The death of the ‘Millionaire Next Door’ dream

https://www.latimes.com/business/hiltzik/la-fi-mh-the-death-of-the-millionaire-next-door-dream-20150310-column.html

by amin • 5 years ago

185 502 5 years ago

neonate• 5 years ago

That whole idea always seemed like a meme. Just work hard, go to college, save your money! For some of us this has worked out. For the large majority of people in the west, however, this has resulted in modern day slavery.

refurb2• 5 years ago

What’s interesting to me is plenty of immigrants prove it’s still true. And they often start out with even less than the poorest Americans.

Sure, there is no guaranteed path to riches. But a comfortable existence free of major wants is more within reach than its ever been.

felipemnoa• 5 years ago

>What’s interesting to me is plenty of immigrants prove it’s still true.

I've witnessed it. I know a couple of people who's net worth is more than a million dollars by simply working all the time, saving their money and buying their three family home. The more savvy ones even own more than one.

And these are people that knew no English, had an elementary education, worked at jobs that lots of people would not work at.

I guess the point is that you can make it, but you have to be willing to work for it.

falcor842• 5 years ago

I wonder if there's some model that could explain it using static friction. If you and everyone around you is and has been at the same socio-economic situation for a long while, it would take something big to make you move, but if you have just immigrated, then obviously there's no static friction and you don't have any particular baseline anymore, so you have a higher likelihood of just keeping in motion, due to the lower dynamic friction.

flerchin2• 5 years ago

Slavery is a completely different situation than the ills of late-stage capitalism.

imwillofficial7• 5 years ago

Is it? From my vantage point we are just serfs on the plantation.

tonyedgecombe• 5 years ago

Well it works better than Just work hard, go to college, don't save your money!

No matter how much you dislike the system you do have to live in it. Choices you make an an individual might well be in conflict with your views on the aggregate.

imwillofficial7• 5 years ago

Why are college loans some of the only kind that can be signed for by your parents, yet not dischargeable via bankruptcy?

imwillofficial7• 5 years ago

Well it works better than Just work hard, go to college, don't save your money!

This is stupid. The alternative is not going to increasingly overpriced and under valued college.

bbrree66• 5 years ago

Maybe he was missing a couple things, but it's not far off. Go to college for a major that has high economic value. Continue building your skills after college. Live below your means. I'd like to see data on people who do all of those things and how they end up.

imwillofficial7• 5 years ago

How much of this do they teach in the average public school?

BiteCode_dev• 5 years ago

Obligatory xkcd:

https://imgs.xkcd.com/comics/survivorship_bias_2x.png

Taleb gives a good stab at that whole concept in his black swan as well.

deweller• 5 years ago

Desktop version of that comic: https://xkcd.com/1827/

LB232323• 5 years ago

It wasn't just his thrift, it was his very standard knowledge of financial markets.

I agree that the economic gap has widened and that our most famous and moneyed capitalists of today "borrowed" large sums from their business owning parents.

However, Read was an outlier in many ways. His discipline likely stems from his military service, and without a basic value investing understanding of markets he would not have amassed his fortune.

He may have been humble, but he was anything but the average guy. What's most impressive is not the building of his fortune but his giving in death.

In a way he embodied both the old American work ethic and the American promise of economic opportunity.

zhdc115• 5 years ago

As much as everyone likes to discredit traditional values, such savings and thrift, they win out in the long run.

The 'millionaire next door' is nothing more than consistently living on less than you earn (Elizabeth Warren has great savings guidelines), investing what you save (read John Boggle), and taking advantage of compounding interest.

It's simple and doable for a large majority of western society. It's not easy though, but that was as true in 1996 as it is today.

Aaargh203182• 5 years ago

As much as everyone likes to discredit traditional values, such savings and thrift, they win out in the long run.

Are those 'traditional values' still relevant in today's economy ?

For example:

taking advantage of compounding interest.

In my savings account, interest is set at 0.01% for accounts with less than €100k in them, and for accounts with more than €100k the interest is -0.5%. Yes, that's negative interest.

So if you're saving up each year, you start losing money, not making it.

lixtra• 5 years ago

Did you miss the reference to John Boggle? Did he recommended to put the majority of your assets in a savings account?

sokoloff4• 5 years ago

If you’re saving for some purpose more than five years out, putting the money into a productive asset (most commonly stock of one or more companies) will beat inflation handily over time.

It’s still using the power of compound interest; it’s just not using a passbook savings account.

smcameron• 5 years ago

Use the stock market, not the bank.

zhdc115• 5 years ago

Don’t put your money in low interest savings accounts.

You can average 7.5-10.5% a year by investing in low fee index funds. Even with the market as inflated as it is, you should still see returns significantly higher than what you will get from a bank.

kiba• 5 years ago

It's true that people can live below their means and save enough to get rich but it's also true that forces conspires to make it difficult.

Housing market and the lack of public transportation almost assuredly made living more expensive than it has to be.

r0fl• 5 years ago

Being thrifty, not having the latest iPhone, not driving a Tesla and not having 3 meals delivered to your door is not fun.

People rather say the millionaire next door dream is dead than admit they don't have the discipline to put off instant gratification.

zhdc115• 5 years ago

The funny thing is that all of those things aren’t that gratifying either once the newness wears off.

Ok, maybe the Tesla is, but anyway.

zhdc115• 5 years ago

Amazing. Thrift, savings, and investing are now apparently triggers for the HN downvote brigade.

EEREPRESENT6• 5 years ago

hah noticed the same thing - unbelievable tbh

acdha• 5 years ago

Who are the “everyone” in your first sentence? Being out of debt is a goal for most people — but it’s not true that it’s just as doable as it used to be, particularly in the United States.

Middle-class wages started falling behind in the Reagan-era, and a number of costs are more daunting than they used to be: education is both more a requirement and far more expensive than it was then, in many areas housing is hard for younger people to get into with a lack of affordable starter housing and commute costs are significant due to the transportation system having been rebuilt around expensive mostly single-user vehicles which spend 90% of the day idle (15% or more of the average American’s income). Healthcare costs are an especially American barrier to savings: far higher than anywhere else in the world, and they tend to carry over disproportionately to non-rich families — maybe you’re young and healthy, but you end up helping older relatives instead of saving or you inherit nothing when they die.

I’ve always lived well below my means but I’m also appreciative of how much that depended on advantages not everyone has. That can be small things (e.g. as a white male programmer, I didn’t have to spend many hours of work on business formal clothing as did many people I’ve known in various office and sales jobs) to big things: I became a homeowner with no family assistance at age 20 thanks to the dotcom economy - people I know who weren’t in tech at that point or who lived in a place like SF where public policy has favored keeping housing expensive instead spent years paying a higher percentage of their income in rent or paying significantly more time and money on long commutes.

I mention all of this because there’s a key factor to savings: a realistic chance of seeing real benefits from doing so. There are always people who are irresponsible or have problems but quite often when you see something you think is irresponsible there’s more going on than you might think. For example, I heard people of my father’s generation comment to the effect of “black people spend too much on their cars” – which was true from what they saw because the invisible part was redlining and less structural racism meant that they were competing for fewer houses and paying higher mortgage rates to do so, and if you are frozen out of the housing market a car is probably the biggest thing you can invest in.

zhdc115• 5 years ago

Stagnant median household income in the US is largely a myth. It hasn't increased as fast as it probably should have (54k in inflation adjusted 2019 Dollars in 1984? -> 69k in 2019), but it has gone up a fair amount.

