Climbing the Wealth Ladder(ofdollarsanddata.com)
ofdollarsanddata.com
Climbing the Wealth Ladder
https://ofdollarsanddata.com/climbing-the-wealth-ladder/
322 comments
Yup. I see this kind of logic in personal finance discussions all the time but it's bullshit. There simply aren't any spending decisions you can make that will change you from not wealthy to really wealthy. Those things can just move you from poor to middle class at best, or to a better level of middle class.
Outside of real outlier status where you're paid really, really large amounts of money for your services (like notable entertainer or cardiac surgeon) the way to wealth is to own the means of production. Period.
Same as it ever was.
Outside of real outlier status where you're paid really, really large amounts of money for your services (like notable entertainer or cardiac surgeon) the way to wealth is to own the means of production. Period.
Same as it ever was.
It can give you the breathing room to actually _do_ something that can change your status and allow you to have a decent shot at "own the means of production", though.
I've probably had hundreds of conversations with people who will say "well, not everyone can afford to move town" or "not everyone can afford to take a week off work" or whatever else.
That's an enormous handicap - you're basically a slave to your current job, and if it tires you out enough that you can't train/learn/do other productive work outside of it, then you're stuck.
Personally I grew up with essentially zero, and pretty much self-enforced level 1 upon myself until this chart would have me at level 4.
People talk a lot about how certain startup founders aren't really risking anything because they start out with a safety net. You can create that safety net for yourself, with a little luck along the way, provided that you're sensible.
I've probably had hundreds of conversations with people who will say "well, not everyone can afford to move town" or "not everyone can afford to take a week off work" or whatever else.
That's an enormous handicap - you're basically a slave to your current job, and if it tires you out enough that you can't train/learn/do other productive work outside of it, then you're stuck.
Personally I grew up with essentially zero, and pretty much self-enforced level 1 upon myself until this chart would have me at level 4.
People talk a lot about how certain startup founders aren't really risking anything because they start out with a safety net. You can create that safety net for yourself, with a little luck along the way, provided that you're sensible.
"not everyone can afford to take a week off work"
even if you can, financially, it's often hard to do so mentally/emotionally. if you're taking time away from work, that means no income - whether you desperately need it or not may be immaterial to the mental state you've built for yourself.
even if you can, financially, it's often hard to do so mentally/emotionally. if you're taking time away from work, that means no income - whether you desperately need it or not may be immaterial to the mental state you've built for yourself.
Even if you don't need it, you really probably do. A lot of people talking about entrepreneurship and whatnot have some kind of blindness to the idea that one can fail at these things, and once you've eaten up your savings you're back at square 0 and back to the soul-crushing reality of job. Objectively it is wiser to simply keep the job in the first place.
50% of small businesses fail. 20% fail in their first year.
The real cost of failure isn't just loss of savings. It's potential homelessness, bankruptcy or death through less of health cover, or bankrupcty through student loan payments.
In a functional culture the cost of entry for small businesses is much lower, as is the Total Cost of Failure.
For a country that claims to be business friendly, the US makes it unbelievably dangerous to start a small business without the backing of a significant financial safety net.
The real cost of failure isn't just loss of savings. It's potential homelessness, bankruptcy or death through less of health cover, or bankrupcty through student loan payments.
In a functional culture the cost of entry for small businesses is much lower, as is the Total Cost of Failure.
For a country that claims to be business friendly, the US makes it unbelievably dangerous to start a small business without the backing of a significant financial safety net.
This is something I think about a lot as an American in Canada. I can afford to stick my neck out in a lot of ways because, worst case, I still have healthcare even if I'm out of a job for 4+ weeks.
Or they're just talking about different ratios of saving/spending.
As I posted below - the situation in which you have 40 weeks of spending set aside is radically different to that of having 4.
From my perspective, and I recognise things are probably very different in the USA with your health insurance catastrophe, taking a few months off work to unwind, or check out the job market, or whatever else every now and then is a completely normal thing to do.
My first software job came about because I left a job and bounced around for a bit. I had enough mental space and time to physically visit interviews without the sort of typical "pretend to your boss you're ill" stuff. Without that time I'd be somewhere completely different now.
As I posted below - the situation in which you have 40 weeks of spending set aside is radically different to that of having 4.
From my perspective, and I recognise things are probably very different in the USA with your health insurance catastrophe, taking a few months off work to unwind, or check out the job market, or whatever else every now and then is a completely normal thing to do.
My first software job came about because I left a job and bounced around for a bit. I had enough mental space and time to physically visit interviews without the sort of typical "pretend to your boss you're ill" stuff. Without that time I'd be somewhere completely different now.
> "not everyone can afford to take a week off work"
Being in a country where vacation time is paid by the company (currently 7 weeks / year, even if I usually don't use up all of it), the idea that taking a day off work means less money at the end of the month is mind boggling.
Being in a country where vacation time is paid by the company (currently 7 weeks / year, even if I usually don't use up all of it), the idea that taking a day off work means less money at the end of the month is mind boggling.
I'm talking about taking a week _off_ off.
For example leaving one job and having a gap before another one, or getting sacked and having a few weeks without work, or moving town before you have something lined up, etc.
Basically, being able to function without income for a nonzero period.
I wouldn't want to use my holiday weeks looking for work more than a few times in my life even if I have quite a generous allowance (well, generous by 'normal people' standards, I find the idea of working >80% of the year quite odd)
For example leaving one job and having a gap before another one, or getting sacked and having a few weeks without work, or moving town before you have something lined up, etc.
Basically, being able to function without income for a nonzero period.
I wouldn't want to use my holiday weeks looking for work more than a few times in my life even if I have quite a generous allowance (well, generous by 'normal people' standards, I find the idea of working >80% of the year quite odd)
Being in a country where I can negotiate with my employer as to vacation time in respect to my salary, the idea that someone has to have accept minimum of 7 weeks regardless of circumstances is mind boggling.
It's because, absent that protection, workers on the weaker end tend to get squeezed down to very low PTO whether they want that or not.
[EDIT] weaker end in terms of ability to negotiate—so, the vast majority of workers.
[EDIT] weaker end in terms of ability to negotiate—so, the vast majority of workers.
Unfortunately what often happens is that this law applies only to full time workers at some cutoff (e.g. 30+ hours a week). If the cost of full time is too high (e.g. 7 weeks paid vacation for a low skilled job), the employer would be more likely to hire more part time workers. And you would see people working multiple part time jobs rather that a full time job. Some of those workers would likely be willing to forgo a generous benefit like 7 week vacation for the opportunity to work one job.
There must be a lot more people who think the law's helping them than harming them, or it'd be changed. Might take time, but those sorts of laws have been common all over Europe for quite a while and I don't see any especially strong movements to repeal them, or even reduce the days off per year, despite incentives for businesses to attempt to drum up or encourage (at least, surely, not to oppose) such a movement, if possible, which one would expect to make such movements significantly easier to start and grow, if they had much popular support at all.
I agree that it's not a popular opinion, but with these sorts of things the unintended consequences are not very visible. The people working part time may not realize it may be due to this affect.
It's also interesting to look at percentage of workers that work part time by country. US is relatively low at 22% while countries with a more generous welfare state are higher (France 39%, Norway 48%)
But there are a million other things going on as well so I'm not sure if it's related to that or something else
https://data.worldbank.org/indicator/SL.TLF.PART.ZS?most_rec...
It's also interesting to look at percentage of workers that work part time by country. US is relatively low at 22% while countries with a more generous welfare state are higher (France 39%, Norway 48%)
But there are a million other things going on as well so I'm not sure if it's related to that or something else
https://data.worldbank.org/indicator/SL.TLF.PART.ZS?most_rec...
Well, the legal minimum is 5 weeks (congés payés), but I got also 2 more weeks, called RTT because the maximum number of weekly worked hours is 35h and it's expected that I work more than the 35h maximum per week, so the additional days off are to compensate for this (and since we're not paid by the hour, we can't just get overtime).
What has this offered to your country? Why doesn't it have it's Amazon or SpaceX? Why is the Linux Foundation here? Why are the salaries in the most unregulated or frontier markets the best in the US and not in Europe?
Mandating a week off for everyone doesn't seem to give the space needed for poorer people to become as wealthy as they might deserve. What can be done?
Mandating a week off for everyone doesn't seem to give the space needed for poorer people to become as wealthy as they might deserve. What can be done?
Agglomeration dynamics, a great higher education system, 300M+ people who share the same language, and a common market go a long way. Cheap finance and government support (defense spending) also help.
If you want to attribute America's economic advantage to hours worked or labor regulations (and yes, they do matter to an extent), you have to be ready to explain why Russia, Mexico, Greece, and Chile aren't also economic powerhouses.
Source: https://data.oecd.org/emp/hours-worked.htm
If you want to attribute America's economic advantage to hours worked or labor regulations (and yes, they do matter to an extent), you have to be ready to explain why Russia, Mexico, Greece, and Chile aren't also economic powerhouses.
Source: https://data.oecd.org/emp/hours-worked.htm
It's not obvious what can be done. Efforts to distribute the wealth (post WW2 style) will most likely lead to capital flight, and you guys have a gargantuan mass media machine devoted to making sure this kind of thing does not happen to begin with. America is experiencing advanced regulatory capture and the solutions were needed decades ago.
My personal conjecture is that you're in for a long period of degradation followed by something violent. Fascism most likely.
My personal conjecture is that you're in for a long period of degradation followed by something violent. Fascism most likely.
Yes, unfortunately. It doesn't help that Americans are culturally unable to process the idea that we are not "the best" even in the face of overwhelming evidence to the contrary.
Sad, but likely true. It would appear as an observer that facist ideals are on the rise even in the youngest genrrations, but that may be simply me noticing it more.
Those are ridiculous claims. Do you have any evidence do back up your claims that having no minimum number of legal days off is related in any way to prosperity? Proof from almost every other OECD country says no.
I think that's the point of the article.
If you have 4 weeks' worth of spending saved then it's difficult.
If you have 40, then it's fairly easy.
If you have 400, it's trivial.
If you have 4 weeks' worth of spending saved then it's difficult.
If you have 40, then it's fairly easy.
If you have 400, it's trivial.
well.. I was getting at, it still can be mentally difficult to pry yourself away from it, even if you financially can 'afford' it.
Tell me about it. I have over 25 years worth of living expenses and still haven't gotten the nerve to just get out.
that's sort of what I'm getting at. what's holding you back? I'd like to think if I had 25 years... yeah, I'd just stop and do .. well, I'd probably do what I do now, but less of it, and be more picky, and travel more.
as it stands, I've got perhaps... ~5 years of living expenses saved up. Certainly enough to not worry about a few days of non-income, but it's.. certainly not FU money. 25 years of expenses lined up seems like it might give you more breathing room, but, I suspect your comfort level and goal posts move.
when I was in big debt, I thought "man, just having $1k in the bank will make all the difference, and I'll be fine". and when I got there, I was 'fine' for about 10 minutes. Then the goal was $2k. Then 5. Then 10. Then 30. And so on. For me, there's a realization that it's moderately hard to earn and keep that money, and that it can be reduced rather quickly, so.... keeping earning income is still top of mind, at least for another few years.
as it stands, I've got perhaps... ~5 years of living expenses saved up. Certainly enough to not worry about a few days of non-income, but it's.. certainly not FU money. 25 years of expenses lined up seems like it might give you more breathing room, but, I suspect your comfort level and goal posts move.
when I was in big debt, I thought "man, just having $1k in the bank will make all the difference, and I'll be fine". and when I got there, I was 'fine' for about 10 minutes. Then the goal was $2k. Then 5. Then 10. Then 30. And so on. For me, there's a realization that it's moderately hard to earn and keep that money, and that it can be reduced rather quickly, so.... keeping earning income is still top of mind, at least for another few years.
5 years is certainly FU money to me.
You really think you couldn't walk out of a job and find another one in a few months? Will you even notice that drop in savings aside from as a theoretical number on a spreadsheet?
It sounds to me like you have a complex about this rather than it being in any sense rational. (I don't mean that as an insult at all.)
5 years is less than the amount of time it took for me to go from a skint teenager in a dead end town, to a graduate with a full time job.
You really think you couldn't walk out of a job and find another one in a few months? Will you even notice that drop in savings aside from as a theoretical number on a spreadsheet?
It sounds to me like you have a complex about this rather than it being in any sense rational. (I don't mean that as an insult at all.)
5 years is less than the amount of time it took for me to go from a skint teenager in a dead end town, to a graduate with a full time job.
in my case, much of it is tied to equities (retirement account is a portion, taxable account is other). straight cash - probably ~12-14 months. Having lived through a couple of crashes, the idea that 30% of that could be gone (for a long time) still looms.
And yes, it's sort of a complex. I have to remind myself that yes, I can pay the extra 50c and get cheese on the burger if I feel like it. I'd lived 30+ years without being able to do that (meaning that adding cheese a few times would be noticeable at the end of a week), it's a hard mental state to break from. Not 'working' means ... a day where savings isn't going up, etc.
Replenishing the spent money is simultaneously both easier (larger savings tends to grow in larger chunks) and harder (takes longer to earn new money vs the compounding of earlier money, and takes more of the remaining time I have left, which is always depleting).
I'm not claiming it's entirely rational, by any means, and that's why I was saying earlier that it's hard to break out of.
EDIT: I've always taken FU money to mean... you never have to engage in any sort of 'work' ever again, not just for a short time. In some ways, I've been able to use this cushion to say "no" to some situations/jobs/projects that I would have agreed to before, but it's not the same as saying FU to people. :)
And yes, it's sort of a complex. I have to remind myself that yes, I can pay the extra 50c and get cheese on the burger if I feel like it. I'd lived 30+ years without being able to do that (meaning that adding cheese a few times would be noticeable at the end of a week), it's a hard mental state to break from. Not 'working' means ... a day where savings isn't going up, etc.
Replenishing the spent money is simultaneously both easier (larger savings tends to grow in larger chunks) and harder (takes longer to earn new money vs the compounding of earlier money, and takes more of the remaining time I have left, which is always depleting).
I'm not claiming it's entirely rational, by any means, and that's why I was saying earlier that it's hard to break out of.
EDIT: I've always taken FU money to mean... you never have to engage in any sort of 'work' ever again, not just for a short time. In some ways, I've been able to use this cushion to say "no" to some situations/jobs/projects that I would have agreed to before, but it's not the same as saying FU to people. :)
Fair enough. This is definitely a personal thing though.
I was like that for a while and went all in on FIRE type stuff.
The thing is that eventually, after I did take off that N months, I realised that it's unrealistic to assume I'd have no/almost no income for multiple decades.
I would go insane without having productive work, even if that were working for a non profit for a significant pay cut.
> Not 'working' means ... a day where savings isn't going up, etc.
This is true regardless of how much money you have. You're always going to be able to add some more income by performing labour, even if your investments outperform your labour after a point.
It's worth loosening the straps at some point, even if you just give someone else the money to spend (e.g. charity).
I was like that for a while and went all in on FIRE type stuff.
The thing is that eventually, after I did take off that N months, I realised that it's unrealistic to assume I'd have no/almost no income for multiple decades.
I would go insane without having productive work, even if that were working for a non profit for a significant pay cut.
> Not 'working' means ... a day where savings isn't going up, etc.
This is true regardless of how much money you have. You're always going to be able to add some more income by performing labour, even if your investments outperform your labour after a point.
It's worth loosening the straps at some point, even if you just give someone else the money to spend (e.g. charity).
>Outside of real outlier status where you're paid really, really large amounts of money for your services (like notable entertainer or cardiac surgeon) the way to wealth is to own the means of production. Period.
This is a lazy view, or a really privileged one at least. I know a couple of people in their fifties who have retired from putting as much money into the market as possible (post-tax and pre-tax) while living modestly through their younger years. Having enough money to retire early is having wealth.
Views like the one you espouse are insidious because they give people a justification to stop trying and spend everything they make. Why not get the $1500/mo apartment instead of the $900/mo one? If you can't build wealth, what's the point in trying to accumulate it at all?
This is a lazy view, or a really privileged one at least. I know a couple of people in their fifties who have retired from putting as much money into the market as possible (post-tax and pre-tax) while living modestly through their younger years. Having enough money to retire early is having wealth.
Views like the one you espouse are insidious because they give people a justification to stop trying and spend everything they make. Why not get the $1500/mo apartment instead of the $900/mo one? If you can't build wealth, what's the point in trying to accumulate it at all?
> Views like the one you espouse are insidious because they give people a justification to stop trying and spend everything they make.
Nah. I think it's views like the one you're espousing that are insidious, because they present the illusion that the difference between normal people and the genuinely wealthy is just a matter of some personal self sacrifice, rather than a set of fundamental policy failures that have lead to a collapse of social order and rising inequality.
Of course it's better, for them, if the masses are focused on index funds instead of the abusive effects of concentrated financial power on the middle class.
Nah. I think it's views like the one you're espousing that are insidious, because they present the illusion that the difference between normal people and the genuinely wealthy is just a matter of some personal self sacrifice, rather than a set of fundamental policy failures that have lead to a collapse of social order and rising inequality.
Of course it's better, for them, if the masses are focused on index funds instead of the abusive effects of concentrated financial power on the middle class.
> between normal people and the genuinely wealthy
Ah, the convenient goal post shift to imply that people who retire early don't have wealth. Wealth is now redefined to mean "an amount of assets large enough to make a convenient political out-group".
Ah, the convenient goal post shift to imply that people who retire early don't have wealth. Wealth is now redefined to mean "an amount of assets large enough to make a convenient political out-group".
Having enough money to retire early is having wealth.
Sort of. There's two pieces to FIRE. Saving aggressively, yes. But also by learning to live modestly, you need less wealth to retire. So half of FIRE is accumulating wealth, but the other half is needing less wealth.
Sort of. There's two pieces to FIRE. Saving aggressively, yes. But also by learning to live modestly, you need less wealth to retire. So half of FIRE is accumulating wealth, but the other half is needing less wealth.
Exactly. At some point the decrease in annual spending converges with the increase in annual income, and that's FIRE.
It's not like people have to retire at that point either. The general idea is that they can do what they want and aren't tied to a specific field, career, job, and so on...
It's not like people have to retire at that point either. The general idea is that they can do what they want and aren't tied to a specific field, career, job, and so on...
Right, I didn't imply that they had to retire. It's just that even having that option means you are wealthy. People who can live a middle-class lifestyle in the US without working are super fucking wealthy on a global perspective.
You two are talking past each other.
There wealth as a token of who is winning some game: he who has the most $$$ wins (what I don't know - this is a religion question). You need to own means of production to win this game. If you are reading this, you probably have no chance of getting here, but is fun to dream about.
There is also wealth as in you don't have to hold a job to maintain your lifestyle. When you are young this is impossible (except for a few who inherit money or win the lottery), but if you live below your earnings and invest the rest well you can get to the point where you no longer need to work. (Some people choose to work anyway, others will retire)
There wealth as a token of who is winning some game: he who has the most $$$ wins (what I don't know - this is a religion question). You need to own means of production to win this game. If you are reading this, you probably have no chance of getting here, but is fun to dream about.
