The death of the ‘Millionaire Next Door’ dream
latimes.com
latimes.com
While the millionaire described in the story had $8 million in assets, you will find almost no one "next door" with 10 to 100 million or a 1 billion. That level of wealth requires a return on investment that can't be achieved using the earn and save model. It usually requires creating/controlling an assets that can grow in value many orders of magnitude faster than the stock market (real estate, businesses, intellectual property).
It does work. But the cost is your life.
My issue with the whole idea is that the wealth comes in the latter years of your existence. Decades of work have dulled your curiosity and desire to enjoy your wealth. You don't need much to exist and could survive off a more humble nest egg.
Wheelchair wealth is considerably less valuable than wealth when you are young.
you don't have to be a frugal miser, and you don't have to spend like it's burning a hole in your pocket. saving a responsible amount isn't going to dull your curiosity for decades.
whether you consider it intentionally or not, when you choose how much to save you're also _directly_ setting your future wealth. the most prudent thing to do is optimize _both_. how 'well' do you want to live vs how much wealth do you want and by when.
what actually costs you your life is spending unnecessarily in your youth, which implicitly sets your future wealth nearer to zero and burns the time to fix it.
In fact, I’ll be so bold as to say that the more mind-expanding ways to spend free time involve spending less money than their competitors.
Want to fly? Join a gliding/sailplane club instead of getting a powered flight license and buying a Cessna. Love good food? Learn how to cook new dishes instead of finding exciting new restaurants. Into high-performance luxury cars? Rent a different one for a long weekend a couple times a year instead of leasing the same one to sit in traffic for your boring commute. Like to regularly update the look of your living space? Learn how to lay tile and do upholstery instead of shopping for more crap.
My husband chose the first one (gliding vs. powered flight), and I’ve fallen into the second one. Both have significant financial benefits, but also health - gliding club involves a lot of scurrying around the field to help the other pilots, and just about anything I cook at home is healthier than a similar dish from a restaurant.
I still have one stupid money-sink hobby, downhill skiing, but have found less expensive ways to enjoy it — day or weekend trips by train to an ok ski area instead of a week at higher-end resorts.
When retired or semi-retired (thanks to youthful wealth), you can do a lot of cheap but time consuming things like backpacking overseas, hiking the pacific coast trail, spending a summer diving in Cuba.
Indulging in my hobbies one day a week in between running errands and going to the gym just feels like a watered down version.
Even restaurants don’t cost a fortune comparing to buying a fancy car if you don’t do fine dining everyday.
I makes less than 100K usd per year. I have a wife (who also makes less than 100K), a car, a kid, and hobbies. I don’t live in the valley, or even the United States. I work 8 hour days, employed by somebody else.
I should be a millionaire by my mid thirties unless the stock market explodes. I don’t think I’m all that frugal, but we do try to save more than we make and live within our means.
I do recognize that I’m extremely fortunate - I have not suffered any significant setbacks in my life, my health is relatively good, and I have a good family structure, all of which have been immeasurably helpful.
Assuming 150k USD combined income and 20% savings rate:
- Initial Investment: $30k (20% of 150k)
- Monthly Contribution: $2500 (1/12 of $30k)
- Length of Time in Years: 15 years
- Estimated Interest Rate: 10% (Avg Stock Market return)
- Interest Rate Variance Range: 0
- Compound Frequency: Annually
After 15 years you have just over $1M. I'm assuming you were including your wife's income because otherwise it's nowhere near.
I think the takeaway here is: get a partner. Without a partner you need to be a high earner.
Doesn't ring true for me. Some of my favorite things to do are free or very cheap. Biking around town or on local trails, taking the dog for a walk, changing the oil in the car - yes, really.
I love to travel, too, but you can go amazing places for hundreds or a couple thousand dollars. You don't have to spend much to have an amazing life and go amazing places.
It frustrates me to see my peers who earn far more than me feel stressed about money and feel that they have to do very expensive things or else they're not living, but what can you say?
My opinion is that you don’t. But to each their own.
Maybe some people are saving because it makes them happy. In the article Nassim Taleb is quoted saying something about how it’s dumb to accumulate so much wealth but still live in a starter home (not sure if this was directed at Buffet or what). But sometimes people just feel happier having a cushion, or it Buffets case, feel happier having investments pay off.
For instance, I used to live off of ~300 / month in the US by living mostly in forest. However, after having a kid my wife demanded regular housing. I could divorce her and go without housing again, but then the state would impute my income and order child support at 20% of the income I _could_ make (which is very high) even though the actual cost of the necessities for a child is minimal (maybe 200 a month maximum). If you fail to pay you will be charged a felony and go to debtor's prison.
So the answer is in many occasions you and your family could live a happy life on basically nothing, but you would have to live with the fact you will be imprisoned and lose all your professional and driver licenses and have all your land and assets seized because you don't earn at your imputed income.
For this reason I abandoned a fairly happy life living off almost no money and instead slave away at a keyboard dreaming of the life that once was. Just don't make mistakes.
> They say money can't buy happiness, but do you know what money can buy? A jetski! And when have you ever seen someone not happy on a jetski. You'd be smiling as you ride that thing into the pier!
(paraphrased)
IMO you need a certain baseline amount. There are some necessities that you need to be able to afford (hard to be happy when you're starving). In the USA, I'd say you also need to have a cushion in case of some unforeseen medical emergency, in other places that may not be as necessary.
You can certainly get very rich in your lifetime, and groom your kids to continue the trend, set things up nicely for them
https://www.theatlantic.com/ideas/archive/2021/06/abigail-di...
