The model described in the book does work. Spend less than you make, invest the excess in long term assets that have compounding interest rates above the inflation rate. It does produce millionaires. It also requires tremendous discipline over a long period of time. The math is relatively simple, the behavior is not.
While the millionaire described in the story had $8 million in assets, you will find almost no one "next door" with 10 to 100 million or a 1 billion. That level of wealth requires a return on investment that can't be achieved using the earn and save model. It usually requires creating/controlling an assets that can grow in value many orders of magnitude faster than the stock market (real estate, businesses, intellectual property).
Not sure how that would work out. Contributing $30,000 per year to a fund that averages 8% per year for 20 years only gets you $1.4 million. If he lives to 80, this is only $35,000 per year, which will be next to nothing eventually due to inflation. If he left it in the market and drew 5% per year, he could get $70,000 per year, but that becomes extremely risky as you would have to draw during market downturns, which would quickly deplete the account.
The problem with early retirement is how many years you still have left. It requires far more than a normal retirement. Everyone has their own standard of what is acceptable, but IMO a comfortable retirement at 40 requires somewhere in the neighborhood of $5 million. You could do with less if you want to eat ramen noodles for the next 40 years because you can’t really afford to enjoy retirement.
> He didn't splurge on excessive travel, electronics, cars, etc. lived a modest life.
This, I think, is the biggest hurdle for most people. Everyone wants to be a millionaire, but few are willing to sacrifice the short term pleasures and status of their consumption. See also the infamous "avocado toast" debate, which, from my personal experience with fellow millennials, had a lot of merit as a criticism.
It's possible to live a very comfortable lifestyle and save a lot if you're not consumed by the idea that you need to live in SF or NY to enjoy your life. I always see these stories about how it's impossible for millenials to own a house etc. I bought my first house at 24 and sold it for 80k profit 5 years later, paid off my student loans. I'm on my second house now and it's appreciated considerably in the last few years. Both houses were below 250k with and over 1400 sqft. My wife and I have pretty modest incomes and only bring in about 100k a year together.
While there are certainly things I would like to buy that I cannot afford I can buy most of the things I enjoy when I want to without having to worry and still save a lot for retirement.
The book's claim is something like "most millionaires are people who own ordinary small businesses without a luxurious lifestyle".
This article seems to be trying to refute the different claim that "even a low-income person can easily become a millionaire". But I don't think that's ever been true, and it's not really the book's message. Someone making $130,000 as a small business owner isn't "low-income" - the book is mainly contrasting this group with highly educated doctors, lawyers, MBAs, etc, who also have high incomes but spend much more.
My friend's grandfather worked as a meter reader for the electrical company, and maxed out at $30k/year back in 1990. He retired a millionaire by investing as much as he could and never buying anything on credit, even his house. Most of the growth happened in the electrical company he worked for who's stock didn't grow much, but paid great dividends, which he always turned into new stock purchases.
Yes, I've read the book and see this article as slanted just as you say.
When I saw the author's name at the end I was like "oh, that explains it" -- I used to live in LA and I'd wonder why this LA Times business columnist seems to hate business so much.
The linked piece about that book has a different idea of its claim:
> The book “stands today as a sort of promise that everyday people have a shot at accumulating true wealth through habits and not just outsize risk,” wrote Ron Lieber at the New York Times. Wall Street Journal columnist Jonathan Clements called it “a roadmap for everyday Americans who want to accumulate significant wealth.”
> When Thomas Stanley and William Danko published their best-selling book in 1996, they made much of the statistic that “80 percent of America’s millionaires are first-generation rich.” The majority, they pointed out, were entrepreneurs, many working in blue-collar professions.
> Anyone could make it big, the two authors all but proclaimed; all you need is frugality and a few tax breaks. Don’t live in a pricey home. Put a cork in the Cabernet, and pop a Coors instead. But most important, open your own business. When it came to the secret sauce for scoring a million bucks, “a very big factor is self-employment,” Stanley said.