There is also wealth as in you don't have to hold a job to maintain your lifestyle. When you are young this is impossible (except for a few who inherit money or win the lottery), but if you live below your earnings and invest the rest well you can get to the point where you no longer need to work. (Some people choose to work anyway, others will retire)
Are you aware of the fact that your anecdotal evidence from the fifties may no longer be pertinent?
Have you seen what happened to wages since then? To the cost of living? To the cost of homes?
Have you seen what happened to wages since then? To the cost of living? To the cost of homes?
"People in their fifties" not "People from the fifties"
FIRE is still a thing even today; for example Mr. Money Mustache talks about this all the time:
https://www.mrmoneymustache.com
Your point about wages stands, but even in the 50s there was no way the lower strata would have been able to retire early -- let alone retire at all -- or accumulate great wealth.
> To the cost of living? To the cost of homes?
COL and housing prices are not uniform. FIRE is going to be hard in San Fran even as a full-time Dev, but if you're making $85k in Des Moines it might be well within reason.
https://www.mrmoneymustache.com
Your point about wages stands, but even in the 50s there was no way the lower strata would have been able to retire early -- let alone retire at all -- or accumulate great wealth.
> To the cost of living? To the cost of homes?
COL and housing prices are not uniform. FIRE is going to be hard in San Fran even as a full-time Dev, but if you're making $85k in Des Moines it might be well within reason.
In their fifties, so born in the 1960s and probably started their retirement fund in the '80s or so.
(Not that things also haven't changed since then, but it is a pretty big difference.)
(Not that things also haven't changed since then, but it is a pretty big difference.)
Big tunnel vision moment on my part.
Born 1968, never made more than $80k/yr until 2011, resigned 2014 (came back very part time because there's something wrong with me, 2017). Started saving and investing 1990.
Wow, learn to read.
>I know a couple of people in their fifties
>I know a couple of people in their fifties
You are completely discounting the power of compounding. Saving every penny won't make you rich in a year or even in 10 years. But think about 20 years in the future. Think about retirement. Every extra dollar that you put into your 401K will make a meaningful difference on how you retire in 20-40 years. Here's one real example for you: 96-Year-Old Secretary Quietly Amasses Fortune, Then Donates $8.2 Million - https://www.nytimes.com/2018/05/06/nyregion/secretary-fortun...
Yes, it's a really good idea to live within your means and start saving early for retirement. No, most people who are young today will not be able to save anything like $8M doing that. Some things that are exceptional about the woman in this story:
* She worked 67 years at the same job.
* She invested in individual stocks, mostly during a period when index funds weren't available. This lack of diversification is almost unanimously not recommended for regular people because the vast majority of people who try it dramatically underperform index funds. But if enough people do it someone will dramatically outperform and you'll read about them in the paper.
* It sounds like she lived more frugally than most people would find tolerable.
* She lived in a rent controlled apartment, meaning her rent was probably closer to free than to market rates for much of her life. Needless to say, this subsidy isn't available to young people today.
* Presumably she avoided major illness or other setbacks during her long working life.
* It's also possible that she had an inheritance or some other significant source of income besides her salary.
$1M or $2M in inflation-adjusted savings is probably a realistic goal for a middle class American to have for retirement after a long career and prudent investing. $8M is not.
* She worked 67 years at the same job.
* She invested in individual stocks, mostly during a period when index funds weren't available. This lack of diversification is almost unanimously not recommended for regular people because the vast majority of people who try it dramatically underperform index funds. But if enough people do it someone will dramatically outperform and you'll read about them in the paper.
* It sounds like she lived more frugally than most people would find tolerable.
* She lived in a rent controlled apartment, meaning her rent was probably closer to free than to market rates for much of her life. Needless to say, this subsidy isn't available to young people today.
* Presumably she avoided major illness or other setbacks during her long working life.
* It's also possible that she had an inheritance or some other significant source of income besides her salary.
$1M or $2M in inflation-adjusted savings is probably a realistic goal for a middle class American to have for retirement after a long career and prudent investing. $8M is not.
> * She invested in individual stocks, mostly during a period when index funds weren't available. This lack of diversification is almost unanimously not recommended for regular people because the vast majority of people who try it dramatically underperform index funds. But if enough people do it someone will dramatically outperform and you'll read about them in the paper.
Sampling biais: there's no going to be any article on the people who lost all their money doing this
Sampling biais: there's no going to be any article on the people who lost all their money doing this
Aside from working the same job for decades, it wasn't just any job; she wasn't a secretary at a dentist's office:
> In 1947, she joined Cleary Gottlieb Steen & Hamilton, a Wall Street law firm, where she worked as a legal secretary for 67 years and observed the investment strategies of the lawyers.
> “She was a secretary in an era when they ran their boss’ lives, including their personal investments,” Lockshin tells the Times. “So when the boss would buy a stock, she would make the purchase for him, and then buy the same stock for herself, but in a smaller amount because she was on a secretary’s salary.”
So she was likely a reasonably well paid secretary at a wall street legal firm that would have access to the best financial advice available.
Also, as far as I can tell from the article, she was married but didn't have any kids.
> In 1947, she joined Cleary Gottlieb Steen & Hamilton, a Wall Street law firm, where she worked as a legal secretary for 67 years and observed the investment strategies of the lawyers.
> “She was a secretary in an era when they ran their boss’ lives, including their personal investments,” Lockshin tells the Times. “So when the boss would buy a stock, she would make the purchase for him, and then buy the same stock for herself, but in a smaller amount because she was on a secretary’s salary.”
So she was likely a reasonably well paid secretary at a wall street legal firm that would have access to the best financial advice available.
Also, as far as I can tell from the article, she was married but didn't have any kids.
> Also, as far as I can tell from the article, she was married but didn't have any kids.
That's huge. Kids are expensive (and the risk they expose you to, economically, is truly enormous) and that money tends to come out at the younger end of one's years, and when you're earning less, just to compound the pain (and maximize the opportunity cost).
That's huge. Kids are expensive (and the risk they expose you to, economically, is truly enormous) and that money tends to come out at the younger end of one's years, and when you're earning less, just to compound the pain (and maximize the opportunity cost).
>* It sounds like she lived more frugally than most people would find tolerable.
Sounds like an issue with most people.
>* She lived in a rent controlled apartment, meaning her rent was probably closer to free than to market rates for much of her life. Needless to say, this subsidy isn't available to young people today.
The subsidy is available via home purchase. Fixed-rate mortgage payments don't increase over time.
Sounds like an issue with most people.
>* She lived in a rent controlled apartment, meaning her rent was probably closer to free than to market rates for much of her life. Needless to say, this subsidy isn't available to young people today.
The subsidy is available via home purchase. Fixed-rate mortgage payments don't increase over time.
Property taxes do.
So does property value. Occasionally one, or both, of those goes down, too.
> $1M or $2M in inflation-adjusted savings is probably a realistic goal for a middle class American to have for retirement after a long career and prudent investing.
I wonder what fraction of the population reaches $1M in retirement fund by the time they retire. If 401(k) median balances by age are at all accurate, then the answer seems to be "very few."
I wonder what fraction of the population reaches $1M in retirement fund by the time they retire. If 401(k) median balances by age are at all accurate, then the answer seems to be "very few."
Here's the thing: if instead of spending your money, you invest it, guess what you end up doing with that money? Owning the means of production. Period.
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What happens if you bought Enron?
It's well known there are risks, and not all investments work out.
A bit confused by this - you're now not actually buying anything that produces anything. I guess you could argue it produces more money, but you have no control over those things - you can only choose what you invest in, but have no control over how those things perform. Otherwise then savings is owning the means of production, given that you're still making money with it.
>A bit confused by this - you're now not actually buying anything that produces anything.
I suggest you look up what stock ownership means. Most wealthy people only own non-controlling interest in most of their investments as well. If you own a share of stock, you own part of the means of production.
I suggest you look up what stock ownership means. Most wealthy people only own non-controlling interest in most of their investments as well. If you own a share of stock, you own part of the means of production.
> I suggest you look up what stock ownership means.
Stock ownership traditionally means partial ownership of a business.
Except that you almost have no decision making power unless you own a lot of stocks, and that's not going to happen while working a simple middle class job.
It also doesn't mean that the company will pay you a portion of their profits. It is entirely up to the company whether they want to pay you a portion of their profits.
So you own something, but have absolutely no rights to the profits and practically no decision making power. In the spirit of the usual definition of "owning" something, you do not own anything with stocks.
Stock ownership traditionally means partial ownership of a business.
Except that you almost have no decision making power unless you own a lot of stocks, and that's not going to happen while working a simple middle class job.
It also doesn't mean that the company will pay you a portion of their profits. It is entirely up to the company whether they want to pay you a portion of their profits.
So you own something, but have absolutely no rights to the profits and practically no decision making power. In the spirit of the usual definition of "owning" something, you do not own anything with stocks.
My portfolio works for me 24x7, doesn't complain, doesn't send annoying emails, bother me after hours with an "emergency", or cause loss of sleep. I am highly diversified with index funds. You want to "own a lot of stocks"? Start a small business. Your stock starts off worth nothing, and probably stays that way.
I am having trouble connecting your comment to mine. Perhaps you replied to the wrong comment?
No, I replied to the correct one. I am pointing out some of the benefits of stock ownership and "no decision making power."
I suppose if you want to point it out to others. I'm well aware of them and own plenty of stocks.
> So you own something, but have absolutely no rights to the profits and practically no decision making power. In the spirit of the usual definition of "owning" something, you do not own anything with stocks.
I would disagree.
I can sell those stocks I own and (hopefully) get more money than I paid for them. Sometimes they pay me a dividend too (share of profits). Sounds like ownership to me. I don't care about decision making power within the company. I LIKE that I have delegated that responsibility.
I would disagree.
I can sell those stocks I own and (hopefully) get more money than I paid for them. Sometimes they pay me a dividend too (share of profits). Sounds like ownership to me. I don't care about decision making power within the company. I LIKE that I have delegated that responsibility.
Do you own stocks?
If you don't, and your reasoning above is the reason why, I strongly recommend you reconsider. There is more to be lost by fearing your lack of control and failing to invest than there is by investing, in say, index funds.
If you don't, and your reasoning above is the reason why, I strongly recommend you reconsider. There is more to be lost by fearing your lack of control and failing to invest than there is by investing, in say, index funds.
You're the second or third person assuming I'm advocating against stocks. Why do people keep assuming this from my comment? Nothing in my statement suggests owning stocks is a bad idea.
I own stocks. My wealth portfolio is high in stocks. This has little bearing on my comment. I'm not recommending against stocks - in the US I've not found a better investment (real estate is worse).
I'm simply pointing out that the notion of ownership in a company via stocks is very different from what most people imagine. You own almost nothing, and you have virtually no control over the means of production.
I own stocks. My wealth portfolio is high in stocks. This has little bearing on my comment. I'm not recommending against stocks - in the US I've not found a better investment (real estate is worse).
I'm simply pointing out that the notion of ownership in a company via stocks is very different from what most people imagine. You own almost nothing, and you have virtually no control over the means of production.
Your point is? a lot of the USA's railroads where funded by Investment trusts based in London and Edinburg which had small middle class investors going back to the 19th century.
The point is that if you want to "own the means of production", as was discussed somewhere above, buying stocks as a middle class investor is not going to get you there.
By that notion, most wealthy people do not own the means of production either. There are billionaires from hedge funds that own no controlling interest in any companies.
Partial ownership is still ownership.
Partial ownership is still ownership.
I understand what a classic stock was - it just seems so abstracted now, it doesn't feel like it's an equivalent. You aren't sharing in the companies success directly, but now there's layers of abstraction and speculation and gamification that it appears that stock success is only tangentially related to company success.
You own companies (stock) that produce things. It is true you have no active involvement or control over the business itself (unless you reach activist investor levels), but this is often a positive thing.
You own a portion of a company, but that portion can be watered down at any time, no? Can't a company produce more shares and disseminate them at any time? I know that conceptually you own a portion, but it's so watered down and abstracted it seems like a far cry from actually owning anything that actually correlates to an actual means of production.
No which country do you live in thease are not US employee stock options but real stocks.
There strict laws about that sort of things even more so in places like Germany and the UK
There strict laws about that sort of things even more so in places like Germany and the UK
In the US:
1. You are not entitled to any of the profits of the company by owning stock. Not even if you own preferred stock.
2. You have virtually no control over decisions the company makes. And your vote may not count as much as someone else who has the same number of shares as you. Furthermore, you can have no voting privileges at all as well while owning stocks.
3. A company can devalue the shares you own by simply issuing more (similar to governments printing money).
Not only is all this legal, this is normal. For the average person, the only real reason to own shares is to hope the value goes up. In a few cases it is to get dividends from the companies that have a track record of paying out, but the RoR is not particularly good.
1. You are not entitled to any of the profits of the company by owning stock. Not even if you own preferred stock.
2. You have virtually no control over decisions the company makes. And your vote may not count as much as someone else who has the same number of shares as you. Furthermore, you can have no voting privileges at all as well while owning stocks.
3. A company can devalue the shares you own by simply issuing more (similar to governments printing money).
Not only is all this legal, this is normal. For the average person, the only real reason to own shares is to hope the value goes up. In a few cases it is to get dividends from the companies that have a track record of paying out, but the RoR is not particularly good.
1 not sure what you mean I am entitled to the dividend on the Shares I own (RDSB)
2 Well multiple share classes are dodgy that's why the LSE doesn't like them and you get kicked out on the index for that
3 Are you sure US companies can do this without passing a motion at an AGM to disallow premption rights ?
2 Well multiple share classes are dodgy that's why the LSE doesn't like them and you get kicked out on the index for that
3 Are you sure US companies can do this without passing a motion at an AGM to disallow premption rights ?
If you buy one share of Toyota Motor Company, you are now a part-owner of a car company, including all the factories and equipment and supply contracts and whatnot that such a thing entails. Owning stock literally entails “owning the means of production”. Buy some stock today and become an evil capitalist!
> If you buy one share of Toyota Motor Company, you are now a part-owner of a car company, including all the factories and equipment and supply contracts and whatnot that such a thing entails.
Assuming this is not specific to Toyota, what does "owning" mean?
If I own one share of a company, it's incredibly rare that I have any say on any of the things you listed above. I usually do not get to vote on those. I also do not have any rights to the profits (in the US, but I doubt this is US specific). So in what sense do I own it other than the company writing me a piece of paper stating I do?
I mean, if I'm part of a joint venture with others to own a 100 unit apartment complex, I would expect to get some of the profit, at least. Likely about as much as my ownership stake. Shares do not guarantee this. A company can be very profitable, and just keep the money and pay you nothing, saying that "we think the value of the stock will go up and you can get paid that way."
I'm not anti-stocks or anything - I own plenty of them. But people should understand what they are and what they are not. And for most English uses of the word "own", it is not ownership.
Assuming this is not specific to Toyota, what does "owning" mean?
If I own one share of a company, it's incredibly rare that I have any say on any of the things you listed above. I usually do not get to vote on those. I also do not have any rights to the profits (in the US, but I doubt this is US specific). So in what sense do I own it other than the company writing me a piece of paper stating I do?
I mean, if I'm part of a joint venture with others to own a 100 unit apartment complex, I would expect to get some of the profit, at least. Likely about as much as my ownership stake. Shares do not guarantee this. A company can be very profitable, and just keep the money and pay you nothing, saying that "we think the value of the stock will go up and you can get paid that way."
I'm not anti-stocks or anything - I own plenty of them. But people should understand what they are and what they are not. And for most English uses of the word "own", it is not ownership.
> I mean, if I'm part of a joint venture with others to own a 100 unit apartment complex, I would expect to get some of the profit, at least. Likely about as much as my ownership stake.
You might want to look into REITs.
You might want to look into REITs.
Yes, REITs actually are required to distribute income to shareholders - unlike company stocks.
So only if I buy direct? Not index funds?
(assuming you're asking in good faith)
It's the same thing, just on a different scale. If you own, say, one share of VTSAX (Vanguard Total Market Index) you now own, by proxy, 1.8% of one share of Microsoft stock. You don't have any direct voting or economic rights but because of the way a mutual fund is structured you get most of the economic benefit of that fraction of a share. I.e. you get the benefit of most of the capital gain and dividends that it distributes.
I would personally say that if you want to actually "own the means of production" then directly owning shares is the way to go, but if you don't actually care about making decisions for specific companies then you get most of the benefits without any of the day-to-day thought and worry by owning shares in a mutual fund.
It's the same thing, just on a different scale. If you own, say, one share of VTSAX (Vanguard Total Market Index) you now own, by proxy, 1.8% of one share of Microsoft stock. You don't have any direct voting or economic rights but because of the way a mutual fund is structured you get most of the economic benefit of that fraction of a share. I.e. you get the benefit of most of the capital gain and dividends that it distributes.
I would personally say that if you want to actually "own the means of production" then directly owning shares is the way to go, but if you don't actually care about making decisions for specific companies then you get most of the benefits without any of the day-to-day thought and worry by owning shares in a mutual fund.
I still don't know how that equates to actual ownership of anything - it seems like an incredibly abstract form of ownership, as you get no power, don't share in the profits (if you don't get dividends you only get cash if you sell, that price being only vaguely linked to the current success of the company), and can have your ownership watered down at any time. You own the stock, but that seems incredibly distant from any "means of production".
Yeah it’s pretty abstract. One correction, you definitely do get the dividends that a company pays if you own them through a mutual fund. Funds report their net asset value (NAV) every night and when a company pays dividends it raises the fund’s NAV. US funds are required to pay out dividends to their shareholders as part of their tax status (basically a very specific type of non-profit).
Index funds too. What do you think index funds are investing in?
> like notable entertainer or cardiac surgeon
Google says cardiac surgeons make $400-800k, assuming that's true a very talented engineer at FAANG can easily match this (staff or senior staff level) without being mired by an additional 10 years of school. I personally know engineers making 7 digits in liquid compensation. Obviously these are not your average engineers, but it's doable if you're the 1% (to be good enough for FAANG) of the 1% (to be amongst the best at FAANG) of engineering talent - so this isn't most people.
Just throwing it out there because I imagine most readers here are engineers and you make it sound like it's an impossibility for any of us. I bet at least a handful of readers here are engineers making over $500k.
Google says cardiac surgeons make $400-800k, assuming that's true a very talented engineer at FAANG can easily match this (staff or senior staff level) without being mired by an additional 10 years of school. I personally know engineers making 7 digits in liquid compensation. Obviously these are not your average engineers, but it's doable if you're the 1% (to be good enough for FAANG) of the 1% (to be amongst the best at FAANG) of engineering talent - so this isn't most people.
Just throwing it out there because I imagine most readers here are engineers and you make it sound like it's an impossibility for any of us. I bet at least a handful of readers here are engineers making over $500k.
You also need to consider that the median tenure at these type of companies are 2-3yrs[0][1][2] (1.1 at google!). In my experience that's not enough to get the full stock grants.