> I denied myself nothing my eyes desired; I refused my heart no pleasure[...] Yet when I surveyed all that my hands had done and what I had toiled to achieve, everything was meaningless, a chasing after the wind; nothing was gained under the sun
Any spending above it leads to no, marginal, or only temporary extra happiness.
I put that bar far lower, personally. We already have the stuff we need and don't enjoy shopping. We're basically stuck at a particular spending level whilst income grows over time. Saving a large portion of our income is effortless, and not at all a sacrifice of quality of life.
The secret to life is to not want so much. It makes life so much easier and better.
Saving 70% of your take-home in some place like the SFBA is saying you're an extremely high earner and/or you really like studio apartments.
Most people don't have the option to save 70% of their take home pay and still live comfortably.
I’m glad I realised this, and I totally agree - once you realize that consumerism doesn’t materially improve your life, your “minimum income threshold” drops considerably.
For me, the biggest exception is travel, which really adds up if you want to take a couple of overseas trips per year.
For me, FIRE is a side effect of trying to live a fairly simple life with little impact on the environment. I don't deprive myself. I genuinely struggle to find things worth spending money on.
If you can save most of that, pretty soon you'll have a good savings rate and pretty soon have some good savings.
Also, when you start thinking about retirement and look at rules of thumb about savings amount vs income, you can discount your income significantly if you have a high savings rate. (Looking at needed savings vs predicted expenses is a better methodology though)
I'm quite happy not owning a huge house, a Tesla and the latest iPhone.
And I tend to agree with the conclusion of the article - what's the point in saving that money if one has to live on a shoestring budget to acquire it? Specifically the "work all your life, end with $8 million" case. FIRE is different, with the value being the option to stop working much much earlier than 65 years old.
Except it is not easy at all. It is very hard.
It’s funny they reference Taleb here but he also makes the point that can’t be “cancelled” and is “anti-fragile” precisely because he’s rich and depends on no one.
Like say you spend $500,000 a year and have $10 million, which earns about $700,000 in returns. And you’re happy at that level of spending.
You then have massive security your whole life. Whereas if you time it to run out on time, a reversal could leave you destitute when you’re least able to recover.
Past a certain point it’s hard to think of what to spend on unless you step up to much more expensive things like personal jets etc.
The point of dying a millionaire is to give your descendents a good life and something they can fall back on if things go wrong.
The point of dying a millionaire is that it is really hard to plan your finances such that you die with exactly zero dollars. Because investments are so variable, you want to choose a plan that will likely end up with too much money because that avoids complete disaster in the bad cases.
When I'm dead, all the money is going to charity. Generational wealth is a cancer.
And if we are talking average income, then everyone on this side of the village is a millionaire simply because of those two. However, most of the rest of us seem to struggle daily.
Sometimes real estate the owners live in themselves is not counted?
With 1.6% the odds of having a millionaire neighbor would still be high.
- He chose to go to trade school, and become an electrician
- He chose to live in his small rural town
- He worked overtime whenever he could, but not at the cost of his social or family life.
- He saved around +/- $30k every year, for almost 20 years, and invested it all on index funds.
- He didn't splurge on excessive travel, electronics, cars, etc. lived a modest life.
After he "retired", he enrolled community college to study Electrical Engineering, and now does smaller contracting work that he finds interesting.
Your friend and people drawing conclusion from her anecdote will end up with beliefs typical of the Gettier problem.
Edit- People who seperate thinking they can earn more money on the outside. People who seperate for family, mental health, or similar reasons make total sense.
It's not rare for people to double-dip: do your 20 in the military, then go work as a teacher or DOD civilian or something that'll give you a second pension.
If you don't blow all your expendable income on a sports car financed at 30% APR, it's also possible to build up a good nest egg by the time you retire. You can also take advantage of other veterans benefits. A friend of mine got more money from his GI bill benefits (tuition + stipend) than from the actual salary he made during his army years.
Quick edit: the military has a mishmash of different retirement plans depending on when you signed up. I think the most recent one is more defined contribution focused and makes it harder to get money before you're in your 60s
Edit: if you're super ambitious, you take the skills from your military specialization (pilot, nuke engineer, etc) to the civilian world and work another 20 years. you're now 58 which is still younger than the typical 65 for retirement, but now on 2 pensions or 1 gov't pension plus a really nice portfolio.
If you join now there is an age it kicks in I think, rather than immediate.
Plus you still have access to things like the commissary if you live near a base. As well as medical insurance for life.
The numbers you are seeing are really the top of the iceberg; my actual take home as a retired E7 is likely to be about twice what the pay numbers would tell you due to VA disability.
So after a take home of around $72k/year and essentially free medical for my family for life, as well as my children’s college paid for (my degree was paid while on AD so they get my GI Bill), we still need to factor in Space A flights, tax free shopping, cheaper gas, gym access, beach accesses, cheaper groceries, etc. etc.
The most recent numbers I saw were something north of 2 million for anyone E6+ who gets 100% VA disability, which is pretty common.
That said, I rarely recommend the career to people. The costs incurred really aren’t worth it unless you get the equivalent of a lottery ticket.
My dad was career Air Force. The free family medical ended when I was 18. PX privileges ended at 21. No money at all for college.
Looking at places with public transport, a good average might be ~$130/month between the regular cost and a few special costs like going to the airport, etc.
Saving $136/month is pretty good. On the other hand, public transport costs about 50% of owning a vehicle and has a lot of limitations including only covering a single city & one person.