> The ensuing years have not been kind to the working-class millionaire.
> A little-noticed marketing report released last month by U.S. Trust contained the disturbing statistic that while almost a third of Baby Boomers worth more than $3 million claimed to have grown up in lower-middle-class homes, the number fell precipitously for younger cohorts, with 18 percent of Gen Xers and a mere 6 percent of such Millennials saying they came from working-class stock.
The counter argument, and why I’ve never been bent out of shape by books like this, is: these strategies are no guarantee that you’ll live to become an 8-millionaire at 92, but they’re not likely to make your life’s financial outcome worse and even if you die at 75 with “only” $200K and a paid-off house that you lived in for 40 years, you probably experienced less financial (and overall) stress than you would have with your same life conditions but a YOLO attitude, leasing a new car every 3 years for every driver and taking big vacations every year because “you deserve it”.
> “I certainly do not see the point of becoming [a millionaire] if I were to adopt Spartan (even miserly) habits and live in my starter house.”
I can’t help but think of Warren Buffett here. He seems happy in his (well-chosen) starter home.
> But the real secret to his success was catching the asset wave that Taleb mentioned. In other words: luck. The period in which he invested started with extreme undervaluations in the equity market
If anyone is curious about the actual returns of the market, I made a sheet [0] with S&P 500 returns over 10, 20 and 30 years at every possible starting point. Note that this excludes dividend yield which is about ~2% today and higher in the past, which should cover inflation for the most part.
type 10yr; 20yr; 30yr;
min -3.57%; 2.80%; 6.94%;
max 17.05%; 15.49%; 12.74%;
median 8.54%; 10.21%; 9.86%;
So for instance, if you invested over 10 years since 1929, the worst you could have possible done is a continuously compounding return of -3.57% (invested in 1927 and sold in 1937). The next worst is invest in 1938 and sold in 1938 for a 0% return. Everything else is positive.
The worse 20 year return is 1927-1947 for an annual return of 2.8%
But of course no one invests like this. They invest over time and dollar cost average. For instance you may invest $100 a month, in which case your returns would be positive and likely very high regardless of when you start, as long as you invest for long enough (more than a few years)
I don't know why a journalist would quote someone without doing 5 minutes of research as to actual stock market returns and important timing is.
I still don't understand why its so fashionable to have these garbage articles come out about how everyone working hard and saving is an idiot and everything is futile. Does the author believe this crap? What else is there to do but to work hard and save? Would you teach this stuff to your children about how they're destined to be destitute?
This article is from 2015 and one of the author's key points is that we're never going to see the equity market booms of the 80s, 90s, and 2010s ever again. The example is that $100 in 1979 turned into $2000 in 2015... but that's only 8.5% annual RoR. I'm not sure whether it's real or nominal; depends on whether their dollar amounts are inflation-adjusted.
IMO it was tempting at that time to say the next few years are going to look different than the past few. I, not at all an economist, also thought in 2015 the top must be in because, come on, just look at the graph! And the P/E, the CAPE, the Buffet indicator! That was wrong, of course. S&P 500 is up 125% since then, for a 17% nominal RoR. Which is double that 8.5% in case it was also nominal.
random statement: "the millionaire next door" in 1996 is "the $1.73-millionaire next door" in 2021. Or more: CPI numbers just came in at 5.4% an hour ago.
But there's a survivor bias in picking US blue chips. Wouldn't it make more sense to look at the rate of return for equity markets around the world? For example, the Japanese blue chip stock market has been stagnant.
Something tells me this author went to an expensive school to study journalism and went on a trip abroad (or 2), and now doesn't know how to pay back all those student loans. Building wealth is still very much possible, there are many different communities online (FIRE, Dave Ramsey, and so on) where people are doing it, it just involves living a lifestyle that's abnormal for today's standards because consumerism has properly messed up our baseline.
I hadn't read the book itself, but had got a different message.