So even from those that could make it very few stay long enough to make these great riches your imagining.
[0] https://www.payscale.com/data-packages/employee-loyalty/full... [1] https://www.businessinsider.com/average-employee-tenure-rete... [2] https://brobible.com/culture/article/how-long-employees-stay...
So even from those that could make it very few stay long enough to make these great riches your imagining.
[0] https://www.payscale.com/data-packages/employee-loyalty/full... [1] https://www.businessinsider.com/average-employee-tenure-rete... [2] https://brobible.com/culture/article/how-long-employees-stay...
Google and I believe Facebook have uniform monthly vesting, so these figures are accurate for any amount of tenure.
TC is not computed using the total value of your grants, it’s based on the amount that will vest over the course of a year. Yes, that means there are engineers getting grants of $2m+ over four years (putting TC around $700k+)
TC is not computed using the total value of your grants, it’s based on the amount that will vest over the course of a year. Yes, that means there are engineers getting grants of $2m+ over four years (putting TC around $700k+)
The average tenure is short not because people are getting fired for underperforming. It is short because 1) a lot of people get hired with massive YoY growth even for their size, and 2) people leave to earn even more at other companies in which case they’re still getting the compensations discussed here.
I'm not imagining these numbers - I've seen offers from Google and I also know what I make (as well as what many of my peers make). Standard procedure is for vesting to start pro-rata after 1 year, so even the short-term Googlers you mention would hit their $500k+ annual targets. As another commenter pointed out, I am talking about annual stock, not total.
The most accurate source for compensation I currently know of is https://www.levels.fyi/
The most accurate source for compensation I currently know of is https://www.levels.fyi/
It's not an impossibility. Nothing is an impossibility. We are all temporarily embarrassed millionaires and most of us are temporarily embarrassed for life.
Yes, very reassuring for the remaining 99.98% of us, I'm sure. Besides, while it's still a great salary, cost of living for most of those people is insane.
I seem to remember some one on here recall hearing a couple of transplant surgeons comparing notes where the comp was measured in millions.
I could easily believe that. I just went with the data I had. If you can find a source please share.
There are 4000 Cardiac Surgeons in the USA.
Do you think there are 4000 engineers that make over $500k?
Do you think there are 4000 engineers that make over $500k?
I'm not sure what the point of this comment is, but I believe there are many, many more than 4,000 engineers that make over $500k. I'd guess it's an order of magnitude more. I bet well over 1,000 engineers just at Google alone make over $500k. Then you have the rest of FAANG, the unicorns, high frequency trading, and other industries known for paying extremely well.
Engineers at Google can make over $500k starting at the staff level, so I think my estimate of 1,000 is pretty conservative considering the company has over 100,000 employees.
https://www.levels.fyi/
Engineers at Google can make over $500k starting at the staff level, so I think my estimate of 1,000 is pretty conservative considering the company has over 100,000 employees.
https://www.levels.fyi/
I really think this logic is more about avoiding spending decisions that can change you from middle class to poor rather than the other way round.
Gotta disagree, I have personally watched people spend away 2-300k a year for decades. It's easily millions, especially considering the ROI of the markets since the 80s.
I would argue that this overlooks the factor of time and compound interest.
Lets say I make 60k a year and am 25 years old. If I am living paycheck to paycheck due to bad choices (partying, eating out, etc.) and then I switch my spending habits and can now live comfortably on that 60k and I can save / invest. Lets say my take home after taxes and health insurance (32% reduction) is $3,400 a month. If I can invest $1,200 a month of that, and assume a safe 7.5% return by the time I retire at 67 I have ~$4 million which is considered wealthy, but not really wealthy.
But yes in the short term the only way to gain wealth is to earn more money.
Edit: This assumes a perfect scenario, 98% of the time, that person making 60k a year ends up on social security barely making it at 67.
But yes in the short term the only way to gain wealth is to earn more money.
Edit: This assumes a perfect scenario, 98% of the time, that person making 60k a year ends up on social security barely making it at 67.
42 years in the future your $4 million has deflated in value to the equivalent ~$1.4 million worth of buying power today assuming 2.5% inflation rate. Which isn't really worth much in the U.S., certainly not enough to recover from a major medical disaster.
GP was talking about saving $1200 out of $3400 take-home, which means living expenses are $2200/mo, or $26,400/year.
Let's leave things in "today's dollar" terms for simplicity: A 4% annual withdrawal from $1.4M would be $56,000, or a big upgrade over $26,4000.
A 4% annual withdrawal from $4M is $160k. But as you say, it's the equivalent of $56k today.
Let's leave things in "today's dollar" terms for simplicity: A 4% annual withdrawal from $1.4M would be $56,000, or a big upgrade over $26,4000.
A 4% annual withdrawal from $4M is $160k. But as you say, it's the equivalent of $56k today.
saving your entire salary won't make you as rich as Jeff bezos, but the end of your life will look a lot different if you save $1000 every month instead of $500.
if you have any disposable income, you can save for a decent retirement. it's useful to have a framework for deciding what indulgences you can pay for in the present without crippling yourself in the future.
if you have any disposable income, you can save for a decent retirement. it's useful to have a framework for deciding what indulgences you can pay for in the present without crippling yourself in the future.
Well, there are always ways to make yourself more wealthy. You spend less on consumables and spend more on investments.
People who typically become extraordinarily wealthy do so via high-risk, high-reward activities like business ownership.
Now you can argue that the risk reward equation isn't the same for people who have 20 million in the bank and 200 dollars in the bank, and that is very true, but it doesn't make the advice to spend as much as you can on investments incorrect.
People who typically become extraordinarily wealthy do so via high-risk, high-reward activities like business ownership.
Now you can argue that the risk reward equation isn't the same for people who have 20 million in the bank and 200 dollars in the bank, and that is very true, but it doesn't make the advice to spend as much as you can on investments incorrect.
No, but you can change your spending habits such that you can save up an emergency fund. That will give you some breathing room in case something happens. This alone would be a game changer for most people.
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Exactly, we can't even save our way to retirement (we need to invest), let alone expect frugality to translate to wealth. If you aren't in business for yourself, pay raise is the way up.
i feel like by definition spending decisions only make you less wealthy.
Saving money, even from a salary job, gives you the breathing room you need to take economic opportunities. For example, if you save a year of expenses you can start a software business without external capital or connections.
Most of the paths from middle-class to wealth involve avoiding frivolous spending.
Most of the paths from middle-class to wealth involve avoiding frivolous spending.
Yes but if you borrow like a maniac from credit cards and default on everything and live in a van but still start a successful software business you still get wealthy.
My point being that actually owning that successful business is the mechanism for wealth. Avoiding frivolous spending can be very, very helpful to achieving that status, as you point out correctly, but it isn't actually the status itself.
This article and many others seem to be unable to make that key distinction.
My point being that actually owning that successful business is the mechanism for wealth. Avoiding frivolous spending can be very, very helpful to achieving that status, as you point out correctly, but it isn't actually the status itself.
This article and many others seem to be unable to make that key distinction.
> Yes but if you borrow like a maniac from credit cards and default on everything and live in a van but still start a successful software business you still get wealthy.
What happens if the software business doesn't succeeded to the extent that it dwarfs the level of debt? What if it doesn't succeed at all?
What happens if the software business doesn't succeeded to the extent that it dwarfs the level of debt? What if it doesn't succeed at all?
> you still get wealthy
Do you think the bad habits go away just because you succeeded? That’s not how life works, and the evidence is people who win the lottery.
Do you think the bad habits go away just because you succeeded? That’s not how life works, and the evidence is people who win the lottery.
If you default on everything assets such as that successful business will be reclaimed by the creditors/government, of course this depends a bit on where you live but for instance in Sweden if you default you're required to live on minimum living expenses for five years, any assets you amass over this minimum living value will be claimed by the government.
I wouldn't fully agree with this, I'd say income that non-linear to amount time spent it the highest driving factor.
Let's take an example. I'm going to use Swedish living conditions and salaries as an example as that's where I live but they are close to most European/western countries. We have a frugal grocery store cashier who makes $2000 USD/month after taxes. We have a high level executive in a medium-sized company who makes $5000 USD/month after taxes.
The grocery worked lives like a student (student loan/benefits in Sweden is about $1000 USD/mo) and saves the rest on the stock market (assuming average yearly yield with reinvested dividends at 8.5%), efficiently saving $1000USD/month for future non linear income. The cashier plans to stop working early at 55, at a net worth of about $2 900 000 USD. This allows for a safe withdrawal rate at about $10 000 USD/month. At this level travling/vacation expenses isn't a problem for the cashier. Housing probably does but they can most likely live comfortably even if they decide to rent. They can also easily increase monthly spending allowance by 10% if they decide to continue working half time.
At the same time our executive have been burning through every pay-check, and have effectively no net worth at the same age, sure there's plenty enough to lease a nice car, don't care about restaurants bills but more expensive traveling will still be a setback and vacation time per year is certainly limited as income is still linear to time spent.
So in this example we have a cashier ending up as a multi millionear set for life at 55 with no need to work a day more and a high level executive who'd be back at 0 without the job and a strictly linear income.
Sure salary increase does matter, but in the long run underspending matters more. With a longterm plan it's possible to become a multi millionaire with an entry level job, for instance there's a famous Swedish railroad worker who recently passed away who ended up with somewhere around $17 000 000 USD net worth at the time of his death, and achieved this by living under his expenses with a low salary and investing the rest, he initially turned to the stock market because he couldn't afford a house in his youth. Not Jay-Z levels for sure but well beyond what most people would consider very wealthy.
Let's take an example. I'm going to use Swedish living conditions and salaries as an example as that's where I live but they are close to most European/western countries. We have a frugal grocery store cashier who makes $2000 USD/month after taxes. We have a high level executive in a medium-sized company who makes $5000 USD/month after taxes.
The grocery worked lives like a student (student loan/benefits in Sweden is about $1000 USD/mo) and saves the rest on the stock market (assuming average yearly yield with reinvested dividends at 8.5%), efficiently saving $1000USD/month for future non linear income. The cashier plans to stop working early at 55, at a net worth of about $2 900 000 USD. This allows for a safe withdrawal rate at about $10 000 USD/month. At this level travling/vacation expenses isn't a problem for the cashier. Housing probably does but they can most likely live comfortably even if they decide to rent. They can also easily increase monthly spending allowance by 10% if they decide to continue working half time.
At the same time our executive have been burning through every pay-check, and have effectively no net worth at the same age, sure there's plenty enough to lease a nice car, don't care about restaurants bills but more expensive traveling will still be a setback and vacation time per year is certainly limited as income is still linear to time spent.
So in this example we have a cashier ending up as a multi millionear set for life at 55 with no need to work a day more and a high level executive who'd be back at 0 without the job and a strictly linear income.
Sure salary increase does matter, but in the long run underspending matters more. With a longterm plan it's possible to become a multi millionaire with an entry level job, for instance there's a famous Swedish railroad worker who recently passed away who ended up with somewhere around $17 000 000 USD net worth at the time of his death, and achieved this by living under his expenses with a low salary and investing the rest, he initially turned to the stock market because he couldn't afford a house in his youth. Not Jay-Z levels for sure but well beyond what most people would consider very wealthy.
No family? Also if we were talking about the US (which the article was) then you have to factor in healthcare, average of $200 a month for the insurance IF it's sponsored (mostly covered) by their employer. If the grocery worker is living in any major city then rent is bare minimum of $600 a month for the privilege of living with at least 2 other flatmates or around $1000 for a pretty small apartment. So this person's already out half their monthly income. Let's say transportation costs are low and that this person only takes the bus to get everywhere, that's an extra $100 a month (assuming lack of adequate transportation doesn't also ending up costing them their job due to frequent late starts). Now this person also has to pay at least some utilities depending on where they're living so a rough estimate would be around $120 a month for that. Now we look at food, average grocery costs per person in the US is $220 a month. This person also needs clothing obviously, if they go on the super low side they could get by on ~$100 a month over all. If this is it for their spartan life style, meaning no cell phone, no internet, no eating out, no leisure activities that cost money, no hobbies, no children, no trips to the doctor (where medical deductibles kick in), no car, no netflix etc. This person has potentially $460 a month to save.
That's 100% best case scenario living a lifestyle that basically consists of going to work, going home, eating food, sleeping on the floor of their apartment (we didn't budget for furnishings but w/e it's better for the back) using the public library and walks around the park for sole avenues of entertainment. ALSO: THERE'S NO KIDS IN THIS SCENARIO. Some of those estimates I lowballed also (like food as that's average cost of groceries for people who also get calories from eating out at restaurants) so this is really not a realistic estimate here.
In reality though there's plenty of hidden costs that this person will incur and even assuming they do manage to stay kidsless they'll be lucky to put away $100 a month giving them a best case scenario of $250k in savings by 55. Not terrible for them, but not enough to retire on in the US when you think of medical expenses incurred later on in life.
That's 100% best case scenario living a lifestyle that basically consists of going to work, going home, eating food, sleeping on the floor of their apartment (we didn't budget for furnishings but w/e it's better for the back) using the public library and walks around the park for sole avenues of entertainment. ALSO: THERE'S NO KIDS IN THIS SCENARIO. Some of those estimates I lowballed also (like food as that's average cost of groceries for people who also get calories from eating out at restaurants) so this is really not a realistic estimate here.
In reality though there's plenty of hidden costs that this person will incur and even assuming they do manage to stay kidsless they'll be lucky to put away $100 a month giving them a best case scenario of $250k in savings by 55. Not terrible for them, but not enough to retire on in the US when you think of medical expenses incurred later on in life.
Well as I said those numbers are based on Sweden but I lived like that at those costs (actually 20% lower than that for a couple of years) and that savings level or higher for many years.
It wasn't glamorous but I managed to afford a small apartment, I kept my food budget at an average at $100 a month including a restaurant visit or two by good planning I could keep most meals under $1, I would take the buss out to wholesale food retailers and buy semi bulk, I went to the cinema every now and then, I had internet, smartphone (with some data), computers, furnitures, I went out drinking every now and then, I only bought high quality clothes on sale and no cheap wear and toss from H&M, I traveled to other countries once or twice a year for vacation and visited family across the country every now and then (would go when prices were low or buy cheap tickets 10 minutes before the train departs with leftover seats). I had a good (and frugal) quality of life in the countries second biggest city of the country and didn’t experience any significant difference in happiness from living on twice that now. Main difference is that I travel more (less flexible and more expensive) and eat dinners at Michelin restaurants every now and then.
It wasn't glamorous but I managed to afford a small apartment, I kept my food budget at an average at $100 a month including a restaurant visit or two by good planning I could keep most meals under $1, I would take the buss out to wholesale food retailers and buy semi bulk, I went to the cinema every now and then, I had internet, smartphone (with some data), computers, furnitures, I went out drinking every now and then, I only bought high quality clothes on sale and no cheap wear and toss from H&M, I traveled to other countries once or twice a year for vacation and visited family across the country every now and then (would go when prices were low or buy cheap tickets 10 minutes before the train departs with leftover seats). I had a good (and frugal) quality of life in the countries second biggest city of the country and didn’t experience any significant difference in happiness from living on twice that now. Main difference is that I travel more (less flexible and more expensive) and eat dinners at Michelin restaurants every now and then.
Thats a terrible best case. With a beater car you can deliver pizza and make $1500 a month in most metropolitan areas. Put aside a small emergency fund. Pay off debts, smallest to largest to build psychological momentum. Once debts are paid, start saving for home if you want. And put 15% in a retirement plan. People go to college paying their way while doing this. They live frugally now and benefit later. They major in lucrative subjects. And they earn good money after (and sometimes before) graduating with minimal debt. It can be done.
It wasn't supposed to be best or worst cases, it was just supposed to show that living under your means do matter and that someone with a fraction of the disposable income of a high earner can still earn more in the long run by saving regularly, obviously a high salaried person with the same mindset will earn even more but that's beside the point. The point was that cash flow management do matter.
I could have made a case with a even higher earner living even more lavish, racking up credit card debt and payday loans, buying stuff on installment ending up even worse with debt interest eating up much of the cash flow, here I simply compared someone living under their means with a higher salaried person living at their means (never beyond).
I could have made a case with a even higher earner living even more lavish, racking up credit card debt and payday loans, buying stuff on installment ending up even worse with debt interest eating up much of the cash flow, here I simply compared someone living under their means with a higher salaried person living at their means (never beyond).
And don't forget about almighty inflation.
The interest is based on average OMXSGI adjusted for inflation.
I think you’re both right. The combination of multiplying income while also saving more and more of that income is the key to jumping wealth levels.
It’s certainly possible to live a comfortable life on the cashiers plan but if the executive spent just half of their career living like the cashier then he would quickly pass up the cashier on the wealth ladder.
It’s certainly possible to live a comfortable life on the cashiers plan but if the executive spent just half of their career living like the cashier then he would quickly pass up the cashier on the wealth ladder.
My guess is that it would be almost impossible to save 1K/month if your take home pay is only $2K/month.
There are minimum requirements for food, shelter, transportation, etc.
A pre-tax yearly salary living wage to cover the minimum in the US would be $45K - $68K depending on location. Let's look at a low end, low cost of living state. $45K pre-tax translates to about $3K per month take home pay. Which means that if you had $3K per month take home, you would just be covering the basics for a family. If you are trying to get by on $2K per month, you're already making some difficult trade-offs to survive.
So, I don't think it's realistic to say someone with $2K per month take home pay can save $1K per month.
A pre-tax yearly salary living wage to cover the minimum in the US would be $45K - $68K depending on location. Let's look at a low end, low cost of living state. $45K pre-tax translates to about $3K per month take home pay. Which means that if you had $3K per month take home, you would just be covering the basics for a family. If you are trying to get by on $2K per month, you're already making some difficult trade-offs to survive.
So, I don't think it's realistic to say someone with $2K per month take home pay can save $1K per month.
$3K net after taxes monthly is certainly high income in Sweden (almost second bracket of extra high income state tax). Most engineers here make around $3k pretax out of school. Your living wage example would be high income middle class in Sweden.
I ran the numbers quickly for $ 68k/year you'd be in the top 3% earners all ages in the entire country enough to put you well beyond the public pension roof, on the edge to put you into the highest ultra high earner tax bracket (70k).
So I guess a poor person in the US would be part of the ultra rich in Sweden and I'd be poor beyond salvation in your country, living on ~1.5k/mo while bootstrapping my company.
I ran the numbers quickly for $ 68k/year you'd be in the top 3% earners all ages in the entire country enough to put you well beyond the public pension roof, on the edge to put you into the highest ultra high earner tax bracket (70k).
So I guess a poor person in the US would be part of the ultra rich in Sweden and I'd be poor beyond salvation in your country, living on ~1.5k/mo while bootstrapping my company.
What is the monthly budget of the average student? I would certainly guess under $2k.
That's my thought, but maybe students in the US struggle to keep a $2k budget?