If not having a car means you have to buy groceries at more expensive/closer stores then the savings are not as much. If you spend more time each day on public transportation then the savings might not be worth it. If you do recreational activities that require a car then rentals/ride-shares will quickly cost more than you save.
Even in places where public transportation is used extensively it seems to be driven by factors unrelated to cost: 1. Parking is limited or very expensive 2. Traffic congestion is very high
The high cost of vehical ownership seems to be driven by consumer preferences. It's a trope that many low-income areas of the US are filled with expensive trucks. People have the option to buy luxury & new vehicles but public transport doesn't have that option.
Essentially, comparing public transport to the typical vehicle in the US isn't fair since the vehicle is more functional - wether the average American needs that extra utility is a different question.
It's so tragic.
Cars are expensive. Some people enjoy buying new cars every 3-4 years, but that's also money that could be spent on retirement funds.
Having grown up in small rural towns, your comment makes me suspect you may not be familiar with what rural America looks like.
Also having known quite a few electricians, I have a hard time imagining one lugging all their equipment on a bus or subway.
If you can "survive" driving a 10-15 year old car, and have some mechanical aptitude to do regular maintenance, then that's A LOT of money saved.
The problem with early retirement is how many years you still have left. It requires far more than a normal retirement. Everyone has their own standard of what is acceptable, but IMO a comfortable retirement at 40 requires somewhere in the neighborhood of $5 million. You could do with less if you want to eat ramen noodles for the next 40 years because you can’t really afford to enjoy retirement.
The 4% rule was based off the Trinity study, which looked at 30 year retirements and assumed the retiree would deplete their principal. It is not a safe basis for a long retirement.
With that said, he's not 100% retired in the sense that he's just doing nothing - last time we spoke he was doing contracting work as an Engineer. I guess the retirement meant more "free to you want - possibly nothing if you don't feel like it"
This is pretty pedantic I suppose, but I can't resist - I assume you mean ~ (roughly) $30k? (Or of course $30k ±x, if you somehow knew.)
Saving plus or minus $30k a year is not much to brag about!
What was meant was “saving ~$30k”, which is impressive. Don’t use “+ / - $X” because it doesn’t mean what you think
That's pretty good. Please keep in mind that other people do things such as support a family or go on dates. They have expenses and may live in costly cities. Even on a salary of $200k a year that's decent.
> Saving plus or minus $30k a year is not much to brag about!
I assume you're responding to that? Note the emphasis, as in original; the figure is ~insignificant~ err 'not important here'.
This, I think, is the biggest hurdle for most people. Everyone wants to be a millionaire, but few are willing to sacrifice the short term pleasures and status of their consumption. See also the infamous "avocado toast" debate, which, from my personal experience with fellow millennials, had a lot of merit as a criticism.
But commercial real estate hunts out childcare providers like gold mines because you can't move your childcare to just any building. At a rough guess, $20 a day of almost every child placement is going to the landlord.
edit:brevity
Just for the down payment, that's 73 years worth of avacado toast at a slice a day. Millennials must be eating so much avacado toast.
And that's for a house that was built in the 80s and the boomers selling it paid $75k and whose property taxes are still capped at a max growth rate of 2% a year.
Most people could live like a monk and not save anything substantial.
If everyone did suddenly adopt those saving habits, it would crash consumer spending and launch the economy into a death spiral, and those exact "frugal poor" people would be the first victims.
The infamous "avocado toast" debate has absolutely no merit as a criticism.
There was a HN story a few onths ago saying they are borrowing big to gamble on the stock market. And why not? They have little money. To go bankrupt is not much of a loss compared to a potential financial lotto payoff. I wouldn't try it, but I see why some think that way.
While there are certainly things I would like to buy that I cannot afford I can buy most of the things I enjoy when I want to without having to worry and still save a lot for retirement.
Would a 24 year old today in the same financial position you were in at 24 be able to afford that same first house?
You applying this personal anecdote as some kind of geometric proof that living outside a major city is a pathway to simple financial independence is to me a bold-print example of how the very same people who had to fight their way up the ladder of success will promptly become oblivious to the fact that the rungs are becoming further and further apart every year, advising those behind them that "climbing it isn't that difficult, just try as hard as I did."
However the median household income is only $68k a year[0]. That is 50% of households in the US earned less than 68k/year. You're actually in the top 30%[1] of US households if your income is about 100k together.
I wouldn't call that modest by any stretch of the imagination.
[0] https://www.census.gov/library/publications/2020/demo/p60-27...
[1] https://www.ibisworld.com/us/bed/households-earning-more-tha...
$100k/year for two full-time workers is $25/hour. This is a pretty reasonable wage for someone with a modicum of stability and employment consistency. For example Bank of America tellers now start at $20/hour and move to $25 in a few years.[1]
[1]https://www.usatoday.com/story/money/2021/05/18/bank-america...
What I see smart young people doing is moving away from bigger cities. They get a decent house / lot compared to a condo in a bigger area.
Every generation has to move further away (or make more than others) if a city is growing. You don't have to live in a growing city.. you could move to a declining area or a neutral area. There are advantages to living in a declining city.
>People who bought houses in the last 10 years were lucky enough to get in when the market was historically low.
You realize those same people also had to deal with a shitty job market and college loans to pay off as soon as they graduated right?
You seem to miss the issue.
And yet some people enjoy big cities more than they'd enjoy living in a small town and it is not a moral failing or a sign of stupidity or weakness.