Expenses have increased, but the bulk of the impact is on higher income households. If you're lower middle class or middle class and stick with CC -> state college, your healthcare insurance premiums are capped by law and college is still comparably expensive, but certainly not the debt trap it's made out to be.

What has changed is how much easier it is to make stupid financial decisions. You didn't have access to easy debt in the 60s and 70s. This is a structural issue, but it's also a behavioural issue. If you make the right choices, you still can absolutely succeed financially.

ianhawes• 5 years ago

"Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires."

This quote explains all you need to know about American culture.

refurb2• 5 years ago

Considering 60% of the federal budget is social spending, I’m not sure I buy that socialism never took root.

ModernMech2• 5 years ago

Government spending on social issues is not socialism. Socialism is when workers own their means of production.

newfriend• 5 years ago

I really hate this quote. It's always trotted out by certain types of people in every discussion about wealth in the US.

It presumes that one should only support a cause that they themselves would benefit from. It also implies that the American poor are too stupid to understand what they're voting for, but only the poor that vote against a certain party of course.

sokoloff4• 5 years ago

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.

https://www.businessinsider.com/warren-buffett-modest-home-b...

bluedino• 5 years ago

"It's 6,570 sq. feet and has 5 bedrooms and 2.5 bathrooms. Fences and security cameras guard the property."

joshuaissac3• 5 years ago

That is very modest considering his wealth, and within the reach of many middle-class and even working-class people.

sokoloff4• 5 years ago

I think the strongest point in the story is his final quote. "I'm happy there. I'd move if I thought I'd be happier someplace else."

If more people would realize that happiness can be had on $3000/mo of household income, even if they bring in $10000/mo of income, more people would be both happier and wealthier.

bko4• 5 years ago

His home is worth 650k today. Fence may add another 20k and security cameras are about $100 a pop

https://www.velvetropes.com/backstage/warren-buffett-house

brk• 5 years ago

It's also one of several homes. While it's very nice (I've been to it), he has nicer properties elsewhere. I sometimes think he maintains that house for novelty more than anything else.

Iwan-Zotow• 5 years ago

kinda low on bathrooms

otherwise ok house for upper middle class

bko4• 5 years ago

Of course. This is reasonable advice that anyone apart from LA Times journalists knows and would teach their children.

lotsofpulp4• 5 years ago

these strategies are no guarantee that you’ll live to become an 8-millionaire at 92

Latin prefixes are not as popular as they used to be.

closeparen• 5 years ago

It is a pretty specific window where these particular luxuries are the things that will make or break your financial future.

ZeroGravitas• 5 years ago

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.

zhdc115• 5 years ago

Thomas Stanley was a marketing by professor who made a name for himself teaching others how to sell to the rich.

The Millionaire Next Door was largely written to dissuade people of the notion the hyper consumerism and associated advertising was an effective strategy for reaching a majority of upper wealth households.

Wealthy households are generally frugal compared to their level of net worth. This is particularly true for wealthy households at the lower end of the scale (e.g., the millionaire teacher who got that way by investing 15% of their net income consistently over 30-40 years).

Immigrants and business owners do have an advantage, and he goes into detail about how living in less wealthy neighborhoods is a wealth building advantage, but his main argument is that thrift, savings, and simple math are the main drivers of wealth.

mojuba• 5 years ago

That, and also I think communities setting consumerist standards (houses this size, cars this make and year) are mostly suburb type. In big cities it's easier to hide your real worth since people mostly socialize outdoors and for example the car-show-off effect is minimal. When you meet someone in a big city chances are they won't even see what type of car you own. These things become less relevant in this type of environments, at least from my experience.

The big city is the place where you can save on things you probably don't need. Move to the city, find reasonable accommodation which I believe is possible even in places like London and Paris, and just don't buy or do things that you don't see contributing to your life goals much. Just enjoy the vibrant and inclusive environment that's a big city. Socialize, exchange ideas, and save save save.

peter3037• 5 years ago

The book has two messages:

(1) Spend less than you earn. Thats why your unassuming neighbor could be well off.

(2) Businesspeople build wealth faster than employees, even if they fail a couple times along the way.

phkahler• 5 years ago

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 ;-)

zhdc115• 5 years ago

We know many people who are either on the path towards early retirement or will have the opportunity of do so. They make good, but not great salaries, live frugally (e.g., use public transportation), and save.

It’s not hard.

he_is_legend3• 5 years ago

Not hard as a rule, but it has one fairly difficult (for many) yet deciding factor: getting that high earning job when you are young, in a FAANG (or comparable company). Working for these type companies is a luxury limited to a very low percentage of people indeed (I have interviewed for them).

notyourday6• 5 years ago

That is until they wake up in their mid forties/early fifties and realize the entire life passed them by.

The problem of being relatively rich and living like a poor person is that it is a life of a poor person. Spending money provides access to experiences. Having gobs of money at fifties or sixties won't reset the clock and unlock what one missed in twenties, thirties and forties

mbbutler3• 5 years ago

I like the idea of FIRE but so many of its practitioners developed their passive income by becoming parasitic landlords. It just leaves a bad taste in my mouth.

moate5• 5 years ago

>...parasitic landlords.

This is redundant.

JohnPrine2• 5 years ago

if you have a problem with landlords then you just have a problem with capitalism in general

trenning• 5 years ago

There's definitely a lot of Airbnb flob house owners that are outspoken in the fire type communities. But in the coastfire/leanfire groups there's more interest in steady savings and living frugal which is much more palatable to read.

gruez3• 5 years ago

becoming parasitic landlords

How am I being a "parasitic landlord" by investing in the S&P500, which is mostly composed of companies generating value?

jstx13• 5 years ago

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.

zrail2• 5 years ago

the FI part of it is an outright lie

This is a perspective I haven't encountered before! Would you be willing to expand a bit?

jstx13• 5 years ago

Perhaps I was too harsh.

What I don't like about FI is that it pretends to be able to quantify the expenses that you'll need in the future with models like the 4% rule which make so many assumptions that the model is useless in practice (or at least the model is dishonest about the risks - one story of early retirement discussed on HN - https://news.ycombinator.com/item?id=26543527)

So when you challenge the idea that those people are genuinely financially independent, the argument that usually comes up is "it's still better than not having that nest egg at all" or "you don't need to stop working, you need to be able to" - which is just another way to say that it's better to have more money (duh).

omnibrain• 5 years ago

I used to read a few of those blogs and for some (most?) of them even the RE part was a lie. They rented out property and had to take care of it and had some side hustles here and there. Some even went into the direction of being "part time farmer". Granted, they retired from their old dayjob and worked way less than before and with more freedom - which is totally a valid lifestyle - but it's at least a bit disingenious calling this retirement.

noduerme2• 5 years ago

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.

