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Reminds me of a great article I saw posted on HN a few months ago. I wish I could remember where it was, but it basically said "You'll never get anywhere by skipping coffee and bringing lunch to work, focus on the big gains like increasing your salary by 30% instead".

The frugal lifestyle BS most likely does more harm than good for the average person. People shouldn't be sacrificing quality of life because they're worried about nickels and dimes, especially not in retirement.

MMM's main thesis is that the quality of life bit takes care of itself through hedonic adaption [1]. If you can make it to that point.

[1] https://en.wikipedia.org/wiki/Hedonic_treadmill

I agree. It reminds me of the story of a low income divorced father barely scraping by month to month, who could have used a several hundred dollar windfall to try his shot at a trade school or some such training program, but instead spent it on a fun weekend with his son when he had a couple days with him. Long term possibly maybe shot at improving his life slightly, or a good life experience with his son now... it's not an obvious decision. And that kind of thinking applies to far less noble uses of the money as well, such as beers with friends and such.

Don't want to make too much of your story but the father had a third option: use the money for the trade school and then say to his son, "Money's tight because I'm going back to school, so this weekend we're going camping (or taking a bus to the beach or watching DVDs from the library) instead of driving to Disneyland. Is that okay with you?"

I can't remember exactly if the money was to be used for travel costs to see his son, or if he was spending it more "inefficiently", but yes, of course there are usually more options. Those options can be constrained by what the father and/or son consider fun though, and when your life is crappy and you're living month to month, you might not have the energy to think outside the box or try something new. There might be a problem though of people thinking having fun = spending.

We should note how fortunate many of us are to be working in an industry where increasing your salary by 30% doesn't require a ton of extra work or going back to school and obtaining an advanced degree. For software developers, increasing your salary by 30% usually just requires: - A little extra work after-hours and weekends, improving on your craft. - Changing the company you work for.

I don't think this is quite so easy for say, an educator, or a firefighter, or a plethora of other occupations.

True, but it's just one example of a bigger point. I.e. stop pinching pennies and aim for larger savings or gains instead.

Swizec posted the name of the guy who wrote the article I was thinking of, Ramit Sethi. Here's one where he talks a little about the issues with frugality: http://www.iwillteachyoutoberich.com/blog/save-on-coffee/

I'm always amazed that coffee, cable tv, or smart phones are called out as budget "excesses".

For most people, their biggest expenditure every month is housing, then followed by transportation.

If one wants to cut spending at all, the huge savings are made here. I.e. don't "consume" more housing than you need-- rent out extra bedrooms or get roommates if you have an apartment, don't drive an expensive auto when a cheaper one will suffice. The savings that can be made here-- hundreds in the case of transportation, possibly thousand+ in the case of housing-- far overshadow the amounts that can be saved by cutting back on coffee, etc.

For me, coffee is so far down in the noise as to be ignored. But it's also made in my kitchen.

For my family, in order (note, not CA): Health insurance, Mortgage, Food, Taxes, Day care. Transportation misses by a long shot, maybe a factor of 4 from taxes, and 2 from day care.

If I had to cut something, Day care is the easiest chunk, as it's not strictly necessary, but it's a sanity thing.

(This isn't quite accurate, since I haven't added in the company contribution to taxes, but I have to health insurance. Anyway. )

"You'll never get anywhere by skipping coffee and bringing lunch to work, focus on the big gains like increasing your salary by 30% instead".

Most likely, your spending will just increase by 30% along with it. Instead of the latte, maybe it's a new computer, car, or vacation now.

Ever read about athletes and celebrities and entertainers who make 10s of millions and end up broke? Without some form of discipline, our capacity to squander wealth is astounding.

When I started using Mint, I became aware of how I was spending my money. That cognizance made it easy to cut back in areas like going out to eat and going out at night in a way that didn't impact my quality of life. I started hosting group dinners and did my nights out more efficiently (happy hours, house parties, etc.)

