Why So Many Rich People Don’t Feel Very Rich(economix.blogs.nytimes.com)
economix.blogs.nytimes.com
Why So Many Rich People Don’t Feel Very Rich
http://economix.blogs.nytimes.com/2011/01/11/why-so-many-rich-people-dont-feel-very-rich/
33 comments
My wife lost her job several months ago (bad economy and all) and for a while we were scrambling to figure out what to do with a near 50% loss in income.
Turns out with her staying at home, working on a startup, and us eating a home-cooked dinner everyday...entertaining ourselves with trips to free museums we never went to before (mostly because we were too busy spending money on expensive bits of entertainment before) not only has made up for her salary, but we're actually saving more too.
Crazy.
Turns out with her staying at home, working on a startup, and us eating a home-cooked dinner everyday...entertaining ourselves with trips to free museums we never went to before (mostly because we were too busy spending money on expensive bits of entertainment before) not only has made up for her salary, but we're actually saving more too.
Crazy.
The cool thing about this approach is how nicely it works with compound interest.
Live like a college kid for the 5 years after you leave college, and I defy you not to put $10k per year into the market. Fresh out of school with my $32k salary, I'd regularly find month-old paychecks lying around undeposited because I simply didn't need the money to support my cheap apartment, used car, and 10lb sack of potatoes.
With nowhere for your money to go but the market, you quickly discover what 10%/year (or even 5% per year) does to a stack of money. Eventually it's making more on its own than you're putting in. Financial security for life, sorted by age 30.
Live like a college kid for the 5 years after you leave college, and I defy you not to put $10k per year into the market. Fresh out of school with my $32k salary, I'd regularly find month-old paychecks lying around undeposited because I simply didn't need the money to support my cheap apartment, used car, and 10lb sack of potatoes.
With nowhere for your money to go but the market, you quickly discover what 10%/year (or even 5% per year) does to a stack of money. Eventually it's making more on its own than you're putting in. Financial security for life, sorted by age 30.
Boy I'd be happy with 10%/year or 5%/year right now. I think you're still living in 1998.
Eventually it's making more on its own than you're putting in.
This actually takes a long time.
Eventually it's making more on its own than you're putting in.
This actually takes a long time.
In 1998, a reasonable expectation was 50% per year, though you'd usually beat that if you invested in anything starting with a lower-case 'e'. Naturally, it all went away if you left it in, but that's beside the point.
Today, it's still not unrealistic to expect that money you put in today will make on average 5-10% per year over the next 40 years. If you're investing your money for a shorter period than that, it's not really retirement savings but speculation, which can be fun but is its own thing.
Regardless, I don't think I'd discourage people from saving in their 20s because you don't think the market is going to continue doing its thing. It'll be back, and the few hundred K that you can set aside in your 20s will do some amazing things over the course of your life if you invest it in index funds rather than granite countertops.
Today, it's still not unrealistic to expect that money you put in today will make on average 5-10% per year over the next 40 years. If you're investing your money for a shorter period than that, it's not really retirement savings but speculation, which can be fun but is its own thing.
Regardless, I don't think I'd discourage people from saving in their 20s because you don't think the market is going to continue doing its thing. It'll be back, and the few hundred K that you can set aside in your 20s will do some amazing things over the course of your life if you invest it in index funds rather than granite countertops.
The S&P 500 was up 11% last year, the Dow was up 9.5%, and the Nasdaq was up 17.5%
How 'bout the year before that?
The year before that was much better. The S&P 500 was up over 25% in 2009 and the Nasdaq was up almost 50%.
To really understand the situation start running the numbers of late life salary bumps.
It is difficult to balance lifestyle, income, and savings as you start to ramp up your salary AND your lifestyle. If your salary doubles between 20 and 30 and then again between 30 and 40 your savings does not change. So even if your saving 20% of your income every year you are not going to be able to safely retire at 80% of what you make at 40. Unless, you get a salary bump and don't increase your lifestyle.
Take it further; someone that sees a 3x gains from 30 is going to need to save ~40% a year to avoid a lifestyle drop. Meanwhile your friends are all raping up their spending and possible over extending.
It is difficult to balance lifestyle, income, and savings as you start to ramp up your salary AND your lifestyle. If your salary doubles between 20 and 30 and then again between 30 and 40 your savings does not change. So even if your saving 20% of your income every year you are not going to be able to safely retire at 80% of what you make at 40. Unless, you get a salary bump and don't increase your lifestyle.
Take it further; someone that sees a 3x gains from 30 is going to need to save ~40% a year to avoid a lifestyle drop. Meanwhile your friends are all raping up their spending and possible over extending.
This is my exact situation. I'm 24, finished engineering school 2 years ago, and work as a web developer. My lifestyle has stayed the same (I even spend less on many things). I don't need/own a car and don't really care about buying expensive gadgets...
I'm currently reading The Investor' Manifesto* and it seems I am very lucky to have money to invest in the market. A bear market is a boon for young investors.
By the way, this book is awesome. I regret not reading it earlier. Derek Sivers plugged it on HN almost a year ago (http://news.ycombinator.com/item?id=1026296) and his reading notes are available online at http://sivers.org/book/InvestorsManifesto.
I'm currently reading The Investor' Manifesto* and it seems I am very lucky to have money to invest in the market. A bear market is a boon for young investors.
By the way, this book is awesome. I regret not reading it earlier. Derek Sivers plugged it on HN almost a year ago (http://news.ycombinator.com/item?id=1026296) and his reading notes are available online at http://sivers.org/book/InvestorsManifesto.
I can sum this up for me and my family (fyi...we live quite meekly):
We don't feel "rich" because if something catastrophic happens (one of us loses our job, major health problem, really bad turn in economy again) we are not insulated despite all of our savings for the rest of our lives. We have, perhaps, 2-4 years ability to stave of bankruptcy and the lot. That number is different for everyone, but the "rich" don't think about that, ever. They are set and will always be set unless _THEY_ do something stupid with their money.
Bottom line: I am not rich because I am not in control of the rest of my life still. I am dependent on the system and the people who actually control the system still. "rich" and "money" have always been about freedom to me. Because I am not truly free, I am not rich.
Make sense?
We don't feel "rich" because if something catastrophic happens (one of us loses our job, major health problem, really bad turn in economy again) we are not insulated despite all of our savings for the rest of our lives. We have, perhaps, 2-4 years ability to stave of bankruptcy and the lot. That number is different for everyone, but the "rich" don't think about that, ever. They are set and will always be set unless _THEY_ do something stupid with their money.
Bottom line: I am not rich because I am not in control of the rest of my life still. I am dependent on the system and the people who actually control the system still. "rich" and "money" have always been about freedom to me. Because I am not truly free, I am not rich.
Make sense?
So, I should feel richer than you because my country provides a far better safety net?
(even though I probably make between 10 to 20 times less?)
(even though I probably make between 10 to 20 times less?)
Because they don't know what it means to be poor?
I disagree with this. While I'm not saying I was ever "poor" (as I never felt poor), I started out working for $5.15/hour, and sleeping on a friend's couch while I tried to find an apartment I could afford. Then I moved into a boston apartment that was $1000/month for three of us. It was falling over, and I ate homemade burritos every single day because beans and tortillas were cheap.
Now I own a big house, drive nice cars, and earn a lot more than back then, but I still don't feel rich. The rise in income over 12 years, was more or less matched by a rise in lifestyle and spending. Don't get me wrong, life is more comfortable, and I'm able to do lots of things I want to do that weren't possible before, but I still don't feel "rich" (I do feel lucky and blessed, etc...). I hate my 1/2 working 30 year old electric cooktop. I want a new gas cooktop, but that means new counter tops, and running a gas line, and if I'm doing new counter tops I should probably re-do the cabinets at the same time, and if I'm doing those, I should do the floors, and if I'm doing cabinets I should really replace the wall oven and fridge while I'm at it. But I don't have that kind of money! And I still have to bust my ass every day at work. So until you're really "RICH", and you still have to set the alarm and work every day, and you have things you want, but can't afford, you don't "feel" "rich".
Is this a healthy well adjusted mindset, probably not. Just pointing out that slow acclimation can make you feel like you really haven't moved much, regardless how far you've travelled. I've lost 35+ lbs in the last 3 years, but I don't feel "thin".
Now I own a big house, drive nice cars, and earn a lot more than back then, but I still don't feel rich. The rise in income over 12 years, was more or less matched by a rise in lifestyle and spending. Don't get me wrong, life is more comfortable, and I'm able to do lots of things I want to do that weren't possible before, but I still don't feel "rich" (I do feel lucky and blessed, etc...). I hate my 1/2 working 30 year old electric cooktop. I want a new gas cooktop, but that means new counter tops, and running a gas line, and if I'm doing new counter tops I should probably re-do the cabinets at the same time, and if I'm doing those, I should do the floors, and if I'm doing cabinets I should really replace the wall oven and fridge while I'm at it. But I don't have that kind of money! And I still have to bust my ass every day at work. So until you're really "RICH", and you still have to set the alarm and work every day, and you have things you want, but can't afford, you don't "feel" "rich".
Is this a healthy well adjusted mindset, probably not. Just pointing out that slow acclimation can make you feel like you really haven't moved much, regardless how far you've travelled. I've lost 35+ lbs in the last 3 years, but I don't feel "thin".
if I'm doing new counter tops I should probably
This is the mindset that makes high income people feel poor. You can get a vary nice gas stove installed wihtout looking out of place for ~10k or you can spend ~100k and get the same thing but shiny.
This is the mindset that makes high income people feel poor. You can get a vary nice gas stove installed wihtout looking out of place for ~10k or you can spend ~100k and get the same thing but shiny.
10k is a lot of spending money. I'm trying to build up some savings/retirement money, so finding a "spare" 10k+ isn't easy.
I don't know much about your income, expenses, etc. However, I am suggesting that dealing with the I hate my _ list does not need to be that expensive. Relative to "I own a big house, drive nice cars* etc.
Home Equity Line of Credit + reasonable expectations means you could get a gas stove that does not look ugly for around 120$ a month. And in the increased value of your home and the real cost could be less than 80$ a month. (AKA 40$ a month becomes another form of savings.)
Now for you personally it's hard to (edit: quickly) cut 120$ a month from your nice cars and big house. But, I am willing to bet you would get more enjoyment from that 120$ than getting the "nicer" versions of other things in your life.
PS: It was vary freeing when I realized I was not spending my money to optimize my happiness. Rather I was buying things based on the amount of spare money I had when I was buying it. (Edit: Not that you have this problem, but it seems common.)
Home Equity Line of Credit + reasonable expectations means you could get a gas stove that does not look ugly for around 120$ a month. And in the increased value of your home and the real cost could be less than 80$ a month. (AKA 40$ a month becomes another form of savings.)
Now for you personally it's hard to (edit: quickly) cut 120$ a month from your nice cars and big house. But, I am willing to bet you would get more enjoyment from that 120$ than getting the "nicer" versions of other things in your life.
PS: It was vary freeing when I realized I was not spending my money to optimize my happiness. Rather I was buying things based on the amount of spare money I had when I was buying it. (Edit: Not that you have this problem, but it seems common.)
