To truly become rich, you need to stop acting like it
washingtonpost.com
washingtonpost.com
In other words, it sounds like a sermon on loving money for itself instead of loving it for what it can buy you. Or, if you read it charitably, it's a sermon on loving security more and short-term pleasures less. As much as I sneer at expensive fashion and gravitate toward the <$10 wine bin at the grocery store, this article strikes me as nothing but unhelpful moralizing. Yeah. I get it. If I don't spend money, I'll have more. Yeah, I really, really get that looking good and living it up is a vacuous pastime -- I'm totally with you on this one -- but it's the most common passion on the planet, and it's a cop out to tell people to stop enjoying the one aspect of life that gives them the most pleasure and call it financial advice.
I once went to a nutrionist and she ask what I eat for breakfast; I told her and she said "you know how many calories were in that bagel?" and I told her. She looked puzzled, then I told her "I wasn't fat because I was stupid"
Behaviors with food and even money are learned early on and until people choose to unlearn them; they will be fat and poor.
>Everyone know what kind of food to eat, they just don't.
I think the world you're looking for here is "ignorant". They know. Stupid is knowing what to do and still doing the exact opposite. And I point this out as a stupid person (about some things).
Unless they learned the "correct" behaviors early on. In that case they have the luxury of not thinking about the basics and expanding upon what they already know. Privilege comes in many forms.
If so, then getting the word out may actually help people make better decisions. If they still want the BMW for other reasons, fine.
It is not just about spending less, it is about getting people to realize that rich people do not do show of there riches buy buying crap. (86% of luxury cars are owned by people with less than <$1m). So maybe you should not buy that crap either?
It is only a recent event that we have become such a consumer driven society, just after WW2 when we had all this extra factory producing capabilities (due to the war), and the advertising industry really kicked it up a notch.
Some people are buying nothing but garbage (there are whole markets based on selling garbage), but I think right now there are also people trying to move the money they have right now into some other source they trust more. If you try to build a house in Switzerland right now be prepared to wait. A lot of people have emptied their pensions to build houses (they cost a lot in Switzerland) since the crisis hit.
What a lot of people don’t realise is that “short-term pleasures” cost a lot more when you’re older. In your 20s and 30s, you don’t need much more than a computer and a bicycle to be perfectly content. You have lots of energy to work, study, take cheap outdoorsy vacations, and cut your own lawn. But at some point, you start to find those things significantly more wearisome. That’s when it’s really nice to have the financial freedom to quit your job, eat in good restaurants, and outsource all of your home maintenance. By far the majority of people won’t achieve that level of financial freedom unless they defer a large proportion of their income from the first half of their career to the second half and to retirement.
Evidently, many people must overcome significant psychological obstacles to save their money. That’s why there are so many personal finance books trying to explain the same idea in different ways. Some emphasize the time value of money. Others, how expenses tend to increase over one’s lifetime. Stanley tries to reduce the urge to spend by showing that many big spenders are not actually rich or financially secure. The success of “The Millionaire Next Door” seems to be evidence that a lot of people find this approach helpful.
If the same people then don't end up complaining that they have no money left, fine.
Secondly, there's a lot to be said for peace of mind. Who is richer: someone who lives in a fancy house and constantly worries about losing it, or someone who lives simply, has no debt, has saving, and can basically do whatever they want?
Wealth is the extent to which you can let things alone and still be comfortable.
For example,
86% of all luxury vehicles are driven by people who are not millionaires
can be rephrased in a way that makes it seem like driving luxury vehicles is a trait of rich:
millionaires are 3x as likely to drive a luxury vehicle as non-millionaires
I wonder if this is also skewed by the "millionaire" cutoff not being as high as popular culture thinks of it being; the millionaires of 1970s films correspond to $5m+ today, and the millionaires of the roaring 20s correspond to $12m+ today. A huge proportion of people with net worths in the low single digits of millions have almost all their money in their retirement plan plus house, and not a particularly large disposable income. Sure, in theory they could get money out of the 401(k) and blow it, but the fact that it's semi-locked-up and a hassle to get out makes it easier to preserve it.
It's possible it generalizes to higher tiers of the rich, but I'm not that sure. Do people with net worths of $10m+ have similarly frugal lifestyles? Or is this mainly a feature of people with net worths in the $1m-3m range?
Have a million dollar net worth isn't necessarily fun or comfortable, my parents divorced, cashed out the houses and nothing is left, good times.