2 years later I had a ton of savings, quit my job and left to travel the world for a while.

> The reason it fails is because it ignores basic psychology.

What about economics, it assumes that you have a return of 5% over inflation on your investment. Is this really a good assumption?

According to this link(http://home.earthlink.net/~intelligentbear/com-dj-infl.htm) the annual Dow Jones return adjusted for inflation and after taxes is more like 1.1%.

If I read this correctly, it excludes dividends (2% a year) and has taxation every year. The last point is very, very important for long term investing; you'll preferably not realize gains and pay taxes for 20 years and hence get interest and compound interest of the part of your profits that you would have paid in tax if you paid every year.

In short, the chart is dishonest. (I am also surprised that is lands to far away from most other people's analysis, but I can't comment on this).

It's a little long but MMM has an article that addresses this exact thing (down to the expensive latte example): http://www.mrmoneymustache.com/2011/06/21/frugality-as-a-mus...

The short version is that it's a "misconception that buying things makes you happier, and not buying things makes your life suck."

Like I mentioned, it's a cult, what can I say?

But which is the cult, mustachianism or consumerism?

I agree with some of your points, but disagree with the overriding sentiment that spending less isn't as significant as some other savings.

I think the problem is people try to cold turkey everything at once, last a couple of days, then say "screw this". Keep TV, cut out lattes, then later you can downsize your TV (switch to netflix and OTA maybe?), etc. Track your savings and get competitive with it (make a game out of it).

Above and beyond current savings, our consumption is out of control. There's a decent chance that the average person's consumption level, if unchanged, will become increasingly expensive as there's more competition for the resources required to feed it (China, India, etc.). I'm not trying to be alarmist about it or anything, but I think it's safe to assume we're at least dealing with a moderate increase in resource prices compared to salaries (which are stagnant) year after year until we retire. It follows that consuming less (and getting used to consuming less) will have increasing returns. So working on consuming and spending less seems like a worthwhile goal, just don't go all hardcore off the bat.

For the record, it is emphatically not tastier than brewing it yourself.

And I get 21 HD TV channels over-the-air for free!

Now let me tell you about my couponing...

Did I say anything about cost?

If you can't learn to make better coffee than a Starbucks brew at home (where "better" is defined as "with more complex, refined tastes and less harsh, burned notes") you're doing something badly wrong. Decent beans, a set of digital scales, a cheap hand grinder and a French Press or Aeropress will do the job.

I see now that my remark about the coffee and my tv could be misinterpreted as sarcasm, but I was 100% sincere. I no longer get cable tv and I don't go to Starbucks anymore now that I have an Aeropress.

(The couponing mention was a joke, by the way.)

There are plenty of places in the world where the local coffee shop outputs far better coffee than a Starbucks. I've tried a couple of forms of home expresso, and I can't approach the flavour of the coffee shops around where I live. Sure, I can make a better coffee than a Starbucks, but thats not what im competing against for my $4.

Ramit Sethi's advice on this really rang true with me "Stop saving on lattes, that doesn't matter, negotiate a $5k+ per year pay increase instead"

I read stuff from both of them and they both have good stuff. MMM says that your marginal utility from a salary somewhere above $100,000 is ridiculous and Ramit disagrees. MMM actually did a case study post on how saving was more effective than salary increases: http://www.mrmoneymustache.com/2012/11/14/doubling-your-sala...

Why wouldn't you do both?

This would represent a sea change in your perception though. If you can get to the point where you're actually "spending on your retirement" then you're good to go, sort of "paying down your retirement mortgage."

But you have to be perceptive enough to see you are "buying" a retirement, not "denying" a Latte.

Someone who spends $5 on a latte everyday, that would make you no happier than coffee from the break room, is likely not in a stable equilibrium of spending.

If better tasting drinks really did make you happy--something I don't believe--the rational thing would to be to brew your own coffee or tea. This has the added bonus of being a learning experience. The $5 latte drinker, at most income levels, is someone who hasn't evaluated his incentives rationally.

