Millionaires Who Are Frugal When They Don't Have to Be(nytimes.com)
nytimes.com
Millionaires Who Are Frugal When They Don't Have to Be
http://www.nytimes.com/2015/06/06/your-money/skimping-on-the-splurges-even-as-a-millionaire.html
151 comments
I think it really depends on the kind of life you want whether one million is enough to live off. There is this guy, "Mr Money Mustache", that preaches a "frugal" lifestyle as a means of retiring very early with less than a million in the bank. On his blog he talks extensively about this.
In particular, he provides some evidence that it's safe to spend 3-4% of your assets every year, indefinitely, if you invest in index funds. That means that it's enough to safe about 30 times your annual expenses. For me, that would be around 650000 Euros. A million certainly would cover this, and have something left over for extreme crisis.
In particular, he provides some evidence that it's safe to spend 3-4% of your assets every year, indefinitely, if you invest in index funds. That means that it's enough to safe about 30 times your annual expenses. For me, that would be around 650000 Euros. A million certainly would cover this, and have something left over for extreme crisis.
That looks like some blog pushing info products and ebooks...
Yeah, it's not. In fact, I don't see anything for sale at all. Are you looking at the wrong site?
http://www.mrmoneymustache.com
http://www.mrmoneymustache.com
As long as your income is greater than your expenses (which include healthcare and retirement saving) you can absolutely buy a sports car if it makes you happy and it is not your life-goal to retire early.
I think it is nice if you can provide your children some security, but I do not think that your savings have to be at the highest level when you die.
I come from a country where college education is free and healthcare is not capped. I do have to worry about dental care beyond the basics, though.
I think it is nice if you can provide your children some security, but I do not think that your savings have to be at the highest level when you die.
I come from a country where college education is free and healthcare is not capped. I do have to worry about dental care beyond the basics, though.
Without commenting on the goodness/badness of deriving happiness out of a sport car...
If you can buy the thing in cash, out of pocket, without depleting more than half of your liquid savings... sure, why not. If on the other hand you buy on credit, you are making a commitment against future earnings, that are in no way guaranteed to match or surpass current earnings.
More over, if you make and habit of indulging in anything you happen to fancy, you have no guarantee that other frivolous expenses won't come before you actually finish paying this one. However its other (many) flaws that's one point that Kiyosaki's "Rich dad, poor dad" gets absolutely right: A large income is irrelevant if you inflate your lifestyle even more.
If you can buy the thing in cash, out of pocket, without depleting more than half of your liquid savings... sure, why not. If on the other hand you buy on credit, you are making a commitment against future earnings, that are in no way guaranteed to match or surpass current earnings.
More over, if you make and habit of indulging in anything you happen to fancy, you have no guarantee that other frivolous expenses won't come before you actually finish paying this one. However its other (many) flaws that's one point that Kiyosaki's "Rich dad, poor dad" gets absolutely right: A large income is irrelevant if you inflate your lifestyle even more.
Agreed on everything but this line
> it would require the parents to be "cheapskates" and not fund any extracurricular trips like ski vacations and Spring Break parties down in Mexico
One would assume a 'frugal' household knows better than that and would want to pass their value system on to the next generation too. Want to get wasted in Mexico? Find a way to make it happen yourself.
> it would require the parents to be "cheapskates" and not fund any extracurricular trips like ski vacations and Spring Break parties down in Mexico
One would assume a 'frugal' household knows better than that and would want to pass their value system on to the next generation too. Want to get wasted in Mexico? Find a way to make it happen yourself.
I would perceive myself as having done something slightly amiss in raising my kid if they asked me to fund their spring break trip to Mexico. My folks only ever funded my spring break stuff if I was doing something with them. Not the worst thing, since it basically made it so I had to spend spring break with my family, or camping. (Had some great spring break camping trips as a result, though.)
It's laughable to suggest splurging on a 300k Ferrari is irresponsible at $10M < assets < $100M.
Everyone's appetite for risk is different.
If I had $10,000,001.00 in the bank, I personally would not feel secure enough to spend $300k on a car (and also pay all the expensive maintenance that it entails.) Since the car is 3% of my available funds, I'd be constantly hyper paranoid about a stray rock being kicked up by the truck in front of me.
If I had $100 million, the $300k car would feel a little more "disposable". If a runaway shopping cart dings it, I'd just shrug it off and buy another one and donate the imperfect one to my landscape gardener.
On the other hand, Elon Musk bought a $1 million Mclaren F1 after the 1999 zip2 sale netted him ~$20 million. Like I said, everybody's risk profile is different and most people including me do not think he's fiscally irresponsible.
I think the nuance that's getting lost in translation is my idea of "affording" to buy an exotic car. Yes in mathematical terms, $10 million subtracting $300k leaves plenty left over so one can buy without requiring a loan and still be "wealthy."
However, my idea of "afford" also includes the state-of-mind after one pays for it. I'd like the luxury of not giving the super car no more thought than a Toyota Camry. If I'm paranoid about the car, I can't "afford" it no matter what my bank account says. The car is ruling over me instead of the other way around. The cost of ownership is too high (this includes "mental costs"). The threshold isn't "how much money I need to buy the car without a bank loan" but "how much money so that the car feels disposable."
If I had $10,000,001.00 in the bank, I personally would not feel secure enough to spend $300k on a car (and also pay all the expensive maintenance that it entails.) Since the car is 3% of my available funds, I'd be constantly hyper paranoid about a stray rock being kicked up by the truck in front of me.
If I had $100 million, the $300k car would feel a little more "disposable". If a runaway shopping cart dings it, I'd just shrug it off and buy another one and donate the imperfect one to my landscape gardener.
On the other hand, Elon Musk bought a $1 million Mclaren F1 after the 1999 zip2 sale netted him ~$20 million. Like I said, everybody's risk profile is different and most people including me do not think he's fiscally irresponsible.
I think the nuance that's getting lost in translation is my idea of "affording" to buy an exotic car. Yes in mathematical terms, $10 million subtracting $300k leaves plenty left over so one can buy without requiring a loan and still be "wealthy."
However, my idea of "afford" also includes the state-of-mind after one pays for it. I'd like the luxury of not giving the super car no more thought than a Toyota Camry. If I'm paranoid about the car, I can't "afford" it no matter what my bank account says. The car is ruling over me instead of the other way around. The cost of ownership is too high (this includes "mental costs"). The threshold isn't "how much money I need to buy the car without a bank loan" but "how much money so that the car feels disposable."
I get your concerns but also think you are better off without $10 million in the bank, if you are scared of spending it because you fear you could lose some and be only worth $9.7 million.
>you are better off without $10 million in the bank, if you are scared of spending it because you fear you could lose some and be only worth $9.7 million.
You misunderstood what I'm saying if you think $10 million to $9.7 million is some kind of reduction in self-esteem. That's not the point.
It's not the absolute $ amount. It's a subjective sense of the magnitude of payment in relation to what I get in return. The calculus includes the mental state.
In my 20s, I spent $500k on a music studio thinking it would earn multiples of that. Things didn't pan out that way but I'm still young enough not to be gun shy about spending large amounts of money. I'm just a little wiser now and won't be throwing money away at such endeavors.
Today, if I came across a web startup I believed in and they need $900,000 (3x the $300k of Ferrari), I'd feel compelled to reduce my bank account to $9.1 million to see if my angel investment will work.
With the Ferrari, the ownership of it also includes many headaches in addition to whatever pleasures I could derive from it. The pleasures are seriously curtailed in my city where I couldn't floor it and race it above 80mph.
On the other hand, with the killer web startup, I would lose sleep at night if I missed the chance to invest so in that situation, I must spend $900k just to have some piece of mind. Mathematically, I'm "poorer" at $9.1 instead of $9.7 but I feel better. Maybe the startup will crash & burn but I spent the money hoping they could change the world.
Here's the crazy thing: it's very possible for someone else to think of the Ferrari as the "sure reward" and the web startup investment to be a fool's game. We all have different risk profiles.
You misunderstood what I'm saying if you think $10 million to $9.7 million is some kind of reduction in self-esteem. That's not the point.
It's not the absolute $ amount. It's a subjective sense of the magnitude of payment in relation to what I get in return. The calculus includes the mental state.
In my 20s, I spent $500k on a music studio thinking it would earn multiples of that. Things didn't pan out that way but I'm still young enough not to be gun shy about spending large amounts of money. I'm just a little wiser now and won't be throwing money away at such endeavors.
Today, if I came across a web startup I believed in and they need $900,000 (3x the $300k of Ferrari), I'd feel compelled to reduce my bank account to $9.1 million to see if my angel investment will work.
With the Ferrari, the ownership of it also includes many headaches in addition to whatever pleasures I could derive from it. The pleasures are seriously curtailed in my city where I couldn't floor it and race it above 80mph.
On the other hand, with the killer web startup, I would lose sleep at night if I missed the chance to invest so in that situation, I must spend $900k just to have some piece of mind. Mathematically, I'm "poorer" at $9.1 instead of $9.7 but I feel better. Maybe the startup will crash & burn but I spent the money hoping they could change the world.