For what it's worth, my parents got here with dedicated saving: anywhere between $30k-$100k per year for the last two decades. Our investments have performed miserably, and we didn't own a home going into the housing bubble either. It can be done, but it's a lot of hard work.
Anyways, they both have medical problems that no insurance would cover in the past decade (part of the reason for selling the farm). Having just turned 60, they're both sitting on about 150-200K to retire on. One can't look at this as anything except a system rigged towards a Sisyphean outcome.
I suppose your parents or grandparents were suffering so much that they were willing to pay " $120K towards a 1000sqft 1 story ranch"
you know, my soul is shattered to tears that you personally especially have been treated so badly by fortune.
Each of us worked harder than most people who complain about being slighted by the hand of fate. I started working on the farm when I was 10 and continued helping out until I was 19. It ranks below minimum wage. As for my parents, you think that chastising their frugality and having a paid for house within their means is something to mock? Really?
Farming ranks as one of the 10 most dangerous occupations; you can be injured in pretty much any way imaginable. In fact my father was. Once while my brother was in high-school and again when I was. We each did our part staying home from school running things until my father was recovered on both counts. Trust me, 1.2 million over the course of 30 years isn't as much as it would seem.
Do people with net worths of $10m+ have similarly frugal lifestyles?
Or is this mainly a feature of people with net worths in the $1m-3m range?
Or maybe they are just really good at hiding their money from the tax man/census.
This is a good example of one of those stats designed to fool people who don't understand statistics.
According to wikipedia there are ~9.3 million millionaire households in the US representing ~7% of US households. [1] Meaning that millionaire households purchase luxury cars at a far higher rate than non-millionaire households which is the opposite of what this article implies.
The classification of these goods is also confusing. For example, I drive a Lexus IS250 AWD which would be considered a luxury vehicle but actually comes in at the same price point as Toyota 4Runner.
Additionally, the variance in prices between luxury and non-luxury goods is decreasing. A low-end Lexus now costs less than $10k more than a similarly equipped Subaru Outback or Honda Accord, making the difference when it comes to actual affordability pretty small.
...which makes the bottom line even more pathetic. You make your payment on the Honda Accord, and after a few years, you own it. It continues to be drivable, and the amortized cost of ownership begins to decline.
If you hop on the luxury-car leasing merry-go-round, then sure, you get to drive a new car every few years, but the payment never goes away. Meanwhile, you've almost certainly over-paid for the car relative to what it would have cost to buy up front.
When it comes to cars, the financially responsible question is not "4Runner or Lexus?"; it is: "can I live without one?"
For many of us, cars are nothing more than a rarely used, depreciating asset with high maintenance costs that gets us from point A to point B. I'd rather rent one occasionally, and spend the money I save on all of the other things you mention.
If you work on them yourself, sure, then it's not much more expensive.
Oh, also, I'm fairly certain that the German brands are actually a good bit less reliable than the Japanese brands in general. I know that my experience with a less than 10 year old BMW was that it was rather less reliable than my current more than 10 years old Nissan.
I mean, the BMW is a nice car; in terms of handling, I agree that you are getting something for the money. But don't kid yourself. It's going to be quite a lot more expensive than a Japanese car, even if the up-front cost seems reasonable.
Real luxury brands are the ones those of us in the middle class can't even consider buying. Maybach. Bentley. Rolls Royce. Bugatti. I could drive a Lexus today if I wanted. Even a BMW. I don't think I'll ever have enough money to blow on a Rolls.
Moral of the story: being rich and acting rich are two different things.
I mean, if we are going to talk about ridiculous fantasies of wealth, that's mine.
"This is a story about us, people, being persuaded to spend money we don't have, on things we don't need, to create impressions that won't last, on people we don't care about."
It's a brutal cycle — the weddings featured in magazines and online are almost always out of the average couples budget, and what those stories do is create the idea of "this is what you should have". Couples then concern themselves with having the best card boxes, the perfect playlist, hand making favors that will be thrown out the next day by the majority of their guests, because this is what they're told is the right way of throwing a wedding. A one day event that people spend way too much money on because they're persuaded to by this industry.
Weddings and funerals are businesses with huge markups. There is a lot of emotional attachment involved in both, and people will be willing to shell out enormous amounts of money on such events.