I thought that most of these people happened to run successful businesses in poorer communities (often immigrant) where their peers were all relatively poor. They therefore didn't get caught on a treadmill where expected gifts and living standards drive everyone to spend all their money on keeping up with the Joneses. Most of the community have little money, not because they're stupid or wasteful just because they're starting from very little. So the outlier has no real need to spend the money and just banks it in their business against downturns and over time it builds up.
Interesting as a phenomenon, but it sounds they were drawing very broad conclusions from that for their book.
Another aspect not touched upon by either the author of this article nor of the book is multigenerational thinking common in immigrants. You KNOW you aren't getting that rich but you are trying to make a better life for your kids. Your kids will benefit. If your kids are industrious then your grandkids will be even better off.
There are whole cohorts of Chinese blue collar people who bought houses in lower middle class neighborhoods who sent their kids of to UCs. Those kids then become doctors, engineers, investors, etc... Some of the grandkids are more laid back but some want to climb further.
A number of people in the FIRE subteddit claim they saving big money living with parents who pay most living expenses until 30 or later. I know my ethnic would not tolerate perpetual adult children tenants. But this is encouraged in other groups.
Someone who is retired, has a million dollars invested in the stock market, no debt and no income today is not rich. They are middle class.
Assume they are collecting an average Social Security check. That's 18K per year.
If the person draws 3.5% of their net worth each year, that will give them an additional 35K per year. (I picked 3.5% because if you look at the history of the stock market, that's a safe rate to draw money for a long period of time, even during past historical market downturns.)
So they can spend a grand total of 53K per year. That's very close to the average US salary, 52K per year.
It's true they don't have to work. But they're not rich. They are middle class.
That is a poor comparison. The 52k is taxed. But even beyond that, your expenses can be way lower if you don't have to work - to earn good money you might need to live in a more expensive place than you would if you had total freedom; you might have daycare $$$expenses; spend more on commuting and food out, and frankly might just naturally spend more due to being more stressed from work and having less self-discipline to avoid a lot of discretionary expenses.
If I had 53k/year just to SPEND - no debt!! - I'd be extremely happy and consider myself rich as I wouldn't have to worry too much about almost anything I'd want to spend on, if I chose a reasonable COL city.
In the old days class meant where your money came from.
The poor got their money from church, government poor houses. They do what they want when they want.
The working class was the manual labor class. Their nose is to the grindstone when they're at work, but they do no unpaid work.
The middle class was skilled trades, some sweaty like electrician most desk jobs like accountant, but all very month to month. They are perhaps the hardest working class in that they are required to work "for free" on salaried weekends and nights and so forth.
The upper class got all their money from investment. They do what they want when they want.
If they were able to save a million, they wouldn't be getting an average social security check. They'd be getting probably the max, at 40K or so a year.
Plus, they could safely draw 4%. So that person would be at around 80K a year.
To your point, that's still firmly middle-class, but with a paid off home, it's not nothing, either.
Rich is an overloaded term. For this context, to me, rich means you can live the lifestyle of your choosing without having to be employed in any capacity.
The "lifestyle of your choosing" just scales up and down with your own desires and resources.
Someone who has accumulated a million likely has had a above average salary and SS pension, i.e. probably $30K a year. A spouse will make that $45K to $60K total. Thats a decent place to start, with additional retirement savings income.
I dunno. My GF rents a house for $950/mo, granted it's the smaller cottage on a $2M property. The owner of the property is a 26 year old optometrist. The guy next door has a $1.5M mansion and runs a septic tank company with two trucks and a bunch of stinkin hoses. (He also doesn't believe in covid and he's afraid to come over since we got vaxed because he thinks spike proteins are gonna sterilize him). The bartender at my local place has upwards of $100k in the bank in savings, and his mom owns a $2M house. I'm still not a millionaire (inching my way there) but a million dollars isn't what it used to be.
OTOH, my brother in LA owns a condo and can't find a new place to move into for love or money. Shit's always bleak at the LA Times, but, they don't get to other parts of the country much.