Here's the crazy thing: it's very possible for someone else to think of the Ferrari as the "sure reward" and the web startup investment to be a fool's game. We all have different risk profiles.
Okay, so you are just not into Ferraris. I would not buy one, either. I saw it as an example for something expensive, that you buy just for fun. A single unhedged angel investment is such a thing, too.
In the first comment you argued differently. You said, that that even most millionaires can not afford to buy a sports car. I would say, that a single startup investment outside of any investment plan is an even higher luxury. It is comparable to spending thousands of dollars in Vegas.
A Ferrari loses some of its value, in exchange you get fun. A startup will most likely fail completely. Additionally a Ferrari is much easier to liquidate again.
In the first comment you argued differently. You said, that that even most millionaires can not afford to buy a sports car. I would say, that a single startup investment outside of any investment plan is an even higher luxury. It is comparable to spending thousands of dollars in Vegas.
A Ferrari loses some of its value, in exchange you get fun. A startup will most likely fail completely. Additionally a Ferrari is much easier to liquidate again.
Correspondingly, would you feel insecure if you had 1,000,001 in the bank and spent $30k on a car? The ratios are the same, and most people spend a far higher ratio on their cars.
The difference may be that you need a car, and that you can easily cut the cost of one from 300k to 30k, but you can't easily cut the cost of one from 30k to 3k.
Totally false if you replace $3k with $6k or so. Most people are driving around a huge pile of want, not need.
If you have $10 million you should give the Ferrari no more thought than a Camry. No if you have fifteen Ferraris that's where things become problematic.
On one hand, you're very frugal about buying a 300k car. On the other hand, that car has to be in pristine condition for you to drive it (or without hyper paranoia). What's up with that? I'd have thought frugal people would stick to their car purchases for a long time. I'm pretty sure that ferrari could be made to last 10-20 years. Yeah the maintenance is expensive, but that just means it's not really a 300k car.
Agreed; lots of folks have enough passion for cars and driving that a Ferrari is not such a preposterous thing, weighed against its marginal utility; and, the race-inclined Ferraris have turned out to be pretty good investments.
And a good classic car does not depreciate in the same way a bmw 7 series does.
And for the cost of a fully loaded BMW you can get a very nice classic. and probably buy a cheap ford for daily runabout even the gt500 super snake is fairly cheap.
And for the cost of a fully loaded BMW you can get a very nice classic. and probably buy a cheap ford for daily runabout even the gt500 super snake is fairly cheap.
You can comfortably purchase a Ferrari with far less than $100 million. In fact, there are circumstances under which you could comfortably purchase a Ferrari with well under $1 million.
What most folks don't recognize is that you can get significant leverage on savings, a solid income and a good credit score. In the case of a used exotic car, if you purchase the right make, model and year and negotiate a good deal, you can often drive the car for not much more than the total cost of, say, leasing a Mercedes. In some cases, you can even drive the car for a while for next to nothing.
They key is that you buy used, identify a good deal, put down as little cash up front as is possible (i.e. 10%) and extend the loan term out as far as you can (specialty lenders will do 72 to 120 month loans on exotic cars). If you hit the depreciation curve at the right time, you really can't lose.
You'd be surprised how many people who could pay cash for a $250,000 Ferrari still have a car note. There's really no good reason to pay cash outright in many cases.
What most folks don't recognize is that you can get significant leverage on savings, a solid income and a good credit score. In the case of a used exotic car, if you purchase the right make, model and year and negotiate a good deal, you can often drive the car for not much more than the total cost of, say, leasing a Mercedes. In some cases, you can even drive the car for a while for next to nothing.
They key is that you buy used, identify a good deal, put down as little cash up front as is possible (i.e. 10%) and extend the loan term out as far as you can (specialty lenders will do 72 to 120 month loans on exotic cars). If you hit the depreciation curve at the right time, you really can't lose.
You'd be surprised how many people who could pay cash for a $250,000 Ferrari still have a car note. There's really no good reason to pay cash outright in many cases.
just minor nitpick - "lifetime cap of the health insurance" - i though with obama care this was eliminated, no?
Yes, the ACA prohibits lifetime limits on essential health services. There are things that are insurable that do have caps, but if your kid gets sick, the ACA says there's no limit to how much insurers have to cover.
This is a confusing area. Here is the official Health and Human Services page about the subject, but this page is not very comprehensive.
http://www.hhs.gov/healthcare/rights/limits/
Take the case of cancer. Look at the list of essential services.
https://www.healthcare.gov/coverage/what-marketplace-plans-c...
I'm not sure where cancer is on that list, so I gather that cancer is not covered by the bare minimum essential services plans. From this, I believe it is incorrect to say ACA (aka Obamacare) requires coverage of unlimited cancer treatment.
Also, see this article:
http://khn.org/news/obamacare-lightens-load-for-cancer-patie...
It points out the key loophole in planning for unexpected catastrophic medical expenses is prescription medication, regardless of lifetime cap issues. Even if you can afford the annual copays and deductibles for the numerous office visits, the medication budget for treating cancer can easily blow out your budget planning by either not being covered at all, or only covered at a 50% level.
What makes this aspect especially hard to plan for is you currently have no way to find out in advance what these medications cost under specific plans. So if for example, you have a family predisposition to a certain type of cancer, then you have no way to find out how to financially plan for the possibility you might also get it, and have to start the medication for it.
In the US at least, I still firmly believe that prudently planning for severe medical conditions is simply not feasible, even with "catastrophic coverage", for families with less than $10M in liquid assets, and $40M in total assets.
http://www.hhs.gov/healthcare/rights/limits/
Take the case of cancer. Look at the list of essential services.
https://www.healthcare.gov/coverage/what-marketplace-plans-c...
I'm not sure where cancer is on that list, so I gather that cancer is not covered by the bare minimum essential services plans. From this, I believe it is incorrect to say ACA (aka Obamacare) requires coverage of unlimited cancer treatment.
Also, see this article:
http://khn.org/news/obamacare-lightens-load-for-cancer-patie...
It points out the key loophole in planning for unexpected catastrophic medical expenses is prescription medication, regardless of lifetime cap issues. Even if you can afford the annual copays and deductibles for the numerous office visits, the medication budget for treating cancer can easily blow out your budget planning by either not being covered at all, or only covered at a 50% level.
What makes this aspect especially hard to plan for is you currently have no way to find out in advance what these medications cost under specific plans. So if for example, you have a family predisposition to a certain type of cancer, then you have no way to find out how to financially plan for the possibility you might also get it, and have to start the medication for it.
In the US at least, I still firmly believe that prudently planning for severe medical conditions is simply not feasible, even with "catastrophic coverage", for families with less than $10M in liquid assets, and $40M in total assets.
Yes, you may be right. I haven't kept up with the new laws. I just remember actor Christopher Reeves getting paralyzed from his horse accident and he blew right past the health insurance lifetime cap ($250k or $1million I can't remember). Afterwards, the actor and friend Robin Williams chipped in to help with some medical bills.
If the lifetime cap is gone, some other issue will crop up such as an experimental (and very expensive) cancer drug is not covered by insurance but you want to pay out-of-pocket to try it.
If the lifetime cap is gone, some other issue will crop up such as an experimental (and very expensive) cancer drug is not covered by insurance but you want to pay out-of-pocket to try it.
Regarding insurance, a tactic of the frugal is to forgo insurance if you can withstand the loss. For example, my household does not purchase collision insurance on our vehicles.
Likewise we can withstand high deductibles and as a result obtain lower premiums on other sorts of insurance.
Likewise we can withstand high deductibles and as a result obtain lower premiums on other sorts of insurance.
I learn more about that wonderful man every day.
At $10m you can comfortably buy a Ferrari without losing sleep over it (except in anguish that it might be stolen, or damaged).
But: between being frugal and buying an overly expensive toy car, there's a lot of space. At $10m, you can spend $20k every month and it'll last you forever if you invest the rest in index funds at 3% or so. So a frugal lifestyle is uncalled for at that point, unless it's your personal way to obtain happiness.
But: between being frugal and buying an overly expensive toy car, there's a lot of space. At $10m, you can spend $20k every month and it'll last you forever if you invest the rest in index funds at 3% or so. So a frugal lifestyle is uncalled for at that point, unless it's your personal way to obtain happiness.
Good post. One nit tho:
> - if your child gets an expensive health problem like leukemia or spouse gets cancer, your medical bills could blow past the lifetime cap of the health insurance policy
The lifetime cap was one of the things eliminated by Obamacare afaik.
> - if your child gets an expensive health problem like leukemia or spouse gets cancer, your medical bills could blow past the lifetime cap of the health insurance policy
The lifetime cap was one of the things eliminated by Obamacare afaik.
I think there's a big difference between being frugal and cheap, and it somewhat has to do with personal style and creativity. Somebody with no taste and a need to show off might require a $300k super car because they feel like that's what millionaires do. But you can get an amazingly awesome vintage sports car for $60k or less. The same could be said for houses, vacations or anything else, you don't have to spend the maximum amount possible to get something fantastic. But you also don't have to live like a cheapskate in order to preserve your wealth.