Lifestyle inflation is very sneaky. I grew up fairly poor (and felt it), like trailer trash in a back-woods area known for potsmoking hicks poor, and now that I'm a "starving college student" with a decent PT job I feel pretty rich most of the time. I don't have the nicest apartment and I've parked my car for the year because the bus is cheaper and (usually) good enough. But even though I'm still not even middle class, I've noticed lifestyle inflation so I'm actively working to combat it. (Especially since I predict my income probably going up as I graduate and go FT year-round, I want the good habits now.)
Firstly I try to be frugal. Some people think this means cutting coupons for everything and not spending any money on fun things, but really it just means not spending money on things you don't care about, so that you can spend money on things you do care about instead. The exact categories there are different for everyone and will change over time and as your situation/environment changes. For me, I chose to give up the car so I could have more wiggle room wrt general spending money (eating out, coffee), and could afford a new laptop and glasses. Other people will bring their own lunches and coffee so they can afford a vacation, or cut down on buying electronics so they can live in a nicer place. Sometimes I fail at frugality -- recently I've spent a lot of money on videogames that I don't really enjoy and won't play much, when I already have unplayed ones and games with lots of leftover replay value. So for the next month, I'm not spending any money on videogames, and after that I'll try to think more carefully about whether I'll enjoy a game and whether I actually have a small enough pile of games to get around to it soon, rather than whether I can afford the game. Because for any individual game, the answer to that question is always YES, so it's not a helpful question to ask myself. You mentioned you drive nice carS -- does this mean you own/lease more than one at once? You can only drive one at a time, so unless you have a family with seriously incompatible schedules or are a hardcore car aficionado, that might be something you could "afford" rather than something you truly need/want.
Secondly I try not to own too much stuff, especially stuff I don't use. Owning stuff costs time and money, but we don't always see that because the costs are hidden and sprinkled around all over the place. If you're using your big house mostly to store a big bunch of stuff you've accumulated, you are paying your hard-earned money to heat your own personal junkyard. When you move house, you pay to move the junk. When the junk breaks you pay to fix it or to replace it -- because by keeping it you've already convinced yourself you "need" it, even if it's something you never/rarely use or whose function could easily be replaced by some other tool you have. So I try to purge the things I own regularly, keeping only the things I use and want. I did a big purge last summer and I'll probably do another one this spring. It can be hard, especially if you've been raised to believe that owning stuff is a good thing, or that "you'll never know when you need it", but it feels really good when you're done. This doesn't mean I live in a minimalist apartment with no stuff, of course. It just means I have a somewhat-smaller, carefully-curated collection of stuff -- stuff I'm consciously willing to actually heat and move and repair and replace.
Sorry if getting money advice from a poor college student seems insulting/silly. It probably is at least a bit silly, but it seems like you and I (and lots of others) have the same problem on different scales, so the things that help me might help you, if you want.
Firstly I try to be frugal. Some people think this means cutting coupons for everything and not spending any money on fun things, but really it just means not spending money on things you don't care about, so that you can spend money on things you do care about instead. The exact categories there are different for everyone and will change over time and as your situation/environment changes. For me, I chose to give up the car so I could have more wiggle room wrt general spending money (eating out, coffee), and could afford a new laptop and glasses. Other people will bring their own lunches and coffee so they can afford a vacation, or cut down on buying electronics so they can live in a nicer place. Sometimes I fail at frugality -- recently I've spent a lot of money on videogames that I don't really enjoy and won't play much, when I already have unplayed ones and games with lots of leftover replay value. So for the next month, I'm not spending any money on videogames, and after that I'll try to think more carefully about whether I'll enjoy a game and whether I actually have a small enough pile of games to get around to it soon, rather than whether I can afford the game. Because for any individual game, the answer to that question is always YES, so it's not a helpful question to ask myself. You mentioned you drive nice carS -- does this mean you own/lease more than one at once? You can only drive one at a time, so unless you have a family with seriously incompatible schedules or are a hardcore car aficionado, that might be something you could "afford" rather than something you truly need/want.
Secondly I try not to own too much stuff, especially stuff I don't use. Owning stuff costs time and money, but we don't always see that because the costs are hidden and sprinkled around all over the place. If you're using your big house mostly to store a big bunch of stuff you've accumulated, you are paying your hard-earned money to heat your own personal junkyard. When you move house, you pay to move the junk. When the junk breaks you pay to fix it or to replace it -- because by keeping it you've already convinced yourself you "need" it, even if it's something you never/rarely use or whose function could easily be replaced by some other tool you have. So I try to purge the things I own regularly, keeping only the things I use and want. I did a big purge last summer and I'll probably do another one this spring. It can be hard, especially if you've been raised to believe that owning stuff is a good thing, or that "you'll never know when you need it", but it feels really good when you're done. This doesn't mean I live in a minimalist apartment with no stuff, of course. It just means I have a somewhat-smaller, carefully-curated collection of stuff -- stuff I'm consciously willing to actually heat and move and repair and replace.
Sorry if getting money advice from a poor college student seems insulting/silly. It probably is at least a bit silly, but it seems like you and I (and lots of others) have the same problem on different scales, so the things that help me might help you, if you want.
That sums it up nicely. Essentially people in the 90th percentile who aren't truly rich (ie they are on the wrong side of that curve in the article) usually have a much higher standard of living they simply don't appreciate.
For one example I moved to an apartment not infested with mice and roaches and it's cost me an extra $2,000 a year in rent. And honestly the roach place was overpriced and my current apt is a pretty good deal.
Basically, someone in the 90th percentile but not feeling rich is probably living somplace nice, buying a lot more reasonably-nice clothes (and bicycle and ski gear maybe), brand-name groceries (Whole Foods, etc.), newer cars, an entertainment center, college and retirement savings, etc. No individual item seems like a massive luxury, like a Yacht or a mansion or luxury penthouse; and you can't invest a million in startups just for the fun of it; but across the board it all adds up.
For one example I moved to an apartment not infested with mice and roaches and it's cost me an extra $2,000 a year in rent. And honestly the roach place was overpriced and my current apt is a pretty good deal.
Basically, someone in the 90th percentile but not feeling rich is probably living somplace nice, buying a lot more reasonably-nice clothes (and bicycle and ski gear maybe), brand-name groceries (Whole Foods, etc.), newer cars, an entertainment center, college and retirement savings, etc. No individual item seems like a massive luxury, like a Yacht or a mansion or luxury penthouse; and you can't invest a million in startups just for the fun of it; but across the board it all adds up.
It doesn't matter where you start out. You're always staring up at that sheer cliff (in fact it's probably true that it seems steeper and harder to climb the closer you get to it).
Why did they put a non-linear x-axis on that graph? From 0% to 80% of income is only the first 40% of x-axis space! Then tick marks (with equal physical spacing) change from 5% to 1% increments.
We're talking about the top 90% of earners so it makes sense to enlarge the right side of the graph. They're trying to illustrate the huge changes in income for every percentage point. A linear axis would be basically vertical at the right end.
I think a vertical line would show the point more clearly. The idea is that there is a lot more change at the top end than the rest, and a vertical line does that.
Resolution does become an issue (I agree that showing the change from 99.5 to 99.9 is good and a linear scale makes seeing those points harder). A way around that is to have the graph scroll left to right -- which should be easy given that it is an interactive JS/flash graph widget.
Resolution does become an issue (I agree that showing the change from 99.5 to 99.9 is good and a linear scale makes seeing those points harder). A way around that is to have the graph scroll left to right -- which should be easy given that it is an interactive JS/flash graph widget.
Based on the way the info box follows the mouse, I think it's because their graphing tool puts an equal amount of space between data points.
Most likely, the data points they fed into it have x-values of [5%, 10%, ..., 75%, 80%, 81%, ...]. This is a useful way of tabulating percentile data, though not such a useful way of graphing it.
Most likely, the data points they fed into it have x-values of [5%, 10%, ..., 75%, 80%, 81%, ...]. This is a useful way of tabulating percentile data, though not such a useful way of graphing it.
Perhaps it's because the definition of "rich" that they would need to feel is one where they'd never have to work again if they didn't want to.
The article points out an annual income of $172,000 as being rich, but by implication, these people still have to work for their money. Therefore probably don't feel "rich"
If they could maintain that income or even half that income in perpetuity without working. If they could spend their days doing just what they want and not what they have to then maybe that's what feels rich?
Maybe?
The article points out an annual income of $172,000 as being rich, but by implication, these people still have to work for their money. Therefore probably don't feel "rich"
If they could maintain that income or even half that income in perpetuity without working. If they could spend their days doing just what they want and not what they have to then maybe that's what feels rich?
Maybe?
"The article points out an annual income of $172,000 as being rich, but by implication, these people still have to work for their money."
I think the real issue is that someone making 300,000 probably doesn't have much more disposable income than someone making 80,000. Whatever extra money they have is likely just going to a slightly nicer house, their IRA, dental insurance, a slightly better preschool for their kids, etc. In other words, if you're making 300,000 per year then you probably can't afford to fly to Hawaii for the weekend on a whim any more than someone making 80,000 can.
I think the real issue is that someone making 300,000 probably doesn't have much more disposable income than someone making 80,000. Whatever extra money they have is likely just going to a slightly nicer house, their IRA, dental insurance, a slightly better preschool for their kids, etc. In other words, if you're making 300,000 per year then you probably can't afford to fly to Hawaii for the weekend on a whim any more than someone making 80,000 can.
You make a good point, I would just substitute "choose not to" for "probably can't." The person chose that nicer house and an expensive lifestyle. As a counterpoint, I went to Virginia Beach for a week on a whim at a time when I had no real income to speak of.
> "someone making 300,000 probably doesn't have much more disposable income than someone making 80,000"
I don't think that's borne out by the stats. As I recall fixed costs essentially flat-line as a percentage of income somewhere south of 200k, up until you reach the "don't look at prices anymore" brackets. Also, I note that it really doesn't take much more disposable income to add flashy consumption. Five thousand dollars is easily two annual trips to Hawaii, which -- while not remotely a trivial amount of money -- really isn't that hard to sock away at 300k vs 80k. And two additional annual vacations at 300k is certainly going to look like 'whimsical' to the guy making 80k who takes one real vacation a year.
So I'm wondering if we aren't having a disagreement on definitions. And when you say 'hawaii on whim', you're thinking about trips approaching the opulence of the "don't look at prices anymore" brackets?
I don't think that's borne out by the stats. As I recall fixed costs essentially flat-line as a percentage of income somewhere south of 200k, up until you reach the "don't look at prices anymore" brackets. Also, I note that it really doesn't take much more disposable income to add flashy consumption. Five thousand dollars is easily two annual trips to Hawaii, which -- while not remotely a trivial amount of money -- really isn't that hard to sock away at 300k vs 80k. And two additional annual vacations at 300k is certainly going to look like 'whimsical' to the guy making 80k who takes one real vacation a year.
So I'm wondering if we aren't having a disagreement on definitions. And when you say 'hawaii on whim', you're thinking about trips approaching the opulence of the "don't look at prices anymore" brackets?
I don't even make 80K USD, but living in the UK and thus with more vacation time (25 days), even I take at least 3 holidays abroad every year.
I make 13K USD, and I took 2 holidays abroad :)
(where abroad is Brazil and Argentina, since I live in Uruguay)
I know that people in the US have half the holiday time that I have, but they should be able to have the money to enjoy what time they do have.
(where abroad is Brazil and Argentina, since I live in Uruguay)
I know that people in the US have half the holiday time that I have, but they should be able to have the money to enjoy what time they do have.
"So I'm wondering if we aren't having a disagreement on definitions."
