Most millionaires opt for stealth wealth. Their friends don’t know, their coworkers don’t know, their extended family doesn’t know. In a few cases, not even their children know! Wealth is accumulated through habits; at least in a free society like ours. At the moment, something like 1 out of 25 households falls into the millionaire category, most of it self-made.
From the comments:
Your right in Jack MacDonald's case too, he didn't make his initial money from stocks, his wealth was inherited which was then invested, he didn't spend any of it because he thought of himself as the steward of the inherited wealth
"His wealth was inherited from his parents, who owned MacDonald Meat Co. in Seattle, and he sought to boost the funds by investing their money"
"Wealth is accumulated through habits" is a great story to tell people but it seems very often to be complete BS.
"How one 31-year-old paid off $220,000 in student loans in 3 years" is the exciting title.
You have to get to paragraph #7 to learn "work at your parent's charity" is one of the techniques. Paragraph #8 tells you another trick is "be gifted a condo". #9 tells you the third one is "have grandma pay your rent".
I've seen this example going around because it's such an egregious example of attributing to hard work what was essentially just gifted, but I think "wealth is accumulated through habits" is not wrong. It's really just a statement about compound interest, that if you live frugally and invest you'll end up with tons of money.
The statement is better characterized as something like "wealth is the product of habits and opportunity", where the only measurement we can quantify is a person's wealth, and our society is struggling to reconcile whether unwealthy people simply have poor habits (their fault) or poor opportunities (society's fault).
I'm going to say something heretical here, but: I'm increasingly convinced that the whole compound interest thing is bullshit. Not math-wise, the math checks out. Just propaganda-wise. In practice, with interest rates available to general population, a typical person isn't going to accumulate any meaningful wealth unless they were already wealthy.
Say you're saving $500 a month for 10 years, on an account with 5% interest rate. After 10 years, you have $76,281, i.e. $16,281 over the $60,000 you put in. It's just 27% more - and that's assuming you can find an investment with real 5% interest rate, and without taking inflation into account. It's also assuming the banks won't pull off something funny, or that your country doesn't redenominate your currency. In this scenario of continuous savings, it takes about 27 years for the interest to double the amount of money you have. Again, if you can find something that pays you real 5% of interest. The real rates on low-risk accounts seem to be sub-1% these days.
I've been running some back-of-the-envelope calculations like these every now and then, and I'm yet to see a scenario in which compound interests gives me anything in a reasonable time frame. As it is, my wealth-accumulating strategy is just "spend less, and earn more" - with the latter part doing almost all the difference. But I can only pull this off because I'm privileged to work in tech industry, which has more money than it knows what to do with - it's not something I can recommend to my relatives with more mundane jobs.
(I guess I could get into real estate investment? I think I have too low risk tolerance for it, and I also have plenty of ethical concerns about getting rich off flipping houses.)
The trick with "if you live frugally and invest you'll end up with tons of money" is that unless you take risks and are lucky, "end up" is likely to come around your retirement age, when you'll have little use for "tons of money" except paying for medical bills - so you'll pass it on to the next generation, to give them a shot at the life you wanted to have.
Honestly, I agree with everything you just said. I will say that if you continue the pattern for 20 years you end up with $200k, of which $83k was made in interest -- and after 30 years you'll have $400k, $200k made from interest. Meanwhile, the S&P 500 averages about 11% interest annual. The article is vague on some details, but if you did what it sounds like the man in the article did and invested $500/year into the S&P 500 from 18 until 98, you would have $240 million at the end.
But that's money that you would never be able to spend because it's only accumulating for as long as it's still in the S&P 500. This millionaire would wear clothes with holes in them, and probably never traveled or spent money on any of the things outside of basic necessities. I wouldn't enjoy that lifestyle.
Also, as will definitely be pointed out by someone, $500/year is not bad for any person with a reasonable income. But $500/year for someone living paycheck to paycheck is not possible.
Another thing not considered is how much harder it becomes to maintain the return at higher bases, while diversifying so that there are no major drawdowns. And on the topic of drawdowns, I think this is the biggest flaw in compound interest mythology - a minor drawdown (permanent loss of some capital) in the early years causes disproportionately large effects on the end result. Best to run a Monte Carlo simulation using some assumptions for inflation, range of returns, etc. There are various websites that do this for you.
The GP was talking $500/month rather than $500/year. That's a fair bit of money. It's nearly half the wage of a US minimum wage worker (and over half their paycheck, once taxes are taken out).
Even if you get a $15 minimum wage (as some places already have), it's still asking somebody to put away 25% of what they earn. That seems very unlikely. Not impossible, but a lot of life circumstances could easily result in it being impossible.
There was a post on r/CryptoCurrency a few days back about Fidelity, they did some analysis and figured most profitable accounts belonged to people who were dead.
People under estimate the kind of discipline it takes to both DCA and HODL things on the very long run. And it goes without saying, starting early does matter.
>>The trick with "if you live frugally and invest you'll end up with tons of money" is that unless you take risks and are lucky, "end up" is likely to come around your retirement age, when you'll have little use for "tons of money" except paying for medical bills - so you'll pass it on to the next generation, to give them a shot at the life you wanted to have.
Never understood this logic. Nobody starts ex-nihilo. Giving whatever little edge you have to your kids doesn't seem like an evil thing to me at all. The thing is it takes very little to give your kids that head start.
Or your kids have to write things like these when they reach middle age too.