About 1 in 10 families are worth more than a million in the US, 1 in 20 for 2 millions.
So essentially, in the US, millionaires are the 5%, the upper middle class rather than the "rich". Most millionaires don't fly in private jets, they can afford business class, but there is a good chance for you to seat next to one in economy class. Millionaires have budgets too, and in fact, that they are flying coach may be the reason why they are millionaires, they don't spend all their money on luxury.
FIRE (financial independence retire early) is the new thing. If the millionaire next door isn't possible, what are all these FIRE people doing? Oh right, I know one that's planning to retire soon - in his 40s. Don't worry, that means one more good paying job will be available for someone else ;-)
I think it's also worthwhile to consider not just whether you can amass several millions from frugal spending and steady-hand and sober-minded investments into the market, but whether you should.
I think most people set themselves goals such as working at FAANG, having millions in their accounts, driving expensive cars, not because it'd bring them happiness but because that's the societal expectations that they have unknowingly adopted and never noticed the switcheroo. It makes sense why society as a whole would value this "work to the bone at the cost of everything else" behaviour - it creates good workers whose work benefits the society. It is not clear how it benefits the worker.
At the end of the day, what's the point of having those millions in your bank account when your 75, have bad knees, arthritis and crippling back pain. Decide what you want to do with your life, and work your hardest to achieve that. Don't dance at the tune of someone else's fiddle just so that maybe at the end of that long ride you can get a handshake and a pat on the shoulder.
> Decide what you want to do with your life, and work your hardest to achieve that.
This is precisely the "American Dream" mindset that the article is calling out as a fallacy. Most people are not in a financial position to do what they want, much less achieve lifelong success (financial or otherwise) doing it.
I completely agree with the article and I still think that if you read Millionaire Next Door and it helps you get a perspective on living below your means and investing regularly, that could still be really useful.
I feel similarly about FIRE - retiring early is one of the most unappealing goals that I can think of and the FI part of it is an outright lie - but if you read something on a FIRE blog and it helps you manage your money a bit better, I'm all for it.
There is a busy subreddit- financialindependence- comprised of people hoping to retire by 40. Its a mixture of a frugal lifestyle and high savings. The rough formula is you a financially independent when you have 25 times your annual expenses saved. That is a million if you can live on $40,000. Some single people in professional jobs can fairly easily do this.
I find it sad when some posters go overboard by denying themselves vacations and families just to feel rich.
This article pretends that there no longer undervalued assets to be found and that these guys just got lucky to be there when apparently everything was cheap. The article doesn’t consider leverage was really difficult then due to interest rates. In addition there are always undervalued assets to be bought.
But patience and discipline are required. The first million is the hardest and takes the longest to make.
I've always wondered why we don't see more people with $50M-$100M saved up over a lifetime. The average person can't do it, but there are plenty of doctor/lawyer or tech manager couples in the Bay Area or NYC that can save $100k-$150k per year. Max out retirement accounts, invest in index funds, assume 7% return, assume a long life of 90 years, and... that ends up being a lot of money.
Not saying that couples who are capable of saving that much per year are actually doing it, but rather, you would think it would at least be more common than it is.
An irony here is that after a lifetime of frugality, the hospital and library this man bequeathed his fortune to will spend it flagrantly on pet projects, staff perks, political turf and tail chasing IT projects (and sure, a bit of the mission as well). Such is the way of the world.
There is no hope. Do not try to manage your finances in any way. The only way to succeed is by pure random luck. Your actions make no difference at all.
By the way the LA times has some ads to show you for some shiny things you should buy instead of saving your money.
It's someone you wouldn't even realize is wealthy, because they don't demonstrate wealth visibly. They take care of needs and (some) wants based on their own internal compass rather than the image it would convey.
Certainly, low income and high cost of living is not a recipe for success. But moderate income and moderate cost of living (less than income) can be. The article says investment returns like those can't be replicated, because inflation is too low. But being able to make enough money to invest isn't possible because inflation is too high. Well, you can't have it both ways!