I think it mostly depends on whether or not you have kids. Kids can basically eat up an unlimited amount of money.
I think it mostly depends on whether or not you have kids. Kids can basically eat up an unlimited amount of money.
Absolutely.
When I made a third of my current salary range, I felt well off. Now I have kids and feel poor.
When I made a third of my current salary range, I felt well off. Now I have kids and feel poor.
> I think the real issue is that someone making 300,000 probably doesn't have much more disposable income than someone making 80,000.
I think the term disposable income gets misused a lot. People don't see the money they spend on the BMWs, or the part-time nanny, or the private school, or any number of everyday luxuries as a use of disposable income. But they are every bit as much as those trips to Hawaii.
I think the term disposable income gets misused a lot. People don't see the money they spend on the BMWs, or the part-time nanny, or the private school, or any number of everyday luxuries as a use of disposable income. But they are every bit as much as those trips to Hawaii.
I think what people are really searching for is satisfaction.
If they define satisfaction as being top 5% in wealth, then they'll probably have a long road to satisfaction.
As for me, and I suspect others here, I'm satisfied when creating value. Dollars made is just a fallible measure of how much value has been created.
If they define satisfaction as being top 5% in wealth, then they'll probably have a long road to satisfaction.
As for me, and I suspect others here, I'm satisfied when creating value. Dollars made is just a fallible measure of how much value has been created.
Anyone who defines satisfaction that way is fooling themselves; probably in more ways than one.
If I had one year of $172,000 income, I could bank it and live off the interest for the rest of my life. People who make that much and don't feel "rich" feel so because somehow they incur $172,000 in expenses every year. I'm a tutor and often work with kids of rich families, and it astounds me what their parents spend money on (think private jets and race cars).
Actually, I work with kids of poor families as well, and I could say the same, although the indulgences are more mundane (expensive cell phone plans and TV packages).
Actually, I work with kids of poor families as well, and I could say the same, although the indulgences are more mundane (expensive cell phone plans and TV packages).
If I had one year of $172,000 income, I could bank it and live off the interest for the rest of my life.
Er, how? Assuming a very optimistic 4% return after inflation and taxes, that's only $7k/year.
Er, how? Assuming a very optimistic 4% return after inflation and taxes, that's only $7k/year.
Here in Uruguay, I'd buy 2 or 3 houses, which would give a return of about U$ 1000/month.
That's U$ 12k/year right there (and rent is inflation adjusted here).
Yes, we do have a housing boom here, why do you ask :) - it's far cheaper to own than to rent, but most people don't have the capital - I rent, as I make U$ 13k/year
That's U$ 12k/year right there (and rent is inflation adjusted here).
Yes, we do have a housing boom here, why do you ask :) - it's far cheaper to own than to rent, but most people don't have the capital - I rent, as I make U$ 13k/year
Right now I live off of about $12k/year, and I'm paying about $4800/year in loans (which will be paid off soon enough). That works out to about $7k/year.
Unless your $7K expenditure calculation includes putting away quite a bit of savings (Which, unless there's a massive early repayment fine on your loans, it shouldn't), you'll also need to pretty much halve that optimistic 4% to ensure that your capital doesn't decline in real terms. That's assuming inflation remains as stable as it currently is.
I did some back-of-envelope calculations, a few years ago, based on the inflation common savings interest rates of the time, and median salaries where I lived. Basically, given £1M in a savings account and no other income, someone who lives as though earning the median salary (including reinvesting about 30% after tax), could expect to start eating into their capital (in real terms) within about 3 years. I can't remember how long it would take for their capital sum to actually drop below £1M, but I do remember it taking about 30 years to drop to 0.
Now, you're obviously a bit more frugal than the average bear, but you're talking about having a tenth of that capital, and a sixth of that expenditure, which already doesn't add up. Also, my calculations above were made when even a risk-free savings account would score you nearly 5% APR.
I did some back-of-envelope calculations, a few years ago, based on the inflation common savings interest rates of the time, and median salaries where I lived. Basically, given £1M in a savings account and no other income, someone who lives as though earning the median salary (including reinvesting about 30% after tax), could expect to start eating into their capital (in real terms) within about 3 years. I can't remember how long it would take for their capital sum to actually drop below £1M, but I do remember it taking about 30 years to drop to 0.
Now, you're obviously a bit more frugal than the average bear, but you're talking about having a tenth of that capital, and a sixth of that expenditure, which already doesn't add up. Also, my calculations above were made when even a risk-free savings account would score you nearly 5% APR.
$7k a year would be impossible for me and most other people. My rent alone is $12k/year. But, say to be frugal, and this isn't my current situation be what I imagine would be the bare minimum: $400/mo rent, $100/mo car insurance, $30/week in groceries. I have other necessities but for bare minimum that's already well over $7k/year.
Rent is spot on. My car insurance is about $800/yr (although it seems MA is a particularly cheap state for insurance). I do not have an exact figure but I believe my weekly grocery bill to be less than that by about 1/3 (not eating meat helps). That brings the total to $6640/yr.
Not counting gas (which I mostly use for my hour-long commute), I further spend $20/mo on internet, and $60/mo on 3G service (which I consider a luxury). That brings the total to $7600/yr. So, I exaggerated slightly. I would need closer to a year and a month's worth of $172k income to meet this requirement.
Not counting gas (which I mostly use for my hour-long commute), I further spend $20/mo on internet, and $60/mo on 3G service (which I consider a luxury). That brings the total to $7600/yr. So, I exaggerated slightly. I would need closer to a year and a month's worth of $172k income to meet this requirement.
Maybe, but probably not comfortably. After taxes, that 172K will be about 120K. Even if you were to somehow make 8% interest on your money for the rest of your life, that's still only $800 a month.
That's about what I make now, and I'm living pretty damn comfortably without racking up debt (Internet-enabled phone, car, eat organic food, have plenty of free time for recreation).
Interesting take on rich vs uber rich. I grew up in an area with a lot of that 90th-95th percentile group but everyone seemed to believe they were "upper middle" class. The "rich" people were the few at the very top making millions more.
A family making 250k/year is doing very well, but when they look at someone making a few million - they don't group themselves in that category.
I also wonder if this is reinforced by the numerous 'reality' tv shows that document the uber rich lifestyle. Even in a town full of people that are well above average, no one is living like those top 1-2% of earners and therefore don't consider themselves rich.
A family making 250k/year is doing very well, but when they look at someone making a few million - they don't group themselves in that category.
I also wonder if this is reinforced by the numerous 'reality' tv shows that document the uber rich lifestyle. Even in a town full of people that are well above average, no one is living like those top 1-2% of earners and therefore don't consider themselves rich.
Every time I read an article like this, I think of all the people I know who are well off, yet appear to be miserable. Then I want to share with them this old wisdom from "The Ethics of the Fathers":
"Who is wise? One who learns from every man."
"Who is strong? One who overpowers his inclinations."
"Who is honorable? One who honors his fellows."
"Who is rich? One who is satisfied with his lot."
"Who is wise? One who learns from every man."
"Who is strong? One who overpowers his inclinations."
"Who is honorable? One who honors his fellows."
"Who is rich? One who is satisfied with his lot."
This reminds me of an HN comment from a few months ago. It was something like... "Need more money can usually be replaced with need less stuff"
Edit: I found the comment: 'I bet that 9 times out of 10, "I need more money" should really be rephrased as "I need less stuff"'. http://news.ycombinator.com/item?id=2025234
Edit: I found the comment: 'I bet that 9 times out of 10, "I need more money" should really be rephrased as "I need less stuff"'. http://news.ycombinator.com/item?id=2025234
I definitely get this viewpoint- but I would like to add that per gp comment, you should be satisfied with your lot. Which for some people may mean spending money on some things. I've noticed on HN and other sites a fascination with acquiring wealth. I understand why, but in the end you acquire wealth for the utility you can gain from using it.
Obviously, this doesn't need to mean spending 5k on the biggest TV, and doesn't mean outstretching yourself on a huge mortgage for a McMansion. But, if you save a little less and tactically spend on things that will make you happier I think that is definitely worth it. This isn't a huge defense of "stuff," but I think it's also okay to lose some wealth to gain happiness. I personally like spending money on travel/experiences. There was a lifehacker article about that yielding increased happiness.
Link: http://lifehacker.com/5608980/spend-on-experiences-instead-o...
Obviously, this doesn't need to mean spending 5k on the biggest TV, and doesn't mean outstretching yourself on a huge mortgage for a McMansion. But, if you save a little less and tactically spend on things that will make you happier I think that is definitely worth it. This isn't a huge defense of "stuff," but I think it's also okay to lose some wealth to gain happiness. I personally like spending money on travel/experiences. There was a lifehacker article about that yielding increased happiness.
Link: http://lifehacker.com/5608980/spend-on-experiences-instead-o...
It's also nice for your kids not to need to take out college loans.
It's also nice for them not to have to build a down payment for a house. Where does this logic end?
I don't understand what you're trying to imply. My point is just that money is useful and it can make your life and the lives of your family easier, and that there are reasons for wanting it other than not being Buddhist enough.
I'm saying you can justify a near arbitrary amount of acquisitiveness in the name of your kids lifestyles.
Generally I think acquisitiveness is fine as long as it doesn't come at society's expense. But, I also think a lot of benign-seeming acts by acquisitive people come at a subtle significant cost to society; e.g., supporting the repeal of the estate tax.
Generally I think acquisitiveness is fine as long as it doesn't come at society's expense. But, I also think a lot of benign-seeming acts by acquisitive people come at a subtle significant cost to society; e.g., supporting the repeal of the estate tax.
By "society" should I assume you mean "other people who want my stuff"?
I see nothing unjust about an arbitrary amount of acquisitiveness. I don't think success, or its material reward, are inherently sinful. I do think it's unhealthy to be obsessed with acquisition for its own sake, as opposed to when one has healthy intentions for that which is being acquired; but in any case, that's nothing to do with the collective good to which you refer.
I see nothing unjust about an arbitrary amount of acquisitiveness. I don't think success, or its material reward, are inherently sinful. I do think it's unhealthy to be obsessed with acquisition for its own sake, as opposed to when one has healthy intentions for that which is being acquired; but in any case, that's nothing to do with the collective good to which you refer.
Or rather, "I need to need less stuff".
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Agreed. It's all relative.
Happiness = Success / Expectations
Happiness = Success / Expectations
Success - Expectations, usually. Success / Expectations would imply that if you have negative expectations and positive success, you'd still have negative happiness, which doesn't seem true.
Actually, if you have such negative expectations, you might be pessimistic enough that even success wouldn't make you happy.
But for other people, yeah, things coming out that much better than expected would be a good thing.
But for other people, yeah, things coming out that much better than expected would be a good thing.
Imaginary happiness = sqrt(negative expectations)
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"The secret of happiness, you see, is not found in seeking more, but in developing the capacity to enjoy less." - Socrates
It's simple.
Make $100K, live near people making $90K = rich.
Make $100K, live near people making $110K = poor.
Make $100K, live near people making $90K = rich.
Make $100K, live near people making $110K = poor.
It's not that simple. It's more like
Make $100K, meet basic expectations for standard of living with $20K to spare = feel comfortably well-off
Make $100K, do not meet basic standard of living expectations = feels poor.
Have enough money to blow a few million investing in startups just for the learning experience = rich.