Thinking rationally about money is a muscle. Negotiating a $5000 salary increase then buying $5 lattes is the equivalent of going to the gym, then driving a ten minute walk home.

Some people feel stylish with their $5 coffee. It's not all about the taste.

There is a word that describes perfectly these kind of people - snobs.

I could understand someone that tells me his 5$ coffee tastes "better". But if you drink your 5$ coffee just because you are feeling stylish ...

To quote Tim Ferriss, "It's OK to want [a motorbike] because it makes you feel like a cool dude.".

If something makes a person happier, it makes them happier.

Or you assume that the coffee is the only part of the experience that counts. I gladly pay $5 for my morning coffee, because I really enjoy the shop. I could drink coffee at home, no problem, but I like going to the shop and reading the news and waking up there. I know I'll see people I enjoy. I actually have to get dressed/ready for my day to get out of the house so I'm not as likely to just be lazy. The window I sit in catches the morning light In a way that I find pleasing. In the warm months I can sit on the patio and enjoy the weather.

Or I could spend $1 or less on my morning coffe that doesn't taste as good, and not wake up in the same, refreshing way, and be overall less productive.

Oh, and I still manage to save 20-30% of my overall income (depending on the month). Lattes don't matter. Overall spending habits and and fiscal approach do.

Another important aspect to consider is that penny pinching will make you feel miserable and will often add so much additional hassle as to not be worth it.

For instance, saving 50 euro on airline travel ... not worth it if you can afford the extra 50 euro.

Even better, buy someone else a latte, sit down and talk with them and learn something new. Then with that, go earn more.

>> But simply cutting cable TV and a few lattes would instantly boost their savings to 15%, allowing them to retire 8 years earlier!! Are cable TV and Starbucks worth having two income earners each work an extra eight years for???<<

> Again, mathematically accurate, but not helpful

Is extremely helpful to those that have the willpower and motivation for early retirement. I personally think about this kind of tradeoff/decision every single day of my life, and as a result, I'm saving an enormous amount of my paycheck and will "retire" before I'm 35.

Of course, it's not helpful advice for lazy, unmotivated people who are stuck in a rut, but what advice is?

> Then, when he inevitably heads to starbucks he thinks he's failed.

I personally approach the whole thing like I approach my gym routine and healthy eating. When I have a "bad" or cheat day, I don't focus on that. I like McDonald's. I just look ahead to tomorrow and say that's OK, I can get back on track. It's not about focusing on what you did wrong, focus on trying to do a little better tomorrow.

> Finally, this quote is complete nonsense:

>> The reason is that every permanent drop in your spending has a double effect:(1) it increases the amount of money you have left over to save each month, and (2) it permanently decreases the amount you’ll need every month for the rest of your life.<<

Actually, I think that's the best piece of advice I've ever received in my entire life. When you open a retirement plan at a bank, the adviser won't even blink when they say "The average person needs 70% of their pre retirement income when they are retired." Let's think about that for a second - by very definition that's saying the more I earn the more I'll need to spend - FOREVER. That's saying that when I have my Ford Focus paid off, I will buy a BMW, then a Mercedes, Then a Porsche, then....

In my last job I wasn't even earning 70% of what I am now, was still saving tons, and yet people plan my retirement saying I'm going to need that much when I'm retired?!?!?!!? It's any wonder my "planned" retirement was at 65 years old.

I absolutely promise you from the bottom of my heart, you absolutely can train yourself to be extremely happy while spending less money, and the more years you do it for, the better you will get. I will never have a TV, cell phone or new car for the rest of my life, I'm extremely happy about that, and it means I can have 50 years of my life to do exactly what I want every day.

Are you serious you don't have a cellphone? Just curious, what do you work in, and how much do you manage to save each month?

Yep. No TV, No cell phone, a 25 year old car and I've never been happier.