Many people enjoy the multiculturalism found in cities, and many immigrants or minorities feel out of place in small towns while major cities offer them the opportunity to connect with people like themselves.
Obviously owning a big residence in a city will never be affordable but as a society we should ensure that people can affordably live where it makes sense for them.
And I say it from the position of someone who actually made this mistake - I bought in Seattle and regret it. A much better decision would have been to buy a cheaper, better house somewhere else. Still, I'm not going to be mad at people telling me this truth :)
This article seems to be trying to refute the different claim that "even a low-income person can easily become a millionaire". But I don't think that's ever been true, and it's not really the book's message. Someone making $130,000 as a small business owner isn't "low-income" - the book is mainly contrasting this group with highly educated doctors, lawyers, MBAs, etc, who also have high incomes but spend much more.
* Residential real estate inflation: $355k [1]
* Stock market inflation: $770k [2]
* Dollar supply inflation: $712k [3]
You'd have to earn between $350k and $700k/year for your dollars to have the same asset buying power as $130k/year in 1996.
[1]: https://fred.stlouisfed.org/series/MSPUS
[2]: rough approximation through the S&P500 https://www.tradingview.com/chart/?symbol=SP%3ASPX
This is absurd. There has certainly been inflation, but the value of the stock market (and dollar supply) are not directly relevant to a person's buying power.
The residential real estate price rise is a real factor, but even that is offset by the fact that most people buy homes with mortgages and mortgage rates are so much lower today (7.8% in 1996 vs ~3% now). I can't find the numbers now, but as I understand it the median home is more affordable now for the median income than it was in 1996 (again mostly due to cheap mortgages).
To come at this from another angle: in 1996, $130k was not in the top quintile of earners. Today, the top quintile starts at ~$250k[1]. People earning $350k-$700k are well into the top quintile of earners and likely into the top 10% or beyond; they are much richer than someone earning $130k in 1996.
Summary: $130k is still a relatively solid income (top 25% of earners), but $350k-$700k today is not the equivalent of $130k in 1996.
https://www.wolframalpha.com/input/?i=%24130k+1996+USD+in+20...
Credit is a tool for creating financial leverage and realizing larger gains, if you know how to use it. The problem is that most people use it to buy things they just can’t afford in the first place.
I think we will have a rude awakening when, for every % we move up in interest, we add ~$200 per month on people’s payments on a $200k house. At 6%+ mortgage rates we will see a lot of people stuck in their current house and a lot of the people who look at affordability through the lens of a monthly payment will suddenly be able to afford a lot less house.
When I saw the author's name at the end I was like "oh, that explains it" -- I used to live in LA and I'd wonder why this LA Times business columnist seems to hate business so much.
> The book “stands today as a sort of promise that everyday people have a shot at accumulating true wealth through habits and not just outsize risk,” wrote Ron Lieber at the New York Times. Wall Street Journal columnist Jonathan Clements called it “a roadmap for everyday Americans who want to accumulate significant wealth.”
That piece links this one: https://www.reuters.com/article/idUS394135834820131016
> When Thomas Stanley and William Danko published their best-selling book in 1996, they made much of the statistic that “80 percent of America’s millionaires are first-generation rich.” The majority, they pointed out, were entrepreneurs, many working in blue-collar professions.
> Anyone could make it big, the two authors all but proclaimed; all you need is frugality and a few tax breaks. Don’t live in a pricey home. Put a cork in the Cabernet, and pop a Coors instead. But most important, open your own business. When it came to the secret sauce for scoring a million bucks, “a very big factor is self-employment,” Stanley said.
> The ensuing years have not been kind to the working-class millionaire.
> A little-noticed marketing report released last month by U.S. Trust contained the disturbing statistic that while almost a third of Baby Boomers worth more than $3 million claimed to have grown up in lower-middle-class homes, the number fell precipitously for younger cohorts, with 18 percent of Gen Xers and a mere 6 percent of such Millennials saying they came from working-class stock.
This is the 2013 report being referenced here:
http://doingmorethatmatters.com/wp-content/uploads/2013/09/2...
Age Cohort Definition:
Millennials: age 18–32 Generation X: age 33–48 Baby Boomers: age 49–67
Socio-economic status growing up among the wealthy:
Age 18-32: 0% Poor, 6% Lower Middle Class Age 33-48: 4% Poor, 18% Lower Middle Class Age 49-67: 5% Poor, 31% Lower Middle Class Age 68+: 7% Poor, 24% Lower Middle Class
This is almost entirely due to the fact being wealthy (to the tune of 3M+ net worth) is a far more exceptional outcome for younger people than it is for older people, especially given how much asset prices have gone up over the past few decades. Also these rely on self-assessments and my personal experience is that there's been a class inflation of how people describe themselves and their own upbringing. I suspect older people are more likely to describe their own upbringing as "Lower Middle Class" than younger people.
> “I certainly do not see the point of becoming [a millionaire] if I were to adopt Spartan (even miserly) habits and live in my starter house.”
I can’t help but think of Warren Buffett here. He seems happy in his (well-chosen) starter home.
https://www.businessinsider.com/warren-buffett-modest-home-b...
If more people would realize that happiness can be had on $3000/mo of household income, even if they bring in $10000/mo of income, more people would be both happier and wealthier.
"Starter home".
otherwise ok house for upper middle class
Latin prefixes are not as popular as they used to be.