The catch is that living near people making more is likely to raise your standard of living expectations (but does not have to). Also, the cost of a particular standard of living is determined (roughly) by the market rather than its worth to you. For example living in Cambridge, MA costs more than living in Hudson, MA, whether you actually value that or not.
Make $100K, meet basic expectations for standard of living with $20K to spare = feel comfortably well-off
Make $100K, do not meet basic standard of living expectations = feels poor.
Have enough money to blow a few million investing in startups just for the learning experience = rich.
The catch is that living near people making more is likely to raise your standard of living expectations (but does not have to). Also, the cost of a particular standard of living is determined (roughly) by the market rather than its worth to you. For example living in Cambridge, MA costs more than living in Hudson, MA, whether you actually value that or not.
I argue that living in Cambridge indicates that you value living in Cambridge, or at least moreso than you would living in Hudson, give or take the cost of moving.
Cost of moving can be very significant, in many ways (not just financially) and often people are reluctant to do it. That means you often have to make a guess as to what you're going to value a year or five (or ten) from now. And often, you have to make that decision under pressure, or make lots of tradeoffs and wind up paying for things you don't value in order to have the things you do. In other words you might have chosen a location in Cambridge because that was the only place that had the amenities you wanted, and its proximity to Harvard and MIT is coincidental.
And not only do your values change, but the environment changes too. The place you choose to live now may change significantly.
And not only do your values change, but the environment changes too. The place you choose to live now may change significantly.
I definitely noticed this in grad school. For a few years, I had a $30k fellowship, when the normal stipend, which all my friends made (and which I made the other years) was around $20k. I felt like I had more money than I could reasonably spend, saved about $5k of the excess, and splurged about $5k on what seemed to me to be luxury items, like fancy beer and trips. From my perspective I was, if not wealthy, at least well-off. Supposedly $30k is on the lower end of lower-middle-class, but it didn't feel like it. (Granted, it also helps that I don't have kids.)
Well at $30k, were you:
A) Paying for your own healthcare B) Saving for retirement C) Saving for buying a house, a car, retirement, a wedding, future children, or other large purchases? D) Paying off your loans for undergrad?
Because my girlfriend and I are 22, make over $100k, have less than $30k a year in expenses combined, and still feel a little "tight" on the budget. But we're both maxing our 401ks to the company match, paying for our healthcare, and paying down our student loans (over $60k) in 3 years. Plus saving for a house, and maybe even a little wedding and a vacation. $100k goes quick.
Note that we both drive 6 year old cars and have no plan to replace them, rent a relatively small apartment and keep our expenses below $2.5k a month combined which is pretty good. I don't feel poor by any stretch of the imagination, nor am I complaining, and the situation is improving steadily as we pay down debt and have more cash, but the saving really puts a crimp on how much "fun money" I have.
We are currently (again with 2 people) putting over $3k a month into savings and paying down debt which are prudent decision but don't feel all that fun and don't really make us feel any "richer".
A) Paying for your own healthcare B) Saving for retirement C) Saving for buying a house, a car, retirement, a wedding, future children, or other large purchases? D) Paying off your loans for undergrad?
Because my girlfriend and I are 22, make over $100k, have less than $30k a year in expenses combined, and still feel a little "tight" on the budget. But we're both maxing our 401ks to the company match, paying for our healthcare, and paying down our student loans (over $60k) in 3 years. Plus saving for a house, and maybe even a little wedding and a vacation. $100k goes quick.
Note that we both drive 6 year old cars and have no plan to replace them, rent a relatively small apartment and keep our expenses below $2.5k a month combined which is pretty good. I don't feel poor by any stretch of the imagination, nor am I complaining, and the situation is improving steadily as we pay down debt and have more cash, but the saving really puts a crimp on how much "fun money" I have.
We are currently (again with 2 people) putting over $3k a month into savings and paying down debt which are prudent decision but don't feel all that fun and don't really make us feel any "richer".
Yup, this hits the nail on the head. I was in the same situation- I lucked out into a very nice fellowship whose stipend the first four years of grad school started out one or two kilobucks higher than the standard level, and (amazingly, for a grad school stipend) went up a little bit each year. By the end, I was almost at $30k, and felt like a millionaire compared to friends who were on the school's standard stipend scale. Of course, during the fifth year, for various reasons, the fellowship's funding agency adjusted their stipend scale, at which point I discovered that there is a very real difference between making $25k and $30k. Even better, my funding ran out entirely a few months ago, so the last four or five months of my PhD have involved living off of my savings from the previous five years and the odd bit of consulting income.
Let this be a lesson to other grad students out there: save like heck, 'cause you never know when there's going to be a gap in your funding, or a change in its level.
Let this be a lesson to other grad students out there: save like heck, 'cause you never know when there's going to be a gap in your funding, or a change in its level.
It's really so sneaky. Before I started school, I worked full time and I was still living paycheck to paycheck. I started school, with an obviously lower part-time salary, and I'm now comfortable adapted to the new salary (have money to burn and everything).
I believe there have been psych studies to this effect. Asked whether you'd rather make 110k when everyone else is making 80k, vs. 140k when everyone else is making 200k -- assuming prices remain constant, which is economically dubious, of course, but hey, it's a thought experiment -- and most people choose the former.
Here's another study to that effect: http://www.telegraph.co.uk/science/science-news/3315638/Rela...
"But the most the exciting finding was the influence of another factor: how the rival player was doing. Activation was at its highest for those players who got the right answer while their co-player got it wrong. But participants who got more money than their co-players showed much stronger activation in the "reward centre" than when both received the same amount."
This has a lot of interesting implications. For one, the classical homo-economimus model of humans as rational utility maximizers is further called into question. For two, it highlights the hedonic treadmill effect. No matter how much you earn, as long as you're comparing yourself to someone who makes more, you're unlikely to be satisfied.
Here's another study to that effect: http://www.telegraph.co.uk/science/science-news/3315638/Rela...
"But the most the exciting finding was the influence of another factor: how the rival player was doing. Activation was at its highest for those players who got the right answer while their co-player got it wrong. But participants who got more money than their co-players showed much stronger activation in the "reward centre" than when both received the same amount."
This has a lot of interesting implications. For one, the classical homo-economimus model of humans as rational utility maximizers is further called into question. For two, it highlights the hedonic treadmill effect. No matter how much you earn, as long as you're comparing yourself to someone who makes more, you're unlikely to be satisfied.
I think it's important to point out that this kind of behaviour is rational under some perspectives, particularly evolutionary ones (dodgy though their explanatory power may be). It's more important, genetically speaking, to be somewhere near the apex of your social group and thereby get more valuable reproduction opportunities, than it is to be materially comfortable on some notional absolute scale.
It's more than economically dubious, it's outright false. If everyone else is making less than you, then whenever you buy anything whose cost is mostly personal service, it'll be cheap in real terms (i.e. the amount of time you have to work to buy one hour of someone else's labour).
Conversely, if other people earn more money than you, you're going to have to work longer to pay for someone else's time.
Conversely, if other people earn more money than you, you're going to have to work longer to pay for someone else's time.
It strikes me that this is the difference between wealth in the past, and wealth now.
A medieval king was vastly wealthier than me in his ability to command other people's time. But I am vastly more wealthy than him in my ability to command nature, which means I have access to much better medical care, communications, and entertainment opportunities than he had.
A medieval king was vastly wealthier than me in his ability to command other people's time. But I am vastly more wealthy than him in my ability to command nature, which means I have access to much better medical care, communications, and entertainment opportunities than he had.
For one, the classical homo-economimus model of humans as rational utility maximizers is further called into question.
While I wouldn't argue that humans are rational utility maximizers, this result doesn't call that into question in and of itself: there could easily be utility functions which depend on relative status or position, rather than absolute material wealth.
While I wouldn't argue that humans are rational utility maximizers, this result doesn't call that into question in and of itself: there could easily be utility functions which depend on relative status or position, rather than absolute material wealth.
or:
make $100k, spend $85k = happiness
make $100k, spend $101k = misery
make $100k, spend $85k = happiness
make $100k, spend $101k = misery
The spend side is highly dependent on those around you.
Make $100k while your neighbors make $75k - rent is $800/month.
Make $100k while your neighbors make $125k - rent is $1500/month.
Make $100k while your neighbors make $75k - rent is $800/month.
Make $100k while your neighbors make $125k - rent is $1500/month.
This is true for way more than rent, too. Gas is another obvious one, but it's still just scratching the surface — prices for a huge range of things rise subtly (or not so subtly) in more affluent areas.
Anyone who lives within their means suffers from a lack of imagination.
-Oscar Wilde
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What surprises me is that there seems to be no upper limit for lifestyle expenses. To me it seems certain lifestyle choices are more of a liability than a bonus. A bigger house needs more cleaning, a cleaning lady, probably also a gardener. More cars require more maintenance, parking space, taxes. Yachts, OK, I don't know - they require personnel, but maybe they are nice to have. Then again, probably it is possible to rent them for the odd occasion?
I think from a certain comparatively low threshold, my worry would be how to use my money to make the world a better place, not how to get a even more luxurious lifestyle.
I think from a certain comparatively low threshold, my worry would be how to use my money to make the world a better place, not how to get a even more luxurious lifestyle.
> I think from a certain comparatively low threshold, my worry would be how to use my money to make the world a better place, not how to get a even more luxurious lifestyle.
I expect many people feel this way, at all income levels. The point is that the "comparatively low threshold" varies depending on your current income - the more income you have, the higher your threshold becomes.
"If I had a little more, I'd give."
"I have a little, so I give." (widow's mite)
kb
I expect many people feel this way, at all income levels. The point is that the "comparatively low threshold" varies depending on your current income - the more income you have, the higher your threshold becomes.
"If I had a little more, I'd give."
"I have a little, so I give." (widow's mite)
kb
Agreed, the margin does not grow much bigger the more you make, if you made one graph for income and one for expenses.
Or, to widen the perspective, why doesn't an American making $30,000 feel rich when he is above the 90% percentile for the world?
(And he feels wretchedly poor because he has to have a roommate and use public transportation.)
This is just a tangent, but I wonder whether Robert Gibbs really quit at least partly because his salary was too low. (That’s what Obama’s remark about his departure seems to suggest.)
I don’t think you become Press Secretary of the White House because of the salary, you become Press Secretary because you are passionate about it. (For all you cynics out there: replace “passionate about it” with “power hungry”.)
You certainly don’t have to feel ashamed or poor at cocktail parties if you are the Press Secretary of the White House, I would much rather suspect that you don’t actually have time to go to any cocktail parties and that that could be the much larger problem.
Press Secretary is not a job you have forever (eight years seem like the natural maximum) and I’m certain that you have great chances of landing a highly paid job after that.
I don’t think you become Press Secretary of the White House because of the salary, you become Press Secretary because you are passionate about it. (For all you cynics out there: replace “passionate about it” with “power hungry”.)
You certainly don’t have to feel ashamed or poor at cocktail parties if you are the Press Secretary of the White House, I would much rather suspect that you don’t actually have time to go to any cocktail parties and that that could be the much larger problem.
Press Secretary is not a job you have forever (eight years seem like the natural maximum) and I’m certain that you have great chances of landing a highly paid job after that.
As you point out: while it wouldn't be prudent to go into politics for the direct money, the modern reality is that politics is a route to a staggering amount of future money. Not unlike paying vast sums to go to an Ivy League school; not because the education is so much better, but because future opportunities will be.
In that light, I don't see a huge line between his decision to 'cash-out' at this particular point in time and the statement 'because his salary was too low'.
