
10 Things Millionaires Won't Tell You - ryanwaggoner
http://www.smartmoney.com/print/index.cfm?printcontent=/10things/index.cfm?story=september2008-10-things-millionaires-will-not-tell-you
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A lot of this is wrong. For example, no one rich would "leverage their home
equity to finance purchases." And though rich people often have assistants,
they're not drawn from a special guild of "concierges" with connections for
getting restaurant reservations. Nor would anyone rich rent handbags or
Ferraris.

The parts that aren't false read like a description of someone who made money
from e.g. developing shopping malls. People who get rich from technology are
less likely to be B students, less likely to try to cheat the IRS by routing
their personal expenses through their companies, and more likely to be "nice
guys."

~~~
linhir
But, as a percentage, what subset of all rich people actually earned their
money through technology? Either way, if those people aren't leveraging their
home equity, than they don't know much about finance, truth be told. Assume
you have good credit and a steady income or assets; there is absolutely no
reason to own your house outright. Bill Gates, for example, has a mortgage on
his house. The easier way to think about it is that if you're paying 5%
interest on your mortgage, but could get 7% return on money elsewhere, you
should take all the money out of your house and earn the 2%. Either way, you
also get the value increase (or decrease on the equity as whole). This is the
same reason that many wealthy college students take out college loans, because
with their low interest rate, there is no reason not to have the 40k sitting
somewhere else making more money.

I don't know what evidence, other than opinion, you have that rich people
don't have a special guild of concierges, or rent handbags or Ferraris. I know
several people of the private jet sort who do have an assistant that is not
just someone who just takes down their schedule, but rather is someone who can
solve problems anywhere, work the network to get a dinner reservation where
ever you want, etc. Further, most fabulously wealthy people are very smart
with their money, even if they do have ten houses and two yachts, and although
they could buy $2000 bags and throw them away in two months, why would they?
They could buy a fancy sports car, an asset that radically depreciates and
that you can’t drive all the time, or they could rent one whenever they want?

~~~
lurch
Where can one get 7% risk free return?

~~~
linhir
Well, there are very few risk free returns, obviously. I guess the standard
would be US treasury bonds, which don't pay more than mortgages, obviously.
But the S&P has an annual rate of return of almost 10% over the last forty
years, so if you're risk averse (aren't we all) a good index fund will likely
beat your mortgage rate.

------
IsaacSchlueter
_You may think I'm rich, but I don't._

How very very true that is. I have friends that make less than half what I do.
Once upon a time, I would have thought that my current income would mean I'd
"made it". But somehow, here I am, still occasionally concerned about being
overdrawn, still trying to be frugal, still feeling like I don't make enough
to do all the things I want to do. By world standards, I was fantastically
wealthy when I was peddling vacuums.

Some things are more a function of the human condition than anything else.
People in San Diego complain about the weather.

~~~
timr
I thought that was a fairly inane point. While I have no doubt that Joe
Millionaire _feels_ like he's not rich if he can't buy a new Lotus without
blinking, that's pretty much irrelevant to any practical discussion of wealth.

When your income places you well into the top 1% of earners and you're still
hurting for cash, that's _your_ problem. Learn to live within your means.

~~~
sah
I think the clearest line between rich and not is whether you have to work to
earn a living. In my book, if you're an "earner" at all, you're not rich yet.

~~~
yters
I think it's both not working to earn a living and what a person can easily
afford to do.