Did you know they sell decorative boxes to be cremated in? Nevermind you're never going to see the box, nor will the deceased care which box they're in, all it's going to do is _burn_ but the funeral people are all, "what, you'd burn your father in a cardboard box? How horrible."
Somebody posted a write-up not to long ago. 1000memories, I believe.
Also, as I said elsewhere in this thread, what a woman might say in theory or outside of planning mode is often quite different to how they'll act once things get real.
(Recently married for the second time, FWIW.)
Which is probably why so many marriages end in divorce. If she's not mature enough to know the real purpose of a wedding and thinks it's about having her day to show off to her friends, then she's just not mature enough and she's selfish.
Catch her the second or third time around and see if she hasn't smartened up a bit and if the man's point of view doesn't carry more weight now.
> Recently married for the second time, FWIW.
Good luck with that!
It'd be nice to think that this was intended and took as a spoof of the conspicuous consumption that big weddings are, but I suspect that, considering the target audience, there was a lot of nodding all around.
But the part friends & family still talk about years later is, "Hey, remember when your German Shepherd was your ring-bearer at your wedding, and you sent her running down the aisle? That was great!"
Doesn't take money to be entertaining.
Then again, maybe attending another person's wedding is the actual favour. After all, it usually costs a lot of money to attend a wedding, too.
As several folks told my wife and I, "the marriage is more important than the wedding." Our wedding was wonderful, but simple and cheap - I think about $3,000 (with lots of help from friends). But from the start - from dating to pre-marital counseling to continued investment in our relationship - we've been focused on our marriage itself.
... And possibly only one profession is phonier. Advertising design, in persuading people to buy things they don’t need, with money they don’t have, in order to impress others who don’t care, is probably the phoniest field in existence today.
Interesting chain of "inspiration" :)
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Anti-Consumerism was a main theme in the movie Fight Club. This scene, where Norman describes his "perfect" apartment, will always be memorable to me (partially edited):
Like so many others, I had become a slave to the Ikea nesting instinct. Like a coffee table in the shape of a yin-yang, I had to have it. The Klipsk personal office unit. The Hovetrekke home exerbike. Or the Ohamshab sofa with the Strinne green stripe pattern. Even the Ryslampa wire lamps of environmentally-friendly unbleached paper.
I'd flip through catalogues and wonder "What kind of dining set defines me as a person?"
I had it all. Even the glass dishes with tiny bubbles and imperfections, proof that they were crafted by the honest, hard-working, indigenous peoples of...
...wherever.
At some point spending money now is going to be more fun than spending 10x that much money when your in your late 50's. So, yes plenty of high income people buy nice things, but even if I had invested every cent I had ever revived I would not be a millionaire because I am still to young.
It's different from other cars I've driven like Macs are different from the windows boxes I've used.
I'll probably need to replace the brake pads myself after the warranty runs out, but for another few years, maintenance is supposedly comped.
It's different from other cars I've driven
like Macs are different from the windows
boxes I've used.
The hardware is top notch tho.
The other thing is that on Mac if I install a new program I don't feel like I've just taken N number of months of the life of the OS install (Linux is even better here).
Basically, I'm older now and I don't have time to use a computer for anything other than what I have it for. Every second I have to spend doing administration is a wasted second.
Actually, if I had the time and space for the auto repair hobby, I'd probably get another BMW and maintain it myself; The things aren't any harder to work on than a regular car. You do take a reliability hit, but eh, I could probably live with that. The parts are more expensive, but after market parts are a small fraction of the cost of dealer parts (or what a garage will charge you for parts,) so if you look around for deals, you don't end up paying that much more.
(the auto repair hobby has a lot to recommend itself; It's an easy $90/hr post-tax for doing something that is not very stressful at all.)
Still, in a situation where you are paying someone else to maintain the thing, if you aren't willing or able to pay for a new BMW, (which comes with free maintenance for a period) you probably should also avoid a used BMW. too. This is why used 7 series bmws go for so little.
I don't think I ever got the BMW out of the shop for under a grand. Part of that is the BMW has excellent breaks, and excellent breaks wear faster than mediocre breaks. (apparently the metal dust coming off the pads and rotors are actually an important way to vent heat.) and for some reason, replacing the pads and rotors on a bmw was north of a grand by itself. (It was $250 in parts to do it yourself, and maybe two hours of work.) so I think a lot of it is just "oh, he has a bmw, he must have money" Also, well, the BMW reliability just isn't up to the same standards as the Japanese cars, so you'd have little problems that sometimes required a tow.