In that light, I don't see a huge line between his decision to 'cash-out' at this particular point in time and the statement 'because his salary was too low'.
I like that angle. Four years as communications director of one of the most spectacular presidential campaigns of all times, two years as White House Press Secretary, that certainly opens a lot of doors (and should definitely land him a book deal).
It’s certainly understandable that when you then feel burnt out after six years of stress the thought of leaving must be very attractive. It’s still a bit strange that Obama makes a reference to his modest compensation.
It’s certainly understandable that when you then feel burnt out after six years of stress the thought of leaving must be very attractive. It’s still a bit strange that Obama makes a reference to his modest compensation.
I've got to imagine he's adjusting expectations and trying to frame the conversation before the likely stories about how much Gibbs is going to make in the private sector.
After Peter Orszag's move to the private sector generated a non-trivial brouhaha, it'd be more surprising if he didn't.
After Peter Orszag's move to the private sector generated a non-trivial brouhaha, it'd be more surprising if he didn't.
That's simply a cover. No way he quit because of a salary issue. On top of that, no way he would have felt ashamed or poor at a cocktail party. I mean, he is directly speaking to the POTUS - likely daily. Many very rich people don't even have that luxury.
Exactly.. At least the last 3 or 4 White House Press Secretaries made that same salary "joke" upon leaving the position and returning back to their high paying private sector media jobs.
Yeah, but more notably, they all left after a couple years. I think it's a pretty high stress job, and leaving is probably more about the stress than the salary. It just manifests itself as "I'm not getting paid enough for this shit".
More cynically, to the extent that ex-press secretaries' private sector value derives from their access to those in power, they're worth more while their crew is still in office.
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The amount of money I have left over at the end of the month makes a much bigger difference in whether I feel rich than the number on my paycheck. But, we're trained and encouraged by our culture to spend up to and beyond our means no matter what our income. Even the "responsible" rules of thumb like buying a house for 3x annual income or having debt payments of 40% of income encourage us to increase our expenses as our incomes increase.
It's easy to see why somebody making $200,000 wouldn't feel rich if they own a $600,000 house. Their mortgage costs almost $50,000/year! Design your life to maximize the money in your pocket and you'll feel much richer.
It's easy to see why somebody making $200,000 wouldn't feel rich if they own a $600,000 house. Their mortgage costs almost $50,000/year! Design your life to maximize the money in your pocket and you'll feel much richer.
I think it has to do with a lack of a broader education and spiritualism that most people are devoid of.
Because they don't know any better, money becomes a hammer, and every problem looks like a nail.
Because they don't know any better, money becomes a hammer, and every problem looks like a nail.
Excellent article. Thank you for sharing.
The reality of this phenomenon is that people who have done everything "perfectly" in their life and academic career feel a bit cheated when their income tops out in between 100k and 200k. They might be senior engineers or doctors or lawyers but they've hit this brick wall as far as income, sometimes in their 30s and yet there are all these people out there that make more than 10x or even 100x their annual income.
Now there are four ways that I am aware of to make more than about 200k/year.
1. Be an investor/entrepreneur in your own company.
2. Have stock in a company that IPOs or get bought.
3. Work in high finance at a well performing hedge fund or a maor wall street firm.
4. Be a senior partner in a major law firm or an experienced surgeon in an in-demand specialty. Though you'll still top out at about 500k, at least according to glassdoor.com.
Did I miss any?
Now there are four ways that I am aware of to make more than about 200k/year.
1. Be an investor/entrepreneur in your own company.
2. Have stock in a company that IPOs or get bought.
3. Work in high finance at a well performing hedge fund or a maor wall street firm.
4. Be a senior partner in a major law firm or an experienced surgeon in an in-demand specialty. Though you'll still top out at about 500k, at least according to glassdoor.com.
Did I miss any?
> and yet there are all these people out there that make more than 10x or even 100x their annual income
Where by "all these people" we mean an extremely small fraction of the population. If I think about things honestly, I'm paid more than almost everyone I interact with regularly. Many of these people aren't lazy or stupid or dropout or what-have-you. They also went to good schools and got good grades and are excellent at what they do; but it turns out that the "brick wall" in their field is a fraction of what it is in the tech industry. So, yes, I know a few people making more than I do, mostly in jobs I don't want to do, with working hours I wouldn't tolerate; but I'm not feeling too sorry for myself.
Where by "all these people" we mean an extremely small fraction of the population. If I think about things honestly, I'm paid more than almost everyone I interact with regularly. Many of these people aren't lazy or stupid or dropout or what-have-you. They also went to good schools and got good grades and are excellent at what they do; but it turns out that the "brick wall" in their field is a fraction of what it is in the tech industry. So, yes, I know a few people making more than I do, mostly in jobs I don't want to do, with working hours I wouldn't tolerate; but I'm not feeling too sorry for myself.
The average person can probably name more movie stars than high school classmates. It's really easy to hit a number that 'primitive-monkey-brain' starts treating as 'many'. Reasoned reflection will reveal how silly that is, but we get to deal with primitive monkey brains with Dunbar numbers full of incredibly rich people, and things like math are very low on the method resolution chain.
And a good fraction - maybe 20-25% - of the people I interact with have more money than I can contemplate. I work with a fairly large number of pre-IPO Googlers, plus here in Silicon Valley, you're always running into people that sold their company for $20M and are starting a new one.
I think that was the point of the article. If you actually get close to the brick wall in your profession, you'll meet people who've gotten past it. And suddenly, what seems like an enormous amount of money is just the tip of the iceberg, and you're left wondering what these people have that you don't.
I think that was the point of the article. If you actually get close to the brick wall in your profession, you'll meet people who've gotten past it. And suddenly, what seems like an enormous amount of money is just the tip of the iceberg, and you're left wondering what these people have that you don't.
I was going to make a related point. To get into the $100K-200K range, all you need is hard work. Study in school, do well on your standardized tests, get into a good college, pay attention to salaries when choosing your major, show up for on-campus interviews, and do your job well when you're hired. It's not hard to be making six figures a few years after graduation on this plan.
But to break the 99th percentile - I think that was $342K/year for 99.5th percentile of single filers - you need to take on some risk. Like forgoing your income for a few years to found a company. Or taking on a lower salary and the risk that you'll be laid off in a year and getting a job at a startup. Or putting up your own money to invest in one. Or taking on high-visibility, high-impact projects that may fail - often at the cost of your regular duties - within your day job.
For people whose whole life has been a steady upwards progression, risk is scary. It often looks impossible. And so they're stuck at a point in life where they know people who have vastly more money than them, but they don't understand how or are unwilling to achieve that.
But to break the 99th percentile - I think that was $342K/year for 99.5th percentile of single filers - you need to take on some risk. Like forgoing your income for a few years to found a company. Or taking on a lower salary and the risk that you'll be laid off in a year and getting a job at a startup. Or putting up your own money to invest in one. Or taking on high-visibility, high-impact projects that may fail - often at the cost of your regular duties - within your day job.
For people whose whole life has been a steady upwards progression, risk is scary. It often looks impossible. And so they're stuck at a point in life where they know people who have vastly more money than them, but they don't understand how or are unwilling to achieve that.
Purely anecdotal, but many such risk-takers that I have known were able to mitigate their risk because of familial support mechanisms. Which is to say that while a certain amount of hard work and courage is crucial, it doesn't hurt to have rich parents.
>> mitigate their risk because of familial support mechanisms
Or society support mechanisms - many ppl in say Scandinavia use the two or more years of high unemployment benefits to start a business risk-free. Actually in Norway, to stimulate entrepreneurship, they would pay those benefits for the 1st six month of new company operation (to the owner).
Or society support mechanisms - many ppl in say Scandinavia use the two or more years of high unemployment benefits to start a business risk-free. Actually in Norway, to stimulate entrepreneurship, they would pay those benefits for the 1st six month of new company operation (to the owner).
"I think that was $342K/year for 99.5th percentile of single filers - you need to take on some risk"
I don't think this is true - all the traditional "low risk" professions have this ability: doctors, dentists, lawyers, investment bankers and fund managers. $300k+ is not unusual for a mid-level person in these industries. Senior people in these industries will hit $1m+ pretty easily without having taken on any significant personal risk. A lawyer 3-4 years out from law school in a large firm is going to be sitting on $200k+ already.
I don't think this is true - all the traditional "low risk" professions have this ability: doctors, dentists, lawyers, investment bankers and fund managers. $300k+ is not unusual for a mid-level person in these industries. Senior people in these industries will hit $1m+ pretty easily without having taken on any significant personal risk. A lawyer 3-4 years out from law school in a large firm is going to be sitting on $200k+ already.
Do you think mid-level doctors, lawyers, bankers don't take risks on their job?
Yes, in the financial context they have a low risk profession. They can have greater than 90% confidence that if they do the same thing they did the previous year (likely, working very hard at a task they are very skilled in), that they will earn about the same amount they earned that year, usually adjusted up for inflation. Do you disagree, or are you using some other definition of risk?
If you don't know much about a given job it looks low risk. But a successful doctor, etc. have taken many risky decisions, with not enough information.
Bearing in mind that we are talking strictly in the financial sense — and not, for example, about risky medical decisions — can you explain what you're talking about further? What major risky investments do doctors make on a regular basis?
1. "But to break the 99th percentile - I think that was $342K/year for 99.5th percentile of single filers - you need to take on some risk. Like ... taking on high-visibility, high-impact projects that may fail - often at the cost of your regular duties - within your day job."
This is the OP.
2. Taking a bad important medical decision will have bad financial consequences - lower reputation, not so good references, patient complains leading to big losses of time - lower income in the future. Also there's stuff like which team do you join, what new technical skills do you get, which part of the world you work in. You take a lot of risk, you can expect higher rewards on success.
This is the OP.
2. Taking a bad important medical decision will have bad financial consequences - lower reputation, not so good references, patient complains leading to big losses of time - lower income in the future. Also there's stuff like which team do you join, what new technical skills do you get, which part of the world you work in. You take a lot of risk, you can expect higher rewards on success.
Personal risk, yes. Malpractice is covered by insurance. Bankers risk their clients' money, not their own (for the most part). As long as they perform their job competently, there is little risk compared to an entrepreneur who has had to quit their job and invest their personal funds into their venture.
Really? How about the risk, that one won't be able to complete his degree, after investing a lot of money and time? Or that he'll make a mistake, which will get him blacklisted from good jobs.
One knows all the risks involved in his job, and few in other's jobs.
One knows all the risks involved in his job, and few in other's jobs.
Major league athlete, regular on a TV show or star in movies, former press secretary/lobbyist, best-selling author, multi-hit-album singer/band, music mogul/producer, real-estate agent in an expensive area.
I bet there are 100s of jobs where the top salaries are over two million. There are very few who can get them, though.
I bet there are 100s of jobs where the top salaries are over two million. There are very few who can get them, though.
Most of those that you mentioned are very high risk fields, where you don't get a salary - you may hit it big for a few years, but very few athletes/artists/actors/etc have consistent long-term multi-million dollar years. Many are essentially entrepreneurs.
The problem with a high earning career as a professional athlete, is that you have to average their salary over their lifetime, and their earnings drop really fast after they hit their mid thirties.
> About one in five of us is retired. About two-thirds of us who are working are self-employed. Interestingly, self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires. Also, three out of four of us who are self-employed consider ourselves to be entrepreneurs. Most of the others are self-employed professionals, such as doctors and accountants.