I really doubt it. $2k was my monthly budget after I graduated and got a job. I wasn't really making any attempt to control my spending. I bought nice alcohol and ordered dinner and/or bought lunch every day. most US students are trying to spend a lot less. if they work 10-20 hrs a week they're probably not even making $1k before taxes.
I think the problem is in America the frugal clerk makes 3000/month, a white collar professional makes 8000/month and a high level executive makes 14000/month after taxes. And I wonder if I'm being too stingy with our executive here...
Way too stingy. Engineers here make $14,000 - $33,000 / month, average is closer to the bottom of that though. Those engineers have executives too.
Where is "here?" The average engineer salary (even if you say software dev only) in the US is absolutely not $170k/yr, it's closer to half that.[0] And $400k/yr is dentist-level money. I'm not saying nobody makes that, lots of devs (in absolute terms) do, but it's about as helpful as saying "businesspeople make $40M-$40B a year" when the vast majority of them make $65k/yr as a middle manager.
[0] https://www.google.com/search?q=median+software+engineer+sal...
[0] https://www.google.com/search?q=median+software+engineer+sal...
You made a pretty massive leap from white collar professional to high level executive. What about mid-level executives, specialized independent contractors, tradesmen, and the rest? You also discount the risk premium of the high level executive position, where often your income is zero or negative some of the years you are an executive.
Being frugal and saving everything for 30 healthier years of your life to be able to spend money only when your body seriously starts to fail you.
I’m not sure why people see that an attractive way of spending their life.
I’m not sure why people see that an attractive way of spending their life.
>> a cashier ending up as a multi millionear set for life at 55
Except that the most interesting part of life is over
Except that the most interesting part of life is over
One of the (few) things that I took away from Tim Ferris' 4 hour work week was his concept of "mini retirements" [1] where every few years you "retire" and do something for an extended period of time before coming back into the workforce.
There are absolutely things that you can do when you are younger that you cannot (or are much more difficult) when you are older. It doesn't make then necessarily any more or less "interesting", however - that's completely up to you to decide.
[1] https://www.getrichslowly.org/how-to-take-a-mini-retirement-...
There are absolutely things that you can do when you are younger that you cannot (or are much more difficult) when you are older. It doesn't make then necessarily any more or less "interesting", however - that's completely up to you to decide.
[1] https://www.getrichslowly.org/how-to-take-a-mini-retirement-...
> Except that the most interesting part of life is over
What makes life beyond 55 uninteresting?
What makes life beyond 55 uninteresting?
Or may be what he means is that enjoying the experiences with the money in hand (leisure, travel) might not be as good as that in the youth, typically assuming health issues due to ageing.
Heart surgeries, joint replacements, kidney failure. Stuff like that. Good for you if you don't end up with those issues... But they are common for a reason. Take a look at your parents/uncle's/aunts and you will have an idea of what your 60s will be like. I'm watching my father and all his siblings have different issues in their 60s and I have suddenly realized that lifestyle can't beat genetics.
I haven't quite figured out what to do with this new realization yet.
I think that depends on who you ask. People in their 20s still think people in their 50s are old.
Life expectancy is somewhere roughly in the 70s-to-80s. So it's not entirely surprising that if you tell someone "statistically, I have as much remaining time to live as you've been alive" they're going to think you're old.
Now if you actually step back and move the early part of life where you can't do much you can see it's much closer to middle-age than it is to death.
Now if you actually step back and move the early part of life where you can't do much you can see it's much closer to middle-age than it is to death.
Interesting. I could tell that to myself, but I don't feel old.
In my world 50 isn't that old in this day and age. Most people I know at an age around 50 are healthy, active and enjoy life often even more then people in their 30s with young kids and everything else around that.
Professional (Fussell's Upper-Middle) class or higher? That's wildly different from the more Middle-and-under sorts of 50-year-olds I'm familiar with. That's the decade when they tend to start to look tired all the time (more so, I mean—that kind of "oh they're finally permanently broken" tired) and start having health issues & surgeries that seriously damage quality-of-life.
less interesting
As someone at that age, I think this is completely incorrect, not to mention ageism. Dismissing the last 30% of your life as un-interesting is something I'd expect from someone without much life experience.
You take it out of the context and then accuse me of pushing ageism, well done!
The context is that we compare a life where
i) you save one third of your income and then start to flash money when you are 55, and
ii) you spend one third (or less) of your income on things that matter like finding significant other, having a family, making trips with your friends and family.
You cannot avoid spending 1/3 of your income without it affecting your life style. In extreme case, one can end up becoming a millionaire no one gives a fuck about.
The context is that we compare a life where
i) you save one third of your income and then start to flash money when you are 55, and
ii) you spend one third (or less) of your income on things that matter like finding significant other, having a family, making trips with your friends and family.
You cannot avoid spending 1/3 of your income without it affecting your life style. In extreme case, one can end up becoming a millionaire no one gives a fuck about.
You don't provide any context in your attempt at a wry comment, and then you compound it by not only reinforcing the ageism, but adding in classism as well.
You're defining the cashier by their job/role, as well as how they spend their money on saving for retirement. Textbook classism.
My anecdotal reply would be that I've made it to this golden age, I've earned far less than the average, saved more than the average, and still have a wonderful, interesting life ahead of me. I've married, raised a family, and had memorable trips with them.
Your last sentence is really indicative of how you view wealth and money; for many, becoming a millionaire is about stability and being able to provide for your loved ones, not to become someone that people "give a fuck about."
You're defining the cashier by their job/role, as well as how they spend their money on saving for retirement. Textbook classism.
My anecdotal reply would be that I've made it to this golden age, I've earned far less than the average, saved more than the average, and still have a wonderful, interesting life ahead of me. I've married, raised a family, and had memorable trips with them.
Your last sentence is really indicative of how you view wealth and money; for many, becoming a millionaire is about stability and being able to provide for your loved ones, not to become someone that people "give a fuck about."
> I've married, raised a family, and had memorable trips with them.
I think this part is their point. Even you are looking backwards at what you have done, instead of future plans, implying the younger years are the more interesting ones.
I think this part is their point. Even you are looking backwards at what you have done, instead of future plans, implying the younger years are the more interesting ones.
I think they're just rebutting the claim that they must not have done anything interesting/meaningful if they were able to save so much.
No, that would be a stupid argument. The argument is that by saving almost all your after-basic-expenses income you postpone too many things which would be just much less interesting or cool when you are over 55. For example, traveling when you are in your 60ies and 20ies are two different things. In the latter case the cool things that you find/learn can positively impact your entire life. If you are in you 60ies it is much harder to be impacted by external things and change your habits/preferences even if you want it.
sorry, I did not mean to make your argument into a caricature.
I'm still not sure I agree though. I know this sounds lame, but I think creating a stable life with people you really care about is worth a lot more than the memories of traveling all over the world in your youth. my parents lived well below their means for most of my childhood, and they now have a stable retirement with plenty of money to go on whatever trips they want. sometimes they take me with them. as far as I can tell, they are very happy to be able to do this now with their family rather than having the memories of doing it in their twenties.
something else kind of shitty to think about: the real return on a diversified portfolio over forty years is somewhere between 15x and 20x (unless something major changes in the world). $5k spent traveling at 25 could be $100k less when you're 65. depending how much you made later, this could be a meaningful amount you won't have to leave to your children or help them with their goals.
I'm still not sure I agree though. I know this sounds lame, but I think creating a stable life with people you really care about is worth a lot more than the memories of traveling all over the world in your youth. my parents lived well below their means for most of my childhood, and they now have a stable retirement with plenty of money to go on whatever trips they want. sometimes they take me with them. as far as I can tell, they are very happy to be able to do this now with their family rather than having the memories of doing it in their twenties.
something else kind of shitty to think about: the real return on a diversified portfolio over forty years is somewhere between 15x and 20x (unless something major changes in the world). $5k spent traveling at 25 could be $100k less when you're 65. depending how much you made later, this could be a meaningful amount you won't have to leave to your children or help them with their goals.
>> a stable life with people you really care about is worth a lot more than the memories of traveling all over the world in your youth
A straw man argument. A) I said "for example". B) I didn't mean "fuck all, I am traveling", my primary message that when you saving all your after-ramen income you are missing things you will not be able to make in your 55+.
>> rather than having the memories of doing it in their twenties
Don't take it personal but how one can compare to something they didn't have? Quite possible that after investing in themselves instead of stocks they would have an even better time right now.
>> something else kind of shitty to think about: the real return on a diversified portfolio over forty years is somewhere between 15x and 20x
something else kind of shitty to think about: stocks grow with the same rate as the total amount of US dollars so in some sense your investments don't grow at all if we talk about the total pie.
A straw man argument. A) I said "for example". B) I didn't mean "fuck all, I am traveling", my primary message that when you saving all your after-ramen income you are missing things you will not be able to make in your 55+.
>> rather than having the memories of doing it in their twenties
Don't take it personal but how one can compare to something they didn't have? Quite possible that after investing in themselves instead of stocks they would have an even better time right now.
>> something else kind of shitty to think about: the real return on a diversified portfolio over forty years is somewhere between 15x and 20x
something else kind of shitty to think about: stocks grow with the same rate as the total amount of US dollars so in some sense your investments don't grow at all if we talk about the total pie.
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>> You're defining the cashier by their job/role, as well as how they spend their money on saving for retirement. Textbook classism.
I didn't talk about cashier nor I defined any role. What are you talking about?
It looks like you was struggling the whole life and counted every dollar (see "I've earned far less than the average, saved more than the average"), do you manage to "to provide for your loved ones"? People rarely change, greedo.
I didn't talk about cashier nor I defined any role. What are you talking about?
It looks like you was struggling the whole life and counted every dollar (see "I've earned far less than the average, saved more than the average"), do you manage to "to provide for your loved ones"? People rarely change, greedo.
>You cannot avoid spending 1/3 of your income without it affecting your life style.
Yet people live super-fulfilling lives with families making $50k annually. Find a job clearing $75k and you'll be golden.
Yet people live super-fulfilling lives with families making $50k annually. Find a job clearing $75k and you'll be golden.
> grocery store cashier who makes $2000 USD/month after taxes
Not "close" to most European/western countries. You may be really disconnected from normal people revenues.
> assuming average yearly yield with reinvested dividends at 8.5%
That's a big assumption.
> At this level travling/vacation expenses isn't a problem for the cashier
Inflation over 30 years then 20 more years of retirement may change this.
Not "close" to most European/western countries. You may be really disconnected from normal people revenues.
> assuming average yearly yield with reinvested dividends at 8.5%
That's a big assumption.
> At this level travling/vacation expenses isn't a problem for the cashier
Inflation over 30 years then 20 more years of retirement may change this.
He's specifically talking about the Swedish perspective where the income distribution is much flatter.
In the UK it'd be more like $1K for the cashier and $10K for the exec rather than 2 and 5.
In the UK it'd be more like $1K for the cashier and $10K for the exec rather than 2 and 5.
From their post about the $2k salary after taxes:
> but they are close to most European/western countries
> but they are close to most European/western countries
>> Not "close" to most European/western countries. You may be really disconnected from normal people revenues.
He was specific - Sweden. Just divide all numbers by some factor if you prefer.
He was specific - Sweden. Just divide all numbers by some factor if you prefer.
does a swedish exec really make just $5000/month post tax? that's not much more than I net at my first software gig out of college (and not in SF or NYC).
Where I live (the Netherlands) that means bout 10.000 pre-tax. And that is quite a lot, it is like a group manager (i.e. 50 people to manage) in a medium to large size company. Executive level is probably more. But not a lot.
Same in Sweden, about 10k pre tax to take home 5k. I looked up median salaries for CEOs in Sweden last year which was $7600 pre-tax where only service and the industrial sector is over that, industrial is the highest with $9150 pre-tax, that is at the CEO level, putting your take home salary with tax bracket 34 at about 5k/month, so it's probably a bit high for a high level executive at a mid-sized company.
Where is the incentive then? The difference in skill, responsibility, stress, workplace demands, etc between a cashier and a CEO are nuts. How do people do that for a few grand every month?
The incentive is in living in a country where you have 0 bills to pay when you get cancer. Where homeless people always have a place to sleep, where you generally will get help when you need it and where you can finish university debt free (and your children as well). Both the cashier and the CEO wouldn't be happy in each others jobs anyway. In such a country you don't need as much as in the US for the same standard of living as well. That said, CEOs of large companies also make millions here in the Netherlands (think dutch companies as Unilever, DSM, Philips).
Well I can't speak for everyone but as a small business owner in a highly specialised business with global public companies as customers, I could financially take out more than twice that as pre-tax salary from my company but my takehome would only increase with about $3k so I hardly see any point in taking out more salary. The salary I actually take out is much closer to that of the cashier and I skipped even taking out any salary for Q1 and most of Q2 of this year since I didn't really need the money. I'd much rather reinvest the money into my company so I can expand and employ more people. I also have a goal of providing a better workplace in general, for instance I'd really like to offer 30 hour work weeks and two months paid time off per year, it's not something I can afford at this point in time but I certainly think it would be possible in the future. From my point of view it's more important to be able to build a sustainable business which can offer jobs that provide a high quality of life as well as both professional and personal fulfillment for all employees. And I do think that capitalism is the only way to produce enough quality throughput to achieve that.
Thanks for doing this. I think that what is practiced in the US a lot is the fast food of capitalism. Utterly unhealthy and aimed at short term satisfaction. As the differences between rich and poor grown they will find themselves in society that's not fun to live in anymore. Capitalism is a thing of beauty but it is sick when money buys political power, risky shuffling with money make you more than producing something of value and young people enter the job market with a debt that will take decades to repay.
According to wikipedia, average salary in Sweden is $2700 post tax ($3500 pre tax)
Sounds a bit high but could be right considering that median is usually a fair bit lower since the extremes being up the average quite a bit. However checking this years tax tables put our monthly $3500 pre-tax salary at $2600 take home (but this varies a bit from city to city).
I'm reminded of when Radiohead sold their album for whatever folks wanted to pay on the internet and someone wrote an article about how all bands could do that too:
Step 1: Be Radiohead...
The idea being that the hard part is getting to where you can even use the advice, and after that you're all but done.
Step 1: Be Radiohead...
The idea being that the hard part is getting to where you can even use the advice, and after that you're all but done.
Same category: Musk's "The Boring Company" merchandise. You need millions of followers in first place to be able to sell out 50000 basecaps for a million dollar in total or even 20000 not-a-flamethrowers for $500 each in a few days.
Most people have it wrong. While salary increases are necessary, they are not sufficient. You need to save and invest aggressively. I'm not talking saving 10%. I'm talking 30%, 40%, maybe even more, if you want to achieve financial independence in under 15 to 20 years.
The first few years, maybe the first decade, are tough. After that, it becomes self sustaining: you eventually make more in gains (unrealized, ideally) than you do working.
The first few years, maybe the first decade, are tough. After that, it becomes self sustaining: you eventually make more in gains (unrealized, ideally) than you do working.
> The undisputed "best way" to climb the wealth ladder is to receive large amounts of cash from some external source.
I agree with most of what you say here but I'm not so sure of this bit. Of course, if you get handed huge amount of cash by a rich relative, that's the easiest way to live comfortably for some time, but it won't come with the financial skills to make the cash an asset instead of just a possession.
Assuming you don't win that lottery (or indeed win the actual lottery, $100 million powerball style), I think the best way to climb the ladder is to own a business (as per your 'small business owner across the street with the McMansion and the gaudy Christmas decorations'). Receiving cash is like getting a push on your billy cart, it's nice but it doesn't, in itself, give you a way to get more. A business is like an engine for the billy cart, maybe it won't be going as fast right away but it'll keep on going and generating money.
Either way, as you say, scrimping on groceries will never make the difference between wealthy and not. Wisely investing your salary in real estate or stocks won't help either, except over timescales too long to have any fun with it or unless you're at the very top tier of a FAANG-type company. A business is a machine to make money and unless you own one, you're highly unlikely to end up in the same financial class.
I agree with most of what you say here but I'm not so sure of this bit. Of course, if you get handed huge amount of cash by a rich relative, that's the easiest way to live comfortably for some time, but it won't come with the financial skills to make the cash an asset instead of just a possession.
Assuming you don't win that lottery (or indeed win the actual lottery, $100 million powerball style), I think the best way to climb the ladder is to own a business (as per your 'small business owner across the street with the McMansion and the gaudy Christmas decorations'). Receiving cash is like getting a push on your billy cart, it's nice but it doesn't, in itself, give you a way to get more. A business is like an engine for the billy cart, maybe it won't be going as fast right away but it'll keep on going and generating money.
Either way, as you say, scrimping on groceries will never make the difference between wealthy and not. Wisely investing your salary in real estate or stocks won't help either, except over timescales too long to have any fun with it or unless you're at the very top tier of a FAANG-type company. A business is a machine to make money and unless you own one, you're highly unlikely to end up in the same financial class.
I would concur. However, spending wisely needs coupled with higher income. That's what most people don't apply. Save 10% or more of your income at all times, see your revenue continously increasing, even if not tremendously, and in matter of a few years you can start investing (housing, business, whatever)
See yourself spending near all you get, even getting significant income increases and you get stuck into a loop of ever spending more. Its also very risky, as if that incomes downfalls, it can easily cost you all the small stupidly useless property you already have.
I think the idea is to control your spending and find ways to increase income. I bet jayz continuously did that or he would have ended up like many other stars who lost it all. Or maybe just luck/talent..
See yourself spending near all you get, even getting significant income increases and you get stuck into a loop of ever spending more. Its also very risky, as if that incomes downfalls, it can easily cost you all the small stupidly useless property you already have.
I think the idea is to control your spending and find ways to increase income. I bet jayz continuously did that or he would have ended up like many other stars who lost it all. Or maybe just luck/talent..
Saving 10% on a median income adds up to roughly three thousand dollars saved, a year. Depending on the amount of risk you're willing to accept, you may find yourself making between ~2 to 10 grand over a 10 year period from interests alone. I think those numbers are reasonable (and that saving in general is absolutely worth it), but I don't think they're significant enough to grant you upwards mobility.
Even furnishing a savings account is a privilege many people cannot afford, and no amount of frugality will help them. Only access to higher quality jobs.
If you ask me, Jay-Z gambled on the entertainment industry and won. His gambling chips were talent and hard work.
Even furnishing a savings account is a privilege many people cannot afford, and no amount of frugality will help them. Only access to higher quality jobs.
If you ask me, Jay-Z gambled on the entertainment industry and won. His gambling chips were talent and hard work.
2-10 grand over 10 years wont even cover inflation. so you're actually poorer.
I suppose you're that much less poorer.
In any case, you have something like 30 grands on hand, which you wouldn't have otherwise. That's cash down on a house.
In any case, you have something like 30 grands on hand, which you wouldn't have otherwise. That's cash down on a house.
not in 10 years its not
(maybe somewhere on earth it is?)
(maybe somewhere on earth it is?)
You would expect equities to outstrip inflation in most environments.
According to my handy amortization calculator,
$3000/year = 250/mo starting from 0, 10 years = 120 months, 3%/year (S&P500, after taxes and inflation), gives $34,935.36.