I knew a guy who said "I like older cars because I can work on them". And he did. Every weekend. I vowed I would purposely never learn how to work on cars so that I would never be tempted get involved in such a tremendous time sink. The worst thing about the hobby is it tends to insert itself exactly when you don't want to do it.
So really, for any given car, if you work on it yourself, you shouldn't be spending much more time than what the shop would charge you for the same work, and, uh, like I said, $90/hr post-tax isn't something most of us sneeze at. (Of course, if you can sneeze at that, good for you!)
that said, right now I'm taking my vehicle to a professional. the thing is, sure, the car only needs something once every 6 months, if you don't count oil changes (which I usually take in, just 'cause it's worth twenty bucks to not deal with the oil) - the thing is, where I am now, maintaining a garage would cost me more than just paying to take my car in. So yeah, it doesn't always make sense.
BTW, if you've never driven a BMW, test-drive one. They drive like nothing else in this world.
It's funny but you even have to consider this with consumables like toilet paper. If you get the cheap stuff it's practically half-ply so you have to use 3 times as much. Better to get the 3-ply that costs twice as much.
I answered your BMW comment here: http://news.ycombinator.com/item?id=1779306
"The things that you own end up owning you." Tyler Durden
It can be difficult at times, when we see others flaunting their awesome new stuff. We just remind each other that the default behaviour in society these days is to live beyond your means.
Not that we don't have nice stuff. But we limit it and pay cash.
What do we often tell a child who expresses an interest in teaching? "You won't
get rich as a teacher."
Yet, there are more than 350,000 millionaire educators, working or retired
teachers or professors, according to Stanley's research.
Any statistic like that can be bent to make it say whatever it is that you want to say.
Before Henry Ford made the first production automobile even the millionaires couldn't drive them and now such luxury items are within reach of most of the gainfully employed people in large parts of the world. That doesn't mean they should stop doing it, what point is there in having money if you can't enjoy it, whatever floats your boat I'm fine with you having it, but there is a catch.
Here in the EU there used to be a save first, spend later mentality. The only thing people would think of borrowing money for were houses, and if you couldn't afford to buy a house then you would be renting one (or if you didn't want to own a house).
Over the years that has changed, with people spending first their own money, and then their banks money on 'conspicuous consumption'. Cars, boats, furniture, package holidays and so on. Little by little the save-first, spend later mentality has been replaced by spend as much as the bank will let you borrow, worry about the consequences later.
Those people that are buying those automobiles they can not afford are being allowed to do so by lending institutions that are pushing cheap credit, no make that ramming, down peoples throats. That's where the real problem lies, given the opportunity to borrow money at initial rates that are designed to lure people in with the nasty consequences written in very small print in gray on slightly-less-gray backgrounds people will fall for it every time.
Banks are the problem, not the people that think they in fact can afford this stuff.
Can't agree. Banks may be taking advantage of the situation, but speaking as one who used to have a bad habit of living beyond my means, people who do that are the problem.
I understand the temptation too well, having succumbed to it. When one first starts to have some money after not having had much, all the things one has wanted to buy for so long seem much more important than saving for the future. I don't know that there's any way around that; people just have to go through it (many of us do, anyway).
If you want to put some further restrictions on the banks, I'm not necessarily opposed to that, but blaming it all on them is not right.
That makes as much sense as saying carmakers are responsible for auto accidents, not people who think they're better drivers than they are.
There is nothing wrong with cars and the personal responsibilities that go with them, financing is something that most people that are eligible for do not understand sufficiently to evaluate the risk.
Of course the standard capitalist answer is 'sucks to be you, should should have studied harder in school', but the fact is that this out-of-control lending is causing a large amount of trouble.
People should not by default be allowed to borrow this much money for simple reasons such as financial health of the nation and (in)solvency of the banks.
That way, if you can't afford a fancy car you won't be buying it.
Cheap credit has become a way to push the economy forward on money that hasn't been rightfully earned yet, that can't go on forever before it will come back to haunt us, the mortgage crisis is one nice example of what happens when the financial system is rotten. I won't be surprised if there will be another chapter to this based on the amount of credit card debt there and the number of people that find that they are no longer in a position to fulfill their obligations.