GuB-422• 5 years ago

https://commons.wikimedia.org/wiki/File:Wealth_distribution_...

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.

noduerme2• 5 years ago

This describes most working people I know, who mostly with houses and assets would be worth $100k-$1M or so. But they do range across a wide strata of society, from nurses and medical workers to comic book artists to programmers [edit: Those would be my artsy friends. Apart from them, guys in HVAC are buying new houses left and right]; a nurse anaesthetist friend of mine just celebrated her and her husband crossing the line to $1M (including her house equity). Had a little party =D But these are hourly, wage working people, not speculators. If you have $1M you can't live off the interest if you have a house, a car and kids, especially if it's mostly tied up in the house.

oh_sigh• 5 years ago

Having a $2M mortgage is way different than having a $2M net worth.

mmcconnell1618• 5 years ago

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).

the-dude3• 5 years ago

( Not disagreeing ) If you want to lose weight, just eat less. It is simple calories-in minus calories-out. It is really simple..

MichaelRazum• 5 years ago

That is true, in theory easier than gain weight, where you have to do more than less.

kemitche• 5 years ago

Hunger is a pesky thing, however.

And I tend to agree with the conclusion of the article - what's the point in saving that money if one has to live on a shoestring budget to acquire it? Specifically the "work all your life, end with $8 million" case. FIRE is different, with the value being the option to stop working much much earlier than 65 years old.

jstx13• 5 years ago

At some point the question is - "is it really worth it?" Sure, if you save 10-20% on a regular basis, you're just being prudent. But if you go out of your way to save 50-80% of your income and lower your quality of life significantly, just so you can have more money in your investment account, or so you can not go to work (but still live that same extremely restrictive lifestyle)... it really doesn't seem worth it to me. But some people obviously disagree.

the-dude3• 5 years ago

Then there is lots of people who just die before they are even retired.

rwmj• 5 years ago

lower your quality of life significantly

I'm quite happy not owning a huge house, a Tesla and the latest iPhone.

bko4• 5 years ago

No one says you have to save 50-80% of your income. The savings rate in the US is 5-10% historically (ignore the 33% spike in 2020). If you're saving 10-20% you're well ahead

https://fred.stlouisfed.org/series/PSAVERT

toast0• 5 years ago

The easy way to increase your savings rate is to save most of your raises. Most people working in decent jobs will get raises as they gain experience or increase their billing rates. Certainly, I expect most people on HN working in tech to make significantly more in year 5 than year 1.

If you can save most of that, pretty soon you'll have a good savings rate and pretty soon have some good savings.

Also, when you start thinking about retirement and look at rules of thumb about savings amount vs income, you can discount your income significantly if you have a high savings rate. (Looking at needed savings vs predicted expenses is a better methodology though)

JohnJamesRambo• 5 years ago

Very little gives me more pleasure than seeing my investments and net worth grow. Certainly very few things I could buy. The sense of peace and security it gives is worth more than any gadget.

throwaway-8c93• 5 years ago

I'm one of those that save/invest 70% of their take-home income. It's not about frugality at all - I would gladly pay for an increased quality of life - but it's simply not on offer. Past a certain threshold, a threshold well within the reach of western upper-middle-class households, the exchange rate between money and the quality of life becomes essentially zero. What's left are pointless status seeking games, scams and useless trinkets. The Bible's Book of Ecclesiastes describes it poignantly:

I denied myself nothing my eyes desired; I refused my heart no pleasure[...] Yet when I surveyed all that my hands had done and what I had toiled to achieve, everything was meaningless, a chasing after the wind; nothing was gained under the sun

wing-_-nuts4• 5 years ago

There's a saying on the fire subreddits 'live the life you want, and save for it'. No one is suggesting one should live a miserly, miserable life just so they can retire in their 30s.

For me, FIRE is a side effect of trying to live a fairly simple life with little impact on the environment. I don't deprive myself. I genuinely struggle to find things worth spending money on.

mkriiv• 5 years ago

Your second paragraph hits the nail on the head. Income is scalable, saving is not. Expand your income, and invest. It's all a lot easier when your income is pumping.

horrified5• 5 years ago

In my country (Germany) afaik a little over 10% of the population are at least millionaires. So I think the likelihood to have a millionaire living next door is quite high.

he_is_legend3• 5 years ago

Anecdotal (but nevertheless true): I have (at least) two millionaire neighbours (less than 3 doors/gates away). Both won the lottery - one euromillions and one national lotto draw.

And if we are talking average income, then everyone on this side of the village is a millionaire simply because of those two. However, most of the rest of us seem to struggle daily.

tticvs• 5 years ago

It is actually about 1.6% of the population

shadilay2• 5 years ago

I think almost all my neighbors are 'millionaires' but 90% have median incomes for the city. Their net worth is just their house.

he_is_legend3• 5 years ago

Whats the point in dying a millionaire though? Surely you want to spend some of that money while you are alive (and active - not 80+)?

graeme• 5 years ago

Depends. There’s a fair bit of value in knowing you have more than you could ever possibly need your whole life.

Like say you spend $500,000 a year and have $10 million, which earns about $700,000 in returns. And you’re happy at that level of spending.

You then have massive security your whole life. Whereas if you time it to run out on time, a reversal could leave you destitute when you’re least able to recover.

Past a certain point it’s hard to think of what to spend on unless you step up to much more expensive things like personal jets etc.

djbebs• 5 years ago

I always find it amusing how the people who make arguments like these are also the ones who often and loudly decry generational wealth.

The point of dying a millionaire is to give your descendents a good life and something they can fall back on if things go wrong.

chinchilla20202• 5 years ago

Spend less than you make, invest the excess in long term assets that have compounding interest rates above the inflation rate.

It does work. But the cost is your life.

My issue with the whole idea is that the wealth comes in the latter years of your existence. Decades of work have dulled your curiosity and desire to enjoy your wealth. You don't need much to exist and could survive off a more humble nest egg.

Wheelchair wealth is considerably less valuable than wealth when you are young.

nighthawk454• 5 years ago

... not really. savings is a percent, you can set it wherever you want. the math works out just the same only over more/less time.

you don't have to be a frugal miser, and you don't have to spend like it's burning a hole in your pocket. saving a responsible amount isn't going to dull your curiosity for decades.

whether you consider it intentionally or not, when you choose how much to save you're also _directly_ setting your future wealth. the most prudent thing to do is optimize _both_. how 'well' do you want to live vs how much wealth do you want and by when.

what actually costs you your life is spending unnecessarily in your youth, which implicitly sets your future wealth nearer to zero and burns the time to fix it.

throwaway18539• 5 years ago

Anecdotally:

I makes less than 100K usd per year. I have a wife (who also makes less than 100K), a car, a kid, and hobbies. I don’t live in the valley, or even the United States. I work 8 hour days, employed by somebody else.

I should be a millionaire by my mid thirties unless the stock market explodes. I don’t think I’m all that frugal, but we do try to save more than we make and live within our means.

I do recognize that I’m extremely fortunate - I have not suffered any significant setbacks in my life, my health is relatively good, and I have a good family structure, all of which have been immeasurably helpful.

whall6• 5 years ago

The question is: do you need money to live a happy life?