Cannot read the article, however, we should be careful about the definition of "millionaires".
If we define "millionaires" as the individual with 1M of worth asset you are definitely right.
If we define "millionaires" as High-Net-Worth individual (HNWi), the people who have at least 1M in investable finance without counting the primary residence it start to get more interesting.
However, if we define "millionaires" as individual with a net profit of 1M in the last fiscal year, they DO NOT have to be frugal :)
If we define "millionaires" as the individual with 1M of worth asset you are definitely right.
If we define "millionaires" as High-Net-Worth individual (HNWi), the people who have at least 1M in investable finance without counting the primary residence it start to get more interesting.
However, if we define "millionaires" as individual with a net profit of 1M in the last fiscal year, they DO NOT have to be frugal :)
The last group does have to be frugal most likely. It's a very, very small number of high earners that manage to yield more than $1m in income - much less net that after taxes - and then do it multiple times.
There is a very high rotation on high income earners. They tend to ride temporary booms in whatever their specialty is (eg the real estate bubble days), and also peak out at a certain age bracket (their earning power peaks for only a few years out of a long career).
If you have this seven year peak earning power: $300k, $500k, $600k, $1m, $600k, $500k, $300k - you've yielded $3.8 million in earnings, paid a likely ~$1.5 million in total income related taxes, and have $2.3m left before life expenditures. You're 52 years old, and your earning power has peaked. You have $2.5 million in savings and investments. That has to last the rest of your life and retirement; you spend $10k per month in total life expenses, and have two children, and a decent house with a mortgage; your income will never be much higher than $300k again, and you're going to pay ~30% in income taxes on that.
That's closer to a normal scenario for a $1m earner, than the one where they just yield $1m per year for 20 years and never have a financial care in the world.
There is a very high rotation on high income earners. They tend to ride temporary booms in whatever their specialty is (eg the real estate bubble days), and also peak out at a certain age bracket (their earning power peaks for only a few years out of a long career).
If you have this seven year peak earning power: $300k, $500k, $600k, $1m, $600k, $500k, $300k - you've yielded $3.8 million in earnings, paid a likely ~$1.5 million in total income related taxes, and have $2.3m left before life expenditures. You're 52 years old, and your earning power has peaked. You have $2.5 million in savings and investments. That has to last the rest of your life and retirement; you spend $10k per month in total life expenses, and have two children, and a decent house with a mortgage; your income will never be much higher than $300k again, and you're going to pay ~30% in income taxes on that.
That's closer to a normal scenario for a $1m earner, than the one where they just yield $1m per year for 20 years and never have a financial care in the world.
Mortgage? The disposable income from the non-peak years can easily pay off the mortgage.
I believe your first option is the conventional one so while the others might be interesting they aren't what the article is talking about.
I think you normally discount primary residence
And what does "convention" say about inflation adjustments?
Something along the lines of "Being a millionaire ain't what it used to be" I guess. Are you suggesting that we should peg it to some point in the past?
[deleted]
From everything I've heard, the cutoff is around $25MM to really not have to ever worry about money
It really depends on your personal burn rate.
In truth, I'm a bit amazed by many of the HN comments. The materialistic stuff (ferrari bmw etc) has powerful symbolism to many. However, if you look at the article, it is mainly about those nearing retirement years.
Materialistic wealth loses a lot of appeal to those who are older and wealthier, many who realize that such things require care and feeding, and really end up owning you rather than the other way around. PG has a terrific essay about materalistic icons losing much of their appeal once you realize that you could easily purchase them; Not being able to have them is part of their mystique really.
The wealth of financial independence (defined as having enough to supply your burn for the rest of your life) enables you to do with your time as you please. Some great questions arise after achieving that kind of wealth, like "What do I want to do with my life?" It turns out that having-a-purpose is of great importance, and that might well appear to younger journalists like continuing to behave middle class.
In truth, I'm a bit amazed by many of the HN comments. The materialistic stuff (ferrari bmw etc) has powerful symbolism to many. However, if you look at the article, it is mainly about those nearing retirement years.
Materialistic wealth loses a lot of appeal to those who are older and wealthier, many who realize that such things require care and feeding, and really end up owning you rather than the other way around. PG has a terrific essay about materalistic icons losing much of their appeal once you realize that you could easily purchase them; Not being able to have them is part of their mystique really.
The wealth of financial independence (defined as having enough to supply your burn for the rest of your life) enables you to do with your time as you please. Some great questions arise after achieving that kind of wealth, like "What do I want to do with my life?" It turns out that having-a-purpose is of great importance, and that might well appear to younger journalists like continuing to behave middle class.
Possibly but that amount will barely buy you a decent penthouse pad in Manhattan ....
Do people with millions of dollars in networth even think about T-bills?
Genuinely curious.
Genuinely curious.
Yes, they're extremely safe to park semi-liquid funds in.
You have some good points here but keep in mind that some of the things you mention (health care, education, etc..) are very US-centric and far less of an issue in other places such as Europe.
FYI Obamacare eliminated lifetime caps on health insurance payouts.
[deleted]
When I read this article few minutes ago I found the following phrases and quotes defining the characters of these people and justifying their acts-
...“It’s (money) an important tool. They don’t neglect it, but they also don’t worship it.”...
...“Part of this pressure to keep going is less about greed and more about insecurity that might be self-imposed,” ...
...“It’s about paying attention to what makes you happy and not just doing what our society tells us to do,” ...
... he and his wife simply didn’t care that much about material possessions...
... “We like to travel, and we’ll spend the money for that because it’s worth it having a real experience together.” ...
And when I went through the comments here, I found none so far discussing on any of the points above.
...“It’s (money) an important tool. They don’t neglect it, but they also don’t worship it.”...
...“Part of this pressure to keep going is less about greed and more about insecurity that might be self-imposed,” ...
...“It’s about paying attention to what makes you happy and not just doing what our society tells us to do,” ...
... he and his wife simply didn’t care that much about material possessions...
... “We like to travel, and we’ll spend the money for that because it’s worth it having a real experience together.” ...
And when I went through the comments here, I found none so far discussing on any of the points above.
[deleted]
Every one of those quotes is portraying selfishness. Why should anyone discuss those points? They don't have long-term value to anyone else.
I would very much like to know how not-worshipping-money, less-greed, less-materialism are the elements of selfishness rather than of selflessness?
I don't know how you get those traits out of those quotes. "We don't value money, we value security, stability, happiness, health, connections, influence, power... you know -- all the things that money buys for us."
But if you believe those quotes exhibit selflessness, you can just call me Charley 'Adolf' Manson: Paragon of Virtue. I've got a nice cult you can join. We've given up money, greed, and materialism.
But if you believe those quotes exhibit selflessness, you can just call me Charley 'Adolf' Manson: Paragon of Virtue. I've got a nice cult you can join. We've given up money, greed, and materialism.
The article is decent, though the headline is a little silly. In the sort of cases described in the article, it's the frugality of these millionaires that was a major contributor to how they got to be millionaires in the first place.
Rather than letting falling to the all-too-common temptation to let luxury spending grow wildly with income, it's possible to set clear goals of financial independence, build habits that keep you on that path, and arrest the tendency to keep going on the hedonic treadmill.
I've found value in resources like Mr Money Mustache's blog for quantifying what actions are helpful to work toward financial independence: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
Rather than letting falling to the all-too-common temptation to let luxury spending grow wildly with income, it's possible to set clear goals of financial independence, build habits that keep you on that path, and arrest the tendency to keep going on the hedonic treadmill.
I've found value in resources like Mr Money Mustache's blog for quantifying what actions are helpful to work toward financial independence: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
Is this a surprise?
People who have lots of money, are good with spending money? and knowing the value of things?
I don't think they're cheapskates, they just know what ACUTALLY brings value to their life's. They probably wouldn't mind spending, if they get more or equal value from the thing they are purchasing.
Fancy Cars in general are terrible value, for the enjoyment they bring you. Unless say its your hobby.
People who have lots of money, are good with spending money? and knowing the value of things?
I don't think they're cheapskates, they just know what ACUTALLY brings value to their life's. They probably wouldn't mind spending, if they get more or equal value from the thing they are purchasing.
Fancy Cars in general are terrible value, for the enjoyment they bring you. Unless say its your hobby.
Fancy Cars in general are terrible value, for the enjoyment they bring you. Unless say its your hobby.
Buying a brand new fancy car is a terrible investment for the enjoyment, but that doesn't need stop you from having one. The article makes the point that there are plenty of ways to have "nice" things without breaking the bank, even if you don't have $$Texas.
Buying a brand new fancy car is a terrible investment for the enjoyment, but that doesn't need stop you from having one. The article makes the point that there are plenty of ways to have "nice" things without breaking the bank, even if you don't have $$Texas.
