs neighbor ask me not to walk after 10pm.
This is ridiculous. I'll live in a US apartment once the sound insulation issue is resolved (hint to US architects: It was solved by 1930 in the rest of the world).
But - I looked at apartment ranking website, and on every single building there will be some very negative comments about noise levels. So I still suspect a more systematic problem.
With that in mind, I tried a few numbers in the spreadsheet. Just to be more "realistic" I dropped the payday back down to $4.5mil. I'm also assuming that the first thing I would do is to pay off my mortgage, so what remains is basically entirely discretionary spending.
On a restrained budget of $50K/yr ($4K/mo), my assets grow faster than I'm spending, and I die with $20M in the bank. On a more extravagant $100K/yr (over $8K/mo), things are a bit closer, but still earning more than I spend and leveling out at about $7M in the bank. The crossover point is about $125K, leaving you broke at 70.
So, I'm going to say that, yes, I really could retire and not work again with a $5-10M payout.
Whilst I also raised my eyebrows at "upper middle class", I know people in that range who have spent rather too much and fallen (not totally) in only a handful of years. They never seemed stupid or excessive. It's probably partly to do with expectations: exactly the bias this article tries to correct.
In a place like San Francisco, a few non-frivolous expenses can add up quickly:
- Your residence. A decent 2 bedroom place in a desirable part of San Francisco will run $3,000 per month in rent, a mortgage will be much higher. We're not talking anything extravagant here, just 600-900 sq ft.
- Travel. Paying for more than one person to travel to visit family/friends a few times a year can easily add up to $1,000 or more per month. We're not talking luxury vacations here, either -- just basic airfare (coach) and accommodations.
- Health expenses. As you earn more, you'll probably be more likely to spend more on optional health items. Things like LASIK for example. Also, as you get older, these expenses will get much larger.
- Kids. It doesn't even have to be private school we're talking about, but I imagine that clothing/feeding/entertaining more than one person adds up quickly.
- Any time/money trade-off. You have a limited amount of time and, similar to health expenses, you will be more likely to spend money to save time as you earn more. Each person's choices will be different here, but again, we're not talking luxury. Maybe paying for parking instead of a time intensive bus trip? Or arranging for laundry service? Or paying an unjust $40 bill that would otherwise take you 5 hours to fight?
Notice there's no talk of fancy cars, big screen TVs, luxury trips, large mansions, or extravagant dinners. I think this is the definition of "upper-middle class" that Tony is talking about. Nothing fancy, but a few things to make your life more convenient.
Tom Wolfe's "Bonfire of the Vanities" (Going broke on a million a year), p.137 "One breath of scandal, and not only would the Giscard scheme collapse but his very career would be finished! And what would he do then? I’m already going broke on a million a year! The appalling figures came popping up into his brain. Last year his income had been $980,000. But he had to pay out $21,000 a month for the $1.8 million loan he had to take out to buy the apartment... Of the $560,000 remaining of his income last year, $44,400 was required for the apartment’s monthly maintenance fee… $18,000 for heat, utilities, insurance and repairs, $6,000 for lawn and hedge cutting, $8,000 for taxes. Entertaining at home and in restaurants had come to $37,000. This was a modest sum compared to what other people spent."
As I said, "I'm also assuming that the first thing I would do is to pay off my mortgage, so what remains is basically entirely discretionary spending." Now, I've chosen not to live in one of those 3 or 4 ridiculously expensive cities. You might not consider spending $3K for < 1000sqft extravagant, but let me assure you that most people do. (Also, FWIW, I have friends with a 2 bdrm apartment, across the street from golden gate park, surrounded by good restaurants, which they only pay $1600 for.)
> Kids. It doesn't even have to be private school we're talking about, but I imagine that clothing/feeding/entertaining more than one person adds up quickly.
You imagine, but I actually live it. Kids don't actually eat that much, and amuse themselves much more easily than people seem to give them credit for. Their clothing is fairly cheap, and since they usually grow out of things faster than they wear them out, you can pick up a lot of stuff even cheaper at second-hand shops.
I certainly enjoy travel, and it's a non-trivial portion of my discretionary spending. My point is not that you need to live live a pauper, just that you don't need as much money as you think to have an enjoyable life. There was a time in my life when I blew through twice what I spend today. And I use that phrase because I literally couldn't tell you how I did it. An attitude of "we've got money; might as well spend it" caused money to seemingly evaporate with nothing to show for it. I don't feel any less well off today. Honestly I feel better and richer knowing that I'm not spending every cent I make.
> Spending 10's of thousands a month is getting up there, but "blowing through" more than $4k per month isn't necessarily an extravagant lifestyle
I don't believe I ever said it was. In fact, I called $4K/mo a "restrained budget". Meaning I would need to pay attention to my spending and not indulge in all the discretionary activities I might like.
Exactly! It is surprisingly easy to buy something in a store instead of ordering from Amazon and waiting, for +20%, or taking a cab home instead of the subway/bus, or hiring a weekly cleaning service, or buying nicer ingredients and eating out at nicer places because it's convenient, or, ...
Its all the little things in life that really make your experience better and allow you to do the things you want to be doing, not the big ticket items that people traditionally associate with wealth. I think that that is what FYM is all about, really
I'm starting to think there's some major psychological division here; why is it so hard for you to imagine having willpower, or for me to imagine not having it? I'd like to say it's just that there aren't that many more things I want, but perhaps that feeling is a higher function of willpower, and I've just conditioned myself not to want things I can't afford. If this kind of cognitive shielding is involved, it might partially explain why the two sides have so much trouble relating.
Yeah, how do those plebes manage to raise kids with their pathetic 5-figure salaries...
And, yes, her clothes will get a bit more expensive as she gets older, but I don't expect my spending there will ever more than double. If she feels that she needs more or fancier clothes, she can get a job to pay for them.
I calculated some time ago that ~$4M would be enough for me to never think about money again. I could do anything that I wanted to do for the rest of my life. A key point, of course, is that I could do anything that I wanted to do--I don't want a Maserati or my own private jet or any of the other customary extravagances of the idle rich.
I'd say that most people who couldn't retire on $4M would not be able to retire on ten times that amount--you could give them $1M a year and they'd find a way to squander it. It's amazingly easy to spend money if you have expensive tastes.