There will come a point in life where you have enough money, hopefully. At that point, you probably should start ventures that aren't about making money (though money-making businesses are a very robust way to change the world).
My theory is that this rarely actually happens. People rarely reach a point and think "ok, I have enough money now; I'll go work at a charity." Mostly due to the hedonic treadmill:
This is actually empirically testable to some degree. I recall a recent study asking millionaires if they had enough money, and most of them said something like "no, I won't feel secure until I have 10-20 mil."
I recall a recent study asking millionaires if they had enough money, and most of them said something like "no, I won't feel secure until I have 10-20 mil."
That's a rational response, given that's about the minimum necessary to provide high current income ($100-200k/year), securely growing with inflation, without touching the principal. That's basically the definition of financial security. The study indicates that empirically, rich people tend to make sound financial decision, which isn't shocking.
> That's basically the definition of financial security.
I feel like I'm in crazy town. What kind of definition is that? So, anyone with less than 15-20 million in the bank is financially insecure. Just like the article, which claims that "go[ing] out to expensive bars all the time in the City" is some kind of unfortunate necessity for people with high-paying jobs.
Is it just me or is there a serious lack of perspective going on here?
So, anyone with less than 15-20 million in the bank is financially insecure.
Depending on your age, yes. If you are old enough you can draw down your savings, though that's a tricky game because if you live too long you run out of money. If you can't stop working and maintain a comfortable standard of living for the rest of your life, you are financially insecure.
Is it just me or is there a serious lack of perspective going on here?
There is, you should really try to figure out what you would actually need to live the rest of your life comfortably if you were unable to work. Maybe you want to live like a college student forever, in which case, you would probably need less than $10 million, but if you don't, taking 70% of your salary as an assumption, then multiplying that by 100 wouldn't be a terrible estimate.
I'd contend that yes, techincally, "Financial Independence" (or "Fuck You" money), is a whole lot. I'd also contend that it varies, and 15-20 million would actually be towards my upper bound, personally.
There's a good book on this topic called "Your Money or Your Life" and one of the nice things they do there is focus not just on the supply side (how much money you need), but also on the demand side (by reducing what you think you need). For example, I like fine meals (like, multi-course meals upwards of $250), but I could probably go without another one for the rest of my life, or cut back. Heck, if I was retired, I could probably teach myself to make just as good food.
Pretty much, yeah. Security is modeled using two terms, what you're trying to protect, and what threatens it. You're either secure against a certain threat or you're not, that's the idea.
Financial security is the model of protecting lifestyle with cash. If you're protecting your lifestyle with something else other than cash, then you don't have financial security, but you still may have security.
Basically it's very simple. If you have a big enough chunk of cash in the bank, you can generate enough income from it to secure your lifestyle. (defined in terms of expenditures) You can then use your cash to protect yourself in ways other people cannot. Cash is a cool thing to be able to use because everybody you're going to want to deal with accepts it. If instead you're using skills to protect your relationship, or even worse, a job, then you'll only be protected so long as you can derive cash from those assets.
Personally, I protect my lifestyle with my web development skills which I can take with me to any of a large number of companies who will give me cash. This affords me a great amount of security against hardship, but it isn't financial security. For one, I still have to work.
Also the world could decide that web development blows and it could suddenly be much more difficult to find a job. I would be forced to take whatever job I could find to secure my lifestyle, and then my security would only last as long as the job does.
Financial security is best because cash will (probably) never go out of style.
People use the term "financially secure" to mean different things. You can say you're secure because you earn enough to support your current lifestyle as long as you continue to work. That is as secure as most of us get.
But you can also consider the term like this thread to mean that you are totally secure financially for life - even if you were to become unable to work.
So in you're case you may be secure for now, but you're not yet secure for life. Very few 25 year olds are already financially secure for life, though.
We obviously just have different definitions of security. That nightmare scenario of having to live the rest of your life on exactly what you have now is extremely rare. There are so many people who manage to live comfortably* throughout their lives without such a massive nest egg. I don't think it makes sense to describe them as financially insecure (which to me says that they are in a bad or dangerous position) because they don't have the most extreme contingency covered.
* Note that I define this as owning a house and supporting a family without having to worry about money, not living a jet-setting life of extreme luxury or whatever.
It's certainly not a necessity, but in my experience and observations it's a strong draw.
Peer pressure, opportunity, and the pressures of the job (which makes you feel that you deserve a good time after all this hard work - work hard play hard) conspire to make it very hard not to indulge in an expensive social life when you're in a banking job.