I'm a Software Engineer, and I save towards 70% of my paycheck. I still bought a new laptop, DSLR, rifle and other toys all in the last 6 months. I don't earn tons for a SE, if that's what you're thinking.

It lets me do things like Drive from Alaska to Argentina for two years, simply because I wanted to[1]

[1] theroadchoseme.com

That's great for you, nothing wrong with that at all. However, this is pretty anomalous, you know that right. :) Also, from what you describe, do you really think that will let you retire at 35? If so, is that retiring at 35 living, still, very minimally? If you plan to have a long life, which I think you do :) then I don't know if that math works. But it might, just saying ... Anyway, the main point is this wouldn't work for most people.

Of course I'm different from others.

I live on the other side of the world from my home country, I drove from Alaska to Argentina for fun, and I don't want to go to work for the rest of my life so I an buy stuff.

As for retiring at 35, absolutely. I'll travel the world on around $15-20k per year for a long time, then see what happens. (before you tell me it can't be done, I've already done it for two years)

Interesting you think I'm living "very minimally" because I said I have no cell phone or TV and an old car, but in the same sentence I said I bought a new laptop, DSLR and rifle in the last 6 months. You are very confused about what "very minimally" actually means.

> Anyway, the main point is this wouldn't work for most people.

Like MMM said in the article, you can start making this work for you, or you can complain about how it's not going to work for you or the majority. Which one are you doing?

You work remotely? How did you find your current job? I'm aspiring towards a similar lifestyle yet not sure yet how to manage a stable income.

No, I'm sitting at my desk right now. I work for a large telco, so I just applied through the normal channels.

I have a flexible work arrangement now where I take every second Friday off, and I'm probably going to take a month or two of extra leave this year (unpaid).

When I travel, I outright quit and just live on my savings

Well, good for you and all that, I mean that seriously. But I'm not confused; I think it is a bit minimalistic to not have a cell phone. A new laptop could be some $500 Dell, a rifle could be anything, so not I wasn't thinking of that as something akin to a middle class style, especially if that's basically it. :)

Of course, you are free to think that not having a cell phone is minimalistic. I personally think of it as very liberating.

I bought a brand new MBA ($1300), Canon 60D+Lens (Right on $2k) and a Remington 700 30/.06 ($1200), so I'm not without stuff, I just pick and choose the stuff I want and don't want. We're all free to do that, and I think a lot of people forget that.

It seems like you'd much rather complain about how this isn't going to work for you than start working towards making it work for you.

I'm not complaining that it wouldn't work for me. But you posted your experience in way that I think was really not showing that this is something realistic for most people but kind of as a way, let's be honest, bragging about your acetic take on income. So don't take this the wrong way, but I think it's a little disingenuous given what you were responding to. :)

Not at all. I posted because someone asked, and because I like to show people there is always a way.

Of course my way doesn't work for everyone, but I'll bet there is a way that works for others (that likely doesn't work for me).

I'm not saying everyone should do it my way, I'm saying everyone (including you!) should work hard to find the way that works for them (and it might be a way that nobody else has done yet...)

So how much rent do you pay and what are your living conditions? Btw I never owned a car in my life and only have one cell phone which is prepaid and I almost never use it, so my expenses with it are minimal(around 10 $ every 3 months or so).

I pay $500 a month in rent for everything, and live with one other person who has become a good friend.

After work, I either go snowshoeing, cross country skiing, out walking for photos or mountain biking. On the weekends I am always out of town hiking/camping/hunting/canoeing/snowboarding/fishing/etc.

Besides cooking, eating and sleeping, I spent less than an hour a week at my rented house, so the fact that it's cheap works very well for me. It also has a grass backyard, so I sit out there and read books when the weather permits.

I went wifi-only last year and I've enjoyed the $70/mo in extra money each month. I don't call people often so I use Google Voice, and the GrooVe android app. which has great call quality everywhere but the office.

I have wifi at home, work, friends' places, and a lot of businesses, so I'm only really offline when I'm driving and maybe the grocery store.