And if you live long, you will just have lots to complain about your younger self.
Part of the "habits" thing is that they have to span horizontally across family and friends, and vertically across generations. A private village of people all pulling together will be far more effective than any one person pulling alone.
All your argument is based on your ignorance of what investing and compounding means. Not interest rates. Investing in stocks, bonds and assets. Nobody ever has implied that you can build wealth by saving accounts.
There are no savings accounts with interest comparable to stocks. If that was so nobody would invest in stocks because one has big risk and the other zero. You are very financially illiterate and I don't mean it as an insult. Sadly these things should be taught at schools. Also, there are currently no 5% saving rates in any of the big currencies.
It literally doesn't matter if there are savings accounts with 5% interest. The example was illustrative and focused on the percentage, not the vehicle through which it was earned. You're being pedantic to the point of distraction here and not adding any value to the subject at hand.
Writers probably mean compounded investment returns from the public markets. I would be surprised if anyone thought an FDIC insured bank account was going to have an interest high enough to get you anywhere.
Struggling to find more because they don’t share common searchable text in the tweets but this has become the default format for these stories, on Twitter at least:
This is not to say it’s the majority of scenarios or anything, but it is funny to see how many headlines say something about how some “weird trick” helped people
become millionaires and then the story mentions a significant inheritance or gift.
Reminds me of The Onion: "McCain pointed to his personal success in marrying a wealthy beer heiress to prove how the plan could benefit every American."
Or at least be born at the exact right time in the right country when a new market emerges.
Bonus bragging points if you're born with a certain ethnicity that has no options but to enter in that niech market because the mainstream ones have high moats around them.
Putting some stonks your kids name when they are born might not be a bad idea..
There's probably some tax benefits. And a good chance they won't touch it for the first 18 years -- By which time you might have given them a taste for compounding interest :)
My parents were of modest means, but they set aside some money for 18 years to help me with educational expenses. Not only did it help me graduate debt-free, but discussing what my education fund was doing as I was growing up left me much more comfortable than most members of my generation handling finances.
Not true. Realize capital gains each year in a UTMA account up to the kiddie tax limits. File a return for the kids instead of putting their gains on the parent's return. It can be significant over 18 years.
Thanks for the correction! Although, would this make a difference if you were just investing in an ETF and not selling and then gifting it to the child, assuming it’s less than the lifetime gift tax exclusion?
While you held the ETF you would be paying income taxes on the dividends at your marginal rates. If the kid holds it in a UTMA some of those dividends would likely be taxed at the lower kiddie bracket.
Agreed, the step up at death on the cost basis would be advantageous but then you have to be dead.
I don't think this is completely true as credit cards/bad loans can be a great way to not inherit money, still spend it like you have it, and stay in a very deep financial hole.
On one hand, I find the rhetoric in the (originally linked) article annoying and unhelpful.
On the other hand, I wish it wasn’t taboo to talk about money in our society. I wish I could read stories about normal people managing their finances well, from how to save wages from a minimum wage job up to managing a large salary, liquidation event, or trust fund.
I feel like I was wholly unprepared to deal with money effectively and had to learn from my mistakes along the way. I’m horrified when I talk to people with money who don’t know the difference between an appreciating asset and a depreciating one, or have never touched the stock market, or don’t understand risk versus reward and how to manage risk. After my sister bought some stocks on Robinhood, I had to explain how it encourages risky behavior (my euphemism for gambling).
Comparing notes with friends in similar situations was like a breath of fresh air. I hate twiddling with numbers as much as the next person, but you kinda need to understand capital to do well for yourself in the US.
>On the other hand, I wish it wasn’t taboo to talk about money in our society. I wish I could read stories about normal people managing their finances well, from how to save wages from a minimum wage job up to managing a large salary, liquidation event, or trust fund.
r/personalfinance covers what you can do with less money.
Bogleheads or biggerpockets forums for experiences about handling more money.
For even more money, you should network and hang out with rich people and will probably need to get involved in politics at some point.
well this is mostly semantics: the quote does not contradict, most of the wealth was self-made. as in the profits accumulated during their lifetime, it doesn't say anything about how the first one million or any amount was made.
your consternation requires you to have a fixed and shared definition of self made that is just not described at all here.
it does leave a glaring hole about then which wealth was not self-made. alimony? child support? having a million now but having inherited ten million?
of course its not people that spent years in debt, worked on salary, dealt with illness in their family, and made millions. that's very rare and life will never be catering to that, so, yes, a life with more options from earning this way is BS and it does keep people motivated enough to continue trying anyway, but that's not what this article was talking about.
It's also survivor bias— having a million bucks gives you the cushion to take those riskier bets, and the people for whom that works out are the ones we read about. There are certainly others who gambled away mom and dad's money into nothing.
One cannot transform 1 million into 100 millions without having 1 million in the first case (unless some debt leverage is used, but that is besides the point here). Right.
However, I fail to see how that removes any value (or makes the task look easy) regarding Mc Donald's perspective. For that one guy who transformed 1 million into 100 millions, how many actually lost most of their initial million (in stock trading)? I am like most of us here: I imagine that if I had a million somehow, then I could easily become a billionaire thanks to my wonderful intelligence and wits, because I am better than every other millionaire out there, right? That is all wishful thinking though, and I dread confronting reality to my ego.
In reality, if I had a million, I guess I would invest it into the most risk-free assets rather than bet it all in stock trading.