"And while they own three homes — condominiums in Naples and Boca Raton, Fla., and a house in Lebanon, Pa., where they grew up, none of them are huge. One splurge is an annual trip to Italy."
Frugal? Is this a joke?
Frugal? Is this a joke?
I think "frugal" in this context means "spending within their abilities".
In contrast, many lottery winners are bankrupt within 5 years. Why? They're "rich"! They can spend money like it's water! And they do... Then they run out.
As other commenters point out, a million dollars is money, but you still have to be careful. You probably still have to work.
You can go out for dinner three times a week at a reasonable restaurant and not worry about it. You can buy a decent car without it impacting your budget too much.
They're not penny-pinching. They're not part of the 47% of americans who'd have trouble raising $400 for an emergency expense.
But care-free? Nope.
One trip a year to Italy is probably $5K for two people. In comparison, that's like $50 for someone with $10K to their name. It's money, you likely have to plan for it, but it's do-able.
In contrast, many lottery winners are bankrupt within 5 years. Why? They're "rich"! They can spend money like it's water! And they do... Then they run out.
As other commenters point out, a million dollars is money, but you still have to be careful. You probably still have to work.
You can go out for dinner three times a week at a reasonable restaurant and not worry about it. You can buy a decent car without it impacting your budget too much.
They're not penny-pinching. They're not part of the 47% of americans who'd have trouble raising $400 for an emergency expense.
But care-free? Nope.
One trip a year to Italy is probably $5K for two people. In comparison, that's like $50 for someone with $10K to their name. It's money, you likely have to plan for it, but it's do-able.
Those three properties together cost less than a starter house in Silicon Valley.
The Millionaire bar is lowered each year at the rate of inflation. So to see how I'm really doing vs. my generation, I factor in inflation since my birth date, and that is the number I need to achieve 'Millionaire' status.
It's somewhat arbitrary, but for me, that's about $6,000,000 in 2015 dollars....
It's somewhat arbitrary, but for me, that's about $6,000,000 in 2015 dollars....
Yeah when they made the film How to Marry a Millionaire in 1953 with Marilyn Monroe, a million really meant something.
Sometimes I wonder if people do things like darn their own socks just to show off how frugal they are. I have a hard time believing that a multi millionaire values his time low enough to darn socks to save sock money.
Maybe he enjoys doing it? Perhaps it's something from childhood or early adulthood with fond memories, or just simply a task he enjoys the process of?
I'm sure most people here can understand the idea that sometimes fixing your own stuff can be fun, even if it's cheaper to replace it.
I'm sure most people here can understand the idea that sometimes fixing your own stuff can be fun, even if it's cheaper to replace it.
I get that it can be fun to fix things instead of replace them even if replacing them is cheaper. I just don't think it is frugal.
Frugality is easiest to practice as a habit. E.g. rather than regard entertainment as an expense, frugal folks make simple errands and tasks into their entertainment.
Also frugality is not about showing off, except among frugal friends comparing notes.
Another factor its that not advertising one's wealth is an inexpensive form of household security.
Also frugality is not about showing off, except among frugal friends comparing notes.
Another factor its that not advertising one's wealth is an inexpensive form of household security.
Another NYTimes article by a millenial amazed by the completely ordinary lives led by their parents' friends.
I'm a "frugal millionaire" with liquid, investible assets of approx 1.2m USD (does not include my home, car, etc.) I saved and invested my way to this after about about 15 years of working. My highest yearly income was approximately 160K while my lowest was around 50K. I drive a 10 year old car (which I bought new, in cash) and my mortgage is fully paid off.
I still go to work everyday (unfortunately.) I'd rather work part time, 2-3 days a week as a contractor/consultant, then work on my own projects the rest of the time.
I often wonder how many others out there are like me... "working millionaires."
I still go to work everyday (unfortunately.) I'd rather work part time, 2-3 days a week as a contractor/consultant, then work on my own projects the rest of the time.
I often wonder how many others out there are like me... "working millionaires."
I'm curious - how did you amass your 1.2m USD? I have a similar background and have done well but have not reached your level. Was it thru regular investing? Or did you have some "high payout" one-time events like making a lot of money on house appreciation, sale of a company, etc.
In any case, nice work!
In any case, nice work!
It was through regular savings and investing. I never had a high payout event.
The Millionaire Next Door is a good read related to this although it is getting a bid dated.
That book had a large effect on my views of money, not being ostentatious, etc. Some people need to be flashy with their money, but probably not a good idea. I have a friend who usually drives a fairly new model Porsche while I think I have more wealth than he does and I have a 1998 Toyota Corolla. That said, it would be a more boring world if we were all the same!
I highly recommend How Much is Enough? by Robert & Edward Skidelsky.
Note also that in several states, the average full-career government employee receives a pension worth over $1 million. It's just that we don't commonly use the term "millionaire" when the payment is in the form of an annuity.
http://www.wsj.com/articles/SB100014240527023043607045794151...
http://www.wsj.com/articles/SB100014240527023043607045794151...
Its important to have a spouse who has a similar desire for sensible frugality. The level of income is less important than simply living below your means for your whole life. With prudent financial planning, compound interest and the passage of time achieves the level of wealth described in the article. Indeed car purchases are a good indicator.
An omission of the article is that often frugal persons are generous to their loved ones and causes they care about.
An omission of the article is that often frugal persons are generous to their loved ones and causes they care about.
Compound interest? Where? The interest rates are such that inflation would destroy whatever gain you have. Nearly all savings accounts are paying an annual yield of less than 1%! That means WITH compounding, you're looking at a 1% or lower gain. Inflation is typically between 1-4%, with 2% being the benchmark in terms of financial planning, though admittedly in April, we had slightly negative inflation, but that trend won't continue.
Investing is the only way to build wealth. It's impossible to save your way to financial freedom. If you make an average of $100K per year from age 30-60, that's $3 million in income. Assuming about 35% in state, local and federal taxes, that leaves you with $65K per year. Now, you're saving 10% of that per year, that's $6,500 saved per year. With a 1% rate, at the end of 30 years, you have about $229K. Assuming you live to be 80, that's $229K that needs to earn enough to pay your bills. Even if you saved 20%, you'd still not even have $500K at the end of 30 years.
With the same 20% savings rate and some reasonably smart investing (12% returns,) then you'd end up with over $3.5 million over the same period. If that investing is in real estate, you could potentially earn that gain tax free (or tax reduced) because building depreciation percentages can generally exceed the "profit" from real estate cashflow. On top of that, a 1031 exchange means you can keep selling and trading up to larger and larger real estate without paying a capital gains tax, which means you build even more net worth that can then be leveraged to buy more properties. Most millionaires get there because of property, very, very rarely because they save their way to it. A typical middle-class wage doesn't lend itself well to saving your way to millions. The math just doesn't work, the tax code also doesn't support it.
Frugality isn't the key to success. The $30 you save by washing your own car is peanuts compared to the value of that time doing something more productive (like sourcing real estate or researching investments.) Frugality can actually cost you more money because of the time-value of money. But admittedly many of us have inherited our parents/grandparents' Depression Era, middle-class ethos. It's a classic example of Rich Dad Poor Dad.
Investing is the only way to build wealth. It's impossible to save your way to financial freedom. If you make an average of $100K per year from age 30-60, that's $3 million in income. Assuming about 35% in state, local and federal taxes, that leaves you with $65K per year. Now, you're saving 10% of that per year, that's $6,500 saved per year. With a 1% rate, at the end of 30 years, you have about $229K. Assuming you live to be 80, that's $229K that needs to earn enough to pay your bills. Even if you saved 20%, you'd still not even have $500K at the end of 30 years.
With the same 20% savings rate and some reasonably smart investing (12% returns,) then you'd end up with over $3.5 million over the same period. If that investing is in real estate, you could potentially earn that gain tax free (or tax reduced) because building depreciation percentages can generally exceed the "profit" from real estate cashflow. On top of that, a 1031 exchange means you can keep selling and trading up to larger and larger real estate without paying a capital gains tax, which means you build even more net worth that can then be leveraged to buy more properties. Most millionaires get there because of property, very, very rarely because they save their way to it. A typical middle-class wage doesn't lend itself well to saving your way to millions. The math just doesn't work, the tax code also doesn't support it.
Frugality isn't the key to success. The $30 you save by washing your own car is peanuts compared to the value of that time doing something more productive (like sourcing real estate or researching investments.) Frugality can actually cost you more money because of the time-value of money. But admittedly many of us have inherited our parents/grandparents' Depression Era, middle-class ethos. It's a classic example of Rich Dad Poor Dad.
Compound 'interest' does not necessarily mean interest on T-Bills or in a savings account. It can also mean value appreciation in capital assets (e.g. investments in stocks, property, etc) + dividends. It basically means that any capital asset compounds in value over many years.
Let's say the stock market, on average, loses 30-40% in a down year. On the other hand, you usually have 5-7 good years between crashes, where the market appreciates by 10-30% per year. Even if you can't liquidate your stock holdings 'when shit hits the fan', you'll still be making money.
