There's little that's specific to startups here. What he's arguing is that being independently wealthy doesn't work the way one might naively think. But few things do work the way one might naively think.
Certainly his title is false though. Obviously it depends how much you clear.
Everything that has been written about how anything works explains how it doesn't work the way one might naïvely think. So, read everything that's ever been written about how anything works, and you'll have your answer.
Can we conclude that this is the wistful daydream equivalent of the "Maserati Problem"? I can definitely say that if 30 years we're looking at half a million dollars as a "cost of living adjustment", that world will for the people who don't make that kind of money be Thunderdome. I mean wages have barely kept up with inflation. In the last 40 years (between 1967 and 2007), median wages have only gone up US$10000 (from 40k to 50k). How the hell are all of our parents going to fare when you need 500,000 to maintain an upper-middle class lifestyle?
I see the numbers adding up (and it is a nicey-nice spreadsheet), it just doesn't make any kind of a sense. I guess that's why I'm only middle-class. I don't see this heinous future coming for all of us.
How the hell are all of our parents going to fare when you need 500,000 to maintain an upper-middle class lifestyle?
If the past 40 years are a guide to the future, then the lifestyle we currently define as "upper-middle class" will be redefined as "poverty" and will be available to virtually everyone, including people who can't even be bothered to find a job.
People will continue to complain about the declining middle class, how the median family can barely afford to live in a 4000 sq ft house with a robotic kitchen/laundry/bathroom and about how unaffordable their stem cell therapy and cloned organs are . They'll watch TV news reports lamenting the bad economy on their 108,000p 10' 3d full immersion TV's, while the uber rich (income inequality will go up as well) do much the same thing, but in a 100,000sq ft house and a 50' TV. Also, the quality of stem cell therapy and robotic surgery available to the rich will be slightly greater.
 They will of course lump all medical goods and services together under the catch-all term "health care".
[edit: clarified that I'm thinking about 40 years here.]
If the past is a guide to the future, then the lifestyle we currently define as "upper-middle class" will be redefined as "poverty" and will be available to virtually everyone, including people who can't even be bothered to find a job.
For many reasons I doubt that the last few hundred years are going to tell us much about the next hundred. So many critical trends are following exponential curves that can't continue on indefinitely.
At the same, most of the reasoning about the future by even intelligent people still tends to involve linear extrapolation rather than exponential extrapolation - that's what makes sense to us. Thus it's more likely for a standard prediction is go wrong in the direction of the exponential trends continuing rather than in the direction of the trends stopping.
Moreover, one or another exponential trends might stop but the overall mine that Moore's Law comes out of, miniaturization, is not going to be exhausted at least until human construction reaches the nano scale.
That's exactly why I think trying to predict what the world is going to be like in 40 years is just about impossible. The only thing you can say with much confidence is that it's likely to be very different from the way it is today.
Of course, this was because he put together all of the necessary underlying technology. I remember reading an interview with him in the 90s, asking him if he was surprised how fast technology was moving. He replied, no, he was shocked how long it took for the things he had working in the lab decades ago to reach the main stream.
It will also stay very similar. The outline of life in the 1970s vs 2010 is still fairly similar. Drive around in cars, live in a house, take the subway, read the newspaper, watch tv, go to the movie theatre, buy food at a grocery store, call people on a landline, plug stuff into the wall, use your fridge and hair drier, drive around in your RV, fly an airplane at supersonic speeds, rent an apartment, have a family reunion, go to the doctor, get surgery, take drugs, read a book, go to the public library, go to school, flush a toliet, use an AC, open the windows. The dragon ball Z live action movie, although pretty horrible has a pretty accurate deception how high school will look like in 20 to 40 years. Pretty much the same with more flat screens and computers.
It will also stay very similar. The outline of life in the 1970s vs 2010 is still fairly similar.
That's the entire point of this (sub)thread. Making predictions of the next 40 years based on the last 40 is likely to lead you astray. A whole bunch of things are coming to a head. Coming revolutions in biotech alone are likely to seriously shake things up, IMO.
But the bacteria growth in Petri dishes is limited by resource, and bacteria has no way to change the situation.