Many of the types of businesses we are in could be classified as dull-normal. We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors.
"The Millionaire Next Door"
http://www.bookbrowse.com/excerpts/index.cfm?book_number=242...
Many of the types of businesses we are in could be classified as dull-normal. We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors.
"The Millionaire Next Door"
http://www.bookbrowse.com/excerpts/index.cfm?book_number=242...
200k isn't that hard. Just go into management. You don't even need to be that high in a big company (even located in a low income region) to pass 200k.
I live in Madison WI. 200K is C-suite territory around here for a mid-sized company. An exec at one of the huge insurance companies or biotech companies make more but that not typical. We have an Amazon affiliate here and mid-level managers make around $80-100K I think. I highly doubt their Chief Architects make more than 200K. 200K for mid-level management in the Midwest (outside Chicago) is unrealistic for sure.
Well, that's bizarre then because the place I was in was a very depressed salary zone and a company with a (well deserved) reputation for underpaying even for their salary zone. And with any managers I've discussed this with, while never disclosing their salaries to me, have never been surprised.
Anyone care to explain the down vote here? I worked at a large company in the midwest (very low pay compared to more populated areas) and a manager of managers (of workers, i.e. just 1 step above team manager) was making $240k/yr. That was 10 years ago. I doubt compensation has gone down.
5. Become a high-level executive of a large or extremely profitable company.
Obviously there's a small number of people for whom this will happen but I'm pretty sure most corporate execs make >$200k
Obviously there's a small number of people for whom this will happen but I'm pretty sure most corporate execs make >$200k
As far as I can see, the best ways to become this is are: (a) be an early employee of a company that grows large enough; (b) get your own company acquired (a subset of case 1); (c) meet the right people early on, especially at a young age; and (d) act entrepreneurially within an existing organization's management, which, depending on the health of the organization, may entail more political talent than productive talent.
That list might be how people assume it happens, but it doesn't reflect reality.
Most early employees never make it anywhere near management if they weren't management employees to begin with (and with venture-funded companies, those usually get replaced; Steve Blank wrote about this I think). Ditto for getting your company acquired (how many acquired YC alumni ended up quitting right after acquisition? something like 99%?). Meeting the right people also doesn't have as much to do with it as you'd suspect - a lot of CxOs are found through searches, and may come from companies in a completely different sector of the economy. As for entrepreneurial drive, that's the reason we're all here reading HN instead of being content with working for an "entrepreneurial" manager.
I recommend reading Sharon Voros' The Road to CEO - it describes the typical public company's executive officers' background pretty well. The basic idea is you have to work your way up the management chain of command and build up a solid resume (spending time at a prominent business consulting shop apparently can act as a short-cut for this). Personal qualities related to making good first impressions seem really important at the high level - the author spends a couple of chapters on things related to grooming and appearance. I don't run in CxO circles, but that seems an accurate impression from the senior management people I've encountered.
Bottom line seems to be you need to get into management and work and charm your way up.
Most early employees never make it anywhere near management if they weren't management employees to begin with (and with venture-funded companies, those usually get replaced; Steve Blank wrote about this I think). Ditto for getting your company acquired (how many acquired YC alumni ended up quitting right after acquisition? something like 99%?). Meeting the right people also doesn't have as much to do with it as you'd suspect - a lot of CxOs are found through searches, and may come from companies in a completely different sector of the economy. As for entrepreneurial drive, that's the reason we're all here reading HN instead of being content with working for an "entrepreneurial" manager.
I recommend reading Sharon Voros' The Road to CEO - it describes the typical public company's executive officers' background pretty well. The basic idea is you have to work your way up the management chain of command and build up a solid resume (spending time at a prominent business consulting shop apparently can act as a short-cut for this). Personal qualities related to making good first impressions seem really important at the high level - the author spends a couple of chapters on things related to grooming and appearance. I don't run in CxO circles, but that seems an accurate impression from the senior management people I've encountered.
Bottom line seems to be you need to get into management and work and charm your way up.
It's true that my impressions are based on all I've known about the backgrounds of execs I've been impressed with, rather than a proper survey / random sampling. Perhaps the 80% come from more mundane middle management backgrounds; I don't have enough data to tell.
CEOs are a good example.
I like that you made a distinction between large and extremely profitable companies, because large companies often still pay their CEOs extreme salaries even when performance falters.
Case in point, Robert Nardelli at Home Depot made $123.7 million, excluding stock option grants, over 5 years from 2002 to 2007, while the company's stock price faltered. He was essentially fired and still got a severance package of $210 million. (http://en.wikipedia.org/wiki/The_Home_Depot)
Dick Grasso is another that comes to mind.
I like that you made a distinction between large and extremely profitable companies, because large companies often still pay their CEOs extreme salaries even when performance falters.
Case in point, Robert Nardelli at Home Depot made $123.7 million, excluding stock option grants, over 5 years from 2002 to 2007, while the company's stock price faltered. He was essentially fired and still got a severance package of $210 million. (http://en.wikipedia.org/wiki/The_Home_Depot)
Dick Grasso is another that comes to mind.
The obvious lesson here is if you spend your time feeling jealous of those who are doing better than you, you'll never be satisfied.
5. Become a top developer at a big software company.
(A variation on 3. You probably won't earn $100 million, but you could definitely earn $1 million. )
6. Become a top performer in entertainment (music, sports, movies).
A fun fact ignored by most people: it isn't just CEO pay that has skyrocketed over the years. Alex Rodrieguez gets $33 million/year, at his peak Babe Ruth got (inflation adjusted) $1.1 million.
(A variation on 3. You probably won't earn $100 million, but you could definitely earn $1 million. )
6. Become a top performer in entertainment (music, sports, movies).
A fun fact ignored by most people: it isn't just CEO pay that has skyrocketed over the years. Alex Rodrieguez gets $33 million/year, at his peak Babe Ruth got (inflation adjusted) $1.1 million.
5. Become a top developer at a big software company.
(A variation on 3. You probably won't earn $100 million, but you could definitely earn $1 million. )
6. Become a top performer in entertainment (music, sports, movies).
A fun fact ignored by most people: it isn't just CEO pay that has skyrocketed over the years. Alex Rodrieguez gets $33 million/year, at his peak Babe Ruth got (inflation adjusted) $1.1 million.
Do you mean $1 million/year as a software developer? Details, please!
http://www.businessinsider.com/google-engineer-gets-6-millio...
I seriously doubt Google is paying him 30x his yearly salary not to jump ship for Facebook.
I also happen to know a few cases of million dollar quants being poached from financial companies to software companies (specifically IBM, MS, and a couple of smaller companies I'd probably do better not to mention by name).
http://www.businessinsider.com/google-engineer-gets-6-millio...
I seriously doubt Google is paying him 30x his yearly salary not to jump ship for Facebook.
I also happen to know a few cases of million dollar quants being poached from financial companies to software companies (specifically IBM, MS, and a couple of smaller companies I'd probably do better not to mention by name).
>A fun fact ignored by most people
People aren't ignoring it. The two things aren't related to each other. Alex Rodrieguez makes so much money because tickets to see him play cost so much (especially compared to what it cost to see Babe Ruth).
For the situation to be the same Rodrieguez would need to be making the same as Ruth (inflation adjusted) but the managers to be making 100+ times more money.
What's actually happened is prices have gone up. The difference you see is that certain professions have much better representation to ensure they get their share of the increased profits.
EDIT: A bit of point clarification.
People aren't ignoring it. The two things aren't related to each other. Alex Rodrieguez makes so much money because tickets to see him play cost so much (especially compared to what it cost to see Babe Ruth).
For the situation to be the same Rodrieguez would need to be making the same as Ruth (inflation adjusted) but the managers to be making 100+ times more money.
What's actually happened is prices have gone up. The difference you see is that certain professions have much better representation to ensure they get their share of the increased profits.
EDIT: A bit of point clarification.
Alex Rodrieguez makes so much money because tickets to see him play cost so much (especially compared to what it cost to see Babe Ruth).
Sorry, this theory is wrong.
Looking at http://eh.net/encyclopedia/article/haupert.mlb the average price of baseball tickets has, after adjustment for inflation, not changed very much.
What has changed is the value of the income from TV. Even so, the revenue for players has risen faster than the income from TV.
Another factor, not shown, is the size of the audience.
However even if you add all that together, I believe that salaries have still gone up by more than revenue. And I attribute that to the rise of free agents.
Sorry, this theory is wrong.
Looking at http://eh.net/encyclopedia/article/haupert.mlb the average price of baseball tickets has, after adjustment for inflation, not changed very much.
What has changed is the value of the income from TV. Even so, the revenue for players has risen faster than the income from TV.
Another factor, not shown, is the size of the audience.
However even if you add all that together, I believe that salaries have still gone up by more than revenue. And I attribute that to the rise of free agents.
>Looking at http://eh.net/encyclopedia/article/haupert.mlb the average price of baseball tickets has, after adjustment for inflation, not changed very much.
>What has changed is the value of the income from TV.
And as mentioned by another commenter, merchandise and so on. Even if what you're saying were true that players have a larger percentage of the overall pie that their team makes (I don't believe this for a second without a lot more analysis) that could indicate that they were under-compensated before and are now getting a fairer share. Perhaps because of unions, perhaps because of (as you mention) free agents.
>What has changed is the value of the income from TV.
And as mentioned by another commenter, merchandise and so on. Even if what you're saying were true that players have a larger percentage of the overall pie that their team makes (I don't believe this for a second without a lot more analysis) that could indicate that they were under-compensated before and are now getting a fairer share. Perhaps because of unions, perhaps because of (as you mention) free agents.
Not only have prices gone up, but exposure and merchandise etc (for the team) have increased in modern times, leading to more money as a whole for the team, and therefore star players.
The theme of all four of those methods of breaking from the 200-300K/yr income level is: leverage other people to work on your behalf. The most direct way to do that is to start a business. A slightly less direct way is to invest in existing businesses.
Yes, I think you probably missed a lot. I suspect there is a long tail of jobs with > $200k salaries. For example:
"The median income for public-university presidents in the 2007-08 academic year was $427,400. The average head of a private university* took home about $100,000 more." [1]
And that's old data.
[1] http://images.businessweek.com/ss/09/02/0216_college_pres/1....
"The median income for public-university presidents in the 2007-08 academic year was $427,400. The average head of a private university* took home about $100,000 more." [1]
And that's old data.
[1] http://images.businessweek.com/ss/09/02/0216_college_pres/1....
#1 is a huge open field. You can live almost anywhere and not pay a lot in education and accomplish #1. Not that it's easy. It takes a lot of work and some talent and some luck, but there isn't the educational entry costs of #3 and #4.
Be in sales. This will have some overlap with your other ways.
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I think that's most of it, but there's also sales commission on huge projects.
I posted the article here and I find that many comments are missing the point. Catherine Rampell writes that the exponential growth of the global wealth for the super-rich oligarchy, especially in the last decades made the comparison with them so much more difficult. This all at the backdrop of the devastating recession that thrown many productive people into the object poverty. I might add that the media and the internet is full of the ubiquitous stories about the super-rich so they are at the same time everyone's neighbor and no ones neighbor.
That makes a nice, pandering story, but it's really a very very complex.
There's some truth in the idea that the rich get richer, faster than the rest of us. But today, in a practical sense, what does it mean for someone to have much more money than I do?