> I'm saving an enormous amount of my paycheck and will "retire" before I'm 35.

I see a lot of <35-year-olds who say this, but no >35-year-olds who say "I retired at 35 by saving a lot and things are working out great!"

It's doable but you need investment skills. 5% after inflation is likely pie in sky for most people. You need a lot more nest egg in the current low interest rate environment. Also at 35 you will still need money to put children through college so the future expense is likely higher than your past experience.

University is free in my country.

(And yes, it will be free as in beer, because I won't be going to work, or paying taxes.)

What about the living expenses?

I'll be living off my savings

Sorry, I meant the living expenses of your children, this was related to university costs.

Of course, sorry.

In Australia the government pays students a wage, called Youth Allowance[1], that is something between $268 to $400 every two weeks, depending on circumstances. Combined with a roughly ~10 hour per week part time job, I had no trouble at all putting myself through 5 years of Engineering without any debt. I'm confident my future kids can do the same thing, so I won't need to support them in the same way my parents didn't need to support me (once I went to University at 18)

[1] http://www.humanservices.gov.au/customer/enablers/centrelink...

While I agree that keeping worrying about $4 latte is wrong, I disagree that getting rid of cable or some other entertainment is hard. It is hard if it is part of your daily routine or is habit. So to make it work (and stop worrying about spending or not $4 for latte) you need to re-adjust process of your life. Once everything will fit naturally into your daily routine - you will not get stressed about it anymore.

But I agree - if you can't fit cut into your routine - stressing about it worse than not saving extra few percents.

And yeah - negotiating $5k increase is first thing you need to tackle, and only once it is done - proceed with the rest probably :)

Not to mention that if everyone stopped spending money tomorrow, then the economy would crash, millions of people would lose their job - meaning both personal savings and government resources are crippled. Which means the chances of you having enough money and a state pension you can live off by retirement age is significantly reduced.

While I'm not trying to argue that saving is a bad thing (clearly it's important to have some savings!), it's also fair to say that spending is good for the economy as well.

It comes to a balance. Yeah, if you spend - you help economy. But if we all end up in dept - it will crash economy too. So savings should be reasonable. That's what in theory government should regulate.

> Not to mention that if everyone stopped spending money tomorrow, then the economy would crash, millions of people would lose their job

This is a poor argument promoted by the media in the last 50 or 60 years.

There is no way in which everyone will stop spending money tomorrow.

If something like this will ever happen (people spending less) it will happen gradually and the economy will have time to change.

This actually happened to some extent in 2009 with automobiles. Purchases dropped from 16M/yr to 9M/yr, which was below the obsolescence rate of 11M/yr.

That's a poor response promoted by people who cannot grasp the basics of a 'hypothetical'.

Nobody is suggesting that everyone will stop spending tomorrow. However if an article discusses that people should save instead of spend, then the next logical discussion would be what happens if everyone takes that advice.

Well, that's just because the economy is predicated on the need to expand. One of those huge faulty premises that'll eventually need to change. (If we remove the requirement that an economy must expand, then the whole meaning of recession and depression changes, for instance.)

If people put their money in the bank or the market, then companies are spending the money instead of the consumers. The companies tend to spend the money on either capital goods, which still need to be produced just like consumer goods, or they spend the money on people who will in turn spend on consumer goods. No one is advocating hiding money under the mattress.

Yes, just about everyone. However, this is hacker news. We are not "just about everyone." While I think 5% return is naive in the current economy/gov't, he has some good points.

Hacking your life(style) is way more important than hacking anything else.

I agree, it is psychology, and your family (if you have one) is going to make a huge difference. If your partner can't resist new purses or can't live without the newest smart TV, you're screwed. End of story.

However, if you find someone with your similar mindset, it's amazing what you can achieve.