If you had a million you could also get a loan with interest less than "risk free" assets. E.g. The stock market makes 7-10% but you can get a loan for 1-3%. So 1.5x your returns then become 12-16%.
Perhaps you can invest in lower risk dividend stocks which will pay out your interest + a little and 3x. If we assume those stocks only make 4% but also pay out 3% then you are looking at 16% returns. Moreover when those dividends get raised you are doing even better.
The article points out 2,000x returns where possible if he started at 18 using the equivalent of index fund investing. So, he could have underperformed the market and turned 1 million into 2 billion let alone 100m. The critical issue was not spending his inheritance rather than needing to have amazing returns over that timeframe.
> It's a lot easier to get a hundred million dollars when you start out with 1 million to put in the stock market.
This statement could only ever be uttered by someone that has not tried to do this.
100x increase in any endeavor is extremely exceptional. It's as hard to do as turning $10,000 into $1,000,000.
The only thing having a larger starting amount helps with is that it opens up types of opportunities you did not have before that require greater starting capital and are outside the stock market. Those additional opportunities are as hard to capitalize on as the smaller opportunities that only require $10,000, especially since you need not only money but a lot of people with expertise that you can trust.
But within the stock market, a 100x return is something very few people in the market ever achieve.
The only place where having money clears some significant initial hurdles is probably getting to the first $10,000, maybe the first $100,000. This is a hurdle many have cleared in their lifetime and they still haven't succeeded in turning it into $1 million to $10 million, respectively.
You said it was provably not as hard and didn't try to prove the point you're making. I agree you can take more risk, but there's no guarantee that you're taking better risk and nothing about what you claimed proves that.
It's almost certainly more challenging to take better risks as the investment requires gets larger. All sorts of new challenges crop up that didn't exist with smaller investments. It's the reason why companies have a harder and harder time sustaining the same growth rate as they get larger.
Within the stock market alone, you get access to the same exact risks as the people with the $10k YOLO accounts. If you look at WSB, you'll see a lot more posts about people posting losses on their YOLO accounts than posting massive wins. There are a lot of sharks swimming in the capital markets with deep expertise.
> if I have a bunch of money, I can pay for expertise/management that is going to net me a higher return
Not starting with $1 million. At $10 million you have to be the shark. You need to be closer to $100 million to be able to afford the sharks the don't have their own principal to work with. Even then, you still need to know how to hire the sharks.
I feel like "self made" doesn't have a useful definition anymore, since people disagree fundamentally on what it means. Arnold Schwarzenegger for instance argues there's no such thing as "self made".
stocks literally represent the right to control capital and be paid by others who do work using that capital. it's the most explicit form of "not my labor" in the entire economy and i'm not sure why you expect op to explain that
I said this in another comment, but I think that you think I find this controversial, and I don't. and I keep forgetting that this is the default assumption these days on wealth related topics.
My thoughts are limited to exactly what I said and I am content with this reality that the profits accumulated during their lifetime are counted as self-made, it doesn't say anything about how the first one million or any amount was made, and that wage earners are excluded from playing from math alone.
>well this is mostly semantics: the quote does not contradict, most of the wealth was self-made.
Just for reference, and we don't know how much he really inherited, if he inherited $10M and put all of it into a SP500 index fund that earned 8% returns per year he would have $100M after only 30 years. This is with 0 additional capital invested, 0 effort, 0 skill in picking stock, doing nothing but tracking with the market so perhaps his "self made" status isn't really that impressive. The Author guesses he did better than average to make his fortune but that doesn't seem necessary at all.
Alimony implies marriage. In marriage all the money earned belongs to both parties. If there's only a single earner and the other is a nurturer, so what? It's still both party's money. Alimony is there to help the nurturer transition back to an earner.
Child support is, well, you made them, support them. Simple.
Money paid in alimony has nothing to do with money earned in marriage. The divorce division of marital property covers that. Alimony supports the lifestyle. Would you consider a recipient self made or not.
Would you consider a recipient of child support self made or not.
The point I am making? One cannot say someone is not self-made simply because they're getting alimony or child support without acknowledging the contributions during marriage.
What percentage of those millionaires are house-rich? I.e. the house they live in just happened to appreciate significantly and is now worth over $1mm? Those people can still feel as if they are not wealthy at all.
We got a good century of usage out of the term, but inflation has certainly caught up with it. A boomer that inherited $1m shortly after the end of WWII would be the equivalent of like $14m today with inflation.
Which is helpful if they want to and are able to move to an area with lower real estate prices. Otherwise that 'wealth' is tied up in a good they are unable to sell (without incurring an implicit debt of either needing to find another house in the same high price area, or having to pay for rent in the same high price area).
A house may be a reasonable investment vehicle; it can also be an extremely illiquid one.
Certainly. If they've actually purchased the home, and are not mid-mortgage on it. Honestly, crunching the numbers in my high COL area, the cost for a ~$1 million mortgage and the cost for renting a nice two bedroom, at the current rates, are basically the same.
Essentially what you're saying is that because someone has put money into mortgage payments instead of rent, they're better off financially, and I'm completely in agreement with you. I just don't agree that it somehow implies they're living high on the hog, so to speak; yes, they have additional options if shit hits the fan (metaphors metaphors!), in that they can cut their losses, look to sell, and move to a lower cost area and have a bit banked (and -maybe- retain their income given remote work, but also maybe not), but that's still quite a lot to expect.