If anyone is curious about the actual returns of the market, I made a sheet [0] with S&P 500 returns over 10, 20 and 30 years at every possible starting point. Note that this excludes dividend yield which is about ~2% today and higher in the past, which should cover inflation for the most part.
type 10yr; 20yr; 30yr;
min -3.57%; 2.80%; 6.94%;
max 17.05%; 15.49%; 12.74%;
median 8.54%; 10.21%; 9.86%;
So for instance, if you invested over 10 years since 1929, the worst you could have possible done is a continuously compounding return of -3.57% (invested in 1927 and sold in 1937). The next worst is invest in 1938 and sold in 1938 for a 0% return. Everything else is positive.
The worse 20 year return is 1927-1947 for an annual return of 2.8%
But of course no one invests like this. They invest over time and dollar cost average. For instance you may invest $100 a month, in which case your returns would be positive and likely very high regardless of when you start, as long as you invest for long enough (more than a few years)
I don't know why a journalist would quote someone without doing 5 minutes of research as to actual stock market returns and important timing is.
I still don't understand why its so fashionable to have these garbage articles come out about how everyone working hard and saving is an idiot and everything is futile. Does the author believe this crap? What else is there to do but to work hard and save? Would you teach this stuff to your children about how they're destined to be destitute?
[0] https://docs.google.com/spreadsheets/d/1dGFQUxyUfGyBE5dnz1rc...
This article is from 2015 and one of the author's key points is that we're never going to see the equity market booms of the 80s, 90s, and 2010s ever again. The example is that $100 in 1979 turned into $2000 in 2015... but that's only 8.5% annual RoR. I'm not sure whether it's real or nominal; depends on whether their dollar amounts are inflation-adjusted.
IMO it was tempting at that time to say the next few years are going to look different than the past few. I, not at all an economist, also thought in 2015 the top must be in because, come on, just look at the graph! And the P/E, the CAPE, the Buffet indicator! That was wrong, of course. S&P 500 is up 125% since then, for a 17% nominal RoR. Which is double that 8.5% in case it was also nominal.
random statement: "the millionaire next door" in 1996 is "the $1.73-millionaire next door" in 2021. Or more: CPI numbers just came in at 5.4% an hour ago.
Historical inflation: https://www.usinflationcalculator.com/inflation/current-infl...
1. buy a house in major metro in 1985 when they're plentiful.
2. don't go broke and keep a job if needed.
3. stop anyone else from building more homes in town.
4. profit!
1. buy [asset] they're plentiful.
2. don't go broke and keep a job if needed.
3. wait for [asset] to appreciate
4. profit!
This is the key part, because AFAIK housing overall hasn't outpaced the s&p500.
Interesting that the median is lower (slightly) after 30 year than 20 year.
I wonder why
Interesting that if you take the mean you get: 10y, 20y, 30y :: 8.87%, 9.67%, 10.23%
Increasing mean returns as you increase holding period, and the mean 30y is almost exactly the median 20y.
Max out you're tax-advantaged retirement accounts.
If you're young, invest a non-small portion into high-growth, "risk-on" assets, preferably in an industry you know a little bit about and can imagine where the trajectory of growth will lead to.
If you're staying put for the foreseeable future and don't mind limiting your optionality, consider buying a home (basically a 5x leveraged bet).
* Eight out of ten millionaires invested in their company’s 401(k) plan.
* The top five careers for millionaires include engineer, accountant, teacher, management and attorney.
* 79% of millionaires did not receive any inheritance at all from their parents or other family members.
It isn't hard. However, but poor luck: divorce, drugs, medical can wipe out chances immediately.
[0] https://www.ramseysolutions.com/retirement/the-national-stud...
I thought that most of these people happened to run successful businesses in poorer communities (often immigrant) where their peers were all relatively poor. They therefore didn't get caught on a treadmill where expected gifts and living standards drive everyone to spend all their money on keeping up with the Joneses. Most of the community have little money, not because they're stupid or wasteful just because they're starting from very little. So the outlier has no real need to spend the money and just banks it in their business against downturns and over time it builds up.
Interesting as a phenomenon, but it sounds they were drawing very broad conclusions from that for their book.
The Millionaire Next Door was largely written to dissuade people of the notion the hyper consumerism and associated advertising was an effective strategy for reaching a majority of upper wealth households.
Wealthy households are generally frugal compared to their level of net worth. This is particularly true for wealthy households at the lower end of the scale (e.g., the millionaire teacher who got that way by investing 15% of their net income consistently over 30-40 years).
Immigrants and business owners do have an advantage, and he goes into detail about how living in less wealthy neighborhoods is a wealth building advantage, but his main argument is that thrift, savings, and simple math are the main drivers of wealth.
The big city is the place where you can save on things you probably don't need. Move to the city, find reasonable accommodation which I believe is possible even in places like London and Paris, and just don't buy or do things that you don't see contributing to your life goals much. Just enjoy the vibrant and inclusive environment that's a big city. Socialize, exchange ideas, and save save save.
(1) Spend less than you earn. Thats why your unassuming neighbor could be well off.
(2) Businesspeople build wealth faster than employees, even if they fail a couple times along the way.
There are whole cohorts of Chinese blue collar people who bought houses in lower middle class neighborhoods who sent their kids of to UCs. Those kids then become doctors, engineers, investors, etc... Some of the grandkids are more laid back but some want to climb further.
Assume they are collecting an average Social Security check. That's 18K per year.
If the person draws 3.5% of their net worth each year, that will give them an additional 35K per year. (I picked 3.5% because if you look at the history of the stock market, that's a safe rate to draw money for a long period of time, even during past historical market downturns.)
So they can spend a grand total of 53K per year. That's very close to the average US salary, 52K per year.