Maybe we are really limited by available resources. We know for sure that we have limited supply of the solar energy. At the other hand, we are just using what is available on the surface of the Earth. Maybe we are going to figure out how to utilize more resources outside the surface of the Earth, or efficient way to use and recycle resources.
NYC is expensive because its more expensive to build skyscrapers than houses. Its not cheaper because of mass production, there's just enough incentive to spend more money than it takes to build houses because of the local population density.
I think you're making a mistake trying to apply something like Moore's law to a middle class lifestyle. Niche technological advancements don't necessarily translate to higher standards of living. If you're thinking the middle class life will simply scale the way hard drives and TV resolutions do you're in for a big surprise.
I understand that many of the things we think we "need" or want become very relative over time. But if we include basics like needing food, shelter and then add in middle class health care, mobility, security, leisure and luxury, you are talking about an expensive ticket. Yes we have made impressive advancements and maybe someday we'll have things like 100% robotic aggregation/farming and no longer need to think a lot about how we'll get our food. But I don't think the middle class life will simply becoming the default option anytime soon.
What about overpopulation? Increase demand from developing nations for this "middle class"? What about our numerous energy issues? I'm also not sure what your frame of reference is for the past. I must be stuck in the rebound towards an up trend because I know for a fact that a houses were much more affordable for my parents who lived on one carpenters paycheck, even while I make a higher salary after inflation and have the assistance of my spouses income.
I'm not attempting to apply Moore's law, merely the past 40 years of growth to the next 40 (just as the original poster tried to do).
In any case, the point I'm making is that "middle class life" needs a time period to be attached. "Middle class health care 1970" would be pretty cheap today - any medicine available back then is out of patent, and dying of untreatable cancer is pretty cheap. "Shelter 2010" is 60% bigger than "shelter 1970". "Luxury" in 1970 would be a 32" color TV, as opposed to a plasma screen with playstation today. Basically, "Middle class 1970" == "poverty 2010".
It might be the case that middle class 2010 is as good as it gets - I'm not trying to make predictions. I'm just pointing out that if, as the OP suggested, the next 40 years are as bad as the last 40 years, then we will be doing pretty good.
""Middle class health care 1970" would be pretty cheap today - any medicine available back then is out of patent, and dying of untreatable cancer is pretty cheap."
I question whether availability of drugs is the best indicator of overall health.
We are also a lot more sedentary, the quality of our food is probably not as a good, and we are a lot heavier. Given that, how many drugs do we need to just break even, health wise, with where we were in 1970?
"as opposed to a plasma screen with playstation today"
It would be an interesting psychology study to figure out if a kid with an Atari in the 1970s was objectively less happy and fulfilled than a kid with a plasma screen and playstation today. I suspect it is the relative excitement of being one of the first to get a game before your friends is a bigger factor. I guess it's a little late to start that study at this point, however.
My overall point is that I think comparing quality of life across eras is more complex than just comparing square footage, drug prices, and pixel counts. Unless I misunderstand your point.
I'm not using drug availability as an indicator of health, I'm using it as an indicator of health care. My point is that comparing the cost of health care in the past to health care today is not a fair comparison, since health care today includes vastly more services and products.
As for health, if people enjoy chips more than not being fat, I'm not going to tell them their choices are wrong (at least until 2014, when their choices are inflicted on me). Broccoli is available, they are free to eat it.
As for relative status, only one kid can be the first with a new toy in any era. In principle one could compare opinions and attitudes, but my guess is that they will be roughly constant over long periods. You can find find "kids these days, get off my lawn" and "my parents had it better" articles in newspapers of any era, for example. All I'm really assuming is that having a playstation or viagra is better than not having it.
That's not even imaginative enough. We'll be living in space and the rich will own whole solar systems with strong AI civilizations dedicated to working for them and worshipping them. The poor will barely be able to afford immortality and a space ship for going to work. Your great-granddaughter will complain, "Dad, why can't our Spaceballs One even move a diddly little gas giant while those people have whole solar systems to play with?" "Oww... blame our great-grandfather, he spent all his startup money on a measly 4000 sq ft house 200 years ago. Douchebag thinks he'd only live for 90 years."
yes and no. If we look at the economic growth of the past decade a disproportionate amount has gone to the super rich. If it were only healthcare to blame, or even primarily healthcare, then the delta for different income brackets would match historical trends. It hasn't, and healthcare is getting more expensive, and energy is getting more expensive.