If you want a root cause in the UK at least, look no further than Gordon Brown. 1 pound in 4 NuLabour spent was borrowed... And unlike my neighbours fancy car, that debt does affect me, despite having no part of it, aye, and no part of it spent on me either...
http://en.wikipedia.org/wiki/Monetary_policy
http://en.wikipedia.org/wiki/Macroeconomics
Or to put it more concisely, how exactly would you like the government to intervene?
So yeah, it _is_ the Banks who are to blame.
Or borrow and spend, which ought to drive up inflation, but require the BoE to keep inflation low, by artificially holding interest rates low making money too cheap and risk impossible to assess.
I say it again: if you are bank A and you won't lend at a low rate and banks B, C and D do then A goes out of business when its customers desert it for doing the "right thing" and the situation is unchanged. The alternative is for A, B, C and D to get together and fix interest rates (prices) themselves, at which point their CEOs are looking at jail time.
The banks are merely scapegoats for the politicians. And you've fallen for it hook, line and sinker. What would I like the government to do instead? It can start by paying off the deficit...
Or did you mean it should raise taxes to collect more funds, essentially putting a drag on the economy and sending tax-sensitive organisations elsewhere?
Possibly you meant it should print money, causing hyper-inflation and destroying the value of savings and the public's faith in them.
All three options suck, and all three would lead to negative publicity. I think that the government should cut spending on stuff that I don't think is important. But you and I would probably disagree on what stuff that is.
As for the banks model, bank A would probably launch an adversing campaign clearly describing that investing in banks B,C + D is a sure way to loose your money. This campaign (when successful) would make more funds available (term deposits, savings accounts) to A which it could then safely invest.
Note of course that banks A..D are probably not competing on interest rates (they set them all the same) but instead on loan terms. Bank A decides that it is not in its best interest to grant loans to people without security/equity making money instead from 80% mortgages and the like. Bank A looses high-risk, heavy spending customers and attracts risk-adverse savers and spenders.
Or governments can, you know, use the legislature to control all legal economic activity. In particular, the US Congress has power over almost all commerce.
And, post-Wickard, http://en.wikipedia.org/wiki/Wickard_v._Filburn , all potential commerce.
That case involves Wickard producing wheat for his own use. The court decided that his wheat growing can be regulated because he used that wheat instead of buying wheat.
A lower court has upheld the Obamacare individual mandate tax on the same basis. (Since Obama says that the healthcare legislation is one of his significant achievements, Obamacare is giving him credit.)
You are mentioning all of them here. Can we really call these costs "hidden"? Many things in life are hidden from ignorant people. This doesn't mean we should ban them from everyone.
"People should not by default be allowed to borrow this much money for simple reasons such as financial health of the nation and (in)solvency of the banks."
This really just means less freedom for people. The government is then deciding what you can and can't do because you may make an irresponsible and wrong decision. When will it end? Should we ban Mcdonalds because it's making people fat?
"Cheap credit has become a way to push the economy forward on money that hasn't been rightfully earned yet, that can't go on forever before it will come back to haunt us, the mortgage crisis is one nice example of what happens when the financial system is rotten. I won't be surprised if there will be another chapter to this based on the amount of credit card debt there and the number of people that find that they are no longer in a position to fulfill their obligations."
I know so many people that are in Credit card debt (I was also in debt myself..and managed to cut back spending for a couple of years to pay it off). Most of them are there because they wanted to buy things they couldn't afford.
The mortgage crises can also be blamed on irresponsibility. I saw a dateline special where a woman lied on her application to get a house she couldn't afford it ended up going into foreclosure. She blamed the banks. She said they shouldn't have allowed her to get the loan in the first place. It's this line of thinking that is destroying the US.
When most people will _not_ systematically fall into the same trap, get into bankruptcies or lose their homes. We are not talking isolated cases of a couple of idiots, but about 3m foreclosure listings (about 1 foreclosure listing for every 100 people in US).
So a couple hundred thousand people are totally stupid and deserve what they got, but when you talk about whole percentages of the population something else is going on.
Did people all of the sudden get stupid in the last 15 years? Somehow I doubt that.
Nobody minds the government telling them if they can drive, what kind of additions to the their house they can build, watching over so food companies don't sprinkle lead and arsenic in the food. Why can't the government also prevent them from getting stupid loans that, if not checked, nationally (or even globally) will lead to the supposed total collapse of the economy?
There is another general issue we have to deal with and that is the assumption that people are rational, autonomous agents. They will process information logically and make the best possible decision for themselves and their dependents. That sounds really good on paper or if one had to design an agent based AI world. In practice, it turns out, people are not rational. They lack critical thinking skills, they will make many decisions that will eventually hurt them, their dependents and their country.