It's true they don't have to work. But they're not rich. They are middle class.
If I had 53k/year just to SPEND - no debt!! - I'd be extremely happy and consider myself rich as I wouldn't have to worry too much about almost anything I'd want to spend on, if I chose a reasonable COL city.
There's several websites that provide cost of living information by city on an international level.
The poor got their money from church, government poor houses. They do what they want when they want.
The working class was the manual labor class. Their nose is to the grindstone when they're at work, but they do no unpaid work.
The middle class was skilled trades, some sweaty like electrician most desk jobs like accountant, but all very month to month. They are perhaps the hardest working class in that they are required to work "for free" on salaried weekends and nights and so forth.
The upper class got all their money from investment. They do what they want when they want.
Clearly your example is upper class.
The poor and the upper class do what they want when they want? The middle class works harder than the working class? ...What?
In reality, the working class were terribly abused in the "old days." Their days were long and hard, and wage theft was (and still is) rife. For them, there was no such thing as a vacation, which is something the middle class could enjoy. The poor were much too sick and weak to do as they pleased. They had to continuously toil in things from begging and scavenging to odd jobs in dangerous places.
It is better to think of it like this. Your class depended on ownership.
Poor own nothing and in general doesn't have any way to benefit from their own labor.
Working class did not own their jobs, but did receive income from their own labor, though only a fraction of its value.
Middle class own their own jobs, keeping most of the value of their own labor.
Upper class own the means of production, keeping all of the value of their own labor, as well as the value of most of their employee labor.
You wouldn't use it to ascribe class to a person aged 12 - you'd use their parents.
Likewise, it doesn't really apply after retirement (which the OP was describing). Anyone who is retired "gets all their money from investment". That doesn't make them upper class.
Plus, they could safely draw 4%. So that person would be at around 80K a year.
To your point, that's still firmly middle-class, but with a paid off home, it's not nothing, either.
The "lifestyle of your choosing" just scales up and down with your own desires and resources.
OTOH, my brother in LA owns a condo and can't find a new place to move into for love or money. Shit's always bleak at the LA Times, but, they don't get to other parts of the country much.
About 1 in 10 families are worth more than a million in the US, 1 in 20 for 2 millions.
So essentially, in the US, millionaires are the 5%, the upper middle class rather than the "rich". Most millionaires don't fly in private jets, they can afford business class, but there is a good chance for you to seat next to one in economy class. Millionaires have budgets too, and in fact, that they are flying coach may be the reason why they are millionaires, they don't spend all their money on luxury.
It’s not hard.
The problem of being relatively rich and living like a poor person is that it is a life of a poor person. Spending money provides access to experiences. Having gobs of money at fifties or sixties won't reset the clock and unlock what one missed in twenties, thirties and forties
How am I being a "parasitic landlord" by investing in the S&P500, which is mostly composed of companies generating value?
This is redundant.
I think most people set themselves goals such as working at FAANG, having millions in their accounts, driving expensive cars, not because it'd bring them happiness but because that's the societal expectations that they have unknowingly adopted and never noticed the switcheroo. It makes sense why society as a whole would value this "work to the bone at the cost of everything else" behaviour - it creates good workers whose work benefits the society. It is not clear how it benefits the worker.
At the end of the day, what's the point of having those millions in your bank account when your 75, have bad knees, arthritis and crippling back pain. Decide what you want to do with your life, and work your hardest to achieve that. Don't dance at the tune of someone else's fiddle just so that maybe at the end of that long ride you can get a handshake and a pat on the shoulder.
This is precisely the "American Dream" mindset that the article is calling out as a fallacy. Most people are not in a financial position to do what they want, much less achieve lifelong success (financial or otherwise) doing it.
You can live on so much less than minimal wage - it is because people go along with societal expectations do they consider it not enough. You pay the rent to live in an apartment, in a city, and work an official, recognised job. Why do you necessarily need to live in an apartment? Why in a city? And why do you need to work that menial job to pay off all of it barely having anything left at the end of the month?
Look up dirtbagging, a movement rock climbers came up with to dedicate their lives to climbing instead of the 9-5. You can get by fine with living in a tent and eating from expired cans and free McDonalds ketchup packets if that gives you the freedom to pursue what you find meaningful.
if u think people save so they can retire at age 75, u dont understand what u r talking about
I feel similarly about FIRE - retiring early is one of the most unappealing goals that I can think of and the FI part of it is an outright lie - but if you read something on a FIRE blog and it helps you manage your money a bit better, I'm all for it.
This is a perspective I haven't encountered before! Would you be willing to expand a bit?
What I don't like about FI is that it pretends to be able to quantify the expenses that you'll need in the future with models like the 4% rule which make so many assumptions that the model is useless in practice (or at least the model is dishonest about the risks - one story of early retirement discussed on HN - https://news.ycombinator.com/item?id=26543527)
So when you challenge the idea that those people are genuinely financially independent, the argument that usually comes up is "it's still better than not having that nest egg at all" or "you don't need to stop working, you need to be able to" - which is just another way to say that it's better to have more money (duh).
I find it sad when some posters go overboard by denying themselves vacations and families just to feel rich.
The subreddit is about building a life you want and living below your means until that life is sustainable independent from employment. There is no specific age involved, and everyone’s means and goals are unique.
But patience and discipline are required. The first million is the hardest and takes the longest to make.
Not saying that couples who are capable of saving that much per year are actually doing it, but rather, you would think it would at least be more common than it is.