Lets throw some assumptions in... 7% return on investments after inflation.
> If you contribute $834.85 every month over the next 40 years towards your goal, you will have $2,000,000.00 in savings.
> If you contribute $1,764.39 every month over the next 30 years towards your goal, you will have $2,000,000.00 in savings.
$2 million (given the 4% safe withdrawal rate derived from the Trinity Study) would give you $80k annual income. Everything will be in today's dollars, since inflation is already factored into your ROI.
If you started at age 25 and wanted to retire at 55 with $2 million dollars, with the assumption you're spending $80k every year, you'd need an after tax income of $101,172.68 each year. In other words, save just over 20% of your income, and pull off early retirement in 30 years. (If you keep the $80k and $2 million at a perfect 1:25 ratio, this math works for any income/spending, for example ~$63k income, $50k spending and $1,250,000.)
Who thinks someone living an $80k lifestyle on a $101k (after tax) income is hating their quality of life? Drive 3-5 year old cars for 5 years, paid cash. (At the oldest they are 10 years old just before you sell them.) Don't buy more house than you need, with "tiny exaggeration syndrome" where you need the "best" school and the "best" walkable score and the "best" etc... Balance eating out with the joy of cooking. And so forth. Your neighbors will not think you are poor, but they also won't suspect you're getting rich. You will become a millionaire next door.
[+] [-] neonate|4 years ago|reply
[+] [-] mmcconnell1618|4 years ago|reply
While the millionaire described in the story had $8 million in assets, you will find almost no one "next door" with 10 to 100 million or a 1 billion. That level of wealth requires a return on investment that can't be achieved using the earn and save model. It usually requires creating/controlling an assets that can grow in value many orders of magnitude faster than the stock market (real estate, businesses, intellectual property).
[+] [-] TrackerFF|4 years ago|reply
- He chose to go to trade school, and become an electrician
- He chose to live in his small rural town
- He worked overtime whenever he could, but not at the cost of his social or family life.
- He saved around +/- $30k every year, for almost 20 years, and invested it all on index funds.
- He didn't splurge on excessive travel, electronics, cars, etc. lived a modest life.
After he "retired", he enrolled community college to study Electrical Engineering, and now does smaller contracting work that he finds interesting.
[+] [-] nonameiguess|4 years ago|reply
[+] [-] Ericson2314|4 years ago|reply
[+] [-] IAmGraydon|4 years ago|reply
The problem with early retirement is how many years you still have left. It requires far more than a normal retirement. Everyone has their own standard of what is acceptable, but IMO a comfortable retirement at 40 requires somewhere in the neighborhood of $5 million. You could do with less if you want to eat ramen noodles for the next 40 years because you can’t really afford to enjoy retirement.
[+] [-] OJFord|4 years ago|reply
This is pretty pedantic I suppose, but I can't resist - I assume you mean ~ (roughly) $30k? (Or of course $30k ±x, if you somehow knew.)
Saving plus or minus $30k a year is not much to brag about!
[+] [-] xibalba|4 years ago|reply
This, I think, is the biggest hurdle for most people. Everyone wants to be a millionaire, but few are willing to sacrifice the short term pleasures and status of their consumption. See also the infamous "avocado toast" debate, which, from my personal experience with fellow millennials, had a lot of merit as a criticism.
[+] [-] CountDrewku|4 years ago|reply
While there are certainly things I would like to buy that I cannot afford I can buy most of the things I enjoy when I want to without having to worry and still save a lot for retirement.
[+] [-] apsec112|4 years ago|reply
This article seems to be trying to refute the different claim that "even a low-income person can easily become a millionaire". But I don't think that's ever been true, and it's not really the book's message. Someone making $130,000 as a small business owner isn't "low-income" - the book is mainly contrasting this group with highly educated doctors, lawyers, MBAs, etc, who also have high incomes but spend much more.