20 years gives $82,075.50.
$3000/year = 250/mo starting from 0, 10 years = 120 months, 3%/year (S&P500, after taxes and inflation), gives $34,935.36.
20 years gives $82,075.50.
> Other methods, whether they involve quantity of free time or already-available money, are intrinsically tied to the quality of your job or, failing that, the quality of your parents' or partner's jobs.
For a lot of educated types, the best chance of really climbing the wealth ladder is early involvement in a startup. The startup founders I know have a single unifying factor, they come from the sort of wealth that allows them to go completely bankrupt and still live comfortably.
We have good incomes and live pretty frugally, and for us that translates to a decent amount saved for retirement and college funds. I would never knock that, that we are incredibly lucky and a lot of people work very hard for less. But it doesn't move us up a class such that we have a house overlooking the beach and kids in 20k/year private schools. I know people who have those, and they didn't work their way up a ladder. Their ladder started on the 10th floor.
For a lot of educated types, the best chance of really climbing the wealth ladder is early involvement in a startup. The startup founders I know have a single unifying factor, they come from the sort of wealth that allows them to go completely bankrupt and still live comfortably.
We have good incomes and live pretty frugally, and for us that translates to a decent amount saved for retirement and college funds. I would never knock that, that we are incredibly lucky and a lot of people work very hard for less. But it doesn't move us up a class such that we have a house overlooking the beach and kids in 20k/year private schools. I know people who have those, and they didn't work their way up a ladder. Their ladder started on the 10th floor.
I'm not totally convinced. It seems to me the further you get up the greasy poll the greasier it gets.
Sure if you are on minimum wage then there are probably some easy gains to be made but for someone in the middle of their career they are far more likely to improve their situation by saving rather than getting promoted. That's not to say they shouldn't try but you have to realise the odds are against you getting to the top.
If you are looking at it from the perspective of starting a business then having some savings is going to make it far more likely. You aren't even going to have the mental energy for it if you are spending all your time thinking about how much to pay on the credit cards each month. This is the reality for many people, possibly even the majority.
Sure if you are on minimum wage then there are probably some easy gains to be made but for someone in the middle of their career they are far more likely to improve their situation by saving rather than getting promoted. That's not to say they shouldn't try but you have to realise the odds are against you getting to the top.
If you are looking at it from the perspective of starting a business then having some savings is going to make it far more likely. You aren't even going to have the mental energy for it if you are spending all your time thinking about how much to pay on the credit cards each month. This is the reality for many people, possibly even the majority.
>> It seems to me the further you get up the greasy poll the greasier it gets.
Quite the opposite: the pole is greasy at the bottom, but becomes easier to climb the more you manage to climb.
The reason it's greasy at the bottom is because there are fundamental systemic factors at play that make it very difficult for poor people from making their way up. For example, here in the USA you cannot open a bank account if you don't have a permanent address, and you're likely to work multiple jobs with constant changes in schedule, and lack of easy transportation options to travel from one to the other.
Once you reach middle class though, the relative stability it provides can allow you to make decisions to climb the ladder further, if you choose to do so.
Quite the opposite: the pole is greasy at the bottom, but becomes easier to climb the more you manage to climb.
The reason it's greasy at the bottom is because there are fundamental systemic factors at play that make it very difficult for poor people from making their way up. For example, here in the USA you cannot open a bank account if you don't have a permanent address, and you're likely to work multiple jobs with constant changes in schedule, and lack of easy transportation options to travel from one to the other.
Once you reach middle class though, the relative stability it provides can allow you to make decisions to climb the ladder further, if you choose to do so.
Totally agree. But here's a thought: could wealth accumulation be a feedback loop? What I mean is, can the earning part benefit from a "reckless" spending side? Speaking from experience, I've been in the business of making more money because (1) I don't believe in saving (I've bought a few insurances here and there, because of course, health isn't guaranteed) (2) I love nice things and will get them at all cost.
I don't know what feeds into the other. Is my taste for recklessness a result of my implicit knowledge that I can generate a good sum of money when I need. Or am I waking up everyday and putting in the work in order to satisfy my reckless side? What I know for sure is that one can deliberately climb the ladder. And the undisputed "best way" to climb the wealth ladder is to generate (not receive) income. There are many ways to do that. Usually employment isn't one.
I don't know what feeds into the other. Is my taste for recklessness a result of my implicit knowledge that I can generate a good sum of money when I need. Or am I waking up everyday and putting in the work in order to satisfy my reckless side? What I know for sure is that one can deliberately climb the ladder. And the undisputed "best way" to climb the wealth ladder is to generate (not receive) income. There are many ways to do that. Usually employment isn't one.
Your example of a person with $10,000 accumulated wealth and no job makes perfect sense. However this does not hold true higher up the scale.
People with mid 8 figure liquid net worth, ex: $50-70,000,000 do not need to have any income for extremely long periods of time without having any large negative effect on their spending ability.
People with mid 8 figure liquid net worth, ex: $50-70,000,000 do not need to have any income for extremely long periods of time without having any large negative effect on their spending ability.
these people get income from capital gains or take loans against their assets. even very rich people try hard not to spend their principal.
I think you can get from level 1 to level 4 just by being careful and wise. You might even get to level 5 by the time you die.
But level 6 will require taking risk and that risk paying off big-time. Usually it requires taking several risks. Jay-Z got from level 1 to level 6 by taking the risk of going public with his craft. He decided he would put in the work, make the connections, and not fear the rejections.
The reason entrepreneurs get rich is they take the risk.
There is some luck involved but most people (me included) aren't willing to risk their current level to level up.
But level 6 will require taking risk and that risk paying off big-time. Usually it requires taking several risks. Jay-Z got from level 1 to level 6 by taking the risk of going public with his craft. He decided he would put in the work, make the connections, and not fear the rejections.
The reason entrepreneurs get rich is they take the risk.
There is some luck involved but most people (me included) aren't willing to risk their current level to level up.
I think you misspelled "a very great deal of luck". How many rappers aren't Jay-Z?
"I understand this isn't the point of the article, but it seems like a roundabout way of saying "don't overspend"."
Well yes, but...that's completely useless advice and the article is considerably more concrete and useful. (On the other hand, I'll dispute his 1-basis-point: I think it should be closer to .1 basis point.)
You are right about the difference between income and net worth. To a point, anyway.
Well yes, but...that's completely useless advice and the article is considerably more concrete and useful. (On the other hand, I'll dispute his 1-basis-point: I think it should be closer to .1 basis point.)
You are right about the difference between income and net worth. To a point, anyway.
Summarized: nobody in the history of humanity ever got wealthy from having a job. If you want to get rich you have to learn how to invest other people's money and make it work for you.
This is also my main take away from "rich dad, poor dad" (the book). It is so simple, yet I was so blind to this for a long time.
This is also my main take away from "rich dad, poor dad" (the book). It is so simple, yet I was so blind to this for a long time.
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Capital is more powerful than income.
It is harder to accumulate capital but still worthwhile even if you can only do it slowly.
It is harder to accumulate capital but still worthwhile even if you can only do it slowly.
This obviously depends on your age and the reliability of your income.
I agree with you, and this flies in the face of Kiyosaki-isms.
This is similar to how I’ve thought about money for a while. Through high school, I had dollar problems. As in, things in the $1-9 range were pretty important. Through college I had $10 problems. Early career it become $100 problems. Now anything under $1000 just doesn’t strike me as an issue. New hot water heater? Just go buy it. $10k things however are what feel like real issues now- new roof? I can do it, but’s it’s gonna put some hurt on for a while if I didn’t see it coming. $100k problems (if I didn’t have insurance and had a major health problem) would crush me like a $1000 problem would when I was 18.
I agree, what’s useful about this mentality is not about becoming a multimillionaire, it’s about having your wealth match your income. A doctor making 250k is often living pay check to pay check while spending crazy money. Even with a steady paycheck their not accumulating wealth.
Even worse, a football player with a 20million dollar contract is likely to end up broke if they instantly maximize their spending. However, if their lifestyle is based on their savings account that’s going to quickly grow to match that income.
Even worse, a football player with a 20million dollar contract is likely to end up broke if they instantly maximize their spending. However, if their lifestyle is based on their savings account that’s going to quickly grow to match that income.
It bothers me when people use the phrase living paycheck to paycheck to describe both someone who literally doesn’t make enough money to cover the essential bills of living as well as someone making $200k+. These people are not in the same boat whatsoever.
The doctor, or any professional making that much, simply needs to turn in the lease on the luxury car, or downsize their house, or cancel their vacation to materially change their financial circumstance.
A person truly living paycheck to paycheck has to choose between eating or paying rent and there’s no luxury car to sell or turn in to free up cash flow to make that decision easier. They are very much resource constrained.
This isn’t to say I don’t believe there are professionals in this boat. I just believe we need a different term for it as it’s not fair to lump these two very separate groups into the same definition. Perhaps describing them as living beyond their means.
The doctor, or any professional making that much, simply needs to turn in the lease on the luxury car, or downsize their house, or cancel their vacation to materially change their financial circumstance.
A person truly living paycheck to paycheck has to choose between eating or paying rent and there’s no luxury car to sell or turn in to free up cash flow to make that decision easier. They are very much resource constrained.
This isn’t to say I don’t believe there are professionals in this boat. I just believe we need a different term for it as it’s not fair to lump these two very separate groups into the same definition. Perhaps describing them as living beyond their means.
That’s your own assumption and has nothing to do with the phrase. A doctor who loses their license is generally financially fucked.
What’s being described is a massive dependence on continued employment, and someone with 200k of student debts and zero net assets easily qualifies.
What’s being described is a massive dependence on continued employment, and someone with 200k of student debts and zero net assets easily qualifies.
It just seems really odd to me to use a phrase in a way that combines people who are very literally resource constrained with few options of climbing out of that hole with people who have the resources available to climb out and above their situation. Both are dependent on their paycheck but one has the ability to break away from that over time with wise choices vs the other likely never being able to break that cycle.
Almost all of the world is living paycheck to paycheck by your definition. The majority of US households would be ‘financially fucked’ if their wage income was taken away for a significant period of time.
Almost all of the world is living paycheck to paycheck by your definition. The majority of US households would be ‘financially fucked’ if their wage income was taken away for a significant period of time.
what's wrong with using "paycheck to paycheck" this way? we already have the word "poor".
"paycheck to paycheck" means something like no liquid savings and no positive cash flow. there are certainly a lot of people living this way (especially in less wealthy countries), but it's not "almost everyone".
"paycheck to paycheck" means something like no liquid savings and no positive cash flow. there are certainly a lot of people living this way (especially in less wealthy countries), but it's not "almost everyone".
Oh you'd be surprised how many people at the $250k income level have been cruising along barely net worth neutral in spending and took out some kind of personal loan or used their credit card for that $10k "new roof" blip or impulsively traded in a car that was a few k upside down, and they started to get further and further underwater. At some point the credit runs out and the next $10k blip means they are literally homeless within a few months.
I think the difference is that people like that have a MUCH better safety net in the form of family and friends who can easily provide $5-10k handouts to get a family out of a jam. (Then of course you have the people that are already abusing THAT source of funds. Even though they are making $250k).
You would be AMAZED at how close to the edge people live at every income level. It's like a part of human nature to do it, regardless of whether one is a millionaire or a pauper.
I think the difference is that people like that have a MUCH better safety net in the form of family and friends who can easily provide $5-10k handouts to get a family out of a jam. (Then of course you have the people that are already abusing THAT source of funds. Even though they are making $250k).
You would be AMAZED at how close to the edge people live at every income level. It's like a part of human nature to do it, regardless of whether one is a millionaire or a pauper.
They are in the same boat in that they face potential financial ruin if they don’t get their next paycheck for whatever reason.
There is already a separate terms to describe people who live paycheck to paycheck to cover essential living expenses, it is called poverty.
There is already a separate terms to describe people who live paycheck to paycheck to cover essential living expenses, it is called poverty.
I think one is trying to get out of ruin in general, whereas
the other potentially risks financial ruin
You can be poor and have financial security. Pensions that fail to keep up with inflation would often strand the elderly with minimal income. But, assuming they had heath insurance they where generally in an very stable situation.
Right that's what I meant. No debt, but no money, doesn't strike me as financial ruin. Though a sudden extreme expense could put you there. In either case, the term financially vulnerable could apply.
These are bad assumptions and it shouldn't bother you that much.
There are lots of people making $200k+ living paycheck to paycheck. If the most basic discussion about cost of living is going to blow your mind then just exit this discussion.
If you wanted month-to-month rent in my building in San Francisco (as opposed to a more typical yearly lease), it is $11,000 per month, with yearly leases being about half that.
People that only make "$200k+" via wage work aren't living here, just like I planned and the networking opportunities are pretty amazing.
There are lots of people making $200k+ living paycheck to paycheck. If the most basic discussion about cost of living is going to blow your mind then just exit this discussion.
If you wanted month-to-month rent in my building in San Francisco (as opposed to a more typical yearly lease), it is $11,000 per month, with yearly leases being about half that.
People that only make "$200k+" via wage work aren't living here, just like I planned and the networking opportunities are pretty amazing.
I work and live in the Bay Area. It is a cruel joke to say that any FANG engineer (or other $200k+ earner) working here is living "paycheck to paycheck". Even in your reply, you provide a solution (just one of many) to this hypothetical renter's problem: switch to a yearly lease and save $66,000 a year. People who are actually living paycheck to paycheck don't have the luxury of making these kinds of financial decisions.
Meanwhile, I know a number of Bay Area grad students who still get by on a salary of $30,000, and even they wouldn't say that they're living "paycheck to paycheck" for the most part.
Meanwhile, I know a number of Bay Area grad students who still get by on a salary of $30,000, and even they wouldn't say that they're living "paycheck to paycheck" for the most part.
You can do whatever you want, there are options at those wealth/compensations ranges
There are also people living up and above their means and want to stay there
There are also people living up and above their means and want to stay there
I'm not sure I have sympathy for my fellow 10%ers who can't manage their 6 figure incomes.
Overspending is not an excuse. When you only need tens of thousands of dollars to live and thrive, anything beyond is excessive.
I know my peers that overspend, I weep for them. I don't envy the limo you take, I feel bad that those things are where you find pleasure.
Overspending is not an excuse. When you only need tens of thousands of dollars to live and thrive, anything beyond is excessive.
I know my peers that overspend, I weep for them. I don't envy the limo you take, I feel bad that those things are where you find pleasure.
I seem to have stopped at some level. I still look at prices for groceries (those mangosteens are pricey) and restaurant items, let alone flight prices. This despite being in the level 4 category in the article.
Maybe it’s being poor since childhood or the first generation immigrant frugality.
Maybe it’s being poor since childhood or the first generation immigrant frugality.
I definitely think the frugality can get baked in for a bunch of reasons. Also, I'll often do stuff myself because the "administrative overhead" is worse than just doing it. I had a problem with my oven and called 5 places. 3 didn't service my area and 2 didn't service my brand. I ended up just buying the part even though I would have preferred to have someone else deal with it, but I'm sure that wouldn't even occur to a bunch of people.
I agree with this. Although I don’t think I’m exposed to anything over $1k as a potential risk as I don’t own a car or a home, short of a lawsuit I suppose.
I feel very wealthy, though in the scheme of things I am not.
I feel very wealthy, though in the scheme of things I am not.
I'm really not a fan of this breakdown because it seems to put each order of magnitude increase in liquid net worth as equal space on the graph. What percentage of people fall into each level. Maybe 50-60% of American adults fall into level 1?
Surely, most folks will never reach Level 3 on this chart. While this is an interesting way for someone who has made significant increases in their income over the years, I don't think the thesis holds that the best way to increase your ladder is to just save money.
We're all (or mostly all) wage earners here. Whether you are making $15/hour at a fast food gig, or $200+/hour as an engineer, you aren't going to save yourself into a new level. Saving might take some pressure off, and make you a little more comfortable within your level, sure, but for most people, it isn't reasonable for them to save 10 times the money they already have liquid without changing their income.
The idea that we're all just a few 'steps' away from being independently wealthy is one of the worst parts of American culture in my experience. The individualism that follows from "if I can just outcompete someone else" seems to me to be the root cause of things like a general anti-labor sentiment, minimum wages as low as $2.13/hour, etc.
Surely, most folks will never reach Level 3 on this chart. While this is an interesting way for someone who has made significant increases in their income over the years, I don't think the thesis holds that the best way to increase your ladder is to just save money.
We're all (or mostly all) wage earners here. Whether you are making $15/hour at a fast food gig, or $200+/hour as an engineer, you aren't going to save yourself into a new level. Saving might take some pressure off, and make you a little more comfortable within your level, sure, but for most people, it isn't reasonable for them to save 10 times the money they already have liquid without changing their income.
The idea that we're all just a few 'steps' away from being independently wealthy is one of the worst parts of American culture in my experience. The individualism that follows from "if I can just outcompete someone else" seems to me to be the root cause of things like a general anti-labor sentiment, minimum wages as low as $2.13/hour, etc.
It's entirely possible for a wage earner to become a millionaire in the USA. Anybody with a middle class income can do it. It's not even complicated or hard to figure out. The problem is that it requires discipline and living under your means.
The first step is to eliminate debt and don't make stupid purchases. Debt includes credit card, personal loans, car loans, and mortgages. Stupid purchases are things like expensive vacations, eating from restaurants all the time, or buying new cars, or buying boats. That sort of thing.
Pretty much: if you buy a brand new car you are a moron if your goal is to increase wealth. You want to do things include living in inexpensive neighborhoods, having secondary sources of income, having no adult 'children' and so on and so forth. Woe is to parents that are still paying for their 20-somethings.
If you go drive around your city and you want to see were "middle-class millionaires" live you need to avoid the 'wealthy' neighborhoods. Look for the 50-something living in a older neighborhood driving older economy cars around. These people are going to have very low credit scores, as well. The best of them are going to have a credit score of 0, which means no credit history for several years.
Do you calculate the cost of purchases by how many payments can afford in a month? If so you are doing it wrong. Instead you should only ever pay cash. If you don't have money in the bank to pay for it you can't afford it.
The S&P 500 has, historically, provided a 12% return over average 20 year period. If you start off at age 30 and invest 500 dollars a month at that rate it would take you about 26 years to make your first million dollars.
6 years after that would be your 2 million dollar mark. 3 years later would be your 3 million dollar mark. By retirement you would have just under 4 million dollars.
If you make $50k dollars a year then that amounts to about 12% of your income.
You think that is too hard?
The average car payment in the USA is at $550. The average credit card debt is $4,717. At 15% interest and doing minimum payments at $189 that card is going to take 10 years to pay off and $22,869 in total. That means that for every 1 dollar you spend the bank makes 4.
If you can afford to make banks rich you can afford to make yourself rich. Just can't do both at the same time.
The first step is to eliminate debt and don't make stupid purchases. Debt includes credit card, personal loans, car loans, and mortgages. Stupid purchases are things like expensive vacations, eating from restaurants all the time, or buying new cars, or buying boats. That sort of thing.