Some people will resist that and save up anyway. Usually those who resist the pull the best are those with young children - another major financial drain.
I personally don't need £20m in the bank to feel financially secure, because I rely on my ability to earn more, and I account for that. £20m sounds about right if you want a very high likelihood of being able to retire on a perma-holiday for the rest of your life, though. I'd find that terribly tedious, myself, which is why I don't need anywhere near £20m!
Consider the high costs of health care, security and such. Also consider that you may want residences in different nations due to the uncertain in the political climate.
Yeah, but the reason its the hedonic treadmill is because when you ask people of any income bracket if they have enough money, they almost all say that they need 15-20% more.
It may be that you are correct in your assertions around financial security, but the notion of the hedonic treadmill is broader than that.
Yeah, but the reason its the hedonic treadmill is because when you ask people of any income bracket if they have enough money, they almost all say that they need 15-20% more.
High income doesn't always imply high net worth. In 2011, fewer than 1.1% of households had over $5 million in assets. Given that at least 98.9% of households don't actually have enough money to provide moderately high current income indefinitely, everyone thinking they need 15-20% more is more of an indication of a failure in planning and basic financial literacy, not an indicator that they don't actually need more money. I think I need $10-20 million, indexed in real terms, assuming I don't step up my quality of life expectations, which is more than 20% beyond what I have today.
Think of it this way, you're walking down the street in San Francisco, and you get attacked by a hobo (http://www.huffingtonpost.com/2013/06/11/naked-subway-man-vi...), which causes brain damage, leaving you unable to work in your current profession. How many years until you have to make a serious quality of life reduction?
The whole hedonic treadmill is kind of like saying that even the people with the most food today, think they will likely need more food in the future, which isn't really shocking.
I would feel secure at 600,000 post-tax for a 15 year adventure into research for bioinformatics, analytics, and embedded design.
During this 15 year break, I could easily notch away at the big circle of knowledge, generate side income, write books/tutorials and contribute to companies/individuals in software aspects.
I would also be able to work at night. I have a reversed circadian rhythm. I spend most of my nights getting 2-4 hours of sleep and murmuring about math and programming during the other 4-6 hours. A typical job schedule holds back my productivity.
My happiness is defined by obtaining/spreading knowledge. 40,000 (post-tax) a year is more than enough to maintain a household of three, take vacations, and stay on top of technology.
According to my university's accommodation services, sleep disorders do not fall under the scope of these type of service accommodations. I took in sleep studies, health records, etc.
I wanted to have exams proctored at 7PM-9PM. My logic and reasoning fall extremely short at 8AM. I can sleep for 12 hours from 8PM to 8AM and still feel exhausted. Nothing is as rewarding as the sleep I get during daytime hours.
Nootroics, amphetamines, melatonin, all seem to fail.
Is your university public or private? Even if you cannot get accommodation from the university, you may want to speak with a lawyer for once you enter the workforce.
You're assuming the money is invested only as cash in the bank. It's quite possible to make considerably above inflation with other investments, and anyone with that amount of money is very likely to have a range of investment types.
How much of that theoretical nest egg would you risk to investments? 70%? 30%?
Inflation chipping away your savings is a given, but investments that match or beat inflation have no guarantees.
How much of the savings would remain after 15 years? Would you still feel secure going back to work in your 16th year with no money in the bank for your car/home/health/life?
That doesnt sound healthy, you should reverse your reversed circadian rhythm. I dont buy that this is given to you and you cant change it. When i get up at 6 a couple of days in the row its hard at first but after a while it wake up at 6 without an alarm (provided i go to bet early enough). If i stay awake until 2 all the time, i wont get up before 9. Thats a habit and you can change it.
People who have sleep disorders such as Non-24 or DSPS will not set into a societally accepted cycle the way you do. While there are treatments for those conditions, they aren't as simple as just willing the problem to go away.
It is possible that the grandparent is simply habitually nocturnal... but it's equally possible that something else is happening.
My theory is that this rarely actually happens. People rarely reach a point and think "ok, I have enough money now; I'll go work at a charity." Mostly due to the hedonic treadmill:
http://en.wikipedia.org/wiki/Hedonic_treadmill
This is actually empirically testable to some degree. I recall a recent study asking millionaires if they had enough money, and most of them said something like "no, I won't feel secure until I have 10-20 mil."