Achieving a 20%+ return is realistic if you don't mind taking some risk (not crazy "seed fund a startup" risk, more like general business risk) and you make sure to minimise your taxes.
The stock market has been BOOMING for the last 5 years. I have a wealthy friend who told me his net worth doubled over the last 5 years. That's tens of millions in capital growth.
Let's say the stock market, on average, loses 30-40% in a down year. On the other hand, you usually have 5-7 good years between crashes, where the market appreciates by 10-30% per year. Even if you can't liquidate your stock holdings 'when shit hits the fan', you'll still be making money.
Achieving a 20%+ return is realistic if you don't mind taking some risk (not crazy "seed fund a startup" risk, more like general business risk) and you make sure to minimise your taxes.
The stock market has been BOOMING for the last 5 years. I have a wealthy friend who told me his net worth doubled over the last 5 years. That's tens of millions in capital growth.
The net long-term return on the stock market is (something like) 3%, after taxes, inflation, and commissions. (Hah! Reddit is good for something! The link: http://www.crestmontresearch.com/docs/Stock-Matrix-Taxpayer-...) I like to flatter myself as a reasonably smart investor, I have some investments that have produced some very good returns (the trick is identifying those that have long-term prospects vs. those that are played-out in a short time), and I would love to know how to get consistent 12% returns, even before taxes and inflation.
Frugality is a fine key to success, success being defined by Charles Dickens.[1] And keep in mind, before making a time-value-of-money argument, that time spent being productive, like researching investments, actually needs to be productive; it's not hard to go below the minimum wage if you aren't tossing around large amounts of money.
Frugality is a fine key to success, success being defined by Charles Dickens.[1] And keep in mind, before making a time-value-of-money argument, that time spent being productive, like researching investments, actually needs to be productive; it's not hard to go below the minimum wage if you aren't tossing around large amounts of money.
I agree with vasco that 12% is a very large expectation for compound interest. In the early-retirement community 7% (before inflation) is a good benchmark over long periods of time.
However, your tax assumptions are probably too high for the current environment. If you earn 100k gross, but max out your 401k and HSA, your net income after taxes will be close to 60k, but you'll already be saving 20k+ pre-tax.
Yes, you'll have to pay taxes on the 401k when you reach retirement, but if you're living frugally and only taking out a small amount, your tax obligations will be way less than 35%. Without breaking a sweat, my effective tax rate is under 16% and I'm in the range described.
However, your tax assumptions are probably too high for the current environment. If you earn 100k gross, but max out your 401k and HSA, your net income after taxes will be close to 60k, but you'll already be saving 20k+ pre-tax.
Yes, you'll have to pay taxes on the 401k when you reach retirement, but if you're living frugally and only taking out a small amount, your tax obligations will be way less than 35%. Without breaking a sweat, my effective tax rate is under 16% and I'm in the range described.
You're delusional if you think 12%/year returns are feasible for a period of time of 30 years for the average (hell, even for very good ones) investor. On the other hand you're also delusional if you think it is that hard to save more than 20% on a $100k salary.
Sorry I was not clear.
* Compound interest in this context is ROI after inflation.
* Savings in this context is defined as investment, e.g. saving the earnings of one spouse to make the down payment on a rented duplex.
* Frugality in this context is defined as delayed or avoided gratification to spare discretionary funds for investment.
Relative frugality (not being a spendthrift) is a necessary requirement for holding wealth. It is a key - not the only one - to gaining it.
Relative frugality (not being a spendthrift) is a necessary requirement for holding wealth. It is a key - not the only one - to gaining it.
I have a friend who is a school teacher. He is the most frugal person I know. He paid for his first home by the time he was 29 and than sold that and bought a awesome home that was paid off in 7 years.
Most generous person I know. He would give the shirt off his back if need be. Drives his wife nuts :)
Most generous person I know. He would give the shirt off his back if need be. Drives his wife nuts :)
the people in this article have multiple or large houses, take expensive vacations, buy luxury goods... they don't sound overly frugal to me. wtf? am i taking crazy pills?
my parents (in their 60s) have 2 lifetimes worth of savings and investments yet still do their own laundry, have a vegetable garden, mend their clothes.... but they drive nice cars, take expensive vacations, and buy tons of gadgets. they have a massive OLED TV that they watch stereotypical old-person shows on, yet still re-use their ziploc bags. this is not an either/or proposition. people are complex creatures, especially when it comes to money.
in other words they're just normal people, not overly or underly frugal. this entire article is confused. older people with $millions today have a huge diversity of backgrounds, philosophies, and lifestyles. it's impossible to capture some kind of over-arching rule. spending habits are usually a mix of contemporary attitudes and early life values.
if nobody spent any of their money our economy wouldn't work. the important thing is to be careful with your savings and investments - the goal isn't to be a complete cheapskate and die with every penny you ever earned. i can't think of a worse way to live.
my parents (in their 60s) have 2 lifetimes worth of savings and investments yet still do their own laundry, have a vegetable garden, mend their clothes.... but they drive nice cars, take expensive vacations, and buy tons of gadgets. they have a massive OLED TV that they watch stereotypical old-person shows on, yet still re-use their ziploc bags. this is not an either/or proposition. people are complex creatures, especially when it comes to money.
in other words they're just normal people, not overly or underly frugal. this entire article is confused. older people with $millions today have a huge diversity of backgrounds, philosophies, and lifestyles. it's impossible to capture some kind of over-arching rule. spending habits are usually a mix of contemporary attitudes and early life values.
if nobody spent any of their money our economy wouldn't work. the important thing is to be careful with your savings and investments - the goal isn't to be a complete cheapskate and die with every penny you ever earned. i can't think of a worse way to live.
Its clear to me that the article's family are still living well below their means. Multiple homes make sense for those who are frugal enough to restrict vacations mostly to the second home, which if well-located can appreciate in value faster than inflation. Frugal families often have such assets that appreciate, rather than expenses or possessions that depreciate.
> Frugal families often have such assets that appreciate, rather than expenses or possessions that depreciate.
i'll repeat myself. the people in this article have both, like most successful people in general. it's not a mutually exclusive choice. this article is basically not making any kind of point whatsoever. what's the thesis of the article? that most successful people don't blow all their money on bullshit like some poor people do? wow, what a revelation.
these people drive cars and take vacations and buy cartier watches. truly 'frugal' people usually don't do any of this stuff. for example, you don't have to look far on HN to find cheapskates that make professional salaries yet shun cars, live in tiny apartments, shop at garage sales, don't vacation, and live on dry foodstuffs. in fact i was poking fun at them in a comment i made just yesterday. i called it the 'cheapskate olympics'. i think that kind of lifestyle is absurd if you can afford to live a bit better than that.
i'll repeat myself. the people in this article have both, like most successful people in general. it's not a mutually exclusive choice. this article is basically not making any kind of point whatsoever. what's the thesis of the article? that most successful people don't blow all their money on bullshit like some poor people do? wow, what a revelation.
these people drive cars and take vacations and buy cartier watches. truly 'frugal' people usually don't do any of this stuff. for example, you don't have to look far on HN to find cheapskates that make professional salaries yet shun cars, live in tiny apartments, shop at garage sales, don't vacation, and live on dry foodstuffs. in fact i was poking fun at them in a comment i made just yesterday. i called it the 'cheapskate olympics'. i think that kind of lifestyle is absurd if you can afford to live a bit better than that.
The thesis of this article is that a frugal lifestyle may lead to relative wealth that permits occasional splurges.
I regard the article as inspiring to someone who wants to become successful later in life due to their wealth, despite a modest job history.
I regard the article as inspiring to someone who wants to become successful later in life due to their wealth, despite a modest job history.
[deleted]
You can spend your money on high marginal value things like lifting people out of poverty, or on paying someone to create pollution and junk.
you have this exactly backwards, because you're ignorant of how poor people actually live in this world and rely on your dogmatic beliefs to guide your interpretation of reality. people being lifted out of poverty do not make high marginal value goods. they make things that create pollution and junk.
i invite you to take a look at a factory in the developing world (the people who are being lifted out of poverty) and see what they produce. i assure you it's not "high marginal value" goods like swiss watches, fixed gear bicycles, and midcentury modern furniture.
i invite you to take a look at a factory in the developing world (the people who are being lifted out of poverty) and see what they produce. i assure you it's not "high marginal value" goods like swiss watches, fixed gear bicycles, and midcentury modern furniture.
The farther you are in life in your job, personal life, friends, the easier it is to live enjoyably with spending less money through work trips to fabulous cities, automobile perqs, subsidized meals, work home-buying perqs, etc.
I'm not sure how much these people are struggling with their low spending.
I'm not sure how much these people are struggling with their low spending.
As a person who travels regularly for work I can say you have quite a romantic view of business travel.
The reality is that I usually see (in this order) an airport, a taxi, a conference room, a hotel dining room and/or bar, a hotel room, a taxi, an airport.
The idea that there is much downtime on a business trip is a fantasy of those who don't travel for work.