Pretty much: if you buy a brand new car you are a moron if your goal is to increase wealth. You want to do things include living in inexpensive neighborhoods, having secondary sources of income, having no adult 'children' and so on and so forth. Woe is to parents that are still paying for their 20-somethings.
If you go drive around your city and you want to see were "middle-class millionaires" live you need to avoid the 'wealthy' neighborhoods. Look for the 50-something living in a older neighborhood driving older economy cars around. These people are going to have very low credit scores, as well. The best of them are going to have a credit score of 0, which means no credit history for several years.
Do you calculate the cost of purchases by how many payments can afford in a month? If so you are doing it wrong. Instead you should only ever pay cash. If you don't have money in the bank to pay for it you can't afford it.
The S&P 500 has, historically, provided a 12% return over average 20 year period. If you start off at age 30 and invest 500 dollars a month at that rate it would take you about 26 years to make your first million dollars.
6 years after that would be your 2 million dollar mark. 3 years later would be your 3 million dollar mark. By retirement you would have just under 4 million dollars.
If you make $50k dollars a year then that amounts to about 12% of your income.
You think that is too hard?
The average car payment in the USA is at $550. The average credit card debt is $4,717. At 15% interest and doing minimum payments at $189 that card is going to take 10 years to pay off and $22,869 in total. That means that for every 1 dollar you spend the bank makes 4.
If you can afford to make banks rich you can afford to make yourself rich. Just can't do both at the same time.
I mean, I agree about envelope budgeting and smart saving. Avoid debt is essential to financial health.
> Anybody with a middle class income can do it.
This seems obviously false to me. Let me construct a reasonable case for someone who is middle class income but who I do not believe will be able to meet your savings goals.
Let's assume a single parent, at the median income level of $31,000/year living in Seattle. That gives them $2,500/month to cover food, housing, clothing, childcare, medical care, etc. Rent and health insurance probably eats 1,500 of that alone. To say nothing about saving for a kid's education, buying them school supplies, etc.
Even if you scrimp on food, clothes, etc. you are going to have a real hard time consistently setting aside $500/month.
> Anybody with a middle class income can do it.
This seems obviously false to me. Let me construct a reasonable case for someone who is middle class income but who I do not believe will be able to meet your savings goals.
Let's assume a single parent, at the median income level of $31,000/year living in Seattle. That gives them $2,500/month to cover food, housing, clothing, childcare, medical care, etc. Rent and health insurance probably eats 1,500 of that alone. To say nothing about saving for a kid's education, buying them school supplies, etc.
Even if you scrimp on food, clothes, etc. you are going to have a real hard time consistently setting aside $500/month.
I hate to break it to you buddy but 31k is the poverty line, not middle class.
http://www.commerce.wa.gov/wp-content/uploads/2019/03/DRAFT-...
http://www.commerce.wa.gov/wp-content/uploads/2019/03/DRAFT-...
Any definition of the middle class that doesn't include the middle of incomes seems wrong to me. Median means half above, half below, how would that not be the "middle" class?
Where did you get the $31k as the median income for Seattle? This source says it is closer to $95k?
https://www.seattletimes.com/seattle-news/data/seattle-media...
https://www.seattletimes.com/seattle-news/data/seattle-media...
I took the national median per capita income. Looking at King County's per capita median income puts it closer to $46k. [1] I also suspect I low balled the housing and medical insurance costs.
[1] https://www.census.gov/quickfacts/fact/table/kingcountywashi...
[1] https://www.census.gov/quickfacts/fact/table/kingcountywashi...
> Anybody with a middle class income can do it
Median income in the US per person in 2018 is 35000$. 500$ a month is 6000 a month, or 17% of that before tax. At that income level you probably don't have any income to spare after housing + food + car + health care.
Median income in the US per person in 2018 is 35000$. 500$ a month is 6000 a month, or 17% of that before tax. At that income level you probably don't have any income to spare after housing + food + car + health care.
If you (have to) have a car and you've got more than one person in the household I'd say any margin over expenses (savings) under $1000 is just rainy-day money, not retirement savings. It will be eaten by copays, deductibles, new tires, and so on. Just a matter of time. Might go a few months "saving" then bam, kid breaks an arm and you're in it for whatever your annual out-of-pocket max is (may be really high, but bad news, if anything more than the sniffles happens, you're hitting it)
While you're at it, here are other things to avoid if you're middle class and want to get wealthy: having kids, and getting medical attention.
I'm all for saving and spending responsibly, but I don't there's a thin line between doing that and being miserly. Everyone needs to have a goal for themselves for how much "enough" is, work towards it while still living their lives (even if the goal is asymptotic)
I'm all for saving and spending responsibly, but I don't there's a thin line between doing that and being miserly. Everyone needs to have a goal for themselves for how much "enough" is, work towards it while still living their lives (even if the goal is asymptotic)
> it would take you about 26 years to make your first million dollars
Try again. In 26 years your $1 million in today's money is worth $526,235 assuming 2.5% inflation, and is easily vanquished in the U.S. with any major health emergency. On an average salary you'd have to save and invest 40-50% of your income to have any sort of meaningful effect long term and even then you have to hope you don't hit any unexpected emergencies. The penalty in the US for being poor is to pay more for everything and always be poor. The privilege for being rich in the US is to pay less for everything and always be rich. There is no upwards economic mobility via savings on an average salary in the US. Not even close. The only path to serious wealth in the US is by owning a ridiculous amount of capital, typically by birth-lotto, and leasing its usage.
Try again. In 26 years your $1 million in today's money is worth $526,235 assuming 2.5% inflation, and is easily vanquished in the U.S. with any major health emergency. On an average salary you'd have to save and invest 40-50% of your income to have any sort of meaningful effect long term and even then you have to hope you don't hit any unexpected emergencies. The penalty in the US for being poor is to pay more for everything and always be poor. The privilege for being rich in the US is to pay less for everything and always be rich. There is no upwards economic mobility via savings on an average salary in the US. Not even close. The only path to serious wealth in the US is by owning a ridiculous amount of capital, typically by birth-lotto, and leasing its usage.
As long as you don't have kids, don't get sick, and don't do anything fun, you'll definitely be a millionaire in 30-40 years.
> Whether you are making $15/hour at a fast food gig, or $200+/hour as an engineer, you aren't going to save yourself into a new level.
My experience directly contradicts this. Large increases to your wages allow you to save money into the next level or make a move that increases your wages further. I doubt it works for everyone, but it worked and continues to work for me. Although I don’t think I’ll get to their level 5, and even if I do, I’m going to be cautious about spending on vacation.
The defeatism that follows from, “I can’t possibly ever afford a home, etc.” is one of worst parts of American culture these days. People use this to make poor decisions throughout adulthood and then pretend it’s evidence that it must be impossible for anyone to get ahead by not blowing money on “avocado toast” and travel.
My experience directly contradicts this. Large increases to your wages allow you to save money into the next level or make a move that increases your wages further. I doubt it works for everyone, but it worked and continues to work for me. Although I don’t think I’ll get to their level 5, and even if I do, I’m going to be cautious about spending on vacation.
The defeatism that follows from, “I can’t possibly ever afford a home, etc.” is one of worst parts of American culture these days. People use this to make poor decisions throughout adulthood and then pretend it’s evidence that it must be impossible for anyone to get ahead by not blowing money on “avocado toast” and travel.
Sorry, I meant that without wage increases, saving alone won't bump you. If you get a wage increase, of course you'll be able to move up this ladder. (To a point. You won't reach all the levels with wages alone, no matter how hard you save.)
You might be able to jump by a million with the right job alone, but it's impossible to jump by a hundred million, unless you found a unicorn. Hence why people here are trying to do so.
Yeah, I'd say that a great job, putting you in the top maybe 5-10% of Americans, could get you to level 4. Levels 5 and 6 (tens of millions and hundreds of millions of liquid assets) will not happen for any appreciable segment of the population, but they are given equal weight on the diagram.
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I think this kind of article is helpful.
The thing I notice most is a lot of people buy cars (and replace them frequently) that are way above their "level" and represent hugely irresponsible decisions.
E.x. you should be way into 7 figures of wealth accumulation before you start leasing/buying $50-70k luxury cars.
You never know what someone's stock portfolio/401k/IRA whatever looks like but it's always an eyebrow-raiser for me to see someone drive up in an expensive car and then they later tell you they pay rent and have never bought property and the longer you talk to them the more you realize they're probably living paycheck to paycheck.. just with a relatively large paycheck that disappears nearly completely.
Especially when the trendy area to rent gets you a small studio or 1BR apartment for $2.5-3.5k/month and that's enough to pay the mortgage on a $1M property within 10 miles of said apartment.
The thing I notice most is a lot of people buy cars (and replace them frequently) that are way above their "level" and represent hugely irresponsible decisions.
E.x. you should be way into 7 figures of wealth accumulation before you start leasing/buying $50-70k luxury cars.
You never know what someone's stock portfolio/401k/IRA whatever looks like but it's always an eyebrow-raiser for me to see someone drive up in an expensive car and then they later tell you they pay rent and have never bought property and the longer you talk to them the more you realize they're probably living paycheck to paycheck.. just with a relatively large paycheck that disappears nearly completely.
Especially when the trendy area to rent gets you a small studio or 1BR apartment for $2.5-3.5k/month and that's enough to pay the mortgage on a $1M property within 10 miles of said apartment.
A mortgage for a $1M property is roughly $4-$5k depending on credit etc etc.
$5100 for $1M borrowed (a low) 3%, excluding down payment, property taxes, and likely PMI, given how onerous saving 20% of seven figures is.
Is the interest rate that high in the US?
If you negotiate with a couple of banks in Sweden you can easily get sub 1% (0.79% is what I seem to be able to get). Heck I just checked my bank and I can even get a line of credit up to 1M SEK at 1.74% for up to 50% of my portfolio without any property as security.
If you negotiate with a couple of banks in Sweden you can easily get sub 1% (0.79% is what I seem to be able to get). Heck I just checked my bank and I can even get a line of credit up to 1M SEK at 1.74% for up to 50% of my portfolio without any property as security.
Checking, I'm seeing rates approaching 4% for 30-year mortgages here (the US), down to 3.5% for a 15-year, which squares with what's been more-or-less the norm for a while, so is probably about right. 1% on a mortgage would... not be normal here.
Oh but that's with a locked rate, I always go fully moving rate.
The article completely ignores the last and most important level of wealth, which is being financial independent. Being able to pay for rent, food, healthcare etc. for the rest of your life without the need of a day job will probably have the biggest impact on your life.
That's completely tangential to this article though. It depends on what your definition of that is, and some people handle it better than others. You see those people retiring on 500k (for a couple) and living in a van or something at one extreme. Then there's folks making 500k+/yr and somehow manage to spend most of it without saving any of it. Independence is a state of mind, not a dollar amount.
It’s not entirely a state of mind. There is a qualitative difference between having an investment income approximately equivalent to a middle-class salary, and not having it.
Certainly you can find people who would feel miserable with that amount of money, and people who could thrive on a small fraction, but it would give most people a freedom that very few ever get.
Certainly you can find people who would feel miserable with that amount of money, and people who could thrive on a small fraction, but it would give most people a freedom that very few ever get.
> Independence is a state of mind, not a dollar amount.
This is only true if you have no debt. Even in your low-end example you need a net worth of 250k, which is a non trivial amount of money for most people. And I would still call it naive, it's just not enough.
Financial independence to me is, having other assets than your time which will pay for your most basic needs. Living in a van probably means doing a lot of stuff by yourself, which requires a lot of time.
This is only true if you have no debt. Even in your low-end example you need a net worth of 250k, which is a non trivial amount of money for most people. And I would still call it naive, it's just not enough.
Financial independence to me is, having other assets than your time which will pay for your most basic needs. Living in a van probably means doing a lot of stuff by yourself, which requires a lot of time.
Sure, there's a dollar amount where you literally could not live. There's even more nutso people who talk about living on $100k by retiring to some foreign country where cost of living is absurdly low, though. I don't think those people (or the 250k van people) are realistic, since obviously there's longer term problems (i.e. vans aren't going to be great for someone who is old).
I would disagree with your financial independence definition though. Basic needs threshold is much lower than 'comfortable' living. The traditional definition of financial independence is not having to work if you don't want to. What that looks like (the sacrifices you make) depends on the person. Maybe to be financially independent you are cool with a $500/mo apartment and Ramen... or maybe that means a mansion and a bunch of supercars. Either way, if you're dependent on a job or someone else, you aren't financially independent.
I would disagree with your financial independence definition though. Basic needs threshold is much lower than 'comfortable' living. The traditional definition of financial independence is not having to work if you don't want to. What that looks like (the sacrifices you make) depends on the person. Maybe to be financially independent you are cool with a $500/mo apartment and Ramen... or maybe that means a mansion and a bunch of supercars. Either way, if you're dependent on a job or someone else, you aren't financially independent.
Yes, I agree with your take. One can be "financially independent" somewhere between level 3 and 5. Most folks who say they have met FI in the FIRE movement likely have NOT made it to Level 5 ("Home Price Matters Less"/$10mm+). FI people can generally say they can cover their housing costs, but they still need to make sacrifices with regard to location, quality, and size (housing costs matter).
One of the best definitions of “rich” that I’ve come across is a top 1% income based on a perpetual withdrawal rate of dividends alone (about 3%). This puts the wealth threshold around $15m for most US states and around $25m for the Bay Area.
It really isn't that simple, most people will start spending more if you bump them up this ladder which means that "for the rest of your life" probably wont be true for long.
im presently reading Paul Fussells "Class" and this is a fascinating take on the idea in the age of wage stagnation.
>the best way to climb the wealth ladder is to spend money according to your level.
This is directly contradictory to, and detrimental to, how the US Economy expects its consumers to act. Credit has largely filled the gap of wages and productivity such that consumers now have no real sense of their level of real wealth, only that which is projected by their ostensible plastic card based opulence. The authors capstone to the article declares paradoxically at the end, "there is a lot more to life than saving money." so I suppose the siren call of conspicuous consumption remains a cornerstone of their life as well.
id also cynically argue that level 6, philanthropy, has less to do with having a profound impact on the world around you and more to do with dynasticism and displacement of the state as an agent of change or agency in society. people at this level of wealth have a need to extend their name to objects of gravity an institutions of permanence and prestige. They are so far removed from the society as a whole that any perceived generosity in the pursuit of a just and verdant society is merely a facade for tax evasion and self grandeur. They realize no meaningful other symbiosis or benefit from the society as a whole in which they are mistaken to be a part of.
>the best way to climb the wealth ladder is to spend money according to your level.
This is directly contradictory to, and detrimental to, how the US Economy expects its consumers to act. Credit has largely filled the gap of wages and productivity such that consumers now have no real sense of their level of real wealth, only that which is projected by their ostensible plastic card based opulence. The authors capstone to the article declares paradoxically at the end, "there is a lot more to life than saving money." so I suppose the siren call of conspicuous consumption remains a cornerstone of their life as well.
id also cynically argue that level 6, philanthropy, has less to do with having a profound impact on the world around you and more to do with dynasticism and displacement of the state as an agent of change or agency in society. people at this level of wealth have a need to extend their name to objects of gravity an institutions of permanence and prestige. They are so far removed from the society as a whole that any perceived generosity in the pursuit of a just and verdant society is merely a facade for tax evasion and self grandeur. They realize no meaningful other symbiosis or benefit from the society as a whole in which they are mistaken to be a part of.
I think the hidden danger in this model, which I think about a lot, is that doing philanthropy is shown as an activity you can’t afford to do until you are very wealthy.
The trick is to do good for the world long, long before then. You shouldn’t need to be wealthy to volunteer a few hours a month..
Before anyone judges me negatively, I say this as someone who has spent the vast majority of my lifetime trying to “climb a ladder” only to want to get to a point where I can give my resources away for free to help others. But I have never figured out how, and then one day it just struck me, why can’t I jump to level 6 now without the money, and maybe that might just be what’s wrong with the money driven world somehow, or at least my understanding of it.
I feel like if I could understand how to not care/worry about the money then I could free up the mind and energy to do something better for the world, and I want to.
And then I realize the counterpoint that we have to work within the rules of the system, too, and the system is much more cruel and demanding than I wish it was.
The trick is to do good for the world long, long before then. You shouldn’t need to be wealthy to volunteer a few hours a month..
Before anyone judges me negatively, I say this as someone who has spent the vast majority of my lifetime trying to “climb a ladder” only to want to get to a point where I can give my resources away for free to help others. But I have never figured out how, and then one day it just struck me, why can’t I jump to level 6 now without the money, and maybe that might just be what’s wrong with the money driven world somehow, or at least my understanding of it.
I feel like if I could understand how to not care/worry about the money then I could free up the mind and energy to do something better for the world, and I want to.
And then I realize the counterpoint that we have to work within the rules of the system, too, and the system is much more cruel and demanding than I wish it was.
I think you got it!
The is a paradox in 'climbing the ladder' and giving away financial resources. Simply because, in the competitive market, you aggregate resources by taking it from others. Either competitors or random individuals. Philanthropy should start giving away those resources to the actors most in need, and they may be very close to your activities, but then you can't aggregate and climb up. The market doesn't have sympathy, and lack of resources can be devastating during tough times.
Don't climb the ladder. Who cares.
The is a paradox in 'climbing the ladder' and giving away financial resources. Simply because, in the competitive market, you aggregate resources by taking it from others. Either competitors or random individuals. Philanthropy should start giving away those resources to the actors most in need, and they may be very close to your activities, but then you can't aggregate and climb up. The market doesn't have sympathy, and lack of resources can be devastating during tough times.
Don't climb the ladder. Who cares.
If you don't have money, you can contribute time.
>>the best way to climb the wealth ladder is to spend money according to your level.
I would argue that the best way to climb the wealth ladder is to spend below 'your level'. Keeping up with the Jones' who are doing their best to display their achieved status is an excellent way to end up just like they will at the end of a long life of hard work: in hock to the bank for their primary residence and with little to no savings.
Spend less than you could, pay off your primary residence as fast as you can, re-invest whatever you make after that in real estate and the stock market if you have an appetite for it, make your money work for you. Simple rules, nothing flashy and at the rate a typical IT worker can make money it won't be all that long before you will have a nest egg that you can retire on, provided you continue to control your spending.
I would argue that the best way to climb the wealth ladder is to spend below 'your level'. Keeping up with the Jones' who are doing their best to display their achieved status is an excellent way to end up just like they will at the end of a long life of hard work: in hock to the bank for their primary residence and with little to no savings.
Spend less than you could, pay off your primary residence as fast as you can, re-invest whatever you make after that in real estate and the stock market if you have an appetite for it, make your money work for you. Simple rules, nothing flashy and at the rate a typical IT worker can make money it won't be all that long before you will have a nest egg that you can retire on, provided you continue to control your spending.
With mortgage interest rates being so low right now it hardly makes sense to pay off your primary residence. Better to have the cash available for emergencies or to take advantage of investment opportunities.