I say this because I don't think one needs a lot of money to not need to earn
a living.

~~~
sah
Sure, whether you need to work to earn a living depends on the standard of
living and risk level you're comfortable with. But I think it's possible to
set a reasonable upper bound. Say, around the point where your interest income
at a typical risk-free rate, after reinvestment to keep pace with inflation,
would put you among the highest earners in the world if it were ordinary
income. Defining "highest earners" as those in the top two US tax brackets,
that amount is currently around $8-10M, or on the order of 2^23 present-day
dollars.

Personally I think on the order of 2^22 dollars reasonably qualifies as well.
Maybe that's because of the standard of living I'm used to. Certainly if you
have 2^24 dollars and you don't think you're rich, you have a definition of
wealth that ignores a major qualitative difference in what a person can afford
to do. Above 2^23 dollars, I think additional wealth begins to put you more in
the realm of the low-level aristocracy and rulers than the merely rich.

------
nazgulnarsil
it's impossible to be happy if you're always comparing yourself to others.
there will always be someone smarter, better looking, richer, and with a
bigger ____ than you :p True happiness is contentment, contentment comes from
financial security. I laugh at those millionaires who, as the article said,
are squeaking by on 400k a year. The biggest key to financial security isn't
making more money. It's reducing your living expenses. If you're making 90k a
year but socking away half of that, you're buying a year of retirement for
every year you work. (assuming your investments only keep you even with
inflation and dont make you any additional money).

also: one of the best pieces of advice in the article is always have a
mortgage. as soon as you finish paying off your first house it's time to make
a down payment on a new one and rent it out to pay for the mortgage.
assets>cash, plus it's tax advantaged.

~~~
paul
Because real estate always goes up? The "houses are the greatest investment
ever" myth is amazingly persistent.

~~~
johnrob
I am also skeptical of the conventional wisdom of home ownership. I think a
mortgage is simply a way to force yourself to save money. If people save with
the same commitment as mortgage payments, even while paying rent, they should
end up doing just fine.

~~~
nazgulnarsil
okay, let's compare scenarios.

scenario 1

you "save" 2000 a month by spending it on a mortgage

scenario 2

you pay 1500 a month for rent and save the other 500.

in which scenario do you come out ahead? that 1500 a month is GONE.

~~~
johnrob
If the math were really that simple there would be a massive arbitrage
opportunity :). I think there are other variables at play, such as:

\- down payment: the renter takes the down payment and gets interest on it for
N years

\- closing costs

\- repair costs

\- property taxes

~~~
nazgulnarsil
and you think that difference will exceed $18k a year for 30 years?

~~~
johnrob
I think your example is more realistic if the numbers are more like 3000/mo to
buy and 1500/mo to rent. If rental prices were as close to mortgage rates as
2000/1500, then not only would buying be obvious, it would not even be a much
larger financial commitment. The extreme case is when rent equals mortgage.

------
ambition
This is really about how to get upper-middle class wealth. The psychology of
these millionaires is very different from the mentality of big startup
founders -- sure, half run businesses, but these are lifestyle-type companies
with no ability to scale.

~~~
lsemel
Just because a business isn't suited for investment by VCs doesn't mean it's
not a great investment for its owners nor that they necessarily possess lesser
business ability or some kind of inferior mentality.

~~~
ambition
I didn't intend to imply anything about inferiority.

The people described here have a different mentality. They get rich by
avoiding risks and cutting costs. It is a slow and systematic process with
guaranteed results.

Startup people get rich by taking big risks and working hard to increase their
top-line productivity and wealth-creation. It is relatively fast and chaotic
process with unpredictable results.

~~~
huherto
At the same time startup people have to cut their costs to the minimum.

------
yan
When people start affording more with larger incomes, their assets turn into
overhead that must be managed. It's a cliche, but the TCO of most things is
more than their face value. On the other hand of that, there is an amount of
dollars one can earn to build a framework and make their money be self-
supporting. I.e. the returns on investment covers taxes and expenses and
actually has non-negative growth.

While I agree that contentment is /a/ key to happiness, it won't exactly
motivate you to strive for things completely out of reach. Just the chase of
your goals can result in happiness.

------
gabrielleydon
I think the most important point was:

"You don't get rich by being nice."

This is seldom said but often true.

~~~
unalone
Really? I think that's the one I hear most often.

------
Hexstream
I hate those obnoxious ads that spin your CPU to 100% for no reason at all :/

~~~
vaksel
install Ad Block Plus

------
hbien
I'm gonna throw a book recommendation out there: "The Millionaire Next Door".

------
known
With cash in hand, we

1\. Spend 2\. Save 3\. Survive 4\. Invest

We are rich if we are investing cash!