The scenario in this thread was originally "the house they live in just happened to appreciate significantly and is now worth over $1mm". You're describing quite a different situation.
That owner by definition does not have a $1m mortgage - or if they do, they have quite literally cashed out.
That owner is, in fact, saving a proportion of everyone else's general housing costs, compared to new buyers and ongoing renters.
Someone with a $1m mortgage is in quite a different situation (while likely very rich in terms of net worth, does not have to be a millionaire in terms of net wealth).
I mean yes, but when you've built your life in a place, it's little comfort being a "millionaire" if the only way to cash in on it is to pull up stakes and move hundreds of kilometers away.
I suspect arguments like this are even less comfort to people who have rented apartments their entire lives and aren't sitting on a million dollars of property.
If you cash out for a million dollars I'm positive you could find somewhere to rent in the city you currently live in. Maybe not a kilometer away but certainly fewer than hundreds.
It's old retired people, mostly, I guarantee it. One million dollars doesn't mean what it used to. If you hit 65 and don't have at least a million dollars in retirement accounts, you'll be working as a Wal-Mart greeter. Healthcare's insanely expensive, even on medicare. A "household" at retirement is probably two people, so that's half a million a person and you're "millionaires" but sure can't live like the term implies. Retire at 65 a low-end "millionaire" and your kids may well not inherit jack-shit. It'll all go to hospitals and hospice care and such, before the end.
Add in that Boomers skew much richer at the same stage in life as later generations, and that they're a large chunk of retired people, and yeah, "1 in 25 households are millionaires" just means half or 1/3 of retired people aren't living on cat food, and were actually able to retire. Hooray.
Compound interest is a thing. If you are fortunate to have a job that allows you to save money, and you put that money in the S&P 500 it will double every 7-10 years.
His wealth was inherited, but if you start to invest money in your 20s, and you invest every month at dont touch it, you will most likely get rich if you live to be a senior.
Yes, if you are fortunate enough to have a job that allows you to save money--that's less than half the working population of the US, where the median bank account value is under $6k. Someone with a bank account that low isn't investing $2000/year starting at 20 years old to achieve a $1M (pre-tax) portfolio at age 67.
That's the whole reason people object to these "just start saving and compound returns will make you rich" myths. The fact is that only people near the right-edge or beyond of the curve in terms of income will ever "invest and be rich" in a given lifetime. It takes a combination of extreme luck and risk-taking to achieve wealth in this society.
The thing that's hard to come to terms with is that there is a wide range of incomes of all those that don't make enough money to save. That is, someone making 50K a year has just as much problems saving as those who make 30K. Of course there are reasons for this -- on the lower end of the payscale people rely more on outside assistance, or they forego certain necessities that impact their quality of life. You are still having to pay every penny of income towards physical quality-of-life expenses up to a certain point, then above that level is small luxuries that have a big impact on emotional quality of life. Past that point is where you can start really saving.
something like 60% of people can’t reach 1 million let alone 2, given their position in the lifetime income distribution. i’d be all for changing policies with the sole focus of giving everyone the opportunity, but not the right, to reach $2 million in wealth by retirement age. that would require some wealth redistribution to start, and radical shifts in how we allocate income. since that disfavors the already wealthy, it’s hard to effectuate without sustained, concerted effort by the 99%.
I don't want to be too combative because you do have a point that, especially with kids, its hard to not live paycheck to paycheck. But if you start early all you have to do is bust your butt and live cheaply for a couple of years and wait for compound returns to kick in.
Back of the hand says that if you invest 10,000/yr from 20 to 30 you'll have saved ~$100,000. And then 7% and with the rule of 72 is then:
30: 100,000
40: 200,000
50: 400,000
60: 800,000
70: 1,600,000.
S&P is closer to 12% than 7% which means you might be able to get away with saving less aggressively or earlier retirement. If you are able bodied and willing to learn a trade you should be able to make atleast 20/hr. I made 19/hr right out of college as a manufacturing technician and saved ~1000 month. You have to sacrifice to do this e.g. live with roommates in a cheap area, rarely go out to drink/eat etc., but if you start early, don't have kids and save aggressively its very doable. I didn't completely live like a monk, I bought a canoe and went canoeing most weekends and had a rock gym membership for one year while doing this and a martial arts membership the other year. I also lived one block from the projects in a 3-1 with 3 other people so rent was tiny and ate rice and beans + chicken thighs or eggs 3-4 times a week for dinner to keep the cost of food down. Its straight forward on median salary, but you have to sacrifice. The budget is straight forward too: The budget is simple, you get 400 for rent, 400 for food, 400 for transportation, 400 for bills (internet, electric, water, sewage), 200 for health care expenses, 100 float and 100 for fun. You can even do it in SF if you do two people to a room (just like dorms in college) in a large house--transportation will goes down, rent might go up and food probably goes up as well.
You could also work 50 hours a week and save that extra 25% of salary which again at entry level in the trades would yield you close to 10,000/year (minus taxes but hello IRA). The Dave Ramsey retirement calculator says that if you save 1500/month from 22-25 you with 10% returns and no savings after that you'll become a millionaire at about age 53. You can make that happen as an entry level mechanic who lives like I did who works an average 10 hours of overtime a week.
don't wanna be overly combative either, and i didn't double-check the math, but that's an awful lot of constraints and assumptions built into that docket.
one i'll question immediately is 12% returns, which is quite high given historical means and a figure you'd expect a reversion to sooner rather than later. you'd also need to have a brokerage/retirement account of some sort and have enough financial literacy to know to invest in the s&p vs the thousands of other options available. you'd also have to be lucky enough not to hit a severe recession/depression too early or at another inopportune time in your life, like while having a serious medical condition.
with that said, yes, you can totally live off of $2000/mo and save $1000/mo (i've done it for a short time) if those stars do line up (like being young, having no kids, and finding $400/mo rent) for some number of months, but i'm not sure it's feasible longer term for most people most of the time. circumstances and people change.