The reality is that I usually see (in this order) an airport, a taxi, a conference room, a hotel dining room and/or bar, a hotel room, a taxi, an airport.
The idea that there is much downtime on a business trip is a fantasy of those who don't travel for work.
I'm in Vienna right now for work and going to the symphony tonight. I was in Barcelona two weeks ago and had some fabulous meals. Was in Sardinia las week on vacation but stayed at a colleagues beach home.
We paid 1/2 off for our car with a company perq and are having the company cover about 50k in expenses on a home were in the midst of purchasing.
You should take advantage of your opportunities more.
We paid 1/2 off for our car with a company perq and are having the company cover about 50k in expenses on a home were in the midst of purchasing.
You should take advantage of your opportunities more.
"You should take advantage of your opportunities more"
Buddy, the kinds of places I get to travel aren't exactly postcard-worthy.
On the rare occasion I get to travel to a "fun place" I do my best but I'm not living in Europe where everyone gets 12 weeks of vacation. I live in the USA where every moment I spend at leisure directly affects the amount of money I have in my pocket.
Google "opportunity costs" and you'll catch my drift.
Buddy, the kinds of places I get to travel aren't exactly postcard-worthy.
On the rare occasion I get to travel to a "fun place" I do my best but I'm not living in Europe where everyone gets 12 weeks of vacation. I live in the USA where every moment I spend at leisure directly affects the amount of money I have in my pocket.
Google "opportunity costs" and you'll catch my drift.
I'm curious - what industry are you in? I've never heard of a company providing perks for car and house purchasing.
Car perq is common in German companies at director level and above. We're in Switzerland where it's less common but still happens. The housing is rare the.
depends for Western companies those sent overseas can have some very nice perks.
I remember looking at this in Malaysia and one of the thing that put me off was the "servant" issue - the idea of having a servant was just creepy to me.
I remember looking at this in Malaysia and one of the thing that put me off was the "servant" issue - the idea of having a servant was just creepy to me.
Then don't phrase it that way if it bothers you. They can be a maid, cleaning-lady, garden-worker, whatever. And the other poster that responded to you is definitely right, it is quite a culture "clash". I had it the other way around when I visited Europe for the first time as a grown-kid, after being in Africa for all of my earliest memories.
Just to be clear, they are not your servant, no matter the usage of the word, or how you see other people treating them. You define the relationship, and it is up to you to treat them the way you would treat other individuals. And above all else, they are an employee like any other (either yours, or the company's). Just because they work in your house, and do so in an ad-hoc fashion rather than for a set list of tasks does not mean it's different, i.e. it doesn't change the employer/employee relationship.
Just to be clear, they are not your servant, no matter the usage of the word, or how you see other people treating them. You define the relationship, and it is up to you to treat them the way you would treat other individuals. And above all else, they are an employee like any other (either yours, or the company's). Just because they work in your house, and do so in an ad-hoc fashion rather than for a set list of tasks does not mean it's different, i.e. it doesn't change the employer/employee relationship.
Actually from what I read of the country facilitating apartheid with a brown face is not something I care to do
Its the same argument about working in pre Mandela South Africa.
Its the same argument about working in pre Mandela South Africa.
Your principles are admirable, but might only make a change in the very long game. If one takes a job with a household employee(s) perquisite, then someone like you can make an immediate, actionable change in someone's life right now. And you have the opportunity to extend that change into their family.
Much of success is embodied in modeled behaviors and attitudes. By dint of employing them, you have the opportunity to model for them success-oriented attributes, and let them pick and choose what is culturally and socioeconomically prudent to adopt into their lives. If you want to go a more activist route, if you and they have children you can intertwine their lives together and sponsor (tuition, fees, clothing and supplies) their children (if they are young enough) to the international school and after-school activities that expatriates usually use, and give your children a cultural exchange education second-to-none in the process. The possibilities to make positive change are endless, and only limited by your resources. Just be careful of fostering dependencies, and be open with those who you partner with in the endeavor about the probability of you getting assigned out of your host nation and abruptly changing their situation.
By contrast, advocating against "facilitating apartheid with a brown face", through various political means at your disposal as an individual citizen in the developed world, helps to eventually effect change through policy circles, but usually only at a very long game timeframe. Typically in the years to decades scale.
We need BOTH kinds of advocacy to effect humanitarian change. But if you are already in a position to make a personal, first-person, actionable, on-the-ground change, I urge you to grab it with both hands; there are too few people in this world with your principles, perception, and opportunity. Whether you are facilitating apartheid or making positive change depends upon the deep nature of your interaction, not the overall first-blush official description of the relationships.
Very rarely is this kind of change a binary switch, and it almost always involves a "getting from Point A to Point B" transition that has the trappings of distasteful practices, but the on-the-ground reality for most individuals (even highly privileged ones like most of us on HN) is resources are limited, and we have to get creative with how we re-purpose (and overload, to borrow OO lingo) normal, everyday interactions with positive change payloads.
Much of success is embodied in modeled behaviors and attitudes. By dint of employing them, you have the opportunity to model for them success-oriented attributes, and let them pick and choose what is culturally and socioeconomically prudent to adopt into their lives. If you want to go a more activist route, if you and they have children you can intertwine their lives together and sponsor (tuition, fees, clothing and supplies) their children (if they are young enough) to the international school and after-school activities that expatriates usually use, and give your children a cultural exchange education second-to-none in the process. The possibilities to make positive change are endless, and only limited by your resources. Just be careful of fostering dependencies, and be open with those who you partner with in the endeavor about the probability of you getting assigned out of your host nation and abruptly changing their situation.
By contrast, advocating against "facilitating apartheid with a brown face", through various political means at your disposal as an individual citizen in the developed world, helps to eventually effect change through policy circles, but usually only at a very long game timeframe. Typically in the years to decades scale.
We need BOTH kinds of advocacy to effect humanitarian change. But if you are already in a position to make a personal, first-person, actionable, on-the-ground change, I urge you to grab it with both hands; there are too few people in this world with your principles, perception, and opportunity. Whether you are facilitating apartheid or making positive change depends upon the deep nature of your interaction, not the overall first-blush official description of the relationships.
Very rarely is this kind of change a binary switch, and it almost always involves a "getting from Point A to Point B" transition that has the trappings of distasteful practices, but the on-the-ground reality for most individuals (even highly privileged ones like most of us on HN) is resources are limited, and we have to get creative with how we re-purpose (and overload, to borrow OO lingo) normal, everyday interactions with positive change payloads.
This is a culture clash. With your sensibilities, if you went along with the servant perquisite, you would likely treat them far, far better than many others, and give them and their family a path out of of their socioeconomic class. Also, nothing prevents you from adding to their pay beyond what your company pays, and including their children with your children's activities, or even education.
A servant is a better job than working in a sweatshop to make all the things you have in your "servantless" western home.
I have a coworker who has a saying for this: "You can travel to all the exotic locales for work that you want, but it doesn't change the fact that every hotel room looks the same inside."
This is absolutely true. Then again do you ever schedule a day or two off before or after a business trip? Mini-vacation with free airfare!
I did this before I had a family. Now, it's the first flight out. Sometimes I'll fly in a day early to get over jet lag, but that's usually working in a hotel room.
Most of my business trips are airport/hotel/work/airport, but occasionally, I'll use accumulated frequent-flier miles to have my wife join me and extend the trip. We've done Australia twice this way. When you're that far away, it makes a lot of sense to take advantage of it!
You need to plan it I spent a month for work in Edinburgh once and didn't come back so I had 4 weekend breaks staying in the Balmoral (most expensive hotel in town).
Unfortunately my plan to do the same for the Edinburgh fringe did not work out
Unfortunately my plan to do the same for the Edinburgh fringe did not work out
Just came back from a business trip to Norway; the list of places I managed to see is: an airport, a bus, the office, the metro (and stations), hotel dining room, hotel room, few buildings in the city center during the three or four hours we had free because we arrived too late to start working the first day, the local Hackerspace. Oh, and tons of Teslas on the road, which made the trip really enjoyable ;).
Indeed, I was surprised how little time we had for anything except of working and sleeping.
Indeed, I was surprised how little time we had for anything except of working and sleeping.
Make the time when you can. Add a day or two if necessary.
I'll try that the next time I go; this time around I had no control over the reservations.
Please note that although we respect frugality over lavishness. Frugality among rich people is one of the primary reasons behind wealth inequality. Sitting on top of an perverse amount of wealth and not doing anything with it is bad for the economy.
Wealth needs to be redeployed back into the economy and it must be done in following a method that doesn't grow the wealth in an unnatural compounding way.
Wealth needs to be redeployed back into the economy and it must be done in following a method that doesn't grow the wealth in an unnatural compounding way.
Unless they've sacked their money away under their mattress, it has been deployed back into the economy. It is either invested or in a bank where the majority of it has grown the pie of total dollars through loans (this is often not well understood). If I have ten dollars that I place in a bank, they will only hold the required reserve. Assuming this is 30%, then seven will get distributed in loans. The effective size of the money is now 17 dollars.