The real answer is a better education system. But that is a long term solution (and we are already failing that US terribly). In short term I think it is acceptable for the govt. to play the role of a nanny. Otherwise we end up with bigger problems overall: poverty, huge income inequality, lots of sick people, lots of homeless people and lots of angry people.
However, I think a culture of over-consumption leads to the people living very close to that "edge" saving little, carrying a significant credit card balance, trying to keep up with the Joneses (or Kardashians).
They live paycheck to paycheck and making minimum payments on their credit card balances. A 2-month loss of regular income will "kill" many American families. Very few have enough savings to be able to survive 6+ months without employment.
BUT Now when it comes to medical bills no matter how much a middle class family saves, they will probably go under as soon as a serious chronic disease strikes. That is fucked up and is wrong. Especially scary is that many of the medical bankruptcies usually have insurance to start with.
In this case here I still stick to my original point and would like the government to step in and offer a public optione. That is what Obama campaigned with and that is what has been stripped out of the health bill. As far as I am concerned, not having a public option makes the rest of the bill just a handout to the health insurance companies as all 4-5 of them they can un-controllably raise rates to compensate for little regulations and red tape that the new bill forces the to go through.
Better bring a magnifying glass then. I wasn't exactly joking about the 1 point gray-on-gray text. You'd almost wonder if there is something there that they don't want you to read.
IME, there's a big difference between the folks that loan you money with lots of zeros at the end, and the folks that loan you money a credit card transaction at a time.
is not the same thing as
"86% of the non-millionaires are apparently able to afford a luxury vehicle."
http://en.wikipedia.org/wiki/Assembly_line
Whether or not his was the very first assembly line ever or whether it was the first mass produced automobile is of no consequence, then you can replace Ford with whoever was the first in the paragraph above to satisfy your needs.
Another thing that Ford pioneered was the living wage for his assembly line workers, which created a much larger market for his products. That probably was the bigger accomplishment of the two.
Ransom Olds patented the assembly line concept, which he put to work in his Olds Motor Vehicle Company factory in 1901, becoming the first company in America to mass-produce automobiles. This development is often overshadowed by the independent redevelopment of assembly-line work at Ford Motor Company a few years later (see below), which introduced the ramifications of the method to a wider audience.
This confirms my claim.
On wages, Henry Ford has a mixed history. He approved of, but did not originate, the idea of giving everyone a massive pay raise to $5/day in 1914. The reason was to reduce worker turnover, and not, as the popularizations have it, out of excessive concern for worker well-being.
A few years later he was on the other side. After that well-publicized pay raise, Ford was not as generous with workers as other car companies. Furthermore he was one of the most strenuous opponents of unions in business. The stories you sometimes hear about organized crime being hired to bust UAW strikes with very violent methods? They're largely true, and they're about Ford. Eventually the union managed to shut down the River Rouge Plant. According to people close to the situation, Ford was ready to close down his company rather than come to terms with the union until his wife Clara told him she would leave if he did.
Henry Ford is a pivotal figure. But his history is seldom as simple or as clear as popular myth would have it.
All it means is they have money. That's it.
Or, at least, that's what it should mean. Unfortunately, people still talk about cars as if they actually matter, when, in reality, they're just means to an end.
(Yes, I know people can enjoy cars, and they should. My gripe is with the perception of luxury cars as being an inevitable upgrade from other cars for reasons that seem steeped in consumerism.)
So how are you wrong? Let me count the ways. You seem to blame a facet of capitalism (banks) for conspicuous consumption. One, all capital is handled by people. Two, all transactions are voluntary. Three, long term supply equals long term demand--a borrower does not change the allocation of goods simply by borrowing, and does especially not changing the temporal allocation thereof, unless he has a time machine... so you're going to need to change your mental model of how debt and credit work if you want it to make any sense. If banks stopped lending and borrowing, do the big vacation packages and luxury cars just go poof and disappear? How about all the money that was invested before, but now no longer is?
I'm not sure what you mean by hiding the cost of lending, either. I think that phrase should refer to describe the bank's costs, which goes into the interest rate and fees and everyone knows that already.
But I don't think it is just the fault of the banks. I think the biggest problem is that people don't realize how much borrowing money really costs. They don't add up the total interest they will have pay over their loan, they just look if they can afford the monthly payment. If you don't borrow money you are able to buy a better tv, a better car or more luxury goods in general.