> Back of the hand says that if you invest 10,000/yr from 20 to 30 you'll have saved ~$100,000.
So you're telling me that all most Americans have to do is put at least 1/3rd of their paycheck into savings in order to have a chance to retire well? I'm sure they will get right on that sound financial advice.
Buffet’s dad was a federal congressman with his own investment firm, and grandparents were owners of a grocery store. Not saying he didn’t work for any of it or didn’t deserve it, but you’re not going to be Buffett by socking away 20% of your pay in a retirement account (you might be nominally if US gov keeps printing money, but not in real terms).
He certainly is an outlier in terms of intelligence and work ethic, but I would assume connections from his dad helped, as well as the family being able to afford sending their kid to good schools and NYC for further networking and education, all the way from Nebraska in the 1950s.
he is certainly and outlier, and probably a bad example, but i read his biography and if i remember correctly he started investing money he made on is paper route in stocks early on.
It's true your probably not going to make 188M, but even a lot less than that is still rich.
>if i remember correctly he started investing money he made on is paper route in stocks early on.
Yes, and he should be credited with taking that initiative. But note that this was the 1940s. I would posit a high probability that Buffet got advice from his educated father, who had is own investment firm, that 99% of children would never get because they didn't have someone as capable as Buffett's father. And/or the other paperboys had to chip in and help feed their family unlike Buffett who could afford to lose his paper route money and not sacrifice anything essential (again, presumably, but I think it's a good guess).
Even nowadays, with the ease of the internet, I would say that simply having parents who know what a low cost broad market index fund is puts you a standard deviation above the median average in terms of how good of a start you have in life.
> At the moment, something like 1 out of 25 households falls into the millionaire category, most of it self-made.
4% of households is off the mark. It's presently closer to 7%-10% depending on the source [1]. 8% of American adults (~19-20 million people) are millionaires [2]. It's not what it used to be, given the median sale price of a home is now around $350,000. Demographically the mean white household in the US is now approximately a millionaire household.
About 9-12 million households out of 128 million have a million dollars in net assets, including primary residence.
The number of millionaires in the US has soared in the past 4-5 years with the asset price boom in housing and the stock market. For example back in 2016 [3]:
> As of the end of 2016, there were a record 10.8 million millionaires nationwide, according to a new study from Spectrem Group’s Market Insights Report 2017. That’s more than ever before and marks a 400,000 person increase from the previous year. ... In 2016, there were 9.4 million individuals with net worth between $1 million and $5 million, 1.3 million individuals with net worth between $5 million and $25 million, and 156,000 households with more than $25 million in net worth, the report says.
The US has been adding a huge number of millionaires per year (temporary or not) as the asset bubbles have been making new highs by the year.
There’s two kinds of millionaires. The technically millionaires on paper, and those who have access to a million dollars without altering their lifestyle (or sacrificing their lifestyle, i.e. selling their house and moving somewhere cheaper). The latter is a more interesting statistic, in my opinion.
Compounding is also a huge factor in cases like this. If you make (or inherit) money early in life, even if you don’t add much principal, 70 years of compounding does wonders for wealth creation.
> "Wealth is accumulated through habits" is a great story to tell people but it seems very often to be complete BS.
I'm surprised this hasn't been mentioned yet, but I encourage you to dig more into financial independence, and how living more frugally can help you save more money to invest in the right ways to generate wealth. There's plenty of books on these habits, "The Millionaire Next Door", and even some popular communities that attest to it such as https://www.mrmoneymustache.com/.
You don't need to be rich to generate wealth, but it takes sacrifice (like everything in life), or even habits to get there.
If you make 35k a year, what would you sacrifice to save up to become a millionaire? What if you need a car to get to work because public transit has been gutted in your community? What if you have kids?
The whole "personal responsibility" myth is designed to fool comfortably middle-class people who still do labour all day into not resenting the elites who live solely off the surplus value of their labour. It tells you to aspire to "passive income", which is ascension from the worker class into the capital class, instead of redistributive policies that would harm the capital class. You're not poor, you're a temporarily embarassed millionaire.
Without pre-existing wealth, the "Money Moustache" paradigm pretty much requires
1. Get college degree enabling 6-figure income.
2. Marry spouse making 6-figure income.
3. Live off of 1 income for 10 years or so, save the second income.
Then you can implement Money Moustache style finance plans. Or maybe for singles if you can make 6 figures and save over half of income.
But yeah, on 35k it's not very useful advice. Except "get a degree or training to get you into 6 figure income bracket", which may not be realistic, either, given existing time commitments.
This is the most ridiculously untrue comment, and it's not only untrue its the worst possible attitude for the individual to have.
You prevent yourself from attempting anything to change your circumstances, while rolling around in self pity and building resentment towards successful people.
Too much of this destroys societies, and having it personally yourself destroys your life.