Please tell me which point I'm wrong on. Do most people not live in larger houses, enjoy greater automation of housework, enjoy larger and better entertainment technologies, and benefit from medical procedures which did not exist in 1967?
Why is any of that relevant? If we're discussing poverty rates, then we need to come up with a reasonably objective metric for poverty, not just throw together some cherry-picked indicators. Economists have put a lot of thought into a few metrics, like inflation-adjusted median wage, which you simply ignore in favor of your own 'tv-size index'.
For example, those larger houses may be on cheaper land (further from cities), or people may be spending more of their income on housing (at the cost of, say, food quality, or education). There are a million ways for an individual statistic to be misleading. This is the whole reason that we use aggregated statistics like real median wage.
I'm disputing the prediction that the future, if we remain on our current course, will be more of the same. Here's what you said, "If the past 40 years are a guide to the future". I'm disputing the idea that income inequality doesn't mean anything because the "poor" will have a higher standard of living that the middle class does today. Again, incomes are on the decline for most americans, and energy prices are rising. There is no way that we will get more of the same if that remains true.
Also, most people I know live in smaller houses than their parents, but that's purely anecdotal and based on the obvious fact that there are more people living on the same amount of earth. I happen to live in a major city.
In spite of the purported declining income and increasing energy prices, people in 2007 have more and better material goods and services than in 1967, far more than the mere $10k increase in real incomes would predict. You could be right, the next 40 years may be different from the last 40 - I'll leave predicting the future to you and Ray Kurzweil.
There was a ridiculous downgrade in credit quality to facilitate that build out of McMansions over the last 10 years . A better analysis of how much real income and how much purchasing power per sq foot of home would have to take in credit quality/debt into account over time to be anywhere near informative. Secondly, increasing energy prices are not purported, they are real: http://www.eia.doe.gov/EMEU/steo/realprices/index.cfm
Real income analysis would require more time than I'm willing to commit right now.
"I'll leave predicting the future to you and Ray Kurzweil."
Except that you did try to predict the future earlier. Energy prices haven't risen much yet. You have an odd pattern of dodging my main point, and picking at tangential details.
Btw, I put a caveat on the house thing, I live in a major city and I'm sure it's different in most parts of the country. I'll bet this changes when driving long distances to work becomes much more expensive.
I didn't try to predict the future - I explicitly qualified that everything I wrote applied only under certain circumstances: "If the past 40 years are a guide to the future..." You even quoted my qualification.
As for dodging your main point, let me address it more carefully now. You seem to believe that incomes (by which I assume you mean income adjusted for CPI) is decreasing. And yet, over a period in which CPI adjusted incomes remained flat, quality of life dramatically increased. So why do you believe that decreasing CPI-adjusted incomes are worth worrying about?
In any case, I'm not sure what this has to do with CPI-adjusted incomes.
By quality of life, I'm only estimating the direction of change rather than the magnitude. I'm assuming that having more stuff is better - I'm happier with flush toilets/a washing machine/Bioshock than without.
yes, but I live in L.A. and I'm sure it's different in most parts of the country. I make way more money than my parents or grandparents, even when adjusted for inflation, but I live in a much smaller place than they did.
I'm curious - do you live in a way smaller space than your parents did when you grew up, or when they were your age?
When I compare my current living space with the house I grew up in, it's significantly smaller. However, my parents were over 40 years old by the time I have my first memories. They'd been saving for close to 20 years to afford that place, while I've been saving for maybe 5 years.
When my mom was my age, she lived in a 4th floor walk-up with one of her friends from college. And yes, it was smaller than my current apartment. If you compare my mom's childhood with my childhood, she lived in a small apartment almost her whole life, until about 3 years before I was born, while I grew up in a house in the suburbs.