My opinion is that you don’t. But to each their own.

Maybe some people are saving because it makes them happy. In the article Nassim Taleb is quoted saying something about how it’s dumb to accumulate so much wealth but still live in a starter home (not sure if this was directed at Buffet or what). But sometimes people just feel happier having a cushion, or it Buffets case, feel happier having investments pay off.

bittercynic• 5 years ago

cost is your life.

Doesn't ring true for me. Some of my favorite things to do are free or very cheap. Biking around town or on local trails, taking the dog for a walk, changing the oil in the car - yes, really.

I love to travel, too, but you can go amazing places for hundreds or a couple thousand dollars. You don't have to spend much to have an amazing life and go amazing places.

It frustrates me to see my peers who earn far more than me feel stressed about money and feel that they have to do very expensive things or else they're not living, but what can you say?

nly3• 5 years ago

This is why great wealth is a generational phenomenon.

You can certainly get very rich in your lifetime, and groom your kids to continue the trend, set things up nicely for them

https://www.theatlantic.com/ideas/archive/2021/06/abigail-di...

MandieD2• 5 years ago

“But the cost is your life”: cultivate less-expensive tastes and hobbies, and live a great life while saving up for when the silly tech money stops rolling in (by your choice or not).

In fact, I’ll be so bold as to say that the more mind-expanding ways to spend free time involve spending less money than their competitors.

Want to fly? Join a gliding/sailplane club instead of getting a powered flight license and buying a Cessna. Love good food? Learn how to cook new dishes instead of finding exciting new restaurants. Into high-performance luxury cars? Rent a different one for a long weekend a couple times a year instead of leasing the same one to sit in traffic for your boring commute. Like to regularly update the look of your living space? Learn how to lay tile and do upholstery instead of shopping for more crap.

My husband chose the first one (gliding vs. powered flight), and I’ve fallen into the second one. Both have significant financial benefits, but also health - gliding club involves a lot of scurrying around the field to help the other pilots, and just about anything I cook at home is healthier than a similar dish from a restaurant.

I still have one stupid money-sink hobby, downhill skiing, but have found less expensive ways to enjoy it — day or weekend trips by train to an ok ski area instead of a week at higher-end resorts.

jacquesm2• 5 years ago

And quite a bit of starting capital and a very great deal of luck.

faridelnasire• 5 years ago

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.

ithinkinstereo• 5 years ago

Live below your means.

Max out you're tax-advantaged retirement accounts.

If you're young, invest a non-small portion into high-growth, "risk-on" assets, preferably in an industry you know a little bit about and can imagine where the trajectory of growth will lead to.

If you're staying put for the foreseeable future and don't mind limiting your optionality, consider buying a home (basically a 5x leveraged bet).

ransom1538• 5 years ago

Exactly this. People have have studied 10k different millionaires this is what they found [0]:

* Eight out of ten millionaires invested in their company’s 401(k) plan.

* The top five careers for millionaires include engineer, accountant, teacher, management and attorney.

* 79% of millionaires did not receive any inheritance at all from their parents or other family members.

It isn't hard. However, but poor luck: divorce, drugs, medical can wipe out chances immediately.

[0] https://www.ramseysolutions.com/retirement/the-national-stud...

majormajor• 5 years ago

Or you could look at who the author is and see they got their BA and MS in the early '70s and conclude they probably don't have any outstanding student loans 50 years later.

CompelTechnic• 5 years ago

https://fred.stlouisfed.org/series/MEHOINUSA672N/

Seems like we're doing fine.

zhdc115• 5 years ago

Yep. This is also the case in other countries.

hiddencache2• 5 years ago

Combine the rule of 72 (compound interest) with a historical 10% return from the S&P and I don't see how it couldn't work. All it takes is a bit of willpower, and the desire to "get rich slow"...

xorfish• 5 years ago

The average real return of equities is 5.3%.

https://www.credit-suisse.com/about-us-news/en/articles/medi...

hiddencache2• 5 years ago

That's the real return. The nominal return would still make you a millionaire, even if you don't feel that rich.

NoblePublius2• 5 years ago

there have never been more millionaires and there have never been more children of millionaires, to say nothing of the fact that the average laborer can afford things today that the average millionaire could not afford ten or twenty years ago.

Clewza3132• 5 years ago

There have indeed never been more millionaires, because the bar keeps getting lower and lower. A million today inflation adjusted backwards was $143k in 1970.

NoblePublius2• 5 years ago

A 32 inch LCD TV was $15,000 when I was in high school; today it is $79. Encyclopedia Britannica was $8000; today Wikipedia has more content and is more accurate and is instantly and universally accessible to everyone everywhere through a pocket-sized device obtainable for $100 and $20/month.

0x7373683• 5 years ago

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.

Clewza3132• 5 years ago

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.

0x7373683• 5 years ago

No, this obsession with "financial" is exactly what is the American Dream, not what I'm talking about.

You can live on so much less than minimal wage - it is because people go along with societal expectations do they consider it not enough. You pay the rent to live in an apartment, in a city, and work an official, recognised job. Why do you necessarily need to live in an apartment? Why in a city? And why do you need to work that menial job to pay off all of it barely having anything left at the end of the month?

Look up dirtbagging, a movement rock climbers came up with to dedicate their lives to climbing instead of the 9-5. You can get by fine with living in a tent and eating from expired cans and free McDonalds ketchup packets if that gives you the freedom to pursue what you find meaningful.

EEREPRESENT6• 5 years ago

most people i know in fire will retire between 27 and 35. i was able to retire at age ~29 i believe. still workin tho.

if u think people save so they can retire at age 75, u dont understand what u r talking about

0x7373683• 5 years ago

What you're talking about is American programmer's salaries. Not everyone lives in America and not everyone's a programmer

bko4• 5 years ago

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?

[0] https://docs.google.com/spreadsheets/d/1dGFQUxyUfGyBE5dnz1rc...

mister_tee2• 5 years ago

hooray for doing the math, thanks

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.

sokoloff4• 5 years ago

The CPI being that high (and being unsurprising) is supportive of the equity market continuing to do well over the next decade-plus.

laurencerowe• 5 years ago

Historical S&P 500 performance with earnings and dividends: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/...

Historical inflation: https://www.usinflationcalculator.com/inflation/current-infl...

redisman2• 5 years ago

Housing is the real secret. If you bought a house 30 years ago in a major metro you’re probably a millionaire

vineyardmike5• 5 years ago

Steps to being a millionaire next door:

1. buy a house in major metro in 1985 when they're plentiful.

2. don't go broke and keep a job if needed.

3. stop anyone else from building more homes in town.

4. profit!

gruez3• 5 years ago

in a major metro

This is the key part, because AFAIK housing overall hasn't outpaced the s&p500.

flowerbeater• 5 years 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.

vineyardmike5• 5 years ago

From the Sheet: (10 yr, 20 yr, 30 yr) > median 8.54% 10.21% 9.86%

Interesting that the median is lower (slightly) after 30 year than 20 year.