Yours is a very pessimistic view. You have no faith in your fellow human beings. There are a lot of smart enough people out there with sufficient will power to make these changes in their life if only they have the education and awareness of the opportunities. Sometimes all it takes is seeing the impact these changes have.

One of the best quotes I have seen about finances is this:

  Poor people spend what they have and invest the rest.
  Rich people invest what they have and spend the rest.

I've unwittingly been following this advice for a long time. When I save up enough money, I buy a HOUSE. An entire house I'm not just talking down payment. I have 5 houses now. I rent them out. I flip them. I live in them. Did you know you can buy an entire house for less than $5,000? A lot of people don't. I think those that buy houses retail or rent are silly. You think people who try to convince others that giving up coffee works are silly. To each his own. Why buy stocks and bonds when you can buy a house that pays $500/mo rent on a $5000 purchase?

Most people think I'm insane when I say that kind of thing, but it happens and it works. It takes experience, research, and time. It takes dedication and will. Strength of character and determination. Those are the characteristics that are lacking in our population right now and unfortunately those things aren't being taught. Those are the things needed to launch a startup, build wealth, and pay off credit card debt. They are also what is needed to give up coffee at Starbucks, so start with the coffee and you'll build better people for the long run -- that's what's important.

  > There's no medium ever invented that does this better than television.

I internet is better for me, but I get your point.

  > They want coffee, and buying one at the starbucks next
  > to work is a lot easier and tastier than brewing it 
  > yourself.

If Starbucks is tastier and easier than your home brew, you're doing it wrong.

  > automate your finances

If you think automating your finances is easier than not getting a coffee at starbucks -- well, I disagree entirely. Most people can't even balance a checkbook.

  > purchase the bond/equity ratios that suit your age

Really? These are advanced investment concepts and it takes a lot of education to get there. Start first with not spending more than you make. I think that's the point of the article. Once you manage that, then start thinking about where to invest. You're putting the cart before the horse.

All these concepts can and are being learned by people all over the world. It just takes time. You have to crawl before you walk. Crawling out of the hole of debt is the first move. If you keep spending at starbucks and paying 20% interest while you're trying to get 6% on bonds (if you're lucky) then you're still losing money. The secret to building wealth is first and foremost to stop losing money.

> Yours is a very pessimistic view.

That dude is not a pessimist, he just looks that way to you because you're ridiculously optimistic.

Where can you buy a house for $5000 that pays out $500/month in rent?

You can actually get them for even less than that and get more in rent. The cheapest way is through Tax Sales. You can buy a 3 bedroom house at a Tax Sale for low thousands of dollars and rent them out Section 8 for $800/mo or more and the US Government pays you all or a portion of the rent so it's reliable residual.

Of course it isn't that simple, sometimes the houses need a lot of work to get rent-ready and if you don't live near them you need a property manager. It's complicated and a lot of hard work but the dividends are incredible. You can also lose your shirt if you aren't careful.

I'll email you.

EDIT: Strike the email, here's a post to a blog with results from a Tax Sale in Tulsa County Oklahoma last year:

http://www.gavelhound.com/blog/Final+Results+for+the+2012+Tu...

Some of what you read in these comments below is true. Skepticism is warranted. It's hard. It's dirty. The houses do need a lot of work. The tenants don't pay sometimes, but the US Govt always does. Property managers take 10% or more of the rent to manage the properties. It's a BIG risk but BIG returns can be had as well. Plus, it does take time and emotional stamina. Imagine buying a house that was a meth lab. It happens. Imagine removing the person who lives in it and they burn it down. It happens.

The tricky part is that it's very easy to not notice when your "investment" turns into a "second job" that may not really be paying that well per hour.

It's important to find a good property manager in the area you are investing. They do the work for you but the returns are less of course. Just like anything...

"It's important to find a good property manager in the area you are investing."

Also not as easy as implied.

Please email me. (talithamichele at gmail dot com) It has been a long time since I read real estate books. I need to figure out how to buy a house cheap. I know it can be done but I don't know where to get the info I need.