The author of this article seems to assume that it's better to actually be a millionaire, even if it means living like the poor. I would think it's better to drive a luxury car (whatever that is) and drink expensive wine, even if you can't afford it, than the other way around.
It's "bad" to pretend, only if it doesn't end well: if you have to repay what you borrowed, and can't -- but if you die before you're bankrupt you win!
Now, none of this means much; it doesn't matter to live like a millionaire, or to be or not to be a millionaire, etc. What matters is peace of mind, happiness, fulfillment.
A subject for another article maybe? Although probably not in the "Color of Money" column.
It seems better to me to be able to buy a fancy car and know that you don't want one, than it is to live in a fantasy world were buying stuff makes you happy.
Going out to a nice restaurant with friends, travelling the world and enjoying good food and fun activities all costs a decent amount of money, yet make me happy. As someone else in the comments said - you should want to acquire money to use towards the things you want, not for the sake of acquiring money.
You like to do free stuff that just involves time. That's great. Other people enjoy restoring cars, going on vacations, building new companies, or food and travel like I do, and these require money as well as time.
Ostentatious and pointless displays of money, or purchases which adversely affect your monetary base should be avoided, but not "just because".
Claiming that my enjoyment of high-quality wine is an illusion because you can't see a difference is just arrogance. The same goes for the consumption of any other luxury good you might not have a taste for yourself.
I've personally been something of a beer aficionado for 5-6 years now, and I've seen this creeping into craft brewing quite a bit lately. Especially after the explosion in the last 1-2 years of mainstream popularity, there's now a very weak relationship between the quality of beer you get and whether you pay $3 or $30 for a 22-oz bottle. Tons of good stuff and crap across the spectrum, and increasingly manufacturers are pricing as a way of status-signaling rather than based on either cost or quality. There have even been cases of brewers rebadging the same recipe from a middle-range beer as high-end premium stuff with a fancy label, and it sells and gets good reviews! (But it doesn't do any better in blind taste tests.)
A single comma makes a big difference to understanding what you meant:
"When I have as much time as I want to work on stuff I like and am passionate about, recreational consumption does almost nothing for me."
Then, if you live by "the less you spend, the more money you'll have" you'll basically end up having a "big number" on your bank account, but nothing of what you really want.
I'd rather have a super fast laptop and a nice clean apartment, and only $8000 in my account[1], than a crappy laptop and a crappy apartment and $50,000 in my bank account.
[1] assuming I have a steady income, and/or can generate enough revenue so that I can keep getting nice things without draining my bank account.
I said that I doubt the correctness of the logic behind "the less you spend the more you'll have".
I think that to generate wealth, you need to spend some amount of investment upfront, and if you're afraid to "pay" for things, (because it reduces the "number" in your account) then it follows that you don't have the courage to invest in anything, and therefore you are not likely to become rich.
I disagree. Once you've learned the basics of investing or stock trading, accumulating capital becomes about increasing your income.
Let's look at your laptop & apartment example.
Case 1: Super fast laptop & nice clean apartment. I can max out a Macbook Pro for about three grand, and a nice 2br apartment in Boston will cost about $3k per month in rent. With your $8,000 bank account, you'll need to earn at least $3,000 per month from your job just to pay for your apartment. More to save up and purchase that laptop, and even more still if you want to afford to eat.
Case 2: Crappy laptop and crappy apartment with $50k. A crappy laptop is about $500 for a really nice netbook, and a cheap apartment in Boston is about $600 per month (for those in Boston, think JP and Forest Hills). Let's invest that $50k in an ETF called "PFF", which currently costs $40 per share and pays a monthly dividend of, on average, .20c per share. That gives you 1250 shares of PFF, for an average monthly income of $250. With $50k, you can buy a $1000 laptop in four months, or pay for almost half your monthly rent.
On a forum where people are constantly trying to generate passive income through webapps and side businesses, I'm surprised people continuously overlook the passive income power of large amounts of capital. $50k can buy you $250 a month for life.
In case 2, the hypothetical person who has all this money but is hesitant to spend any portion of it on a decent laptop is probably scared of the concept of the "number" in his bank account dropping. This hypothetical person would not invest in stock.
If you invest in stock, then you sorta already agree with me. I mean, you are spending your money, and that's my whole point: if you're afraid to spend money then you're not likely to become rich.