And what causes it? It's certainly not that some plutocracy is holding our heads below water, as much some people like to paint that picture.
I'd encourage you to read this article, which has a pretty insightful analysis of where this inequality originates, and why: http://www.the-american-interest.com/article-bd.cfm?piece=90...
There's some truth in the idea that the rich get richer, faster than the rest of us. But today, in a practical sense, what does it mean for someone to have much more money than I do?
And what causes it? It's certainly not that some plutocracy is holding our heads below water, as much some people like to paint that picture.
I'd encourage you to read this article, which has a pretty insightful analysis of where this inequality originates, and why: http://www.the-american-interest.com/article-bd.cfm?piece=90...
This article wonders why the rich are getting richer and the answer is compound interest.
Having $1 million in the bank will reliably generate between $25k and $50k per year.
Having $2 million in the bank will reliably generate between $50k and $100k per year.
Having $3 million in the bank will reliably generate between $100k and $150k per year.
So someone with $3 million in savings and still working their 200k job will be making nearly the same amount as their savings is generating. If they keep working and don't spend their principle, they'll have another million in about 5-6 years.
For someone putting 30k away each year in savings, it will take them decades to reach the first $1 million.
This is why the rich get richer. It's not about salary. It's about savings and investment.
Having $1 million in the bank will reliably generate between $25k and $50k per year.
Having $2 million in the bank will reliably generate between $50k and $100k per year.
Having $3 million in the bank will reliably generate between $100k and $150k per year.
So someone with $3 million in savings and still working their 200k job will be making nearly the same amount as their savings is generating. If they keep working and don't spend their principle, they'll have another million in about 5-6 years.
For someone putting 30k away each year in savings, it will take them decades to reach the first $1 million.
This is why the rich get richer. It's not about salary. It's about savings and investment.
Nooooo. When they talk about the rich getting richer, they aren't talking about a particular person getting richer. In that respect, we are nearly all (well at least those with good middle-class jobs) getting richer - we get pay rises, we save, we make investments etc.
But that phrase is actually talking about the type of comparison where you have a look at, say, the top 1% of earners, and compare their income to the bottom 50%. We see that the ratio of the average earnings of the two groups is swaying to in favour of the top 1%. That is not nearly such an obvious result. Rich people die, they split up their fortune to give to their children, which should help level things out, but no, we still see that segment of society getting steadily richer faster than anyone else.
Another way of looking at it would be to compare velocity to acceleration. You are talking about the rich having a bigger velocity increase for the same acceleration increase, which is true. But the phrase "the rich are getting richer" is actually talking about the fact that the acceleration is actually higher for the rich - they can get a 10% increase in wealth per year, were as a middle-class person might only get 3% for their tiny investment.
But that phrase is actually talking about the type of comparison where you have a look at, say, the top 1% of earners, and compare their income to the bottom 50%. We see that the ratio of the average earnings of the two groups is swaying to in favour of the top 1%. That is not nearly such an obvious result. Rich people die, they split up their fortune to give to their children, which should help level things out, but no, we still see that segment of society getting steadily richer faster than anyone else.
Another way of looking at it would be to compare velocity to acceleration. You are talking about the rich having a bigger velocity increase for the same acceleration increase, which is true. But the phrase "the rich are getting richer" is actually talking about the fact that the acceleration is actually higher for the rich - they can get a 10% increase in wealth per year, were as a middle-class person might only get 3% for their tiny investment.
You're glossing over a lot there.
* No, there aren't zero-risk places you can earn 5%. * If you make 2.5%/yr on interest and spend it instead of adding it to the principal, your wealth is actually declining (average inflation 2000-2009 was 2.56%). And your 3-millionaire will actually get their 4th million in about 10 years (15% cap gains tax), at which time inflation will have done it's work nicely, wiping out most/all of the gain.
That said, you're absolutely right that the rich get richer because of savings and investment. Millions in savings can be invested in a lot of different ways that can outpace inflation (though nowadays, there's a bit more risk in the old standbys like the stock market and real estate).
* No, there aren't zero-risk places you can earn 5%. * If you make 2.5%/yr on interest and spend it instead of adding it to the principal, your wealth is actually declining (average inflation 2000-2009 was 2.56%). And your 3-millionaire will actually get their 4th million in about 10 years (15% cap gains tax), at which time inflation will have done it's work nicely, wiping out most/all of the gain.
That said, you're absolutely right that the rich get richer because of savings and investment. Millions in savings can be invested in a lot of different ways that can outpace inflation (though nowadays, there's a bit more risk in the old standbys like the stock market and real estate).
I know of no such bank offering interest rates even close to that. You're talking 2.5% - 5%. That's unheard of these days. At my current bank, $1M in a money market account would generate about $2,500/year, which is nothing short of insulting. Who are these fabled banks offering 10x the interest rate?
I think your mistake is in assuming that he meant a standard, FDIC-insured savings account by "in the bank." It's not terribly hard to find ~5% dividend yields in the stock market, particularly if you look outside the United States.
Further, in the US, once you have a net worth of a million dollars, you qualify as an accredited investor, opening up a plethora of new investment opportunities to you.[1]
[1] http://en.wikipedia.org/wiki/Accredited_investor
Further, in the US, once you have a net worth of a million dollars, you qualify as an accredited investor, opening up a plethora of new investment opportunities to you.[1]
[1] http://en.wikipedia.org/wiki/Accredited_investor
Just a quick search shows me 2.39% for 100k in a 5 year cd. (I can think of any number of reasons you might not want to do this.)
I'm guessing for a million you could do better.
Perhaps you'd only be at the lower bound of the numbers I gave but the point still stands that compound interest is what is making the rich richer.
I'm guessing for a million you could do better.
Perhaps you'd only be at the lower bound of the numbers I gave but the point still stands that compound interest is what is making the rich richer.
ING Direct gives you 110bps, 125bps fixed rate if you are willing to tie up your money for at least 2 years. Several other internet-only banks will do the same. As for 250-500bps, I have no clue where to get that. Maybe he meant you can get 5% with a S&P ETF?
Before the subprime crash in 2007, interest rates were well in that range. I had an ING savings account(regular savings account, not a CD) with a rate that was earning me $7 per day, as opposed to now in which I get maybe $2 per month.
Yeah, I know, interest rate used to be good. I used to get 5% on my emigrant direct savings account. Now it's 1%, and I don't know of anything higher (for a money market account anywys)
> Who are these fabled banks offering 10x the interest rate?
As usual it depends on country. In Australia the standard savings rate is around 4% at the moment. I can go to my bank and get 6.2% PA term deposits on a 7 month term.
As usual it depends on country. In Australia the standard savings rate is around 4% at the moment. I can go to my bank and get 6.2% PA term deposits on a 7 month term.
Indeed, (relatively) risk-free interest rates available for modest amounts of money currently do not exceed the rate of inflation; money in the bank is money declining in value.
California state bonds are in this vicinity. Rates of return vary. Tax-exempt.
a close friend just put away ~$2.5M for a year and is only getting 1.25%. They're more concerned with stability/low risk than growth.
People only look up when it comes to wealth, everyone who makes less money than you might as well not exist.
I read an article once about what well-off people (net worth in excess of $5 million) consider to be rich. The consensus was about $50 million liquid net worth- Basically the point where you can realistically consider owning private jets and yachts so there isn't any shit to be jealous of your neighbors about anymore (except maybe a bigger yacht).
I read an article once about what well-off people (net worth in excess of $5 million) consider to be rich. The consensus was about $50 million liquid net worth- Basically the point where you can realistically consider owning private jets and yachts so there isn't any shit to be jealous of your neighbors about anymore (except maybe a bigger yacht).
I think you are only really "rich" when you are making a decent (e.g. middle/upper middle-class) monthly salary without even (theoretically) setting a foot out of bed, ever.
Given the complete freedom to do a lot of things in your life without ever HAVING to participate in the rat race of daily work has got to be the ultimate freedom and should be the bar for "rich" for me.
Everyone below that is more or less well off.
Given the complete freedom to do a lot of things in your life without ever HAVING to participate in the rat race of daily work has got to be the ultimate freedom and should be the bar for "rich" for me.
Everyone below that is more or less well off.
You are confusing 'rich' with 'idle rich'.
No, it's not that you do do that, it's that you have the option.
Spend one week in India and you will feel like a Billionaire for the rest of your life.
A lot of people from india work in the west, send that money back home to have a mansion (servants and everything) and live like a billionaire for the rest of their life (well, presumably. I obviously don't know any that have done this and died of old age yet).
I'll save you reading the article and summarize it in 1 sentence: income distribution is exponential, so rich neighborhoods can have significantly (relatively) richer/poorer residents, while poor neighborhoods all make relatively the same.
There's definitely a middle ground though. Being poor sucks...bad. Not because you can't the things you want, but because you can't get the things you desperately need (and I mean things in the physical sense).
I remember reading various studies a few years ago (sorry, can't find them now) showing folks who make 40-50k/yr in the U.S. tend to be the most satisfied with life. With inflation that's probably more like 60-70k (and possibly more for the Bay Area and NYC), but the point stands. You can cover most life needs with that and have a little left over for indulgences. But not so much that you get caught up in material wants.
Also I noticed many people with money who are unhappy, tend to be unhappy because of the social isolation that brings. As it turns out, human interaction is something we need, and also happens to be very cheap/efficient in most cases.
I remember reading various studies a few years ago (sorry, can't find them now) showing folks who make 40-50k/yr in the U.S. tend to be the most satisfied with life. With inflation that's probably more like 60-70k (and possibly more for the Bay Area and NYC), but the point stands. You can cover most life needs with that and have a little left over for indulgences. But not so much that you get caught up in material wants.
Also I noticed many people with money who are unhappy, tend to be unhappy because of the social isolation that brings. As it turns out, human interaction is something we need, and also happens to be very cheap/efficient in most cases.
Agree especially to the last line. Being the only person in my group of friends in the 60-70K category while they're in the sub 40K category keeps me on a college budget. Cheap dates, happy hour, home cooking, take-out, etc.
It must be tough to have a smaller yacht than your friends.
$172,000 per year is not a yacht level income. It's a good salary (some might say great), but you're not going to have a mansion and a yacht.
That depends on what you mean by "mansion" and "yacht." Outside of NYC and the Bay Area you can definitely afford a mortgage on a nice house, two good cars, and a decent-sized sailboat and manage to feed a family of four on that income (assuming you don't send the kids to private school).
I was looking at ads for places today, and happened across this listing:
http://montreal.kijiji.ca/c-housing-house-rental-ST-COLOMBAN...
Small mansion 1 hour commuting distance from Montreal, $400,000
Let's look at craigslist:
http://montreal.en.craigslist.ca/boa/2116842083.html
35' cruising yacht, good condition, $49,000
This is certainly doable on $172,000
http://montreal.kijiji.ca/c-housing-house-rental-ST-COLOMBAN...
Small mansion 1 hour commuting distance from Montreal, $400,000
Let's look at craigslist:
http://montreal.en.craigslist.ca/boa/2116842083.html
35' cruising yacht, good condition, $49,000
This is certainly doable on $172,000
Reminds me of the Chicago professor who was complaining about repealing the tax breaks for "rich" people[1] (his household income was in the 250k range). As a bunch of commentators pointed out he felt like he was just scraping by because he was attempting to live the life of someone earning 350k+ not the life of someone earning 150k+.