I appreciate that you think it's ridiculously untrue. This means that you're either already rich (and therefore lucky), or you think you might be rich soon definitely (but aren't right now). In both cases, your line of thinking isn't compelling. In the former, it's because you suffer from survivorship bias and in the latter it's because you're clearly not an example of what you're trying to say.
Having opportunities around is lucky, but most people aren't interested in taking the risks or making sacrifices necessary to seize those opportunities.
And often times the ones willing to do this are then later called lucky.
Those risks are risks because they very often don't pan out. The folks that "make it" get to deliver clever speeches about how self-made they are and what a nice pair of bootstraps they used to get where they are today. What's left out of those stories is how many folks tried the same thing and failed. If all it took was the audacity to take a step others are not taking then it wouldn't be a risk in the first place, just a job.
Put differently: To gamble you also need to take risks and make sacrifices. Some people will make it and by necessity those people are the ones that are willing to do that. That takes absolutely nothing away from the fact that the success is due to luck.
You're essentially not engaging with my comment at all, just repeating what you said before. I don't find that a compelling way to have a conversation.
I'll be more direct since you can't seem to infer into things yourself.
"To gamble you also need to take risks and make sacrifices."
This statement reads as if you look at all risks as gambling. I disagree with you. With good information and intelligence, things may not be a sure thing, but you can make your own odds very good. You are basically doing work to "increase your luck."
I don't think that makes you luckier I think that means you earned it.
I have explained this concept as well as I can, I'm sorry if you still don't get it and have a fixed mindset.
> "Wealth is accumulated through habits" is a great story to tell people but it seems very often to be complete BS.
Yes. It's capitalist propaganda. If you are a highly paid heart surgeon or CEO you can "accumulate wealth with habits". If you are anywhere between flipping burgers to many other types of jobs there's just not enough money "coming in" for these things to make a huge difference. You can be more sensible with your money and you may end up with a slightly nicer car, a slightly bigger house in a slightly better location than your other careless peers. But that's about it.
That's exceptionally untrue - though it can be true in context. In the city beside mine, renting a place downtown, and working in the grocery store it's very possible to save $500 per month. For reference, minimum wage is the equivalent of $1700 USD, and renting a one-bedroom, all in will cost roughly $454 USD. With cellphone (250GB of 5G speeds) costing the equivalent of $15 USD, and groceries and electricity costing another $350, there's still plenty of space. Investing that money in the S&P at its historical rate, for 45 years will yield $2.3 million (rounded down).
Now, quality of life would be rubbish. But it's technically possible.
And most people don't flip burgers. The median household income in the US in 2019 was $68,000/yr [1]. In the part of the US I am from, and the parts I have lived most of my life, this affords an extremely good quality of life with plenty of room for intelligent financial decisions.
So crying "this doesn't apply to people with really low incomes" is true to an extent, but that's only a fraction of the population. Going around saying "well, you shouldn't give that advice because it doesn't apply to everyone, it only applies to most people" is insane.
>The median household income in the US in 2019 was $68,000/yr [1]. In the part of the US I am from, and the parts I have lived most of my life, this affords an extremely good quality of life with plenty of room for intelligent financial decisions.
It depends what you define as a good quality of life, but I don't know of anywhere in the US where $68k comes anywhere close to protecting your family from an unexpected medical or legal expense, especially one that causes a disturbance in the income stream. Personally, that disqualifies it as a "good quality of life".
The biggest weakness is once you get into the 50 to 65 year age range. Your odds of health issues or economic conditions decrease your chances of having decent employment, especially with subsidized health insurance. Your insurance premiums also rise to about $22k per year at the silver level, with a $17k per year out of pocket maximum.
And you have no assistance until age 65 when Medicare kicks in. So if you get don't have an employer with deep pockets after age 50, and you get into a healthcare crisis, all of the assets you've saved up are now in play before Medicaid will save you, and now your family is left with not much. This is the reality for many, many Americans at $68k per year, no matter where they are in the US.
> Wealth is accumulated through habits; at least in a free society like ours.
This is a pretty universal statement if you ask me, and used in the context of praise of someone who started with wealth.
Pointing out that it does not apply universally, and the extending the idea to state that people in poverty are not truly participants in the "free society" mentioned, is a fair development of the discussion in my opinion.
Your first mistake is assuming you can get a minimum wage job for 40/hr (with benefits?). Maybe you can get 2 20hr/week jobs with no insurance, if you can schedule them right and travel between them fast enough.
> renting a one-bedroom, all in will cost roughly $454 USD
A room in a rooming house where I live costs $400/month, so I find this pretty suspect. Where is this extremely low COL city? Or is this assuming you have 3 roommates?
> With cellphone (250GB of 5G speeds) costing the equivalent of $15 USD, and groceries and electricity costing another $350, there's still plenty of space
$350/month for food seems low presuming you're working 40+ hours/week at multiple places. I'm assuming you're going to end up buying some prepared food at some point because you're run off your feet.
Your expenses don't include a car - does this extremely low COL city have an amazing public transit system that will help you get to your not-9-5 shifts? Or are you going to spend an hour waiting for the bus each way? How do you swing that if you have two jobs?
Assuming you don't have benefits, you better not take any prescription medication, or need glasses, or sustain any injuries. Even if you do, what's your co-pay like?
You still haven't purchased any clothes, shoes, any sort of entertainment, or enjoyed your life in any way. You need to wait until you're 65 to begin to live your life in any meaningful way, assuming you made it that far. And you certainly don't have kids to help take care of you!