I wonder if this is behind a lot of the 20-something angst. We compare our current living standards to our living standards as children, and realize (correctly) that it's not as good. However, that childhood living standard is based on parents that were already at the peak of their careers, and had scrimped for years to get there. Of course we're not going to live as well.
right, but the comment I was replying to was focused on the idea that I'm an angstful 20-something who is just starting a professional career. I'm not, and i have a much smaller place than my parents did at my age. 1200 sq/ft vs 3000ish sq/ft. I think my theory holds for areas that have already developed most of the available land. As population density increases we'll have smaller places than the generation before us in areas that have very little new land to develop.
I actually don't care that my place is smaller, and a bigger place wouldn't increase my quality of life much.
Touche. In order to get an accurate comparison, you'd have to compare to someone your age living in a city as large and dense as LA at the time they were your age. That probably means NYC, London, or Tokyo for your parents or grandparents since there weren't many megacities 30 or 60 years ago.
Not outside of the United States, Western Europe, and some parts of Asia and South America. What makes you think the same thing (over 50% reduction in GDP and almost ten million excess deaths) that happened following the bankruptcy of the USSR can not happen once the US is unable service its debt any longer?
There is a big difference between that and going from poverty to upper middle class. By your logic those stuck in poverty in 1967 will now have graduated to upper middle class by 2010. Even if that is how you define middle class I don't see very great strides. I rent because the housing market is a mess (http://seekingalpha.com/article/115464-new-home-prices-vs-me...), I wash dishes by hand and don't care for an iRobot vacuum with a state of the art cat fascinating feature, health care is very costly or down right unattainable, but yes I do enjoy my Xbox 360. It hasn't convinced me of your point though.
Can we conclude that this is the wistful daydream equivalent of the "Maserati Problem"
I'll go out on a limb and say that even normal retirement planning
(50 years into the future) is a Maserati Problem.
Everybody that makes very long-term projections about money -- whether
it's the gloomy "interest on $4m won't last 40 years" variety to the
rosy "save $300 a month and the compound interest will make you a
millionaire in 50 years" -- commits the same error: They neglect
the fact that wars, revolutions, devaluations, confiscations, and
other economic disasters have wiped out all savings at frequent
points throughout history.
There should be some trillionaires walking around whose ancestors started
saving in the Renaissance when modern banking began -- but there aren't.
So if you're talking time scales of 50 years, there is significant
probability that your carefully calculated spending or savings plan
is self deceit.
"There should be some trillionaires walking around whose ancestors started saving in the Renaissance when modern banking began -- but there aren't."
Carlisle Cullen. ;-)
Anyway - this is a really good point, but I'll point out something else. Most of the wealthy would-be trillionaires whose fortunes got wiped out passed down another inheritance: their genes. Those same disasters that wipe out the savings of the rich tend to kill the poor, who simply can't afford transportation away from disaster areas, bribes for border guards and security forces, political connections to ensure safety for their children, or information savvy to know when a crisis is coming.
Most of today's middle class is descended from the kings and nobility of the high middle ages. The peasantry just mostly died out, leaving no descendants.
Most of today's middle class is descended from the kings and nobility of the high middle ages. The peasantry just mostly died out, leaving no descendants.
That's simply untrue. For example, the majority of people of European decent in the US, Canada & Australia are from the "peasantry" classes (ok, by the time mass emigration was happing the "peasantry" class had mostly migrated to the factory cities in Europe, but they were still the poor people).
In Australia's case the early white population was mostly prisoners who were almost entirely poor, unprivileged and most certainly not nobility.
My Google-fu is failing me at the moment. It was from an absolutely fascinating article that suggested that the middle-class arose because of downward social mobility in post-Plague Europe. With the serfs mostly killed off by Black Death, the 3rds and 4th sons of the nobility typically couldn't support a feudal household, and so they had to take jobs as merchants or artisans in the emerging market economies. Along the way, they brought with them some of the values of the nobility (most notably, not having kids until they could support the lifestyle they were accustomed to as children), which allowed Europe to escape the Malthusian trap of the Dark Ages.
IIRC, the genealogical records (of most present-day Europeans and Americans being descended from the nobility) was presented as fact, but the causal link with the rise of the middle class was more tenuous.
I'll look again after I've gotten some actual work for $realjob done.