And myself too, please. It would find it extremely helpful. (Email in profile).

Two things I can think of:

1) it was a typo for $50k which is a reasonable number. The house down the street from me just sold for $55K and reasonable rent for it is $650 in the neighborhood. My house was a bit more (housing boom) but I will easily be able to get $900/mo in rent for it (nicer inside), and I am only paying $530 on it. Just need to find another house to upgrade to.

2) the 5000 purchase means closing costs/fees/etc on a house with a 100% mortgage, and in a lot of places the rent can easily be $500 more than a mortgage.

The best places to find things like this are college towns, because there are always lots of renters. The example of my neighborhood is based on the fact that there are a pile of grad students living here.

No, I really meant $5,000 -- total cash money for an entire house that you own free and clear. No typo. I know it sounds too good to be true -- but it's not. See the link I posted above.

Some of that stuff you see on infomercials really does work, but it's really hard and takes time, smarts, and dedication and most people fail en route to success simply by giving up or making bad purchasing decisions.

Foreclosures in bad neighborhoods that are in rough shape that go up for auction, where there aren't many bidders.

The unmentioned parts are that (1) fixing these places up costs money on top and you probably can't afford to hire contractors, so this is basically a second job and (2) the renters you get at the low end are terrible, and also require a lot of time and effort. It's not just invest and forget here.

> auction, where there aren't many bidders.

and where there are many bidders, there are likely people who do this for a living and know exactly how much the house is worth, how much it will cost them to fix it, how much they can rent it for etc. AND they have the professional network in place for all of that-- relationships with contractors, etc

as another poster pointed out, it essentially becomes a job. and you will be competing with people who do this as their full-time job, who will likely have more experience and better connections than you.

Ditto, because I'd like to know right now as well. Usually if you can buy a house for $5k, it needs _a lot_ of _TLC_

The vast majority of them do need a lot of work, especially from tax sales. From Sheriff Sales, where the home owner fails on a mortgage, the houses are in better shape, but cost more. It's not an avenue for everyone, but neither is giving up coffee at starbucks I suppose.

Short answer: slums or (tax liens or auctions for slum houses)

These types of returns are certainly possible. I bought my share of $10k to $50k townhouses with $800 to $1500 / mo rent. With sub $100k houses, typically it will be difficult to get conventional financing, so most people buy these properties with cash or money from a HELOC or something along those lines.

There is certainly money to be made when you are purchasing property for less than its construction costs. However, you have to ask yourself what the tenant profile is of someone who can not afford $5k to buy a house.

The government program the commenter is referring to is usually called Section 8. People in financial straits can get on a waiting list to get accepted into the Section 8 program. Participants end up living in better neighborhoods than they could otherwise, and give landlords typically higher than market rate rents. The typical Section 8 profile is single mother with 2-3 kids and on welfare.

Buying properties through tax lien certificates or auction has its own set of problems because you are buying 'as is'. Let's just say you need to do a bunch of research before you go into it, and mistakes can be costly. One of my friends found out he had a leaking underground oil tank in one of the properties, which costed $85k to clean up.

Landlording is a very bimodal process. If you have very clean, responsible tenants, anyone can manage that property. The real issue is when you get one of these trouble tenants. One that knows all the ins and outs of the law and knows how to string out the eviction process (depending on your state laws) for years. You significantly increase your chance of encountering trouble tenants when your properties are in lower income, lower rental areas or dealing with tenants with government subsidized programs.

The commenter linked to Tulsa, OK which has cheaper properties. This is great if you live close by, or have someone trusted to watch your properties. Property managers can be viable, but you really need to vet them throughly.