Then there's the tendency of US medical or elder care (say, for your not-rich parents) to put a huge dent in one's savings in a relatively short span of time.
Very few people are investing that much and very few are interested in working for that long when they do have that much.
Most people here with $10M+ in NW didn't get it through hardwork over 40 years - they got it through an IPO or some big lawsuit or whatever.
Most people end up spending close to what they make. Most people don't save like what 100M would require you to save.
Don't forget to blog about the struggle of being a working parent in tech, but how great it is that you manage to make space in your schedule for plenty of quality time with your kids anyway, while forgetting to mention the double-median-income amount of money you're dropping on child care every year ("newborns are so hard you guys LOL #blessed #stressed" has a "night nanny" and sleeps great most every night).
Bonus points if post it while a startup founder or "CEO".
But I think the real reason you don't see people with 50MM, is that long before that you'd not need to work anymore. Why would you keep going to work every day if you had 10MM in the bank? It's more than you could spend in the remainder of your life. You'd need to spend 700K per year just to keep up with your passive earnings, and that's with a paid-off house and no debt.
Also, if you're a person who has been happily frugal for your working life, you're not going to change into a spendthrift overnight. You already came to the realization that an expensive car is meaningless, you're probably living in a place you are happy in already, near friends and family, etc. You're a person who will be making more per year than they ever could in a job, so why try to make more?
Then you start using rich people tax breaks like long term gains, insurance products, real estate, etc.
The question Messrs. Bezos and Musk ask themselves every morning.
By the way the LA times has some ads to show you for some shiny things you should buy instead of saving your money.
It's someone you wouldn't even realize is wealthy, because they don't demonstrate wealth visibly. They take care of needs and (some) wants based on their own internal compass rather than the image it would convey.
Certainly, low income and high cost of living is not a recipe for success. But moderate income and moderate cost of living (less than income) can be. The article says investment returns like those can't be replicated, because inflation is too low. But being able to make enough money to invest isn't possible because inflation is too high. Well, you can't have it both ways!
Lets throw some assumptions in... 7% return on investments after inflation.
> If you contribute $834.85 every month over the next 40 years towards your goal, you will have $2,000,000.00 in savings.
> If you contribute $1,764.39 every month over the next 30 years towards your goal, you will have $2,000,000.00 in savings.
$2 million (given the 4% safe withdrawal rate derived from the Trinity Study) would give you $80k annual income. Everything will be in today's dollars, since inflation is already factored into your ROI.
If you started at age 25 and wanted to retire at 55 with $2 million dollars, with the assumption you're spending $80k every year, you'd need an after tax income of $101,172.68 each year. In other words, save just over 20% of your income, and pull off early retirement in 30 years. (If you keep the $80k and $2 million at a perfect 1:25 ratio, this math works for any income/spending, for example ~$63k income, $50k spending and $1,250,000.)
Who thinks someone living an $80k lifestyle on a $101k (after tax) income is hating their quality of life? Drive 3-5 year old cars for 5 years, paid cash. (At the oldest they are 10 years old just before you sell them.) Don't buy more house than you need, with "tiny exaggeration syndrome" where you need the "best" school and the "best" walkable score and the "best" etc... Balance eating out with the joy of cooking. And so forth. Your neighbors will not think you are poor, but they also won't suspect you're getting rich. You will become a millionaire next door.
Seems like we're doing fine.
Remember that Thomas Stanley had a PhD in finance and didn't do garbage research.
There is a leanfire subreddit if you're looking for real world stories of people that are currently living the high savings lifestyle: https://www.reddit.com/r/leanfire/
Here's a great video of a young, modern leanfire couple: https://www.youtube.com/watch?v=Lb3Z5cGOksY&ab_channel=CNBCM...
Millionaire Next Door might not be possible for minimum wage workers in HCOL areas anymore, but seems to me like lots of folks are still figuring out how to make it happen and become financially free at a young age.
https://www.credit-suisse.com/about-us-news/en/articles/medi...
I was going through some old financial records of mine from the 90's, and was surprised at how much less things cost then.
It's an inversion of logic because above average intelligence will never be understood by the democratic masses, therefore the best a politician can do is reward average behavior.
Example: https://www.yahoo.com/news/evicted-despite-federal-moratoriu...
>Dejonae King, 33, held back tears after she lost her eviction appeal. King was laid off from Walgreens and has been without a job for most of the pandemic. She had not paid the $253 weekly rent on her one-bedroom apartment since July 2020.
So where did her unemployment money go? $600/week extra initially and now "only" $300/week extra. She is $14K overdue in rent...and seems surprised that she will eventually be kicked out.
Now here's the kicker that I am really confounded by -- irresponsible people are by far the majority, and democracies are (basically) majority rules. So how can the government do anything but continue to create rules that create an optimal experience for irresponsible people, meaning the responsible ones are incentivized to being irresponsible too.
About 1 in 12 Americans is a millionaire in assets. But these assests may include real estate and retirement savings which are not easily spendable.
Note that divorce is one of these family resource affecting occurrences. More and more people are growing up in families of divorce, and divorce decimates current and future wealth potential.
Say nothing about the ethics of divorce, a culture that does more of a resource destroying thing will inevitably have a “death” of some downstream consequence.
[1] https://ifstudies.org/blog/the-us-divorce-rate-has-hit-a-50-...
You can get >$1M net worth just by working hard and saving in a blue collar job.
https://www.npr.org/sections/money/2011/05/24/136461536/what...
Visit Bogleheads.org, you'll find plenty of people who are doing quite well simply by living below their means and investing the slow, steady way.