A growing trend is how quickly the income of those at the top is increasing relative to those at the bottom[2] and the disconnect this brings[3]. At what point does someone earning minimum wage stop and think "How exactly is someone working in a hedge fun worth tens of thousands of me in yearly salary alone?". Would they push for legislative solutions? Can you even use something as blunt as the tax code for this?
[1] His blog posts were taken down but you can see commentary: http://www.huffingtonpost.com/2010/09/21/todd-henderson-rich... http://www.theatlantic.com/national/archive/2010/09/in-defen... [2]http://www.forbes.com/2008/04/30/ceo-pay-historic-lead-bestb... - for reference $1 in 1989 is worth around $1.70 now so inflation does not account for a near 6x increase. [3]http://www.theatlantic.com/magazine/archive/2011/01/the-rise...
A growing trend is how quickly the income of those at the top is increasing relative to those at the bottom[2] and the disconnect this brings[3]. At what point does someone earning minimum wage stop and think "How exactly is someone working in a hedge fun worth tens of thousands of me in yearly salary alone?". Would they push for legislative solutions? Can you even use something as blunt as the tax code for this?
[1] His blog posts were taken down but you can see commentary: http://www.huffingtonpost.com/2010/09/21/todd-henderson-rich... http://www.theatlantic.com/national/archive/2010/09/in-defen... [2]http://www.forbes.com/2008/04/30/ceo-pay-historic-lead-bestb... - for reference $1 in 1989 is worth around $1.70 now so inflation does not account for a near 6x increase. [3]http://www.theatlantic.com/magazine/archive/2011/01/the-rise...
Minimum wage for a year is approximately $10k. Ten thousand times that is $100MM. Hedge Fund salaries are not of that order - topping out at $10MM. I agree that Hedge Fund bonuses can be large, but as far as the fixed salary component goes, the person on minimum wage in your example is misinformed.
My idea of being rich is when you don't have to work to maintain your lifestyle (as long as you are happy with that lifestyle--being a miserable homeless person doesn't count). The problem with a majority of high-earners is that they have too many on-going expenses that force them to keep working.
Greed feels like a ladder but is actually a hamster wheel.
People between the 70th and 90th percentiles feel squeezed by a lot of expenses that cost less for those lower on the scale, due to price discrimination, progressive taxation, subsidies, etc. College tuition is a good example. It's high enough to take a big chunk of the income of a 70-90th percentile earner, but it doesn't hurt as much to someone higher (spare change!) or lower (financial aid) on the income scale.
The thing is, if you're of this "I don't have enough" sort of type (or one of its numerous manifestations) it doesn't matter how much you have. You, thus, by your own words, never have enough of anything and your life is much worse off because of that.
If you're poor, you have worries most people can understand but your worries are real to you. If you're rich, you have worries that seem outrageous to most people and your worries are (still) real to you. Hence, you're not any better off in reality, even if you don't have to starve.
Of course you're not any better off because you still think you don't have enough.
And the funny thing is that it you don't have to become rich to have enough. When you're happy with first what you have, then everything is restored to back to 'okay'. And you can still try to get more but you don't have to try to get more.
If you're poor, you have worries most people can understand but your worries are real to you. If you're rich, you have worries that seem outrageous to most people and your worries are (still) real to you. Hence, you're not any better off in reality, even if you don't have to starve.
Of course you're not any better off because you still think you don't have enough.
And the funny thing is that it you don't have to become rich to have enough. When you're happy with first what you have, then everything is restored to back to 'okay'. And you can still try to get more but you don't have to try to get more.
One reason I can imagine that you wouldn't feel rich: because it feels unstable. If you're afraid you're going to lose it all at any moment, you just feel momentarily lucky.
This topic always brings me back to the same place: As a culture, when it comes to the "rich" and the "wealthy" we tend to focus almost exclusively on revenue (income) and assets (stuff). Anyone who looks at a simple income statement and balance sheet knows that there is a lot more to the equation.
If someone makes $500k and spends $500k, not only is their net income $0, they have added nothing to their net worth. Conversely, someone who makes $75k and spends $30k has a positive net income of $45k and adds $45k to their net worth. However, because we don't have nearly as much insight into the income statements and balance sheets of our neighbor, we compare our "income" and "stuff" to their "income" and "stuff" (as opposed to what we really should be comparing which is net income and net worth).
I'm also reminded of a great book by P.T. Barnum called The Art of Money Getting (http://manybooks.net/titles/barnumptetext05barnm10.html). It was published in 1880, but it's amazing how relevant it still is. He tells some great stories about life, money, and wealth. This is one of my favorites:
"I know a gentleman of fortune who says, that when he first began to prosper, his wife would have a new and elegant sofa. "That sofa," he says, "cost me thirty thousand dollars!" When the sofa reached the house, it was found necessary to get chairs to match; then side-boards, carpets and tables "to correspond" with them, and so on through the entire stock of furniture.
When at last it was found that the house itself was quite too small and old-fashioned for the furniture, and a new one was built to correspond with the new purchases; "thus," added my friend, "summing up an outlay of thirty thousand dollars, caused by that single sofa, and saddling on me, in the shape of servants, equipage, and the necessary expenses attendant upon keeping up a fine ’establishment,’ a yearly outlay of eleven thousand dollars, and a tight pinch at that: whereas, ten years ago, we lived with much more real comfort, because with much less care, on as many hundreds.
The truth is," he continued, "that sofa would have brought me to inevitable bankruptcy, had not a most unexampled title to prosperity kept me above it, and had I not checked the natural desire to ’cut a dash’."
If someone makes $500k and spends $500k, not only is their net income $0, they have added nothing to their net worth. Conversely, someone who makes $75k and spends $30k has a positive net income of $45k and adds $45k to their net worth. However, because we don't have nearly as much insight into the income statements and balance sheets of our neighbor, we compare our "income" and "stuff" to their "income" and "stuff" (as opposed to what we really should be comparing which is net income and net worth).
I'm also reminded of a great book by P.T. Barnum called The Art of Money Getting (http://manybooks.net/titles/barnumptetext05barnm10.html). It was published in 1880, but it's amazing how relevant it still is. He tells some great stories about life, money, and wealth. This is one of my favorites:
"I know a gentleman of fortune who says, that when he first began to prosper, his wife would have a new and elegant sofa. "That sofa," he says, "cost me thirty thousand dollars!" When the sofa reached the house, it was found necessary to get chairs to match; then side-boards, carpets and tables "to correspond" with them, and so on through the entire stock of furniture.
When at last it was found that the house itself was quite too small and old-fashioned for the furniture, and a new one was built to correspond with the new purchases; "thus," added my friend, "summing up an outlay of thirty thousand dollars, caused by that single sofa, and saddling on me, in the shape of servants, equipage, and the necessary expenses attendant upon keeping up a fine ’establishment,’ a yearly outlay of eleven thousand dollars, and a tight pinch at that: whereas, ten years ago, we lived with much more real comfort, because with much less care, on as many hundreds.
The truth is," he continued, "that sofa would have brought me to inevitable bankruptcy, had not a most unexampled title to prosperity kept me above it, and had I not checked the natural desire to ’cut a dash’."
I once had an hour long conversation with a stranger at a bar about this. Coincidentally, we were in the same field, hacker. And he told me that coming out of college it's a little bit too easy to just work for the man. Being young and fresh out of college, you really can afford to take risks and be in that small percentile of people that are so much richer. Of course, it's a risk, and you have to take it and put your heart into it.
The argument presented in the article is plausible, but I call it "the guy with the S65 AMG Benz admiring the guy with the Maybach" argument, i.e., the Maybach is a few hundred thousand dollars dearer than the Benz, itself a $200K car. While valid, I think it illustrates the effect of the unhappiness problem rather than the underlying cause.
I call the root of the problem The SimCity Effect.
The SimCity Effect -- as I describe it -- is essentially a real life application of the economic principle of diminishing marginal value, i.e., the more of a given good you gain, the less value you gain from each subsequent good.
I think wealthy peoples' unhappiness with life is due to the far greater decrease in value -- or utility -- they gain each time they move up the ladder than those with lesser means.
This is in turn is caused by a fundamental failure by most people to have a predetermined sense of "satisfaction" or "accomplishment" in life. This is where the SimCity analogy comes to play.
Those of you who grew up playing SimCity probably experienced this phenomenon: you start building a city, eagerly growing larger and larger, with more and better public utilities, education, etc., and your satisfaction curve probably faced an initial upward curve: all things being equal, the goal of SimCity was arguably to build the largest, cleanest, most educated, and high tech city you could manage.
Trouble is, that's a pretty vague goal: what does "large" mean? 1M people? 2M? 10M? In the absence of a clear and defined goal, and no way to "win" the game in the traditional sense, most SimCity builders suffered a very real sense of diminishing marginal value, and thus their satisfaction -- joy with the game, etc. -- decreased as well.
This is not to say that one should set finite goals beyond which we should strive no further, but rather that we should at least set a mental note alerting us to when, in our life, we have obtained our goals, so we can at least breathe a sigh of relief and say "I've done it." Anything beyond that would be a bonus and it would essentially reset our internal "utility" curve accordingly to, perhaps, begin anew. This would certainly explain serial entrepreneurs and the like.
This to me is the real problem with happiness -- or lack thereof -- at the highest echelon of society: it is not unhappiness per se, but rather a lack of satisfaction due to what can be best described as satisfaction desensitization.
Just my 2c.
I call the root of the problem The SimCity Effect.
The SimCity Effect -- as I describe it -- is essentially a real life application of the economic principle of diminishing marginal value, i.e., the more of a given good you gain, the less value you gain from each subsequent good.
I think wealthy peoples' unhappiness with life is due to the far greater decrease in value -- or utility -- they gain each time they move up the ladder than those with lesser means.
This is in turn is caused by a fundamental failure by most people to have a predetermined sense of "satisfaction" or "accomplishment" in life. This is where the SimCity analogy comes to play.
Those of you who grew up playing SimCity probably experienced this phenomenon: you start building a city, eagerly growing larger and larger, with more and better public utilities, education, etc., and your satisfaction curve probably faced an initial upward curve: all things being equal, the goal of SimCity was arguably to build the largest, cleanest, most educated, and high tech city you could manage.
Trouble is, that's a pretty vague goal: what does "large" mean? 1M people? 2M? 10M? In the absence of a clear and defined goal, and no way to "win" the game in the traditional sense, most SimCity builders suffered a very real sense of diminishing marginal value, and thus their satisfaction -- joy with the game, etc. -- decreased as well.
This is not to say that one should set finite goals beyond which we should strive no further, but rather that we should at least set a mental note alerting us to when, in our life, we have obtained our goals, so we can at least breathe a sigh of relief and say "I've done it." Anything beyond that would be a bonus and it would essentially reset our internal "utility" curve accordingly to, perhaps, begin anew. This would certainly explain serial entrepreneurs and the like.
This to me is the real problem with happiness -- or lack thereof -- at the highest echelon of society: it is not unhappiness per se, but rather a lack of satisfaction due to what can be best described as satisfaction desensitization.
Just my 2c.
Sometimes I get jealous of people at work who seem to have nicer things. Then a few days later they start to complain about not having money, and I'm reminded that I don't really need a TV, much less a 52-inch what-have-you. Nor do I need to replace my nearly 20 year old car with something newer just because I can. Or more realistically: I don't need to get a new car because someone else I know bought a Z3.