I wonder why

dkokelley• 5 years ago

They don't cover the exact same date range (20y has 10 more years of 20y returns than the 30y), plus it's a median so it could be randomness that skewed it towards a higher return vs. the 30y. (The 10.21% return happened 1 year before the first 30y return is recorded.)

Interesting that if you take the mean you get: 10y, 20y, 30y :: 8.87%, 9.67%, 10.23%

Increasing mean returns as you increase holding period, and the mean 30y is almost exactly the median 20y.

nemo44x3• 5 years ago

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.

horrified5• 5 years ago

"If Read suffered from poor health during his working years or required long-term care, his estate would be a fraction of what it was."

So don't bother saving or trying to get rich, because you might become ill and have to spend the money on your health?

The whole article seems weird. What is their point? So 300$/Month is not enough, but 500$ would be? Surely that is something many people could at least aspire to?

I think the poverty discussion often overlooks the fluent nature of the economy. People who have low paying jobs today (say pizza driver) don't necessarily have the same job forever. But new "poor people" (often young people) will enter the market and become pizza drivers.

Should pizza drivers give up all hope and just "live"?

Also afaik the markets had good returns in the long run pretty much always. If it really would not be worthwhile to invest anything anymore, some serious questioning of politics would be in order.

I only recently read "The Millionaire Next Door", and while I didn't really like the writing style, I think it still made some good points.

cascom• 5 years ago

This article doesn’t make sense - it’s basically says here’s a guy who worked hard, was frugal, and invested for the long term - but he was just lucky (because the past 60 years of asset price returns were amazing) - except how many other people were in his relevant cohort…tens of millions more or less who have had this same opportunity? Not saying the next 60 years will be anywhere near as good, but I think it’s folly to dismiss this “strategy” as most people would be quite happy with an outcome that was 25-75% of that.

kangnkodos• 5 years ago

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.

adamisom• 5 years ago

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.

SapporoChris• 5 years ago

Completely agree with this as it very closely mirrors my current situation. I am retired, zero debt, live off modest investments. It is easy to minimize my taxes. I do not have the cost of a car. I select places to live that are interesting and affordable. It's quite easy to go a month and spend less than 3000 USD.

There's several websites that provide cost of living information by city on an international level.

marvin2• 5 years ago

Not sure if this is in the scope of the discussion, but there are many countries in the world where capital gains are taxed at the same rate as salary. The US is a bit of an outlier there, assuming a relatively small annual withdrawal.

VLM2• 5 years ago

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.

Clearly your example is upper class.

droopyEyelids• 5 years ago

You present a coherent class framework, but it's worth noting the person you reply to isn't wrong. "Class" has always been an overloaded term, and even when you try to split it into Social and Economic Class, there are competing methods for defining it.

PaulDavisThe1st4• 5 years ago

Your class breakdown describes someone's "working life".

You wouldn't use it to ascribe class to a person aged 12 - you'd use their parents.

Likewise, it doesn't really apply after retirement (which the OP was describing). Anyone who is retired "gets all their money from investment". That doesn't make them upper class.

metalliqaz• 5 years ago

The main thrust of your post is correct, but your characterization of the classes is... misinformed.

The poor and the upper class do what they want when they want? The middle class works harder than the working class? ...What?

In reality, the working class were terribly abused in the "old days." Their days were long and hard, and wage theft was (and still is) rife. For them, there was no such thing as a vacation, which is something the middle class could enjoy. The poor were much too sick and weak to do as they pleased. They had to continuously toil in things from begging and scavenging to odd jobs in dangerous places.

It is better to think of it like this. Your class depended on ownership.

Poor own nothing and in general doesn't have any way to benefit from their own labor.

Working class did not own their jobs, but did receive income from their own labor, though only a fraction of its value.

Middle class own their own jobs, keeping most of the value of their own labor.

Upper class own the means of production, keeping all of the value of their own labor, as well as the value of most of their employee labor.

Domenic_S• 5 years ago

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.

spfzero4• 5 years ago

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.

fleddr5• 5 years ago

Depends on your definition of rich. To me, it's not stuff, it's independence.

peter3037• 5 years ago

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.

apsec1122• 5 years ago

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.

kixiQu2• 5 years ago

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.”

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.

apsec1122• 5 years ago

If you're measuring by net worth, that's super confounded - making $3 million by growing a small business is a lot slower than being born to wealth. So the former will be disproportionately old regardless of generational cohort.

candybar• 5 years ago

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.

This is the 2013 report being referenced here:

http://doingmorethatmatters.com/wp-content/uploads/2013/09/2...

Age Cohort Definition:

Millennials: age 18–32 Generation X: age 33–48 Baby Boomers: age 49–67

Socio-economic status growing up among the wealthy:

Age 18-32: 0% Poor, 6% Lower Middle Class Age 33-48: 4% Poor, 18% Lower Middle Class Age 49-67: 5% Poor, 31% Lower Middle Class Age 68+: 7% Poor, 24% Lower Middle Class

This is almost entirely due to the fact being wealthy (to the tune of 3M+ net worth) is a far more exceptional outcome for younger people than it is for older people, especially given how much asset prices have gone up over the past few decades. Also these rely on self-assessments and my personal experience is that there's been a class inflation of how people describe themselves and their own upbringing. I suspect older people are more likely to describe their own upbringing as "Lower Middle Class" than younger people.

clutchdude• 5 years ago

Quick note, the 1996 $130k salary, when adjusted for inflation, is about $230,000 in 2021 dollars.

VLM2• 5 years ago

Pew research data seems to imply it would be more like $150K

bloodyplonker22• 5 years ago

I'm not a socialist, but we also have to adjust for what being a "millionaire" is today.

leppr4• 5 years ago

And in the context of becoming a millionaire through investments, adjusting by more relevant factors than consumer goods inflation result in the following:

* Residential real estate inflation: $355k [1]

* Stock market inflation: $770k [2]

* Dollar supply inflation: $712k [3]

You'd have to earn between $350k and $700k/year for your dollars to have the same asset buying power as $130k/year in 1996.

[1] https://fred.stlouisfed.org/series/MSPUS

[2]: rough approximation through the S&P500 https://www.tradingview.com/chart/?symbol=SP%3ASPX

[3] https://fred.stlouisfed.org/series/M2SL

abecedarius• 5 years ago

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.

merpnderp• 5 years ago

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.

IAmGraydon2• 5 years ago

Buying things with cash and not credit works against you unless interest rates are very high. Let’s say you have $200,000 and could buy a house with it. Alternately, you could finance the house at 4% and put the $200,000 in an index fund that makes 8% per year. In the end, you’ll end up with far more money if you take the second option.

Credit is a tool for creating financial leverage and realizing larger gains, if you know how to use it. The problem is that most people use it to buy things they just can’t afford in the first place.

tamaharbor• 5 years ago

In any case, you wont become a millionaire if you elect to take unemployment in lieu of a job.

chansiky• 5 years ago

Not if you buy dogecoins with your unemployment check.

TrackerFF6• 5 years ago

I know one guy that managed to retire before 40 (he's now 45), following the boring route. Roughly, it went like this

- 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.