As I mentioned, elsewhere, this is in Israel - and clearly not a HCL city like Tel Aviv. While I'm not the example, I pay less than this for many things, simply because of city I live in. My cell, with 250GB of data (as an example) is 29 NIS - about $9 USD.
Prescription medication, and glasses are covered by our equivalent of HMOs. Depending on income levels these are literally free. There are no copays - we have socialised medicine.
Yesterday, I bought a pair of jeans and a t-shirt at Fox, the local store. Their cost - 55 NIS (that's ~16 USD). For a further data point, a monthly inter-city transit pass costs ~256 NIS so < $77. It also takes an hour to get from a low cost of living city, to a HCL city where one is paid more than these minimums.
Again, I don't think that someone doing this would have a high quality of life. I'm just saying that it is very possible - but it depends on many things.
Good analysis. I'd like to add the cost of change. At some point you will move places or change jobs. You will have periods of less income and more spendings. This adds up. A few months of saving evaporate.
It's technically possible, but involves forsaking: personal mobility, the ability to start a family, private healthcare, taking leisure holidays, costs of seasonal cultural/religious events, the ability to buy a home and any safety net for disasters, emergencies or unforseen events. It also excludes inflation, which is likely to outpace any pay rises or promotions.
Even if self-imposed, I'm not sure choosing to live a life which excludes things listed on the Universal Declaration of Human Rights should really count. This is why the idea of a "living wage" was created, to show the cost of entry to participate in society as it is - more than simply having a phone contract. https://www.livingwage.org.uk/sites/default/files/LWF%20Life...
I assume the whole point of picking the S&P 500 and not, say, Bitcoin is that it is something that an average person would reasonably invest in. Presumably you don’t live in the US. Who exactly is working at a grocery store abroad and putting their savings in SPY for 45 years? Are there average people abroad who would’ve invested all their money in US markets for the past 45 years and considered that a financially sound decision? If not, the example given kinda feels cherry-picked.
I'm in Israel. This is extremely normal. We have trackers on the TLV. If you work anywhere and have any sort of pension, the default (i.e you sign your employment contract, and forget about life) is 80% tracking the S&P 500. To be clear, pensions are a thing in this country - most employees are legally mandated to pay into them, with pre-tax dollars that are received as a credit, with an employee match. That amount is 7% of your gross salary. Meaning, in my example, at a minimum, the average Israeli is saving $122 (USD) per month.
Rubbish quality of life likely means further investment into mental healthcare so someone doesn't burn out of their shitty life.
And that's assuming nothing happens (literally nothing) that sets you back. Nothing breaks, no emergencies, no health scares, no economic shocks. The likelihood of this is very low.
Did you live like this for a period of more than 5 years? You just gave a snapshot from an ideal situation. Fact is, income is always less, spendings are always more. Don't know about the US, but in Europe living on minimum wage, trying to cut all costs, there is very little you can save.
My grandfather flipped burgers in high school and worked his way up to VP of a glass installation firm in the Mountain West, providing his grandchildren with a college education and a small nest egg.
But if you are ego-centric then I can understand why you’d be bitter.
About 20% of millionaires inherited their wealth. [0] (It may actually be far less than that, if you interpret "inherited their wealth" to mean "inherited over a million dollars." [1]) Almost 70% of those with ultra-high net worths are self-made. [2]
These articles are all exceptionally light on details.
A good example: Zuckerberg is considered "self-made," right? Except he had a wealthy father (dentist) with wealthy social connections who funded his company. It is at best misleading to claim Zuckerberg is "self-made", in that it completely elides substantial luck and money he did not, in fact, earn, to get where he is.
Zuckerberg certainly has the benefit of having parents a few standard deviations above the mean who could afford to send him to a nice school a few standard deviations above the mean and coming of age at exactly the right time that the internet was about to become ubiquitous.
However, compared to others, he is pretty self made in the sense that he did the grunt work to create his website and get it off the ground. Obviously, almost no one vaults themselves to the top with zero help, but Zuckerberg is a far cry from someone who inherited a trust fund and then placed various bets hoping to hit it big by funding someone else's work.
"Self-made" is one of those terms that one should probably never use, since it rankles otherwise generous readers. If you can get past that indiscretion, I think you'll see that I didn't actually make any claims that contradict your rebuttal.
Here’s a guy who saved his money and invested it and made a huge fortune from an inherited fortune, all so he could give it away.
The response - “ugh what an a-hole, who inherited his wealth”.
I’m so sick of hacker news. I mean if you were defending someone who squandered their opportunities but the bias was in the system, I applaud that defense. We should be very aware that some people are screwed and oppressed.
But it’s like you can do no good, unless you’ve overcome some huge gross injustice, or had zero privilege.
It reminds me of the Baptist’s who tell people they have no faith because you haven’t first went off and totally screwed yourself up and riddled yourself with addiction before “coming to Jesus”. If you respond well “I’ve just tried helping the poor, trusting and worshipping what I know of God, and being compassionate towards my fellow man” they’ll ask “but have you been first an awful human being then prayed the Jesus prayer?”
Likewise on HN - “I gave all my money to charity to help the less fortunate” response - “yeah but did you inherit that wealth?”
The religion analogy is great, because that's what this is.
Wealth, privilege is now original sin for a lot of people. There is no real way to get out of it. See here. Even giving it away means you stay guilty. Never mind the guy didn't even spend his money on anything. Just having it is sin.