No, assuming a reserve of 30%, the whole $10 is the entire reserve, and they loan out $33.33, making $43.33 total.
No, this is actually wrong. While they can do this, they don't in practice because of competing banks. If that 33.33 dollar check goes into a competing bank, that competing bank, by virtue of being a rival/competitor, is going to immediately go back to the lending bank and demand the IOU in cash. If the lending bank has only $10 in reserve then they can't pay back the $33.33. So instead, due to necessity, the bank will only lend out $7.
What you are describing is fractional reserve banking under a SINGLE or central bank. The United States Federal Reserve does this kind of lending to commercial banks deliberately to control the money supply. Actually, I'm not even sure if the federal reserve is required to maintain a reserve ratio (of federal notes to cash) at all. I think those federal reserve notes are literally created out of thin air.
What you are describing is fractional reserve banking under a SINGLE or central bank. The United States Federal Reserve does this kind of lending to commercial banks deliberately to control the money supply. Actually, I'm not even sure if the federal reserve is required to maintain a reserve ratio (of federal notes to cash) at all. I think those federal reserve notes are literally created out of thin air.
[deleted]
Yes. This is true. I mean wealth in terms of wealth ownership. Compounding interest from loans, dividends, or stock investments causes the amount of wealth "owned" by rich people to grow unnaturally.
There's nothing unnatural about yielding a return on an investment.
The greatest contributor to wealth inequality in the last 40 years is the Federal Reserve debasing the currency that the middle class depends on (and since ~1970, they've been doing it at a very rapid clip). If your wages go up 2% per year, and inflation averages 3% per year, over 30 years your standard of living is going to get nuked. The super rich can manage inflation by shifting assets, everyone else cannot.
The greatest contributor to wealth inequality in the last 40 years is the Federal Reserve debasing the currency that the middle class depends on (and since ~1970, they've been doing it at a very rapid clip). If your wages go up 2% per year, and inflation averages 3% per year, over 30 years your standard of living is going to get nuked. The super rich can manage inflation by shifting assets, everyone else cannot.
In the natural state of things, one does work and in doing work one gains roughly equal wealth in exchange for an equal amount of work.
Yielding compounding returns on investments with little risk is gaining wealth for no work. That is unnatural.
What is more unnatural is when an obscenely rich person earns a million a year as a return on investments. A million dollars in wealth in one year is usually not equivalent to the output of one man. Multiple people must work together to generate that amount of GDP. So how does a rich man procure the wealth equivalent to the work of multitudes of people without contributing any work himself? He must do so in a way that is unnatural.
Yielding compounding returns on investments with little risk is gaining wealth for no work. That is unnatural.
What is more unnatural is when an obscenely rich person earns a million a year as a return on investments. A million dollars in wealth in one year is usually not equivalent to the output of one man. Multiple people must work together to generate that amount of GDP. So how does a rich man procure the wealth equivalent to the work of multitudes of people without contributing any work himself? He must do so in a way that is unnatural.
In cases like those in the article, these savings aren't stowed away in gold bars under rich people's mattresses, they're mainly in investments that continue to yield dividends. Those investments are going to various companies that are actually doing something with that money, so it's still circulating through the economy. Is there something I'm missing? I admit I'm not as well-versed in economics as I'd like to be.
Unless it's an ipo an "investment" or exchange of stocks for money on a stock market is simply just a trade among shareholders that generates zero GDP. It does go back into the economy and thus circulates.
Dividends is wealth generated by laborers and taken by shareholder owners. Sitting on stocks and eating up dividends while contributing no work of your own does not cause money to circulate through the economy in a good way. What it does is it causes your own wealth to grow unfairly, further increasing wealth inequality.
Dividends is wealth generated by laborers and taken by shareholder owners. Sitting on stocks and eating up dividends while contributing no work of your own does not cause money to circulate through the economy in a good way. What it does is it causes your own wealth to grow unfairly, further increasing wealth inequality.
Repeat after me:
Money is not wealth.
Money is not wealth.
What you spend your money on is wealth.
Sitting on a number in a computer file does not cause inequality.
Money is not wealth.
Money is not wealth.
What you spend your money on is wealth.
Sitting on a number in a computer file does not cause inequality.
hey buddy. Repeat after me.
Money is wealth. Money is wealth.
When you spend your money on wealth, you are doing a trade or an exchange. Wealth for wealth. If money isn't wealth, why the hell would anyone give it away in exchange for empty paper? They don't. Because money is wealth. That's why when people have lots of it, we call them "wealthy"
When you spend your money on wealth, you are doing a trade or an exchange. Wealth for wealth. If money isn't wealth, why the hell would anyone give it away in exchange for empty paper? They don't. Because money is wealth. That's why when people have lots of it, we call them "wealthy"
mm tried to run a business with out access to capital.
Your being very naïve.
Your being very naïve.
Good for you. How does you running a business without access to capital make me naive? Doesn't that make you niave?
I have had to chair share holder meetings to discus difficult financing decisions.
I have also been made redundant the hard way when a company went bust ie they hand been paying the social security so I could claim unemployment.
Are you still a student as your attitudes certainly indicate you might not have had to deal with the real world.
I have also been made redundant the hard way when a company went bust ie they hand been paying the social security so I could claim unemployment.
Are you still a student as your attitudes certainly indicate you might not have had to deal with the real world.
No I'm not a student, but you publically, immaturely and insultingly stating that my behavior marks me as someone who has not dealt with the real world does not bode well with your claim that you chaired shareholder meetings. I certainly wouldn't want such a person making difficult financial decisions. You realize what would happen if you called someone niave in the real world? Surely you would know that such a statement doesn't facilitate open discussion even if the person in question was actually niave. Of course, I'm being redundant since your extensive experience with the real world should make you abundantly aware of this.
You still haven't answered how YOU running a company without access to capital makes ME niave.
You still haven't answered how YOU running a company without access to capital makes ME niave.
Learn to read English. I was inviting you to explain how you would run a company without access to capital.
Also look at how your comments on this thread have been treated.
Also look at how your comments on this thread have been treated.
People can vote me down if they think I'm wrong or if they they don't like what they see. What I haven't seen happen is an outright personal attack where I'm called naive and accused of being someone who hasn't "dealt" with the real world.
Your english used the past tense "tried" indicating that it was something you did in the past. I think instead of me learning how to read english you should learn how to write it.
As for forming a company without capital. It's never been done, and I never suggested it was possible. Maybe you're the one who should learn how to read.
Your english used the past tense "tried" indicating that it was something you did in the past. I think instead of me learning how to read english you should learn how to write it.
As for forming a company without capital. It's never been done, and I never suggested it was possible. Maybe you're the one who should learn how to read.
You might want to look up rhetorical question which was what my initial comment was.
You might want to write your rhetorical question in proper English. Also, what the hell is the point of your rhetorical question if it's not addressing anything relevant?
Why are you so stupid? Rhetorical question. Don't answer.
Why are you so stupid? Rhetorical question. Don't answer.
The dynamics of capitalism put wealth into the control of its wisest custodians - frugality being defined as among the wise virtues in this context.
For those who argue that democratic government is the wisest custodian, e.g. there is estate taxation and government redistribution and investment.
For those who argue that democratic government is the wisest custodian, e.g. there is estate taxation and government redistribution and investment.
Calling rich people "wisest custodians" of wealth really got to me. What a self serving statement.
I urge you to watch this video, your comment compelled me to find it:
http://www.ted.com/talks/nick_hanauer_beware_fellow_plutocra...
I urge you to watch this video, your comment compelled me to find it:
http://www.ted.com/talks/nick_hanauer_beware_fellow_plutocra...
Are you saying rich people are wiser than poor people therefore they deserve to be rich?
Capitalism made Justin Bieber rich. This makes him a wise custodian of wealth. Not only is my previous statement wrong, but so is yours.
Capitalism made Justin Bieber rich. This makes him a wise custodian of wealth. Not only is my previous statement wrong, but so is yours.
Capitalism does not entail that the wealthy deserve what they have, only that if they are not wise with respect to their wealth they will lose it.
With regard to Mr. Bieber, or celebrities/sports stars in general - there are many foolish ways for them to lose their wealth and only a degree of frugality, i.e. living within their means, will preserve it.
With regard to Mr. Bieber, or celebrities/sports stars in general - there are many foolish ways for them to lose their wealth and only a degree of frugality, i.e. living within their means, will preserve it.
Sure and I agree with your first sentence and second sentence, but I don't think you're understanding what I'm trying to communicate.
The loaded term "wise custodians" as if rich people are benevolent caretakers of the world's wealth due to their infinite wisdom is what I'm attacking here. It just simply isn't true. Justin Bieber is full proof of that. The guy is not wise, he's not a benevolent custodian either.
Wealth is not magically redirected towards smart caring people. You are not a "wise custodian" because you are rich. You will always have stupid people who are rich and smart people who are not rich.
The loaded term "wise custodians" as if rich people are benevolent caretakers of the world's wealth due to their infinite wisdom is what I'm attacking here. It just simply isn't true. Justin Bieber is full proof of that. The guy is not wise, he's not a benevolent custodian either.