Sounds like _A Farewell to Alms_ by Clark. Though as far as I can remember the data showed the "merchant class" crowding out the lower classes, not the nobility. Nobles only had about an average amount of surviving children while rich merchants had an above average one. Makes more sense that way: medieval nobility doesn't sound like a great base for middle-class values...
I'm not totally convinced about the theory, but the book was a surprisingly good read.
I'd like to see a source for this. It seems counter-intuitive. A lot of the peasantry were sent to the United States as indentured servants. Most of the white poor land working classes from 17th century on. And it would be consistent with birth rates everywhere else in the agricultural world, that these people had more offspring than the wealthy. So. It just doesn't seem that this would be correct.
That being said. What we call 'The Middle Class' in the United States is kind of deceiving. Class can't simply be a function of how much cash income you bring in a year. Class has more to do with where that income comes from.
Those of us trading our time in exchange for money are working class, even if ( in the rarer case ) it is a greater dollar amount from a person whose primary source of income is the buying low, and selling high of commodities... such as, human labor, or pork bellies... and accumulating and reinvesting the difference.
There should be some trillionaires walking around whose ancestors started saving in the Renaissance when modern banking began -- but there aren't.
The reason for that isn't financial but usually due to wealth dissipating though marriage. Some wealthy families relied on arranged marriages to keep the wealth in the family, but this kind of arrangement had it's own problems (first cousins marrying each other for multiple generations has clear genetic issues).
Many rich European families were ennobled at some point, which makes their history more confusing. For example, the Duke of Westminster (6th richest man in the UK) is rich mostly because of his London land holdings. There are numerous other examples like that.
Actually, one of my (many) issues with political discourse today is that thanks to inflations, "the rich" has been defined down brutally over the past 30 to 40 years. Anyone currently making $250/year, yeah, if they're hurting it's their own damn fault for overreaching, but that is very rapidly becoming merely upper middle class. Meanwhile, neither our legal/tax nor our social definitions of "rich" are being updated at anywhere near the proper speed.
I recall somewhere seeing that if you take the term "millionaire" at the time that it was coined, it would today take 130 million to have that same level of wealth. I can't seem to scare up a reference, but it's at least broadly correct even if I'm off by 10 or 20%. If you don't retire a millionaire in 2030/2040 money, you're going to be in real trouble. You're probably in trouble if you retire merely as a millionaire.
And yet many of the things that average people enjoy today could not be obtained with any amount of money when my grandfather was alive. Where I live, today, an annual income of U.S.$250,000 is very comfortable indeed (and rather rare).
Right, this is a common economic discussion. People under the poverty line today can afford a roof, TV, and a home phone; 70 years ago they would stand in bread lines. Quality of life has definitely improved.
Whoa, that 40->50k over 40 years stat seemed ridiculous to me so I looked it up and you're right. This strikes me as bizarre because in the UK, both prices and wages have blown through the roof over the same period. I wonder what the deal is here (though the USD-GBP rate was significantly different decades ago).
It's not a terrible thing to do though, because it also reflects uncertainty in your income, albeit in a way that people aren't used to seeing. There is a non-zero chance that 10 million dollars today will end up being 3 million dollars next year, and I don't mean "next year" metaphorically, and I'm not even talking about the nastiness of the current economy, either; that's always true, regardless of the state of the economy, just the odds change.
I think it was Jadakiss who said "Entrepreneurs don't retire, they just get chubby and become angel investors."
I don't know of many people in this business who actually plan on being utterly retired while they blow hundreds of thousands of dollars a year. Most just want to not be obligated to work on things that don't interest them.
But you ARE. Or at least you are obligated to work on things that throw off meaningful amounts of money. What if what interests you is poetry? Raising foster kids? Working on open source projects?
If what interests you is not an income source, then you're going to need to avoid "living rich". Which, IMO, is fine and dandy. I get very little joy out of huge houses, expensive wines, and 1st class travel.
all kinds of things can be turned into income sources if you're serious about them and any good. making money off of poetry and open source is obvious. (not at the sports car level, but below that, sure.)
i'll admit it isn't not immediately obvious to me how you could profit from raising foster kids in a moral fashion, though that does not mean there isn't one.
Easy. Set up a non-profit dedicated to the foster kids' well being. Accept donations and funding from other organisations. Pay yourself a wage as an administrator. Sell the movie rights and retire rich!