CountDrewku4• 5 years ago

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.

vineyardmike5• 5 years ago

if you're not consumed by the idea that you need to live in SF or NY to enjoy your life

And yet some people enjoy big cities more than they'd enjoy living in a small town and it is not a moral failing or a sign of stupidity or weakness.

Many people enjoy the multiculturalism found in cities, and many immigrants or minorities feel out of place in small towns while major cities offer them the opportunity to connect with people like themselves.

Obviously owning a big residence in a city will never be affordable but as a society we should ensure that people can affordably live where it makes sense for them.

coryrc• 5 years ago

and sold it for 80k profit

You seem to miss the issue.

frankbreetz• 5 years ago

Had you not bought the first house, would you be able to afford you current house on your salary? People who bought houses in the last 10 years were lucky enough to get in when the market was historically low. People currently shopping for there first house are not so lucky.

nonameiguess3• 5 years ago

Not that this is entirely wrong in principle, but it sounds like you got into the market for a house right around 2009. "Happen to enter the market at the exact bottom of a historic crash" isn't exactly a strategy. It's just luck.

zehaeva2• 5 years ago

I don't want to poopoo on your point about you and your wife having "pretty modest incomes" at about 100k together.

However the median household income is only $68k a year[0]. That is 50% of households in the US earned less than 68k/year. You're actually in the top 30%[1] of US households if your income is about 100k together.

I wouldn't call that modest by any stretch of the imagination.

[0] https://www.census.gov/library/publications/2020/demo/p60-27...

[1] https://www.ibisworld.com/us/bed/households-earning-more-tha...

mustacheemperor• 5 years ago

You bought your first house at the absolute bottom of the real estate market following a global crash, sold it at a profit, and bought another house during what continues to be a rapidly appreciating market.

Would a 24 year old today in the same financial position you were in at 24 be able to afford that same first house?

You applying this personal anecdote as some kind of geometric proof that living outside a major city is a pathway to simple financial independence is to me a bold-print example of how the very same people who had to fight their way up the ladder of success will promptly become oblivious to the fact that the rungs are becoming further and further apart every year, advising those behind them that "climbing it isn't that difficult, just try as hard as I did."

Retric• 5 years ago

100k is a very high household income for areas with 1400 sqft sub 250k housing.

phrogdriver• 5 years ago

Growing up in the midwest prior to working FAANG in the Bay Area, this is my exact experience. With a graduate degree and making ridiculous money, I and my peers had no realistic path to homeownership on any reasonable time-scale in the Bay. Family members working HVAC, plumbing, electrician or other skilled blue-collar jobs in low-cost of living areas bought beautiful craftsman bungalows within walking distance to a decent school for $80K. Professionals with either no student debt or a few thousand from land-grant state university degree paid off in 5-7 years. This has knock-on effects to family formation and number of children. Many of my high school classmates had their first kid at 24-25 and have 3-5 kids now, versus Bay Area average of what seems like 1-2 starting in your late 30s. When you feel like you can finally afford it. I started making plans to leave as soon as I got there, it truly was "structurally hostile to families."

imgabe2• 5 years ago

Also a millennial. Also bought my first house at 24. Sold it 6 years later for a loss of $90k. Timing is important. Not everyone was fortunate to buy at the beginning of a huge bull market and right after a historic crash in real estate prices. (Bought my house in 2006)

sershe2• 5 years ago

Heh, I don't understand why you are getting downvoted (well I do, but it's not a charitable interpretation). Yep, totally agree - people are not entitled to buy a house wherever they want. At least before the money printer went brrrrr, housing prices as compared to income in the US (median) were one of the lowest among the developed countries. Even now, median house is $375k [1]. Get out of your bubble.

And I say it from the position of someone who actually made this mistake - I bought in Seattle and regret it. A much better decision would have been to buy a cheaper, better house somewhere else. Still, I'm not going to be mad at people telling me this truth :)

[1] https://fred.stlouisfed.org/series/MSPUS

Ericson23146• 5 years ago

When "and did not own a car and took public transit" is part of that story not against it, this country will be a lot better.

syops7• 5 years ago

Too many people just don’t understand what car ownership costs. If we had decent public transportation a lot people currently at the margins would have their lives greatly improved. Far too many people are slaves to the debt servicing their cars and the costs of gas, insurance, and maintenance.

TrackerFF6• 5 years ago

Where he lives - i.e my hometown - public transport is absolutely non-existent. Twice a day you can take a bus if you need to visit neighboring towns, but that's it.

Cars are expensive. Some people enjoy buying new cars every 3-4 years, but that's also money that could be spent on retirement funds.

yissp• 5 years ago

Not owning a car in a car in the US / Canada, your taxes are probably disproportionately going toward maintaining car-oriented infrastructure as opposed to public transit (depending to some extent on where exactly you live, I guess). So you're kinda screwing yourself in a sense.

troupe6• 5 years ago

- He chose to live in his small rural town

Having grown up in small rural towns, your comment makes me suspect you may not be familiar with what rural America looks like.

Also having known quite a few electricians, I have a hard time imagining one lugging all their equipment on a bus or subway.

nonameiguess3• 5 years ago

I know a lot of people who "retired" before 40. They joined the military and stayed in.

justaguy88• 5 years ago

How does that work out, mechanically, does the military provide a pension at 40? Is it just that you have very little costs when living on-base?

TrackerFF6• 5 years ago

Having been in the military myself (albeit a short stint) it's absolutely a viable option, but just be sure you choose the right path for yourself. And be aware of the obvious downsides.

topkai22• 5 years ago

Military retirement is worth like a minimum of ~$700k for an E-7, before tricare. It's worth like $1.3M for an O-5. People who seperate from service at like 12 years astound me.

Edit- People who seperate thinking they can earn more money on the outside. People who seperate for family, mental health, or similar reasons make total sense.

jimt1234• 5 years ago

A friend of mine "retired" from the military at 38. She joined right out of high school. The Navy put her through med school, then she served as a ship doctor for over 10 years, traveling to dozens of countries. She "retired" with a military pension and an MD, having never spent a penny on med school. She works basically part-time now at a local healthcare provider. Did that come across as jealous? Well, I am. We all told her she was stupid to join the military, and now we're all still paying off student debt, and she's livin' her best life. :(

CobaltFire3• 5 years ago

About to execute this right now and I see some interesting numbers being thrown around for the NPV of my pension.

The numbers you are seeing are really the top of the iceberg; my actual take home as a retired E7 is likely to be about twice what the pay numbers would tell you due to VA disability.

So after a take home of around $72k/year and essentially free medical for my family for life, as well as my children’s college paid for (my degree was paid while on AD so they get my GI Bill), we still need to factor in Space A flights, tax free shopping, cheaper gas, gym access, beach accesses, cheaper groceries, etc. etc.

The most recent numbers I saw were something north of 2 million for anyone E6+ who gets 100% VA disability, which is pretty common.

That said, I rarely recommend the career to people. The costs incurred really aren’t worth it unless you get the equivalent of a lottery ticket.

xibalba2• 5 years ago

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.

cheriot2• 5 years ago

The working/middle classes are getting screwed by housing, childcare, education, and healthcare costs that are a greater proportion of income than past generations. Avacado toast is not the problem.