Wealth is not magically redirected towards smart caring people. You are not a "wise custodian" because you are rich. You will always have stupid people who are rich and smart people who are not rich.
People who have earned great amounts of wealth do not get it by stealing it, they provide a product or service in which others choose to purchase. The more people which the product or service provides value to the more wealth the person will make.
Like him or not, Justin Bieber has proved valuable to quite a large sub set of the population.
Like him or not, Justin Bieber has proved valuable to quite a large sub set of the population.
I never accused rich people of being thieves. I didn't say Justin Bieber stole his wealth.
Justin Bieber is not a wise custodian of wealth. Wealth is not magically redirected away from stupid people towards smart people is all I'm saying. Many smart people are not rich, just like how many people who are rich are also stupid.
The loaded term "wise custodians" as if rich people are benevolent caretakers of the world's wealth due to their infinite wisdom is what I'm attacking here.
I would say, if placed under equal circumstances, the intelligence and benevolence of rich people is more or less the same as all people in general. We should be in agreement on that.
Justin Bieber is not a wise custodian of wealth. Wealth is not magically redirected away from stupid people towards smart people is all I'm saying. Many smart people are not rich, just like how many people who are rich are also stupid.
The loaded term "wise custodians" as if rich people are benevolent caretakers of the world's wealth due to their infinite wisdom is what I'm attacking here.
I would say, if placed under equal circumstances, the intelligence and benevolence of rich people is more or less the same as all people in general. We should be in agreement on that.
My mistake, the parent commenter was incorrect.
Wealth goes to those who provide value to other people. (in a free market).
But a person of great value (read: someone who provides great value) depends on many people of lesser value, and so on and so forth, in order to provide that value.
>depends on many people of lesser value
They do not. A person of great wealth can purchase a good or service from a person of less relative value.
Otherwise, I don't understand what you're saying?
They do not. A person of great wealth can purchase a good or service from a person of less relative value.
Otherwise, I don't understand what you're saying?
The person of lesser value has to provide the value to the person of greater value, in order for the person of greater value to be able to provide their greater value to the world at large. Thus the person of greater value depends on the person of lesser value.
Even in simple terms, it's likely that a person of lesser value than you made your underwear, but you still need that person so that you can make all the the money you do being more valuable to the world than them.
Or from another perspective, all wealth is relative, which means you cannot have great wealth without great poverty.
Even in simple terms, it's likely that a person of lesser value than you made your underwear, but you still need that person so that you can make all the the money you do being more valuable to the world than them.
Or from another perspective, all wealth is relative, which means you cannot have great wealth without great poverty.
What are you exactly saying?
Isn't 'redeploying money back to economy' basically investing?
I think what you first would want is an increase to minimum pay if you want to increase the flow of money in the areas where I think you want.
Isn't 'redeploying money back to economy' basically investing?
I think what you first would want is an increase to minimum pay if you want to increase the flow of money in the areas where I think you want.
You can invest, or you can spend in a way that generates GDP. If you "invest" or put your money into the stock market, you are not deploying your money in a way that generates GDP.
Unless the stock is an IPO, you are essentially trading paper when you buy a stock. No GDP is generated on that transaction. In a sense you could be redeploying if the seller of the stock takes the money from the trade and redeploys it in a meaningful way.
I agree that rich people paying their workers more money is a meaningful way to redeploy their wealth.
Unless the stock is an IPO, you are essentially trading paper when you buy a stock. No GDP is generated on that transaction. In a sense you could be redeploying if the seller of the stock takes the money from the trade and redeploys it in a meaningful way.
I agree that rich people paying their workers more money is a meaningful way to redeploy their wealth.
And what if a nonnrich person needs access to capital in order to pay workers?
Who would buy an IPO if they knew everyone else took your advice and would never let the IPO buyer exit? Trading stock is dealing in liquidity. Liquidity is where all the wealth in the market is made available to humans.
Who would buy an IPO if they knew everyone else took your advice and would never let the IPO buyer exit? Trading stock is dealing in liquidity. Liquidity is where all the wealth in the market is made available to humans.
>And what if a nonnrich person needs access to capital in order to pay workers?
The most natural/good way of doing this is running a legitimate working business and paying workers with revenue money generated by the business itself. Other ways include borrowing money, getting money from angels/venture capitalists, or money from an IPO or reissuing of shares.
>Who would buy an IPO if they knew everyone else took your advice and would never let the IPO buyer exit? Trading stock is dealing in liquidity. Liquidity is where all the wealth in the market is made available to humans.
There are many IPOs that don't let the buyer officially exit yet people still buy it: Google, facebook, microsoft. In fact almost all IPOs are like this. When you buy stock from these companies you can't officially redeem your shares for the value it's worth. You can only sell it to another person.
Believe it or not the stock market is a market of people trying to outthink each other in buying paper for a low price and selling it for a higher price. No GDP is generated in these exchanges. Magically, the prices for these pieces of paper follows the intrinsic value of the company they "represent." People simply being told that the paper represents a percentage of the company is enough to make people behave as if it actually does even though the owner of the "paper" can't use the paper to redeem a portion of the corporate value.
You can only do one thing of monetary value once you own a stock share: Sell it to the next idiot. It's funny how it all works out. You could say that the entire stock market is a bubble of empty dreams.
The only time you can officially redeem a stock share is when a company liquidates. But that almost never happens, and people buy stocks expecting it not to happen.
The most natural/good way of doing this is running a legitimate working business and paying workers with revenue money generated by the business itself. Other ways include borrowing money, getting money from angels/venture capitalists, or money from an IPO or reissuing of shares.
>Who would buy an IPO if they knew everyone else took your advice and would never let the IPO buyer exit? Trading stock is dealing in liquidity. Liquidity is where all the wealth in the market is made available to humans.
There are many IPOs that don't let the buyer officially exit yet people still buy it: Google, facebook, microsoft. In fact almost all IPOs are like this. When you buy stock from these companies you can't officially redeem your shares for the value it's worth. You can only sell it to another person.
Believe it or not the stock market is a market of people trying to outthink each other in buying paper for a low price and selling it for a higher price. No GDP is generated in these exchanges. Magically, the prices for these pieces of paper follows the intrinsic value of the company they "represent." People simply being told that the paper represents a percentage of the company is enough to make people behave as if it actually does even though the owner of the "paper" can't use the paper to redeem a portion of the corporate value.
You can only do one thing of monetary value once you own a stock share: Sell it to the next idiot. It's funny how it all works out. You could say that the entire stock market is a bubble of empty dreams.
The only time you can officially redeem a stock share is when a company liquidates. But that almost never happens, and people buy stocks expecting it not to happen.
"You can only do one thing of monetary value once you own a stock share: Sell it to the next idiot."
Dividens explicitly give the owners of stock a slice of yearly profits.
Dividens explicitly give the owners of stock a slice of yearly profits.
ok yes, that too. But not all stocks do this, and the slice is usually incredibly small relative to the price of stock itself. Price swings of the stock will usually greatly eclipse the dividend.
Over long periods of time, however, dividends, when reinvested, do have a great effect.
Over long periods of time, however, dividends, when reinvested, do have a great effect.
I'm getting voted down. But if you got time please watch (or read the transcript) this:
http://www.ted.com/talks/nick_hanauer_beware_fellow_plutocra...
This person elucidates my views completely and in a way that may be easier to understand.
http://www.ted.com/talks/nick_hanauer_beware_fellow_plutocra...
This person elucidates my views completely and in a way that may be easier to understand.
[deleted]
The word "million" is deceptive because it is an amount beyond what 99% have. It makes it seem like some mind boggling amount of money but mathematically, it really isn't that much. A person classified as "millionaire" could be tagged that because of total net assets and not the liquid cash in a bank account. E.g. a $500k house + $500k IRA/401k + $25k car is a "millionaire".
But let's say you have a multi-millionaire (e.g. 2 million dollars). That might be $1 million in cash in the bank. That's still not much money because:
- it's not enough to park $1 million of principal into risk-free US T-Bills and live off the current interest rates of < 1%. That's only $10k income per year which is less than minimum wage.
- if your child gets an expensive health problem like leukemia or spouse gets cancer, your medical bills could blow past the lifetime cap of the health insurance policy and therefore, you have to drain your savings to pay for expensive treatments.
- non-Ivy League schools can cost $50k per year. If you have 2 children and you want to give them the gift of college education without being burdened with student debt, that's at least $400k. And to stay at $400k, it would require the parents to be "cheapskates" and not fund any extracurricular trips like ski vacations and Spring Break parties down in Mexico.
The millionaires that have less than $10 million definitely have to be "frugal" and watch their money. Consider than NBA star Allen Iverson earned $200 million and blew it all away.
At $100+ million, one can start getting frivolous and maybe buy a Ferrari. However, $2 million is not enough cushion to live off interest income and be 100% worry-free from unexpected life events. One would still have to work somewhere to keep adding to the nest egg.