I think the only way you can get rid of this original sin is by donating to climate change efforts or BLM or something similar. But I'm pretty sure even then you will be thought of as the inheritor of priviledge.
And this, by the way, is how bolshevism is born. Like actually.
Not a fan of grabbing into the 'ole anti-communist propaganda box. I'm not saying communism is a great ideology, I'm saying that we are far from bolshevism, and calling people that have gotten used to fighting privilege and have thus become ideological 'bolsheviks' is unoriginal and boring.
I do think that if you were born with privilege, you don't lose it. Can't undo the past. So yes, even if you give your money away, you are still the 'inheritor of privilege'. It's not about trying to lose that title, it's about what you do with the title. If you donate it all, that's great! But gotta acknowledge where it came from, and not pretend like it was only "habits and hard work". Face the fact that you are privileged, it's not shameful.
Another Comment in this thread already explained that it's not about this guy in particular, but the people who pretend like privilege is not a thing.
TLDR: No matter how much you donate, don't deny your privilege if you don't want to be called out for it.
We even have a prominent populist who "will return power to the people". And to be frank, when half of the nation lives in poverty, poulists won't have any trouble getting votes.
> The response - “ugh what an a-hole, who inherited his wealth”.
I don’t see any comments calling the donor a pejorative. The other comments are accurately pointing out the article is wrong about how he obtained his wealth.
The comments are not bemoaning the guy, they are bemoaning the article that implies the way to build wealth is with good habits.
The guy didn’t write the article, he lived a long life and donated a lot of money to charity after his death. I’m sure he’d be the first to say that he was lucky to have inherited so much wealth.
That’s true. I should be more fair. My comment is a bit out of frustration at maybe one or two other comments.
While the criticism against “good habits build wealth” is legit when it leaves out the inheritance fact, i think I was just annoyed that the focus was on that rather than what was a good use of an inheritance.
Giving What We Can is a community of people who have pledged to give at least 10% of their income to cost-effective charities. I'm a proud member of 10 years.
Effective Altruism is very confusing to me as it seems to only address the symptoms of poverty and not the root causes.
In a very abbreviated version, that root cause being that our society requires that some labor in terrible conditions for little pay because it is necessary to maintain profits. And, those people having little power to oppose this state of affairs compared to those who perpetuate the status quo, nothing changes.
Individual acts of charity like these are inspiring, but you will never get enough people/money on board with your program through the kindness of their hearts. It’s like trying to change the direction of the wind by blowing and trying to convince your friends to blow as well, except it’s even worse because those who have tons of money (as a class) will actively act to keep the system going.
Early years of Effective Altruism (EA) was about promoting "earning to give" as it was a straight-forward and simple way for people who are late in their careers to do a tremendous amount of good (by giving to cost-effective charities). But as the movement grew, there are more individuals joining at the beginning of their career and are more flexible with what they can do: enter https://80000hours.org/ (80,000 hours is roughly the amount of hours people will spend during their working life).
There is now a misconception that EA is about "patch fixes" rather than addressing "systemic causes". This is unfortunate, as numerous people within EA are concerned with the far future and broader goals than helping most-in-need individuals immediately. For example, pandemic risk (and decreasing it) has been on the EA radar well before the current pandemic.
One lesson from EA, is that you can't in good faith say "I can't do much good, I'm not working in a non-profit" -- since just about everyone (who is well over the US poverty level) is able to give at least some amounts to charity. And since giving to cost-effective charities can be 1000x the positive impact of average charities, you don't even have to give much to do a lot of good (see https://givewell.org/ for recommendations).
As for people who want systemic change, EA is all in favor of it - connect with others working on the same issues, and focus on effectiveness as you do the best you can with your efforts.
> that root cause being that our society requires that some labor in terrible conditions for little pay because it is necessary to maintain profits.
Economic theory would argue that: "little pay" is because they produce "little value".
I know pay and value are not aligned. But better education, health prospectives and stability (not war) tends to improve pay throughout an economy.
Individual acts of charity, especially effective altruism, is more like blow with the wind. Contrary to popular belief extreme poverty is rapidly declining.
> Economic theory would argue that: "little pay" is because they produce "little value".
Any economic theory that predicts this is probably not very useful, since this claim is easily falsified. Consider e.g., the situation of Amazon workers who are paid low wages and forced to maintain such a pace that they need to go to the bathroom in bottles and bags, but whose labor on the other hand caused Jeff Bezos' wealth to increase by over $100,000 per worker over the last year.
Kinda funny that people think he makes the world a better place but all his earnings are someone else loses and there is no was to know how much of these loses comes form people who dont need it. Most of it probably came form taking a cut out of someone else profits because long time the marks only go up so by beating other players his assets went up more.
He may got it form "the rich" or maybe from a retirement fund who knows.
Most millionaires opt for stealth wealth. Their friends don’t know, their coworkers don’t know, their extended family doesn’t know. In a few cases, not even their children know! Wealth is accumulated through habits; at least in a free society like ours. At the moment, something like 1 out of 25 households falls into the millionaire category, most of it self-made.
From the comments:
Your right in Jack MacDonald's case too, he didn't make his initial money from stocks, his wealth was inherited which was then invested, he didn't spend any of it because he thought of himself as the steward of the inherited wealth
"His wealth was inherited from his parents, who owned MacDonald Meat Co. in Seattle, and he sought to boost the funds by investing their money"
"Wealth is accumulated through habits" is a great story to tell people but it seems very often to be complete BS.