Key bit: right now. What will you do when interest rates change and you end up with an obligation to pay the now much higher monthly amount?
If you have your interest locked down for an x period of time and you intend to keep your property always ensure that you can pay off enough of it to be able to continue to live there even if interest rates go back into the 5-10% range.
If you have your interest locked down for an x period of time and you intend to keep your property always ensure that you can pay off enough of it to be able to continue to live there even if interest rates go back into the 5-10% range.
Most borrowers have 30 year fixed rate mortgages so future changes in interest rates are largely irrelevant to them.
Most?
The rate difference is so large that if you are a good earner that it could very well make sense to go for a much shorter fixed rate term. There are many different products ranging from free floating all the way to 30 years, depending on the age of the borrower 30 years fixed might not even be available to them.
The rate difference is so large that if you are a good earner that it could very well make sense to go for a much shorter fixed rate term. There are many different products ranging from free floating all the way to 30 years, depending on the age of the borrower 30 years fixed might not even be available to them.
Yes I would say that 87% counts as "most".
https://www.debt.org/real-estate/mortgages/30-year-fixed/
https://www.debt.org/real-estate/mortgages/30-year-fixed/
Wow, I had no idea that this was so common in the USA. Here it's a bit different, these are the current rates:
https://www.abnamro.nl/portalserver/mijn-abnamro/hypotheken/...
The 10 year fixed term is right now better than variable (which is pretty odd for this market), the 30 year rate is at 2%.
Typically first time home owners will choose for the longest periods and second ore later buyers will choose shorter terms depending on their income generating capacity and expenses. The other bigger differentiators are whether or not a payment on the principal is required each month and whether or not you get 'NHG', a warranty construct resulting in lower interest.
https://www.abnamro.nl/portalserver/mijn-abnamro/hypotheken/...
The 10 year fixed term is right now better than variable (which is pretty odd for this market), the 30 year rate is at 2%.
Typically first time home owners will choose for the longest periods and second ore later buyers will choose shorter terms depending on their income generating capacity and expenses. The other bigger differentiators are whether or not a payment on the principal is required each month and whether or not you get 'NHG', a warranty construct resulting in lower interest.
Depends on the country I guess. In Italy very long term fixed interest rate mortgages are common. In UK most mortgages have a very short (2-4 years) fixed interest period and have to be renegotiated after that.
> im presently reading Paul Fussells "Class"
That's a really fun read. I had a great time playing "spot the behavior of parents/relatives, described as if he knew them personally" (all of which fell somewhere in Prole or Middle, for the record, so nothing to brag about, particularly in the latter case—oh boy, the poor, sad, misguided Middle)
Interesting lens through which to view Trump—does he ever have some weird displayed-class-markers. He reads as the most Middle and entirely un-self-aware and unobservant person possible, who's also won the lottery so all of that is on extreme display. Like a parody of the Middle. It's so strange. It's gotta be just a perfectly-maintained act, right? Given his upbringing it makes no sense for it to be natural, AFAIK. Utterly bizarre.
Lots of subtle observations in there that really do seem to match reality. The "mirrored surfaces signal you don't clean your own house" thing—that's been a fun one to watch out for. I felt very proud in a totally raised-Middle way that I knew the obelisk thing among the Upper-Middle and Upper was aimed at oblique association with Paris rather than Egypt before he got to the reveal, hahaha.
Some updated version by a similarly-observant person would be awesome, but Class is still remarkably accurate given how long ago it was written.
That's a really fun read. I had a great time playing "spot the behavior of parents/relatives, described as if he knew them personally" (all of which fell somewhere in Prole or Middle, for the record, so nothing to brag about, particularly in the latter case—oh boy, the poor, sad, misguided Middle)
Interesting lens through which to view Trump—does he ever have some weird displayed-class-markers. He reads as the most Middle and entirely un-self-aware and unobservant person possible, who's also won the lottery so all of that is on extreme display. Like a parody of the Middle. It's so strange. It's gotta be just a perfectly-maintained act, right? Given his upbringing it makes no sense for it to be natural, AFAIK. Utterly bizarre.
Lots of subtle observations in there that really do seem to match reality. The "mirrored surfaces signal you don't clean your own house" thing—that's been a fun one to watch out for. I felt very proud in a totally raised-Middle way that I knew the obelisk thing among the Upper-Middle and Upper was aimed at oblique association with Paris rather than Egypt before he got to the reveal, hahaha.
Some updated version by a similarly-observant person would be awesome, but Class is still remarkably accurate given how long ago it was written.
I have a problem tying wealth to consumption. I always look at menu prices but I'm a lot better off financially than many people who don't seem to care how much they spend. Maybe because I do look at menu prices.
Other than that, this is basically a base 10 view of wealth. Each zero matters as much to you as the last one. Under that theory, Bloomberg is to me as I am to someone living paycheck to paycheck, but I feel much closer to the person living paycheck to paycheck.
Other than that, this is basically a base 10 view of wealth. Each zero matters as much to you as the last one. Under that theory, Bloomberg is to me as I am to someone living paycheck to paycheck, but I feel much closer to the person living paycheck to paycheck.
I agree. This article does not mention that your life and upbringing play a major role on how you think about money. I know many folks that are well off but they are still frugal. They care about the cost of groceries, the cost of restaurants, etc. They don't need to but they choose to. They lived the majority of their lives without this kind of comfort -- some behavior cannot be changed when it is learned and repeated over time. The value of money has become a part of their values. I admire it to a certain extent. Even if they win the lotto they would probably donate most to a good cause and continue to nickel and dime.
Not a good article.
There are three steps on the wealth ladder:
1. Wage slave - Most people will never leave this step, no matter how many ugly Merc SUVs they own or first-class flights they've taken.
2. FU Money - This person has enough money set aside to walk if they don't like a job or a customer.
3. F-Everyone Money - This person doesn't need to work at all.
There are three steps on the wealth ladder:
1. Wage slave - Most people will never leave this step, no matter how many ugly Merc SUVs they own or first-class flights they've taken.
2. FU Money - This person has enough money set aside to walk if they don't like a job or a customer.
3. F-Everyone Money - This person doesn't need to work at all.
There's also an implicit rule of the game: as you climb up each step (or are born into it), join your cohorts in making sure to kick the ladder from under you.
Yeah, I was thinking about this, my happiness didn't change much between making $10k during college versus $100k later in life, in major part due to my balooning living expenses keeping me in the wage-slave category.
People without a safety net who start out poor are generally going to end up poor. In another post I mentioned how its possible to save and due to the power of compound interest retire with millions on a 60k salary but that is a best case scenario. Most people don't make 60k. Also life has a funny way of stepping in. Just after you saved your first 3k, your alternator goes out or you get in a wreck. Or suddenly find out you are having a kid. Emergencies and unexpected expenses are very likely a major reason why so many people don't make it. If I have a low end salary it likely takes a year to save that 1 - 2k that is wiped out via major car repairs cost or the trip to the ER with a broken arm.
Most people are on a treadmill just trying to make it and life always sends them back to the beginning.
Most people are on a treadmill just trying to make it and life always sends them back to the beginning.
Just after you saved your first 3k, your alternator goes out or you get in a wreck.
Some people seem to have these sort of problems more often than others. I guess poverty is about a lot more than lack of money.
Some people seem to have these sort of problems more often than others. I guess poverty is about a lot more than lack of money.
I don't think its that, I think its more when it happens to someone who has the money to easily deal with it, you don't hear about it.
About 6 months ago I had to get a new alternator and brakes, total cost was ~2,800 as my car was past warranty. I just paid it, got the dealership rental car for a day ($50 per day) and went about my life. If I did not have the money, they same thing would have happened but I would not have been able to get it fixed and would have had to desperately reach out to people hoping to borrow money. If I happened to have just enough to fix the alternator, I would have had to drive around on very worn brakes potentially leading to an accident in the future, putting me back at square one. I would have had no choice though as I would not be able to afford not going to work.
Not to mention I would not have been able to afford the rental meaning I would have had to spend the whole day at the dealership, missing a day of work and probably that pay.
It is very expensive to be poor.
About 6 months ago I had to get a new alternator and brakes, total cost was ~2,800 as my car was past warranty. I just paid it, got the dealership rental car for a day ($50 per day) and went about my life. If I did not have the money, they same thing would have happened but I would not have been able to get it fixed and would have had to desperately reach out to people hoping to borrow money. If I happened to have just enough to fix the alternator, I would have had to drive around on very worn brakes potentially leading to an accident in the future, putting me back at square one. I would have had no choice though as I would not be able to afford not going to work.
Not to mention I would not have been able to afford the rental meaning I would have had to spend the whole day at the dealership, missing a day of work and probably that pay.
It is very expensive to be poor.
Poor people with shitty, cheap, old cars have these problems more than others. Because they're poor.
See the Sam Vimes "Boots" Theory of Economic Injustice
That's pretty much it in a nutshell, very well done.
On the "travel freedom" category - just want to say we live in extremely unusual times when it comes to travel and there's little reason to pay out of your savings to fund travel at the present moment.
In the US we've been living in the Golden Age of travel and credit card rewards for the last decade. I started churning cards in 2012 and have not paid in full for personal travel since. It's become slightly harder to churn than it used to but the sign up bonuses and earnings on cards is still at highs nonetheless.
It's great because I'm not a materialistic person and don't spend much on physical goods anyway, and to get my travel mostly paid for means I haven't had to spend my own money despite being in the "travel freedom" step of the equation.
In the US we've been living in the Golden Age of travel and credit card rewards for the last decade. I started churning cards in 2012 and have not paid in full for personal travel since. It's become slightly harder to churn than it used to but the sign up bonuses and earnings on cards is still at highs nonetheless.
It's great because I'm not a materialistic person and don't spend much on physical goods anyway, and to get my travel mostly paid for means I haven't had to spend my own money despite being in the "travel freedom" step of the equation.
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Something I've wondered about this: doesn't opening & closing tons of lines of credit fuck with your credit rating? Or do you just leave them open until/unless the issuer decides to close the (unused) account, leaving you more crap to have to watch for fraud & such?
It does a tiny bit but it's not a huge weight in the credit scoring equation and has very little long term effect. I've maintained a ~750+ score for a long time despite opening 5-6 cards/year on average.
I wouldn't do it if I were in the market to buy a new house in the next ~12 months but otherwise a small temporary dip in your credit score has literally zero impact on your life.
I wouldn't do it if I were in the market to buy a new house in the next ~12 months but otherwise a small temporary dip in your credit score has literally zero impact on your life.
I'm not sure exactly what the article is trying to accomplish but it does feel in about the right ballpark for the levels. I don't think I'll ever get to the vacation one but simply paying last debt off really took a lot of weight off. Sure borrowing at low interest makes math sense but having a paid off house just feels good.
I'm not so sure, personally.
The six levels:
I give away money that has a profound impact on others (so I'm at #6).
But I can't afford my 'dream home' (#5) (I'm within an order of magnitude, I suppose).
And #4 doesn't even interest me (I actively don't _want_ to have a private jet or whatever).
I can take a holiday pretty much whenever I want, if that's what it's getting at? I think very few people actually travel "how they want".
I think this is based on a very narrow, 'hollywood star' style of lifestyle. You don't need to be stupidly rich to give 10% of your income or to take a sabbatical from work.
The six levels:
Level 1. Paycheck-to-paycheck: You are conscious of every dollar you spend. This includes people with crippling debt.
Level 2. Grocery freedom: How much specific grocery items cost don’t impact your finances.
Level 3. Restaurant freedom: You eat what you want at restaurants regardless of the cost.
Level 4. Travel freedom: You travel when you want, how you want, and stay where you want.
Level 5. House freedom: You can afford your dream home.
Level 6. Philanthropic freedom: You can give away money that has a profound impact on others.
I give away money that has a profound impact on others (so I'm at #6).
But I can't afford my 'dream home' (#5) (I'm within an order of magnitude, I suppose).
And #4 doesn't even interest me (I actively don't _want_ to have a private jet or whatever).
I can take a holiday pretty much whenever I want, if that's what it's getting at? I think very few people actually travel "how they want".
I think this is based on a very narrow, 'hollywood star' style of lifestyle. You don't need to be stupidly rich to give 10% of your income or to take a sabbatical from work.
I think you're overthinking this. The article examples maybe aren't descriptive enough.
#4 would mean I don't price shop Airbnb, hotels, and plane tickets so much. Or maybe I just take first class everywhere. Either way, you're talking spending amounts in the $10k+ range.
#5 means you can buy whatever size house you want within limits. That's more a $1M+ decision (although, amortized out long term)
#6 means Bill Gates level philanthropy. Not saying whatever donations you're giving away aren't meaningful, but I doubt you're getting wings in hospitals named after you.
#4 would mean I don't price shop Airbnb, hotels, and plane tickets so much. Or maybe I just take first class everywhere. Either way, you're talking spending amounts in the $10k+ range.
#5 means you can buy whatever size house you want within limits. That's more a $1M+ decision (although, amortized out long term)
#6 means Bill Gates level philanthropy. Not saying whatever donations you're giving away aren't meaningful, but I doubt you're getting wings in hospitals named after you.
That's why we don't call small donations acts as philanthropy.
It surprises me how philanthropic individuals are sold as benefactors who are a solution to solving problems linked to lack of resources, for those in needs around the world. I think it rather servers themselves instead, an effective PR routine that comes with decent guilt therapy.
It's one of those things like "expat" sounding all so good compared to those job stealing "immigrants".
Maybe we should all give a portion of our monetary power to those in needs, displacing what we would normally give to Unilever-like producers. It would skip the inefficient intermediary.. I digress.. The scale ain't right, but the idea is spot on.
It surprises me how philanthropic individuals are sold as benefactors who are a solution to solving problems linked to lack of resources, for those in needs around the world. I think it rather servers themselves instead, an effective PR routine that comes with decent guilt therapy.
It's one of those things like "expat" sounding all so good compared to those job stealing "immigrants".
Maybe we should all give a portion of our monetary power to those in needs, displacing what we would normally give to Unilever-like producers. It would skip the inefficient intermediary.. I digress.. The scale ain't right, but the idea is spot on.
No, they're dependent on preferences in what you want. Your preferences differ from mine here.
Either that, or you're assuming that the reasonable benchmark for comparison is close to the absolute most expensive example within a specific sector, which doesn't really match how I spend money.
Thinking about it more, I'd probably say I even hit #4 before #3. Why?
a) I don't really care that much about eating out, so despite being able to theoretically afford "Super Fancy Meals" I still think about it because I could just give someone else that money instead.
b) First class flights and fancy hotels I find ridiculous, they don't factor into my purchasing decisions. I far prefer a cabin in the woods or going hiking or something like that to some constructed notion of luxury.
I'd sooner give $10k to charity before I take a first class flight - in fact I'm on track to do that this year, and hope to increase it. If you don't count anything below $millions as being philanthropic then of course you've defined level 6 as being the top, that doesn't make sense to me.
Either that, or you're assuming that the reasonable benchmark for comparison is close to the absolute most expensive example within a specific sector, which doesn't really match how I spend money.
Thinking about it more, I'd probably say I even hit #4 before #3. Why?
a) I don't really care that much about eating out, so despite being able to theoretically afford "Super Fancy Meals" I still think about it because I could just give someone else that money instead.
b) First class flights and fancy hotels I find ridiculous, they don't factor into my purchasing decisions. I far prefer a cabin in the woods or going hiking or something like that to some constructed notion of luxury.
I'd sooner give $10k to charity before I take a first class flight - in fact I'm on track to do that this year, and hope to increase it. If you don't count anything below $millions as being philanthropic then of course you've defined level 6 as being the top, that doesn't make sense to me.
You have completely missed the point. The fact that you could does not mean you shoud or even would.
Wanting a cabin in the woods and being able to afford it does not make you "House freedom level". That level is being able to buy any house you could want without second thought.
The fact that you would not choose such a house is completely irrelevant to this train of thought. Some things you have to plan out and some things are just not worth to consider for even a second.
Wanting a cabin in the woods and being able to afford it does not make you "House freedom level". That level is being able to buy any house you could want without second thought.
The fact that you would not choose such a house is completely irrelevant to this train of thought. Some things you have to plan out and some things are just not worth to consider for even a second.
The cabin was referring to the travel level, not housing.
I don't think "any X I could want" is meaningful.
You're taking it presumably to mean the most expensive offering that exists in the world, but I _could_ want something akin to Buckingham Palace and no amount of money would get me that, or I could want some generic massive palace that would cost $50bn which obviously is above the philanthropy level by any metric, or maybe I genuinely do just want a bog standard terrace because I'd rather give my money away than 'elevate' myself into a weird Hollywood lifestyle.
It makes far more sense to think about what I actually _do_ want, and in that view the levels can be ordered differently depending on the person.
The point I am making is that to some extent these levels are individual choice, they're not cast in stone.
I don't think "any X I could want" is meaningful.
You're taking it presumably to mean the most expensive offering that exists in the world, but I _could_ want something akin to Buckingham Palace and no amount of money would get me that, or I could want some generic massive palace that would cost $50bn which obviously is above the philanthropy level by any metric, or maybe I genuinely do just want a bog standard terrace because I'd rather give my money away than 'elevate' myself into a weird Hollywood lifestyle.
It makes far more sense to think about what I actually _do_ want, and in that view the levels can be ordered differently depending on the person.
The point I am making is that to some extent these levels are individual choice, they're not cast in stone.
To some extent they are, but really there's strong limits on this and they can't be broken. At the end of the day, vacations cost more than food and housing costs more than vacations. Full stop.
Your example of saying you don't care about fancy meals... well, sure, but that doesn't change the fact that your price sensitivity to a restaurant is going to be much lower than a vacation. If your end goal is to give a bunch to charity, then scrimping on a vacation too would be a better decision ultimately.
It's really hard to spend more than say, $1k on a meal. Even 3 star Michelin restaurants don't charge that much unless you include alcohol.
Comparatively, it's EASY to spend $1k on a vacation. Incredibly easy.
Your example of saying you don't care about fancy meals... well, sure, but that doesn't change the fact that your price sensitivity to a restaurant is going to be much lower than a vacation. If your end goal is to give a bunch to charity, then scrimping on a vacation too would be a better decision ultimately.
It's really hard to spend more than say, $1k on a meal. Even 3 star Michelin restaurants don't charge that much unless you include alcohol.
Comparatively, it's EASY to spend $1k on a vacation. Incredibly easy.
I disagree with most of this; but let's just say we inhabit different worlds, and leave it at that. I figure we just take different vacations and go to different restaurants. :)
But see, I've done my dream vacation several times. It means driving out into the Mojave Desert, by myself, and car camping. It basically costs the gas to get there and back.
Dropping $10K on a vacation without thinking about it? No, I'm not there. Taking the vacation I want without thinking about the cost? Easy - I just don't want that kind of vacation.
Dropping $10K on a vacation without thinking about it? No, I'm not there. Taking the vacation I want without thinking about the cost? Easy - I just don't want that kind of vacation.