Also, as near as I can tell, a lot of the FIRE people are younger folk. Don't be fooled into not taking part-- you can be relatively wealthy, if you can just save a little and exercise patience.
The 'millionaire next door' is nothing more than consistently living on less than you earn (Elizabeth Warren has great savings guidelines), investing what you save (read John Boggle), and taking advantage of compounding interest.
It's simple and doable for a large majority of western society. It's not easy though, but that was as true in 1996 as it is today.
Are those 'traditional values' still relevant in today's economy ?
For example:
> taking advantage of compounding interest.
In my savings account, interest is set at 0.01% for accounts with less than €100k in them, and for accounts with more than €100k the interest is -0.5%. Yes, that's negative interest.
So if you're saving up each year, you start losing money, not making it.
You can average 7.5-10.5% a year by investing in low fee index funds. Even with the market as inflated as it is, you should still see returns significantly higher than what you will get from a bank.
It’s still using the power of compound interest; it’s just not using a passbook savings account.
People rather say the millionaire next door dream is dead than admit they don't have the discipline to put off instant gratification.
Ok, maybe the Tesla is, but anyway.
Housing market and the lack of public transportation almost assuredly made living more expensive than it has to be.
Middle-class wages started falling behind in the Reagan-era, and a number of costs are more daunting than they used to be: education is both more a requirement and far more expensive than it was then, in many areas housing is hard for younger people to get into with a lack of affordable starter housing and commute costs are significant due to the transportation system having been rebuilt around expensive mostly single-user vehicles which spend 90% of the day idle (15% or more of the average American’s income). Healthcare costs are an especially American barrier to savings: far higher than anywhere else in the world, and they tend to carry over disproportionately to non-rich families — maybe you’re young and healthy, but you end up helping older relatives instead of saving or you inherit nothing when they die.
I’ve always lived well below my means but I’m also appreciative of how much that depended on advantages not everyone has. That can be small things (e.g. as a white male programmer, I didn’t have to spend many hours of work on business formal clothing as did many people I’ve known in various office and sales jobs) to big things: I became a homeowner with no family assistance at age 20 thanks to the dotcom economy - people I know who weren’t in tech at that point or who lived in a place like SF where public policy has favored keeping housing expensive instead spent years paying a higher percentage of their income in rent or paying significantly more time and money on long commutes.
I mention all of this because there’s a key factor to savings: a realistic chance of seeing real benefits from doing so. There are always people who are irresponsible or have problems but quite often when you see something you think is irresponsible there’s more going on than you might think. For example, I heard people of my father’s generation comment to the effect of “black people spend too much on their cars” – which was true from what they saw because the invisible part was redlining and less structural racism meant that they were competing for fewer houses and paying higher mortgage rates to do so, and if you are frozen out of the housing market a car is probably the biggest thing you can invest in.
Expenses have increased, but the bulk of the impact is on higher income households. If you're lower middle class or middle class and stick with CC -> state college, your healthcare insurance premiums are capped by law and college is still comparably expensive, but certainly not the debt trap it's made out to be.
What has changed is how much easier it is to make stupid financial decisions. You didn't have access to easy debt in the 60s and 70s. This is a structural issue, but it's also a behavioural issue. If you make the right choices, you still can absolutely succeed financially.
— Ayn Rand
I agree that the economic gap has widened and that our most famous and moneyed capitalists of today "borrowed" large sums from their business owning parents.
However, Read was an outlier in many ways. His discipline likely stems from his military service, and without a basic value investing understanding of markets he would not have amassed his fortune.
He may have been humble, but he was anything but the average guy. What's most impressive is not the building of his fortune but his giving in death.
In a way he embodied both the old American work ethic and the American promise of economic opportunity.
https://imgs.xkcd.com/comics/survivorship_bias_2x.png
Taleb gives a good stab at that whole concept in his black swan as well.
So don't bother saving or trying to get rich, because you might become ill and have to spend the money on your health?
The whole article seems weird. What is their point? So 300$/Month is not enough, but 500$ would be? Surely that is something many people could at least aspire to?
I think the poverty discussion often overlooks the fluent nature of the economy. People who have low paying jobs today (say pizza driver) don't necessarily have the same job forever. But new "poor people" (often young people) will enter the market and become pizza drivers.
Should pizza drivers give up all hope and just "live"?
Also afaik the markets had good returns in the long run pretty much always. If it really would not be worthwhile to invest anything anymore, some serious questioning of politics would be in order.
I only recently read "The Millionaire Next Door", and while I didn't really like the writing style, I think it still made some good points.
The LA Times is writing stuff their readers like, so everything is actually going as it should.
Though with Biden's plan to tax people at 40%, it's going to get a lot harder.
This quote explains all you need to know about American culture.
It presumes that one should only support a cause that they themselves would benefit from. It also implies that the American poor are too stupid to understand what they're voting for, but only the poor that vote against a certain party of course.
No matter how much you dislike the system you do have to live in it. Choices you make an an individual might well be in conflict with your views on the aggregate.
This is stupid. The alternative is not going to increasingly overpriced and under valued college.
Sure, there is no guaranteed path to riches. But a comfortable existence free of major wants is more within reach than its ever been.
I've witnessed it. I know a couple of people who's net worth is more than a million dollars by simply working all the time, saving their money and buying their three family home. The more savvy ones even own more than one.
And these are people that knew no English, had an elementary education, worked at jobs that lots of people would not work at.
I guess the point is that you can make it, but you have to be willing to work for it.