[+] [-] clutchdude|4 years ago|reply
[+] [-] merpnderp|4 years ago|reply
[+] [-] abecedarius|4 years ago|reply
When I saw the author's name at the end I was like "oh, that explains it" -- I used to live in LA and I'd wonder why this LA Times business columnist seems to hate business so much.
[+] [-] kixiQu|4 years ago|reply
> The book “stands today as a sort of promise that everyday people have a shot at accumulating true wealth through habits and not just outsize risk,” wrote Ron Lieber at the New York Times. Wall Street Journal columnist Jonathan Clements called it “a roadmap for everyday Americans who want to accumulate significant wealth.”
That piece links this one: https://www.reuters.com/article/idUS394135834820131016
> When Thomas Stanley and William Danko published their best-selling book in 1996, they made much of the statistic that “80 percent of America’s millionaires are first-generation rich.” The majority, they pointed out, were entrepreneurs, many working in blue-collar professions.
> Anyone could make it big, the two authors all but proclaimed; all you need is frugality and a few tax breaks. Don’t live in a pricey home. Put a cork in the Cabernet, and pop a Coors instead. But most important, open your own business. When it came to the secret sauce for scoring a million bucks, “a very big factor is self-employment,” Stanley said.
> The ensuing years have not been kind to the working-class millionaire.
> A little-noticed marketing report released last month by U.S. Trust contained the disturbing statistic that while almost a third of Baby Boomers worth more than $3 million claimed to have grown up in lower-middle-class homes, the number fell precipitously for younger cohorts, with 18 percent of Gen Xers and a mere 6 percent of such Millennials saying they came from working-class stock.
[+] [-] sokoloff|4 years ago|reply
> “I certainly do not see the point of becoming [a millionaire] if I were to adopt Spartan (even miserly) habits and live in my starter house.”
I can’t help but think of Warren Buffett here. He seems happy in his (well-chosen) starter home.
https://www.businessinsider.com/warren-buffett-modest-home-b...
[+] [-] bko|4 years ago|reply
If anyone is curious about the actual returns of the market, I made a sheet [0] with S&P 500 returns over 10, 20 and 30 years at every possible starting point. Note that this excludes dividend yield which is about ~2% today and higher in the past, which should cover inflation for the most part.
type 10yr; 20yr; 30yr;
min -3.57%; 2.80%; 6.94%;
max 17.05%; 15.49%; 12.74%;
median 8.54%; 10.21%; 9.86%;
So for instance, if you invested over 10 years since 1929, the worst you could have possible done is a continuously compounding return of -3.57% (invested in 1927 and sold in 1937). The next worst is invest in 1938 and sold in 1938 for a 0% return. Everything else is positive.
The worse 20 year return is 1927-1947 for an annual return of 2.8%
But of course no one invests like this. They invest over time and dollar cost average. For instance you may invest $100 a month, in which case your returns would be positive and likely very high regardless of when you start, as long as you invest for long enough (more than a few years)
I don't know why a journalist would quote someone without doing 5 minutes of research as to actual stock market returns and important timing is.
I still don't understand why its so fashionable to have these garbage articles come out about how everyone working hard and saving is an idiot and everything is futile. Does the author believe this crap? What else is there to do but to work hard and save? Would you teach this stuff to your children about how they're destined to be destitute?
[0] https://docs.google.com/spreadsheets/d/1dGFQUxyUfGyBE5dnz1rc...
[+] [-] mister_tee|4 years ago|reply
This article is from 2015 and one of the author's key points is that we're never going to see the equity market booms of the 80s, 90s, and 2010s ever again. The example is that $100 in 1979 turned into $2000 in 2015... but that's only 8.5% annual RoR. I'm not sure whether it's real or nominal; depends on whether their dollar amounts are inflation-adjusted.