I think the labels are not very helpful, but tying each level to 0.01% of an individuals net worth is. For example, I still don't flinch at paying 1 or 2 dollars more for items at the grocery store, but I do for paying 10-20 dollars more for items at a restaurant.
"Travel" can mean grey hounds and motels, or first-class flights and luxury hotels. Philanthropy can be donating $100,000 or giving a buck to a guy on the street.
The key take away from the article, at least for me, is how much you flinch at extra costs, and that being about 0.01% of what you have in the bank.
"Travel" can mean grey hounds and motels, or first-class flights and luxury hotels. Philanthropy can be donating $100,000 or giving a buck to a guy on the street.
The key take away from the article, at least for me, is how much you flinch at extra costs, and that being about 0.01% of what you have in the bank.
I agree with the concept of the levels, I disagree with the ordering - particularly the final one, because philanthropy is something that almost everyone can practice, it's an individual choice.
The idea that you must first have your entire life laid out with a massive house and first class flights and stuff before you start helping others is deeply wrong IMO.
The idea that you must first have your entire life laid out with a massive house and first class flights and stuff before you start helping others is deeply wrong IMO.
I think it boils down to the definition of "philanthropy", to a lot of people (self included) that's something billionaires do, the rest of us can try "charity".
Kind of like the old saw about only the poor are "crazy", with enough money you become "eccentric".
Kind of like the old saw about only the poor are "crazy", with enough money you become "eccentric".
> And #4 doesn't even interest me (I actively don't _want_ to have a private jet or whatever).
I don't believe his intent was "private jet" it was "you can pick first class without concern and you don't have to look at the hotel/rental home prices."
I don't believe his intent was "private jet" it was "you can pick first class without concern and you don't have to look at the hotel/rental home prices."
That doesn't change my point.
House freedom is way below that.
There's an inbuilt assumption that you desire extravagance, which inevitably places philanthropy last. My point is that it's a choice.
House freedom is way below that.
There's an inbuilt assumption that you desire extravagance, which inevitably places philanthropy last. My point is that it's a choice.
It tries to tell the bottom 99% how very wealthy people think, and how people think in between and perhaps whats important to do to getting there, and stay there.
What I see with most people around me,who stand at a low level: - spend most if not all or even more than what they can afford. - far more obsessed with getting more money than adapting their expenses. Of course they have no clue how to make more money, so they don't end up financially happy at all.
I think it's a great article as it put things rather simply.
What I see with most people around me,who stand at a low level: - spend most if not all or even more than what they can afford. - far more obsessed with getting more money than adapting their expenses. Of course they have no clue how to make more money, so they don't end up financially happy at all.
I think it's a great article as it put things rather simply.
It's taking the approach that the best way of gaining wealth is to convert earned income into unearned (passive) income over time. That once the basic necessities are covered the bulk of your nontrivial expenditure should really be investments and that your elective consumption should be pegged to some nominally small percentage of your overall wealth. I think this has to come from a place of having something to fall back on at a certain level of wealth, you can take the risk on those investments if the downside wouldn't be any worse than losing your current 'level' of wealth.
I highly encourage people in developed nations to become philanthropic as soon as they cross their country's poverty line. Giving to cost-effective charities can do tremendously more good for others, way more than you can do for yourself.
I currently give at least 10% of my income but my aim is to get back to giving 50% again.
Join others who give at least 10% https://www.givingwhatwecan.org/
I currently give at least 10% of my income but my aim is to get back to giving 50% again.
Join others who give at least 10% https://www.givingwhatwecan.org/
> Join others who give at least 10% https://www.givingwhatwecan.org/
You should disclose your affiliation with this website.
You should disclose your affiliation with this website.
Sorry -- was thought it would be obvious that I've taken the pledge Giving What We Can recommends.
I'm not quite sure why it matters whether I've taken the pledge or not though. Could you elaborate why I should disclose this explicitly?
Also disclosing affiliation seems sensible if I'm promoting a product and I'm going to benefit from others purchasing it. Here I'd be thrilled for more people to join in, but this is akin to telling others about an opportunity to volunteer. Are you thinking there's some conflict of interest?
I'm really curious -- thank you for your time.
I'm not quite sure why it matters whether I've taken the pledge or not though. Could you elaborate why I should disclose this explicitly?
Also disclosing affiliation seems sensible if I'm promoting a product and I'm going to benefit from others purchasing it. Here I'd be thrilled for more people to join in, but this is akin to telling others about an opportunity to volunteer. Are you thinking there's some conflict of interest?
I'm really curious -- thank you for your time.
> Sorry -- was thought it would be obvious that I've taken the pledge Giving What We Can recommends.
The way you wrote the sentence really looked like a product promotion, especially to someone (most of us?) who doesn’t know GWWC. Based on your response I don’t think there’s a conflict of interest, but I needed your clarification in order to think that.
The way you wrote the sentence really looked like a product promotion, especially to someone (most of us?) who doesn’t know GWWC. Based on your response I don’t think there’s a conflict of interest, but I needed your clarification in order to think that.
The part at the end about his new millionaire friend not having a much different life is what I think about quite a bit. Until you reach "buy my own plane without worrying too much about cost" levels of wealth your life is pretty much like everyone else...
You likely: * commute to work every day * work 8+ hours per day * spend weekend hours doing choirs (laundry, grocery shopping, etc)
Sure the size and comfort (of house, car, food, etc) may vary, but you have a similar day-to-day life as a waiter, just the job and numbers are different.
You likely: * commute to work every day * work 8+ hours per day * spend weekend hours doing choirs (laundry, grocery shopping, etc)
Sure the size and comfort (of house, car, food, etc) may vary, but you have a similar day-to-day life as a waiter, just the job and numbers are different.
Generally agreed. The major difference is whether someone has a regular work schedule or not. You don't have to be a millionaire to not work, nor are most millionaires on perpetual vacation.
Nit-pick: There are plenty of cultures where barely middle-class families hire others to do their chores.
Nit-pick: There are plenty of cultures where barely middle-class families hire others to do their chores.
I feel like education has an important role in this perception, too. I grew up in an environment with $10-$100 problems, and now I still compare the prices of what I buy in the $1-5 range, even if spending $400 on a gift once a month wouldn’t significantly alter my finances. This is some sort of conditioning where you _feel_ like being at some level while in fact being above it.
The article's focus on viewing payments as a fraction of your net worth is related to the Kelly criterion [1], which suggests making only investments that increase the expected logarithm of your net worth.
For example, say you have the chance to bet on a single flip of a biased coin that comes up heads 51% of the time. If the coin comes up heads, you win $10,000; otherwise, you lose $10,000. According to the Kelly criterion, this bet only starts to make sense once your net worth is at least $250,000 [2].
[1] https://en.wikipedia.org/wiki/Kelly_criterion
[2] https://www.wolframalpha.com/input/?i=solve+0.51*ln%5Bx+%2B+...
For example, say you have the chance to bet on a single flip of a biased coin that comes up heads 51% of the time. If the coin comes up heads, you win $10,000; otherwise, you lose $10,000. According to the Kelly criterion, this bet only starts to make sense once your net worth is at least $250,000 [2].
[1] https://en.wikipedia.org/wiki/Kelly_criterion
[2] https://www.wolframalpha.com/input/?i=solve+0.51*ln%5Bx+%2B+...
So the funny thing is this article is the exact opposite of the two most influential financial books in my life: "The Millionaire Next Door" and "Rich Dad Poor Dad". The true wealthy don't ever think of spending money as if it isn't important. Instead they distinguish between spending on income generation vs spending on luxury. They only spend on luxury intentionally but will spend on income generation freely.
In other words, if someone is frivolously spending their money on luxuries they are very definitely not wealthy. They only want to appear wealthy. The true wealthy really don't look wealthy. They never really leave level 1 on the chart.
In other words, if someone is frivolously spending their money on luxuries they are very definitely not wealthy. They only want to appear wealthy. The true wealthy really don't look wealthy. They never really leave level 1 on the chart.
I would steer clear of the bullshit peddled by Kiyosaki...
https://www.johntreed.com/blogs/john-t-reed-s-real-estate-in...
It's exactly this kind of get-rich-quick crap (that always seems to revolve around heavily leveraged real estate) that was one of the causes of 2008
It's exactly this kind of get-rich-quick crap (that always seems to revolve around heavily leveraged real estate) that was one of the causes of 2008
In general I agree with you. I hesitated to bring Kiyosaki up because of his later activities. I never highly leveraged anything. The first book never mentioned this. But it did get me to invest in income real estate. I have been glad of that. I never read his later books because they didn't pass the smell test.
I also liked the Rat Race game. I used to play it with the kids. One thing he had you do is pick a goal of what you wanted to do when you retired. I always picked saving a forest and my daughter always picked a small farm. We compared notes recently and realized that we have both reached our goals.
I also liked the Rat Race game. I used to play it with the kids. One thing he had you do is pick a goal of what you wanted to do when you retired. I always picked saving a forest and my daughter always picked a small farm. We compared notes recently and realized that we have both reached our goals.
+1. When I was young and naive I used to praise Kiyosaki. Later experience taught me he's just a charlatan getting rich by teaching others how to get rich.
The game changer is:
Move to a country where US dollar goes a long long way. Like Tim Ferris said: What would you do if you had a million dollars right now? Most people don't know. The tragedy is most people don't have any passion. All they do is keep calculating their net worth day in and day out. Happiness is not eating some expensive meal. It is continually growing and having some fun. Most things that are enjoyable aren't that expensive.
You can go snowboarding at whistler even if you don't have a lot of money. You don't need to own a house there, just get an airbnb
Move to a country where US dollar goes a long long way. Like Tim Ferris said: What would you do if you had a million dollars right now? Most people don't know. The tragedy is most people don't have any passion. All they do is keep calculating their net worth day in and day out. Happiness is not eating some expensive meal. It is continually growing and having some fun. Most things that are enjoyable aren't that expensive.
You can go snowboarding at whistler even if you don't have a lot of money. You don't need to own a house there, just get an airbnb
The 0.01% of liquid net worth concept is useful.
The rest of the article is not very useful. The higher one's liquid net worth, the more differences in priorities and consumption patterns.
The rest of the article is not very useful. The higher one's liquid net worth, the more differences in priorities and consumption patterns.
Problem is that while there's a limit to how much you can spend on (I guess student, not mortgage) debt, groceries, and restaurants, the amount you can spend on holidays, houses and philanthropy vary on a much larger scales.
You can go on a holiday flight to another country for a few hundred dollars. Or you can rent a private jet to tour the world, staying at a 5-star hotel each place. That could easily be the difference between a 3 figure price and a 6 figure price.
Houses, you can get them for a few annual average salaries, or a few hundred. Depends on where you want to live.
And donations can vary as much as you like, a dollar or 100M.
For software devs, I would think the real ladder is not whether you can buy the groceries you want. My guess is most of us in the West can buy the truffles every week if we really felt like it, and likewise with restaurants.
What you perhaps want to consider is whether you have the resources to not work for a while, whether to educate yourself, travel, or do your own startup. This comes down to the opportunity cost of lost income being worthwhile to do those things.
You can go on a holiday flight to another country for a few hundred dollars. Or you can rent a private jet to tour the world, staying at a 5-star hotel each place. That could easily be the difference between a 3 figure price and a 6 figure price.
Houses, you can get them for a few annual average salaries, or a few hundred. Depends on where you want to live.
And donations can vary as much as you like, a dollar or 100M.
For software devs, I would think the real ladder is not whether you can buy the groceries you want. My guess is most of us in the West can buy the truffles every week if we really felt like it, and likewise with restaurants.
What you perhaps want to consider is whether you have the resources to not work for a while, whether to educate yourself, travel, or do your own startup. This comes down to the opportunity cost of lost income being worthwhile to do those things.
Nice, I used to say that I feel comfortable when I choose my yogurt and do not look at the price.
I realize that I am objectively much higher on the wealth axis today, but this is what I tell my children. Live without needing much and do not worry if what you really want is 500€ more expensive.
I like this chart because it also tells that some people can be happy by buying the 15€ fast lane at the airport (this is what we did with my wife, the kids queued up). Or getting the 500€ more expensive version of vacation to have more space.
I realize that I am objectively much higher on the wealth axis today, but this is what I tell my children. Live without needing much and do not worry if what you really want is 500€ more expensive.
I like this chart because it also tells that some people can be happy by buying the 15€ fast lane at the airport (this is what we did with my wife, the kids queued up). Or getting the 500€ more expensive version of vacation to have more space.
I mean if you have $100k in wealth you absolutely have travel freedom. Backpacking in Europe is a common experience so it's pretty cheap and the rest of the countries have crazy USD conversion rates. $100k could be a lifetime's worth of money in a non-western country. You can still find lodging in Ukraine for like $4/day.
Another positive aspect of gradually ramping up spending is that you slowly and safely learn how to use money. Your behaviors have to be calibrated to your income and wealth to avoid wasting money.
Although the person overspending is probably using credit or living paycheck to paycheck, there is the rarer but more acute problem of windfalls. If you receive a windfall without previously having experience with money, there's a good chance you will fritter the windfall away.
A common way this happens is when professional athletes overpay for a mansion after signing a contract. Five or so years later the mansion is sold for a huge loss or sits on the market for years with an unrealistic selling price.
Although the person overspending is probably using credit or living paycheck to paycheck, there is the rarer but more acute problem of windfalls. If you receive a windfall without previously having experience with money, there's a good chance you will fritter the windfall away.
A common way this happens is when professional athletes overpay for a mansion after signing a contract. Five or so years later the mansion is sold for a huge loss or sits on the market for years with an unrealistic selling price.
> Lastly, you might argue that you shouldn’t increase your consumption with your net worth, but I would counter that some lifestyle creep can be highly rewarding in terms of maximizing your leisure time and long-term life satisfaction.
I don't agree with this. I think life satisfaction is a function of what you think you need rather than what you really need. Changing that perspective can create as much contentment with existing resources as increasing consumption. For example - no one misses what they never knew they could have. Very few people come up with a _necessity_ for a private jet from first principles.
I don't agree with this. I think life satisfaction is a function of what you think you need rather than what you really need. Changing that perspective can create as much contentment with existing resources as increasing consumption. For example - no one misses what they never knew they could have. Very few people come up with a _necessity_ for a private jet from first principles.
No one should be allowed to reach "what are prices?" People who are there already should be taxed back down into the "I care about prices again" range within a few generations.
I think you can pretty easily guess this article isn't written by anyone whose family is recently immigrants. Kids from those families don't need to be instructed on how to spend at the right level (at least in the first few stages) -- everything is about saving money! This story is probably for people whose parents have forgotten what it's like to be poor and skipped the step of instructing the kids (inadvertently, or deliberately) on what that's like.
So...a couple of these posts are about climbing the income ladder. If you want to climb the wealth ladder here’s my advice. Buy a single-family home, in an area with good schools, that you can afford with a 30 year fixed mortgage. You will need 20% down, so you won’t be able to reach the “food freedom” or “travel freedom” levels as described here until your home purchase is completed. This is almost foolproof over the long term.
Or consider buying a mobile home in a good community. My house was $50,000 and my rent is $600/month (I live in NJ and don't pay land taxes). The savings from not paying a mortgage or buying an expensive house means there's that much more you can put into investing for retirement (and in my case give more to cost effective charities).
In these conversations it is important to remember that the median US income is somewhere around $40k per year. Conversations like this should serve to remind us that the US system is deeply broken. There is no reason we couldn't have a system where everyone could live comfortably. People making an easy six figures talking about how poor people should scrimp and save is ridiculous.
I think the rules he’s using for measuring wealth are way off. It only makes sense if your goals are to work a full time job for the rest of your life. Something more meaningful would be financial independence. How long can I live comfortably without working? Do my investments still lead to net personal wealth increases without working? If so, how much?
I hate being negative but this article, despite its good intent, just tries to force some very shallow abstractions to the point where it's ridiculous ...
On the first example of levels, it's funny that 'guys that can eat where they want' are on the same level (3) as 'billionaries'.
Then goes on with the very old (and wrong) belief that for a high net worth individual 50K is chump change and equivalent to a normal guy throwing away a dollar ...
Then the "improved" levels do not really make sense as levels: travel freedom can be much more than expensive than house freedom, for sure!; also, one could engage in a philantrophic cause without belonging at the absolute peak of wealth.
Another one is how at the highest level in his chart, he uses the expression "What are prices?", implying that people at the highest bracket just do not look at price tags anymore. Honestly, plenty of rich people live fairly frugal lives, while on the other end plenty of people at the bottom spend in a lot of things without thinking twice about the cost and its impact on their lives.
And then there is no advice on how to actually climb such arbitrarily defined ladder ...
On the first example of levels, it's funny that 'guys that can eat where they want' are on the same level (3) as 'billionaries'.
Then goes on with the very old (and wrong) belief that for a high net worth individual 50K is chump change and equivalent to a normal guy throwing away a dollar ...
Then the "improved" levels do not really make sense as levels: travel freedom can be much more than expensive than house freedom, for sure!; also, one could engage in a philantrophic cause without belonging at the absolute peak of wealth.
Another one is how at the highest level in his chart, he uses the expression "What are prices?", implying that people at the highest bracket just do not look at price tags anymore. Honestly, plenty of rich people live fairly frugal lives, while on the other end plenty of people at the bottom spend in a lot of things without thinking twice about the cost and its impact on their lives.
And then there is no advice on how to actually climb such arbitrarily defined ladder ...
I don't care how much money I make - I shop at the cheap grocery store, pay attention to restaurant prices, look for deals, don't waste money. This is a good lifestyle no matter how much you make. It's called being frugal.
"Consider carefully whether the extra step is worth it". This is what I'm wondering about everyday /s
> Level 6. Philanthropic freedom: You can give away money that has a profound impact on others.
Letting the rich decide how society is organised, what a great plan.
Letting the rich decide how society is organised, what a great plan.
If you're interested in more of a discussion on _how_ to increase wealth I wrote a 5,000+ word post on it a few weeks ago called "The Ladders of Wealth Creation".
https://nathanbarry.com/wealth-creation/
https://nathanbarry.com/wealth-creation/
> More importantly though, the best way to climb the wealth ladder is to spend money according to your level.
As far as I (a non-economist) can personally tell, any notion of climbing up some abstract wealth ladder is synonym with a salary increase for the vast majority of people. Other methods, whether they involve quantity of free time or already-available money, are intrinsically tied to the quality of your job or, failing that, the quality of your parents' or partner's jobs.
Personal net worth, while definitely an important factor in this equation, is far less so than income in my opinion. A fiscally irresponsibly professional worker living from paycheck to paycheck has "grocery freedom" while a person with 10,000$ of accumulated wealth and no income whatsoever (let's say they are between jobs) is far more likely to buy the store brand margarine. Similarly, the former will most likely not achieve "travel freedom" without decades of hard work, of careful spending, of saving, investing, etc.
Simply put, no amount of "not carelessly booking flights" will turn you into Jay-Z, let alone into that small business owner across the street with the McMansion and the gaudy Christmas decorations. The undisputed "best way" to climb the wealth ladder is to receive large amounts of cash from some external source.