And in Case 1, the hypothetical person already has a means of generating enough revenue so that he can continue to spend/invest without going broke.
- have enough savings on hand to cover a few months' living expenses - have a sensibly invested pension plan - spend their surplus cash on things they enjoy
I'm sure the book is simply using the popular, but arbitrary and out-dated 'millionaire' tag as a hook for sound financial advice. But if your goal in life is just to be a 'millionaire', you're missing the point.
I used to think their "conservative" consumption habits were a generational thing. However, they recently had a college friend who sold their paid off house, bought a very expensive townhouse in DC with their equity plus a giant mortgage (why does a bank give a 30 year mortgage to someone who is 70?), and then proceeded to loose the new house plus all of their equity because they had unexpected medical bills for one of their adult children.
Presumably they're counting on the mortgage being paid off by the estate of your fiscally conservative parents once they die.
Even if that isn't the case they can claim the townhouse from the estate and try to sell it to someone else.
But then the following warning comes to mind and I'm reminded to carefully scope the bounds and purposes of my worldly ambitions:
"Blessed are you poor, for yours is the kingdom of God. Blessed are you that hunger now, for you shall be satisfied ... But woe to you that are rich, for you have received your consolation. Woe to you that are full now, for you shall hunger." (cf. Luke 6:20,21,24,25)
People need to spend less on status/signaling goods, and more on creating real value. Spend less on investing/speculating on things you have no control over.
To paraphrase Tim Ferriss: Wealth is what is left over when all of your money and material goods are taken away from you.
As my father says: money is irrelevant - think about what you are going to think about your life on dead bed. And the other important saying is: don't think too much about how you spend your money think about how to create wealth.
I wish I knew where to find a decent haircut for $16, including tip. Or are they just so rich and powerful they don't have a use for a decent haircut, and elect for the bargain-sub-basement chop?
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EDIT: I should characterize this statement a bit. My hair is very thick, and has a mind of it's own. It has been my experience, over many many years, that stylists at low-end shops repeatedly
1) fail to blend my hair well, making it look so ragged it looks like a 5yo cut it with craft safety scissors.
2) fail to understand my hair. It won't go the way you want it to go without GLUE, so the stylist has to work WITH my hair.
Mid-range shops usually have barbers who are up to snuff. Costs me $20-25 usually.
I'm in Colorado, USA and you can get decent hair cuts for around $15. It's not hard really, just have to cut hair.
Speaking of which, I've tried doing it myself for free, in a mirror, and it did not come out well. Paying $15 or so for a professional to do it is worth it.
Lily has been there almost 30 years.
But seriously, what is a decent haircut? Unless you are getting something fancy, short back and sides should suit most people.
In New York, Encore is only $11 (plus tip): http://www.yelp.com/biz/encore-beauty-salon-new-york
On the other end of the spectrum, if you never cut your hair it stops growing somewhere around mid-back and looks fantastic if you invest in conditioner. Decent shampoo and conditioner is pretty cost-effective if you do this.
(Yes, that stat is made up...)
Here's a BMW 5 series for less than $6k. http://sfbay.craigslist.org/eby/ctd/1997867593.html Or an S class Mercedes for under $10k. http://sfbay.craigslist.org/nby/cto/1994579346.html
If you save money during your whole life you will be millionaire when you're 60. By then, 1 million will be more like 100k, and you be still unsure about your future.
It is far better to think about creating value using equity on your own business or real estate, for example.
But yeah, conspicuous consumption is tacky.
http://www.nytimes.com/books/first/s/stanley-millionaire.htm...
Hm.
the ones who end up the wealthiest often don't consider money as their driving factor...so are they that likely to drastically change their habits that got them there?
I think the author is setting the bar way too low; There's certainly a psychological appeal to having a specific amount of money with 6 zeros at the end, but let's face it, to live out our collective cultural conception of what it means to be wealthy takes a lot more than just 1 million dollars- I can't really say how much it is today. Probably even more than tens of millions, more like reaching towards 9 figures, if not mid 8 figures. I think that really invalidates the author's point about supposedly wealthy people being frugal, buying habits of non-millionaires aside....
Getting rich has never been my motivator for being involved in technology, and to be honest, I'd probably be happier if the industry were de-funded (hopefully in favor of something like biotech or alternative energies, instead of url shorteners like bit.ly), and it cut the fat out, of all the people who prefer schmoozing to hacking.