IMO it was tempting at that time to say the next few years are going to look different than the past few. I, not at all an economist, also thought in 2015 the top must be in because, come on, just look at the graph! And the P/E, the CAPE, the Buffet indicator! That was wrong, of course. S&P 500 is up 125% since then, for a 17% nominal RoR. Which is double that 8.5% in case it was also nominal.
random statement: "the millionaire next door" in 1996 is "the $1.73-millionaire next door" in 2021. Or more: CPI numbers just came in at 5.4% an hour ago.
[+] [-] flowerbeater|4 years ago|reply
[+] [-] laurencerowe|4 years ago|reply
Historical inflation: https://www.usinflationcalculator.com/inflation/current-infl...
[+] [-] redisman|4 years ago|reply
[+] [-] vineyardmike|4 years ago|reply
Interesting that the median is lower (slightly) after 30 year than 20 year.
I wonder why
[+] [-] faridelnasire|4 years ago|reply
[+] [-] ZeroGravitas|4 years ago|reply
I thought that most of these people happened to run successful businesses in poorer communities (often immigrant) where their peers were all relatively poor. They therefore didn't get caught on a treadmill where expected gifts and living standards drive everyone to spend all their money on keeping up with the Joneses. Most of the community have little money, not because they're stupid or wasteful just because they're starting from very little. So the outlier has no real need to spend the money and just banks it in their business against downturns and over time it builds up.
Interesting as a phenomenon, but it sounds they were drawing very broad conclusions from that for their book.
[+] [-] babesh|4 years ago|reply
There are whole cohorts of Chinese blue collar people who bought houses in lower middle class neighborhoods who sent their kids of to UCs. Those kids then become doctors, engineers, investors, etc... Some of the grandkids are more laid back but some want to climb further.
[+] [-] peter303|4 years ago|reply
[+] [-] kangnkodos|4 years ago|reply
Assume they are collecting an average Social Security check. That's 18K per year.
If the person draws 3.5% of their net worth each year, that will give them an additional 35K per year. (I picked 3.5% because if you look at the history of the stock market, that's a safe rate to draw money for a long period of time, even during past historical market downturns.)
So they can spend a grand total of 53K per year. That's very close to the average US salary, 52K per year.
It's true they don't have to work. But they're not rich. They are middle class.
[+] [-] adamisom|4 years ago|reply
If I had 53k/year just to SPEND - no debt!! - I'd be extremely happy and consider myself rich as I wouldn't have to worry too much about almost anything I'd want to spend on, if I chose a reasonable COL city.
[+] [-] VLM|4 years ago|reply
The poor got their money from church, government poor houses. They do what they want when they want.
The working class was the manual labor class. Their nose is to the grindstone when they're at work, but they do no unpaid work.
The middle class was skilled trades, some sweaty like electrician most desk jobs like accountant, but all very month to month. They are perhaps the hardest working class in that they are required to work "for free" on salaried weekends and nights and so forth.
The upper class got all their money from investment. They do what they want when they want.
Clearly your example is upper class.
[+] [-] spfzero|4 years ago|reply
Plus, they could safely draw 4%. So that person would be at around 80K a year.
To your point, that's still firmly middle-class, but with a paid off home, it's not nothing, either.
[+] [-] Domenic_S|4 years ago|reply
The "lifestyle of your choosing" just scales up and down with your own desires and resources.
[+] [-] peter303|4 years ago|reply
[+] [-] fleddr|4 years ago|reply
[+] [-] noduerme|4 years ago|reply
OTOH, my brother in LA owns a condo and can't find a new place to move into for love or money. Shit's always bleak at the LA Times, but, they don't get to other parts of the country much.
[+] [-] GuB-42|4 years ago|reply
About 1 in 10 families are worth more than a million in the US, 1 in 20 for 2 millions.
So essentially, in the US, millionaires are the 5%, the upper middle class rather than the "rich". Most millionaires don't fly in private jets, they can afford business class, but there is a good chance for you to seat next to one in economy class. Millionaires have budgets too, and in fact, that they are flying coach may be the reason why they are millionaires, they don't spend all their money on luxury.