SerLava• 5 years ago

The biggest hurdle is rent followed by health care.

Most people could live like a monk and not save anything substantial.

If everyone did suddenly adopt those saving habits, it would crash consumer spending and launch the economy into a death spiral, and those exact "frugal poor" people would be the first victims.

The infamous "avocado toast" debate has absolutely no merit as a criticism.

_carbyau_5• 5 years ago

I see a bunch of people who are so disheartened with their prospects of buying a house etc that they are YOLO/FuckItAll regarding money.

There was a HN story a few onths ago saying they are borrowing big to gamble on the stock market. And why not? They have little money. To go bankrupt is not much of a loss compared to a potential financial lotto payoff. I wouldn't try it, but I see why some think that way.

OJFord2• 5 years ago

- He saved around +/- $30k every year,

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!

lilsoso• 5 years ago

In California a $100k salary results in the take home pay of a little more than $5k/month. So saving ~$30k/year is roughly equivalent to saving half of your take home pay of a $100k salary in California.

That's pretty good. Please keep in mind that other people do things such as support a family or go on dates. They have expenses and may live in costly cities. Even on a salary of $200k a year that's decent.

tjs8rj• 5 years ago

Why is this being downvoted other tha people not reading properly? Saving “+ / a $30k” means occasionally “saving negative $30k”.

What was meant was “saving ~$30k”, which is impressive. Don’t use “+ / - $X” because it doesn’t mean what you think

IAmGraydon2• 5 years ago

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.

revicon• 5 years ago

Rule of thumb is withdrawing 4% per year is a safe rate that will weather market turmoil if your assets are returning market average rates. A $1.4M portfolio will allow for a safe $56,000 withdrawal per year.

TrackerFF6• 5 years ago

It should be mentioned that this is not in the USA, and that even if he chose to just start burning through his investments, he will also receive a (at least minimum) pension when that time comes around, as well as not having to worry about any healthcare costs.

With that said, he's not 100% retired in the sense that he's just doing nothing - last time we spoke he was doing contracting work as an Engineer. I guess the retirement meant more "free to you want - possibly nothing if you don't feel like it"

givesendgo• 5 years ago

It's dated, but the principles work. Has no one hear of _fire_ ? https://www.reddit.com/r/financialindependence

throwaway713• 5 years ago

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.

nappy-doo• 5 years ago

Probably because people want to spend what they make. If you live in SV, you see people driving Teslas, and you think, "I want to do that too." So, next time you fly first class for the family vacation, and stay at the pricey villa. On your next trip, you add a couple of private tours, and can't find a good return flight, so you buy some NetJets credits. Next thing you know, you're spending 65k/year for a nanny (to support those high-paying Google T6 jobs), and it's eating into the 200k/year savings it would take to reach that level of wealth.

Most people end up spending close to what they make. Most people don't save like what 100M would require you to save.

handrous5• 5 years ago

Probably because people want to spend what they make. If you live in SV, you see people driving Teslas, and you think, "I want to do that too." So, next time you fly first class for the family vacation, and stay at the pricey villa. On your next trip, you add a couple of private tours, and can't find a good return flight, so you buy some NetJets credits. Next thing you know, you're spending 65k/year for a nanny (to support those high-paying Google T6 jobs), and it's eating into the 200k/year savings it would take to reach that level of wealth.

Don't forget to blog about the struggle of being a working parent in tech, but how great it is that you manage to make space in your schedule for plenty of quality time with your kids anyway, while forgetting to mention the double-median-income amount of money you're dropping on child care every year ("newborns are so hard you guys LOL #blessed #stressed" has a "night nanny" and sleeps great most every night).

Bonus points if post it while a startup founder or "CEO".

spfzero4• 5 years ago

One thing is, the benefit of IRAs and 401Ks are capped so that you can't put more than (20-25K?) in them each year. Anything else you want to save comes from after-tax income. Still, even with only half of your income available after tax, a lot of professional couples would be able to put aside 75-100K or so if they really stretched and maybe lived a bit below their means.

But I think the real reason you don't see people with 50MM, is that long before that you'd not need to work anymore. Why would you keep going to work every day if you had 10MM in the bank? It's more than you could spend in the remainder of your life. You'd need to spend 700K per year just to keep up with your passive earnings, and that's with a paid-off house and no debt.

Also, if you're a person who has been happily frugal for your working life, you're not going to change into a spendthrift overnight. You already came to the realization that an expensive car is meaningless, you're probably living in a place you are happy in already, near friends and family, etc. You're a person who will be making more per year than they ever could in a job, so why try to make more?

PaulDavisThe1st4• 5 years ago

Why would you keep going to work every day if you had 10MM in the bank?

The question Messrs. Bezos and Musk ask themselves every morning.

peter3037• 5 years ago

IRAs/401ks are top out at upper middle class. They assuming you are deferring 15% of income until you hit $26,000, i.e. and income of @173,000. Employer match and HSAs save you some more.

Then you start using rich people tax breaks like long term gains, insurance products, real estate, etc.

handrous5• 5 years ago

Some of it's keeping-up-with-the-Joneses, some of it's that living anywhere that's particularly pleasant to live and also near your employment, is usually expensive because other people want to live there, too, and some of it's that those with the means tend to spend a ton more directly on their kids in hopes of advantaging their kids in life—college tuition, say, so this comes out of the parents' savings rather than being debt on the kids, or tutoring, or "experiences" that their prep school councilor said the admissions guy he's friends with at Stanford really likes to see, or whatever—and, especially in the well-off-but-not-rich range (so there's a kind of trap here where people tend to get stuck moving "up the ladder", burn lots of cash in zero-sum competition with each other over housing that hits the sweet spot between commute time and quality of public schools (those above this level just send their kids to private schools).

Then there's the tendency of US medical or elder care (say, for your not-rich parents) to put a huge dent in one's savings in a relatively short span of time.

colinmhayes• 5 years ago

Anyone who isn't a business owner or high level executive would retire far before they reach the amount of money required to have $50M when they die. Most people aren't trying to just accumulate wealth. Even those that do accumulate massive wealth are doing it because they enjoy the job/power that comes with the job, not because they need more money.

beervirus• 5 years ago

I’d rather retire early than bust my ass until I’m 70 to (try to) make $100 million.

bradlys3• 5 years ago

$50M is a lot. Unless you assume the person is working 40 years with $10k/month invested at 7% return - you're not even cracking $25M. And 40 years would mean you've been investing $10k/month since the early 1980s at this point. So, yeah, of course almost no one was freaking doing that back then.

Very few people are investing that much and very few are interested in working for that long when they do have that much.

Most people here with $10M+ in NW didn't get it through hardwork over 40 years - they got it through an IPO or some big lawsuit or whatever.

babesh• 5 years ago

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.

peter3037• 5 years ago

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.

BatteryMountain• 5 years ago

Same here. Was out of the nest just after turning 19 and have been on my own (or with partners) ever since.

neogodless• 5 years ago

The term `Millionaire Next Door` is key.

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.

bennysomething• 5 years ago

The guys son wrote a sort of follow up to millionaire next door, with updated stats. Contradicts what this article is claiming.