The question is what percentage of successful entrepreneurs are really concerned with living rich and how many are just after the freedom. Looking at it in terms of expected value of a startup there would be far better ways for one to focus solely on making money if that was the only goal.
He's right that you won't get rich as an early stage employee unless you worked somewhere like Google. I learned that the hard way.
He's wrong about not being in it for the money. I've known about 10 serial entrepreneurs in Boston and Silicon Valley who were in it for the money, and they were all focused and successful at it. The key is to have a clear idea and a clear exit plan, and adjust to the market as quickly as possible. These guys were all like minor versions of Mike Cassidy. 3+ successful exits, each more money than the previous. All doing stuff you've probably used as a part of another product, but you've never heard of the original company or the founders.
A lot of guys know can't decide whether they are in it for the money, or the love, or to be famous on Hacker News, so they fail. Lack of focus and not knowing why they were in it is why they failed. Guys who know they are in it for the money and can execute often win. If you're really in it for the money and lose, you might just suck. That's just the way it works. YMMV.
The other thing he's wrong about is living to 90. Working at a desk 16 hours a day, living on soda and junk food, no exercise, estranged from families and friends... most hackers are going to need a lot of luck or serious medical breakthroughs if they want to make it to 70.
I've been doing startups since I was 31 (22 years ago), and figured that out quickly. And I've been at successful startups (IPO, acquisitions).
Much more realistic to aim for being employed (you do love working for startups, right?), but having your kids' college paid for, buying nice vacations, taking long unpaid leaves, buying nice toys for yourself and your family, having retirement (in your 50s or 60s) taken care of, and so on.
Also, for someone who really does love startups (technology, business side, whatever), "retirement" probably means doing the same thing you've been doing, but at a more leisurely pace, and that will probably earn something.
I don't want to be rich, for me being free on my (an my family's) current standard of living is enough. I live in Eastern Europe (Hungary) and my current net income is $24000 per year. $30000 per year would be enough. (It is a very strong middle-class level here, maybe I can say upper-middle class especially if you don't have debts and already have a reasonable house.) I am 35 years old and let's say I want this money to last until I am 80.
So I need $1.350.000. Provided that I will most probably always be a single founder and most probably will always bootstrap because no one will want to give me money, it will be enough to sell my company at $1.350.000, which I think would be more than doable if I would succeed with my current idea.
Edit: and also it is hard to imagine that I would absolutely not make any income with the lots of fun-projects I would do after my 'retirement'.
Don't bother to buy it: Get it out of the library and skim it. It's not a difficult read and it belabors its own point a bit. My own summary:
The secret to retaining a high net worth is the same as the secret to accumulating it: Control spending. Don't waste money.
Most of the people you know who look like they're wealthy -- fancy cars, country club memberships, stylish clothes -- are actually spending money as fast as they can get it, or faster. They have no savings and are living paycheck to paycheck.
Meanwhile, many of the wealthiest people in your town are wearing four-year-old work clothes and driving ten-year-old trucks that they bought used.
It doesn't do your future any good if you make $300k per year and spend $325k per year. Contrariwise, if you make $75k per year and only spend $50k per year you'll be a millionaire in under forty years.
"Living frugally" isn't what it used to be in the pain department. I have a Netflix subscription for one DVD and unlimited streaming instead of a $70 cable subscription (or an expensive antenna for my area), and while I made this choice to be "frugal" in the end I've actually been happier than I was with the cable. Do you need a smartphone with unlimited Internet? I can't speak for you, but I'm almost always within range of a computer and Wifi, and when I'm not I don't really need it. Does a new car bring you proportionate joy to the cost? It doesn't me, so mine are chosen to be relatively cheap to buy and operate, and I don't miss out on much I care about. (And I'm examining doing without my car; without going into my personal analysis it isn't a drop-dead win for my real numbers, but I'm looking at it. Note: I do not live in an area where I can trivially use public transportation.)