[+] [-] oh_sigh|4 years ago|reply
[+] [-] madengr|4 years ago|reply
[deleted]
[+] [-] phkahler|4 years ago|reply
[+] [-] 0x737368|4 years ago|reply
I think most people set themselves goals such as working at FAANG, having millions in their accounts, driving expensive cars, not because it'd bring them happiness but because that's the societal expectations that they have unknowingly adopted and never noticed the switcheroo. It makes sense why society as a whole would value this "work to the bone at the cost of everything else" behaviour - it creates good workers whose work benefits the society. It is not clear how it benefits the worker.
At the end of the day, what's the point of having those millions in your bank account when your 75, have bad knees, arthritis and crippling back pain. Decide what you want to do with your life, and work your hardest to achieve that. Don't dance at the tune of someone else's fiddle just so that maybe at the end of that long ride you can get a handshake and a pat on the shoulder.
[+] [-] Clewza313|4 years ago|reply
This is precisely the "American Dream" mindset that the article is calling out as a fallacy. Most people are not in a financial position to do what they want, much less achieve lifelong success (financial or otherwise) doing it.
[+] [-] EEREPRESENT|4 years ago|reply
if u think people save so they can retire at age 75, u dont understand what u r talking about
[+] [-] jstx1|4 years ago|reply
I feel similarly about FIRE - retiring early is one of the most unappealing goals that I can think of and the FI part of it is an outright lie - but if you read something on a FIRE blog and it helps you manage your money a bit better, I'm all for it.
[+] [-] peter303|4 years ago|reply
I find it sad when some posters go overboard by denying themselves vacations and families just to feel rich.
[+] [-] nemo44x|4 years ago|reply
But patience and discipline are required. The first million is the hardest and takes the longest to make.
[+] [-] throwaway713|4 years ago|reply
Not saying that couples who are capable of saving that much per year are actually doing it, but rather, you would think it would at least be more common than it is.
[+] [-] dougmwne|4 years ago|reply
[+] [-] imgabe|4 years ago|reply
By the way the LA times has some ads to show you for some shiny things you should buy instead of saving your money.
[+] [-] neogodless|4 years ago|reply
It's someone you wouldn't even realize is wealthy, because they don't demonstrate wealth visibly. They take care of needs and (some) wants based on their own internal compass rather than the image it would convey.
Certainly, low income and high cost of living is not a recipe for success. But moderate income and moderate cost of living (less than income) can be. The article says investment returns like those can't be replicated, because inflation is too low. But being able to make enough money to invest isn't possible because inflation is too high. Well, you can't have it both ways!
Lets throw some assumptions in... 7% return on investments after inflation.
> If you contribute $834.85 every month over the next 40 years towards your goal, you will have $2,000,000.00 in savings.
> If you contribute $1,764.39 every month over the next 30 years towards your goal, you will have $2,000,000.00 in savings.
$2 million (given the 4% safe withdrawal rate derived from the Trinity Study) would give you $80k annual income. Everything will be in today's dollars, since inflation is already factored into your ROI.
If you started at age 25 and wanted to retire at 55 with $2 million dollars, with the assumption you're spending $80k every year, you'd need an after tax income of $101,172.68 each year. In other words, save just over 20% of your income, and pull off early retirement in 30 years. (If you keep the $80k and $2 million at a perfect 1:25 ratio, this math works for any income/spending, for example ~$63k income, $50k spending and $1,250,000.)
Who thinks someone living an $80k lifestyle on a $101k (after tax) income is hating their quality of life? Drive 3-5 year old cars for 5 years, paid cash. (At the oldest they are 10 years old just before you sell them.) Don't buy more house than you need, with "tiny exaggeration syndrome" where you need the "best" school and the "best" walkable score and the "best" etc... Balance eating out with the joy of cooking. And so forth. Your neighbors will not think you are poor, but they also won't suspect you're getting rich. You will become a millionaire next door.