MR4D• 5 years ago

(2015)

rglover• 5 years ago

“Do not let your fire go out, spark by irreplaceable spark in the hopeless swamps of the not-quite, the not-yet, and the not-at-all. Do not let the hero in your soul perish in lonely frustration for the life you deserved and have never been able to reach. The world you desire can be won. It exists.. it is real.. it is possible.. it’s yours.”

— Ayn Rand

WalterBright4• 5 years ago

And yet I see people regularly who complain that they can't get ahead, yet they're driving his & hers new cars.

Though with Biden's plan to tax people at 40%, it's going to get a lot harder.

maerF0x02• 5 years ago

one of my main gripes of the boring route to wealth is that it's so disincentivized in our society. By saving money you miss out on the present opportunities of consumption, but in many ways we subsidize those who choose present over long term choices. Ex: if you choose to work overtime to save for your future (above 401k money), you pay a greater marginal tax rate on those earnings... Ex2: there are many programs that come in times of disaster to support those who did not have any foresight to be prepared. Those who took present opportunities are subsidized in their lack of foresight, while those with foresight are denied the same resources.

It's an inversion of logic because above average intelligence will never be understood by the democratic masses, therefore the best a politician can do is reward average behavior.

j_walter• 5 years ago

This is a frustration for those who see themselves as planning for the future. The obvious renter vs. landlord issue going on right now is a huge talking point. Many renters haven't paid for over a year because they were "protected" even though many of them didn't stop working and even if they did they got unemployment benefits that more than made up their income. Landlords are not oblivious to this fact and are frustrated at having to subsidize the renters...but the government is rewarding it because "think of the poor people".

Example: https://www.yahoo.com/news/evicted-despite-federal-moratoriu...

Dejonae King, 33, held back tears after she lost her eviction appeal. King was laid off from Walgreens and has been without a job for most of the pandemic. She had not paid the $253 weekly rent on her one-bedroom apartment since July 2020.

So where did her unemployment money go? $600/week extra initially and now "only" $300/week extra. She is $14K overdue in rent...and seems surprised that she will eventually be kicked out.

maerF0x02• 5 years ago

And a big part of my point is that baseline responsibility is to have 6 months of money in the bank. Those who are financiall responsible and sat on 6months money instead of getting a $1000 iphone or a instagrammable moment still paid their rent. But those who were marginally able to save that money up, but chose instead to burden themselves with one time or recurring costs? Those irresponsible people got say they couldnt pay their rent and someone else had to bear the burden for their irresponsibility in the past.

Now here's the kicker that I am really confounded by -- irresponsible people are by far the majority, and democracies are (basically) majority rules. So how can the government do anything but continue to create rules that create an optimal experience for irresponsible people, meaning the responsible ones are incentivized to being irresponsible too.

eplanit• 5 years ago

What an unhappy author, who goes to such trouble to throw whatever cold water he can dream up in order to disparage captialism, without ever making a solid point. It comes off as envy, without any concrete points beyond well, luck was maybe part of their success. Multi-generational business or wealth accumulation is invalidated, because not everybody has that, so therefore it's inherently unfair. Sigh. Yeah, capitalism is bad m'kay.

The LA Times is writing stuff their readers like, so everything is actually going as it should.

mark_l_watson• 5 years ago

That was a great book, I read it when I was young and it really informed my views on wealth creation and value of free time.

dougmwne• 5 years ago

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.

MrPowers• 5 years ago

Thomas Stanley and Sarah Fallaw (Stanley's daughter) published an updated book in 2016 called The Next Millionaire Next Door: Enduring Strategies for Building Wealth. They argue the conclusions from the Millionaire Next Door still hold and directly address Taleb's survivorship bias claim.

Remember that Thomas Stanley had a PhD in finance and didn't do garbage research.

There is a leanfire subreddit if you're looking for real world stories of people that are currently living the high savings lifestyle: https://www.reddit.com/r/leanfire/

Here's a great video of a young, modern leanfire couple: https://www.youtube.com/watch?v=Lb3Z5cGOksY&ab_channel=CNBCM...

Millionaire Next Door might not be possible for minimum wage workers in HCOL areas anymore, but seems to me like lots of folks are still figuring out how to make it happen and become financially free at a young age.

peter3037• 5 years ago

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.

strix_varius• 5 years ago

To clarify, “retire by 40” is definitely not a component of /r/financialindependence.

The subreddit is about building a life you want and living below your means until that life is sustainable independent from employment. There is no specific age involved, and everyone’s means and goals are unique.

peter3037• 5 years ago

Correcting for inflation since 1996 book publication, a 1996 "million"is about $1,700,000 now. The word million just sounds catchy.

About 1 in 12 Americans is a millionaire in assets. But these assests may include real estate and retirement savings which are not easily spendable.

dudeman6969• 5 years ago

Propaganda to kill the American dream and get people to vote to become dependent on the give

monocasa• 5 years ago

It's why the wealth class has retconned 'millionaire' to mean >$1M/yr income instead of >$1M net worth.

You can get >$1M net worth just by working hard and saving in a blue collar job.

https://www.npr.org/sections/money/2011/05/24/136461536/what...

mensetmanusman3• 5 years ago

“Fewer young people starting their careers today have had even the middle-class upbringing or family resources of so many of Stanley’s quiet millionaires.”

Note that divorce is one of these family resource affecting occurrences. More and more people are growing up in families of divorce, and divorce decimates current and future wealth potential.

Say nothing about the ethics of divorce, a culture that does more of a resource destroying thing will inevitably have a “death” of some downstream consequence.

wil421• 5 years ago

The divorce rates hit a 50 year low in 2019.[1] It’s a stretch to say more and more families when the peak looks like it hit in the 1980s.

[1] https://ifstudies.org/blog/the-us-divorce-rate-has-hit-a-50-...

mensetmanusman3• 5 years ago

True should have been more clear that breakups and resulting kids being raised by single parents are not accurately under the umbrella of divorce because low income people aren’t even getting married anymore, since it’s become a status symbol more and more.

RickJWagner• 5 years ago

I think the article reaches a wrong conclusion.

Visit Bogleheads.org, you'll find plenty of people who are doing quite well simply by living below their means and investing the slow, steady way.

Also, as near as I can tell, a lot of the FIRE people are younger folk. Don't be fooled into not taking part-- you can be relatively wealthy, if you can just save a little and exercise patience.

WalterBright4• 5 years ago

It's not dead at all. With the mega-trillions in more government spending causing massive inflation, we'll all be millionaires shortly. Everyone will be inflated into the "wealthy" tax brackets.

I was going through some old financial records of mine from the 90's, and was surprised at how much less things cost then.

imgabe2• 5 years ago

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.

atlgator• 5 years ago

It was entirely possible, at least until a few years ago when housing skyrocketed beyond reach. The younger generations will not build wealth if they continue paying >50% their take home pay on rent.

m0llusk• 5 years ago

The book isn't a recipe, but mostly a warning. Many of the people who think of themselves as millionaires are not. This hasn't changed even the tiniest bit.

The death of the ‘Millionaire Next Door’ dream

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