I am currently out of the property game, but if I were to start over again, I would not touch slums. I'd buy in the cheapest neighborhood that I would feel safe living in. One with a lot of blue collar immigrants where there are signs of gentrification. Look for the type of cars, people caring about their landscaping and house, new construction, new retail / service stores opening. Buying in the right neighborhood drastically limits my exposure to trouble tenants, and buying in cheaper neighborhoods increases the upside opportunity. The reason you might want to value appreciation more than cashflow is because appreciation can be tax deferred. If I were to buy a property now, it would probably be a 4-plex, and renting or airbnb'ing the other spots. This optimizes for acceptable returns with low/no maintenance.

> Did you know you can buy an entire house for less than $5,000?

Sounds like a line from an infomercial, but you've definitely piqued my interest.

Can you point me to any resources where I can read up on this?

Sounds like Robert Kiyosaki too

If you buy a house for 5k, and rent it out for section 8 housing, that sounds like way too much work and stress.

I wouldn't want to deal with tenants that are more likely to be flaky on paying rent, maybe trashing the place, or something even worse.

Sounds like a full time job in itself.

> Why buy stocks and bonds when you can buy a house that pays $500/mo rent on a $5000 purchase?

500/mo * 12 mo = $6000 a year. At $5000 investment that's a return of 120%, as another commenter pointed out.

Why invest in anything at less than 120% return?

Either a) you've discovered some capital allocation inefficiency, i.e. trillions of $$$ are being foolishly allocated into places like stocks and bonds when higher returns obviously exist or b) you don't fully appreciate the risks that come with the 120% annual return

(I guess there is another option, that the scenario doesn't exist, but I'll take your post at face value and assume that it does.)

You seem to be doing this part time. I've seen other people (Rich Dad, Poor Dad) giving similar advice about real estate investments for years, but my question has always been: How is the market still that inefficient? I don't think you could do the same thing on stocks or bonds. Are there just a ton of localized laws and market quirks that keep the market from clearing?

At the heart of it your quarrel with his program is that people have no willpower to change? I mean, you're very right in that we have a horrible track record but, in your opinion, is the advice sound should someone be able to adjust their lifestyle?

There's also an argument that relaxation and consumerism breeds motivation.

Relaxation: I work better during the week if I've had a relaxed weekend. Working better leads to a greater likelihood of promotion and thus more income. Also I'm more likely to job hunt if I feel confident about myself. That positive psyche comes from positive environment and often that means having relaxation time at home.

Consumerism: The very reason I got my first job was because I wanted to buy a Dreamcast. When I wanted a house, I changed to a better paid job. Then I wanted nicer things for my house and a car, so I asked for a pay rise. Sometimes greed can be a positive force (if channelled appropriately).

Of course people can change their lifestyle. I have no doubt that MMM and the extreme early retirement guy, and some of the devotees of those blogs, have done exactly that.

That doesn't mean extreme frugality is the first thing people should focus on though. People have limited willpower. Using it to cut out $20/week worth of lattes or $100/month worth of cable just isn't the best use of it, unless you've already covered the more important things. As I've tried to illustrate above, focusing on the wrong things (and failing), can be very counter-productive. Personally, I think your limited willpower is almost always better spent adding to or honing the skills that will allow you to produce more.

Maybe the relative ease and affluence of our lives has diminished our willpower to deny ourselves anything, and exercising our willpower will strengthen it.

In other words, maybe the 'limited' part is artificial and can be changed. And maybe strengthening our willpower would benefit us beyond just denying ourselves arbitrary comforts. Such as, willpower to pursue adding to or honing skills, maybe even ones that don't reap immediate material benefit.

So, cutting out lattes may make you better able to improve as an entrepreneur, or programmer, or whatever.

On the subject of psychology, I think part of the problem is cognitive overload. It's difficult to make good long term decisions and maintain self control when you're overwhelmed by economic choices. The poor suffer from this even more than the well off. Effect with references described here:

http://www.tnr.com/article/environment-energy/89377/poverty-...

Cutting out a daily latte might not be worth the savings for a lot of people.

But cutting in half the number of times per month you eat out, and not ordering any alcohol at restaurants, can easily save most households several hundred dollars a month. Eating out is very expensive.