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Comment by aggronn | Hacker News Reader

To emphasize the last paragraph: You don't become rich by obtaining lots of money. You get rich by saving lots of money. You can become financially independent before you turn 40 making $50k/year at a 9-5. You don't need to start a company, or change the world. You just need to get to a point where your investment income is equal to your expenses, and the only way to do that is by limiting your expenses.

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You can become financially independent with considerably less money. I know someone who at 30 sold up, moved way into the boonies on a hobby farm. He's got enough in the bank that he can live off the interest.

Now he just potters around his farm. Grows all his own vegetables and fruit, raises chickens and cows and is getting "richer" by not spending all his interest. So him and his wife get to spend all their free time with their kids, which is what they wanted.

The reason most people will never become rich is simply because they increase their expenses the more they make.

Yes, they are financially independant to remain where they are, but they are not financially independent to do do great things, e.g. they couldn't start a company, buy a new house, send their kids to college. (except your friend became a millionaire)

This financial independence normally is temporary and normally doesn't last long. Humans crave for change, living on a pottery farm is really nice for the first 1-2 years, however, for the rest of your life? Humans are not built for that.

On the contrary, I'd argue that it's much easier for them to do those things because they have considerably more time, free capital, and flexibility than non-financially independent people.

True, you're right. Except for the college thing though. :)

With bank interest rates at < 1%, having $2 million in the bank earns < $20K/yr. He must be rich or ultra frugal.

When people refer to interest they often are referring to investment gains, rather than actual bank interest.

Specifically, it is generally assumed that a diversified investment portfolio will earn ~4% after inflation on average, and by spending 4% of your portfolio balance at any time you are reasonably safe in the assumption that your money will not run out. At 3% it's all but assured that your money will not run out. These are conservative assumptions and take into account the fact that in any given year your investment performance could be significantly less than 4%

Yes, a diversified investment portfolio could perform like that in the past, when the gov't wasn't minimizing interest rates. Nowadays only with much greater risk of loss of principal.

The S&P 500 is up about 7% annually over the last 5 years, with inflation never exceeding 3% over that period. That leaves a calm 4% real return on one of the less risky investment options.

How has it done over 10 years? And that's with mega gov't help.

About the same... Over 10 years the S&P is up 83.6% excluding dividends. Going back to July so month to month comparisons are valid it looks like the annualized return is 6% excluding dividends and 8% including them.

http://dqydj.net/sp-500-return-calculator/

Agreed. With a lot of risk for that reward. The risk shows in the volatility (ups & downs) over that time, and that the gov't had to borrow several $trillion to prevent a negative return over that time.

That's why you don't put $2 million in a bank account.

This guy retired on $800k raising a family of 3 with $25k/year of passive income: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...

Another option is to put the money in foreign accounts. I don't know this space at all, but interest rates at consumer banks in India are 9-12%. Even after currency exchange rates, you'd probably make >= 4%/year

No such thing as a free lunch, though. Plenty of people's savings went poof that way.

Why? Indian banks defaulting? Corruption/theft issues? I haven't tried this method -- just regurgitating advice other's have given me. Always thought it seemed more profitable than keeping money in US banks, and India always seemed accommodating of foreign money coming in.

Forex is risky because unless you have a use for the foreign currency you are at the mercy of exchange rates. For example, INR lost 0.74% vs the USD just today.

For example, savers around the world were enticed by Iceland's high interest rates, and then this happened: http://en.wikipedia.org/wiki/2008%E2%80%9311_Icelandic_finan...

Turned out those savers were the suckers needed by those banks, in an attempt to remain solvent.

That interest rate is because on average, rupee inflation has been at over 9% in the last two years, and was over 11% at the beginning of the year. http://www.tradingeconomics.com/india/inflation-cpi

If I'd opened a bank account last time I visited India, converted sterling to rupees, to saved in an Indian bank account at 12%, I'd end up less pounds than I started with.

Putting money in consumer banks in India really only makes sense if you live there.

Bank accounts are't for storing your retirement savings. Even with the current low rates you can get 3% from 20 year Treasuries. If you want more yield you'll have to take some risk, which is why diversified portfolios are always advised.

In other words you must take the risk of forgoing retirement when trying to beat inflation. In 2008 pretty much the only diversified portfolios that didn't take a huge hit were the baskets of low-risk investments.

"The reason most people will never become rich is simply because they increase their expenses the more they make."

Words of wisdom right there.

I think there is an underlying difficulty there. There's usually at least a few of your friends who also are financially well off and growing. Or perhaps your circle starts to include more well off people as you become wealthier. There is an endless social competitive pressure to be at or near the top of your peers, and the metric for measuring that is how much you own and spend. Leaving society to go on a farm, however awesome and healthy that may be, is breaking the vicious cycle that you may have been in for much of your life. And that is incredibly difficult.

But nowadays the only way your investment income will pay for your expenses is if you were rich to start with, or you take the risk of losing a big percentage of your money to earn more than 3% interest.

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