And so on. You don't really have to eschew the pleasures of the flesh entirely to be a "miser" nowadays; you can eat well (cooking yourself), drive adequately, be entertained for a reasonable price, etc, and still save enough money to retire comfortably. You do have to avoid credit card debt, not overcommit on your housing, and there's some tricks and issues (can you psychologically deal with having $10K+ in the bank without spending it, without relenting on the discipline?), but the days of actually facing the choice you outline are gone for most of the people who would be on HN in the first place.
Oh, recently internalized "trick": Take all "monthly fees" and mentally multiply by 12 to get the yearly cost, then treat that as the real cost. $24.95 a month for a service may sound reasonable; does $300 a year sound just as reasonable? I've been using this as part of my cell-phone upgrade resistance; there's a lot of ways I'd personally rather spend $300 than on a cell plan upgrade, up to and including not spending it at all. My Netflix savings is ($70 - $9) x 12 yearly, or $732/yr. My only regret is that I didn't do it about a year earlier!
You've got the dichotomy disease. There is no need to go to either extreme.
You can belong to a country club and still live within your means.
You can certainly drive a fast car and live within your means. Fast cars can be bought for well under $10k, especially in California where a fast car can last for thirty years and more without rusting. Most of the stuff on more expensive cars is just bling, or comfort features that have nothing to do with high performance.
What you have to do is pay attention. Don't spend more money than you have. Don't spend at an unsustainable rate. That doesn't mean "spend no money at all". There's a happy medium there.
And you don't have to be a miser. Though, in fact, you probably do have to die with millions, or at least several tens of thousands, unless you plan your own suicide and stick to that plan. To ensure that you're living as comfortably on your last day as your first, you need a bunch of money in the bank. And you don't know which day will be your last. So, die with a million in the bank and endow an amusing trust fund in your will.
When I lived in the Valley I bought a 1986 Toyota MR2 for about $6k. It had hilarious 80s-era retro styling with angles reminiscent of Tron, and it admittedly has been through an engine and transmission rebuild in the last 24 years, but it still runs great (for the friend I sold it to) and doesn't cost much more to maintain than any car of that age would cost.
It is marginally less fuel efficient than many cars, despite its tiny size, and one does go through tires when one is tearing off the starting line at the entrance ramp to 101. Fast cars are more expensive than regular cars. But not necessarily much so.
Of course, if your definition of a fast car includes the word "Chevy" or, god help you, "Porsche" I take back everything I said. ;)
The fun in driving a sports car is all in the handling and improving your skills as a driver, not necessarily in raw power.
I drove this little thingy for years: http://pics.ww.com/v/jacques/cars/copen/dscf1074.jpg.html , 700 cc, not even 80 HP and an absolute hoot to drive. On the straights not the fastest car (about 175 real km/h), but very quick of the mark because it's so light and absolutely unbeatable in corners.
It's also RHD which helped a lot in not having it stolen.
Fast, fun cars are emphatically middle class these days. The Subaru Impreza WRX is $25k new, for example. A millionaire who started collecting fast bargainmobiles would be killed by garaging and insurance, not maintenance.
As others have pointed out, with the buyout presented in the article, you can live forever spending low six figures (like $120k, with inflation adjustments.) That's not "rich young playboy" territory, but it's not "miser" territory either. At that level, you can raise a family in a comfortable house in a nice neighborhood, drive a nice car, have an RV or a boat or a cabin in the woods, have a country club membership and season tickets for your favorite sports team.
Or you can live a little bit cheaper, still doing most of that stuff but maybe skipping out on the country club membership or something, and become a rich old guy who can leave a huge estate to his kids... and still not be a miser.
The key is to position yourself in that middle ground.
The millionaire next door makes too much of a deal about stuff like clothing and cars. You have to control your bleed, sure. I've found that if you have half a brain and live somewhere with a lot of money flowing around like NYC you can buy fancy shirts, go out to dinner, AND save 6-10 grand a month, which is the best of all worlds.
Millionaire next door is more for people running a landscaping business in the suburbs, and saving every extra dollar instead of blowing it on a new home theatre system or an expensive vacation to somewhere that isn't as boring.
I.e. it's more for lower middle class people trying to get a leg up. In my experience it's better to become a "millionaire next door" ... next door to multimillionaires or billionaires. It's way easier if you're around a bunch of people with a lot of extra dough.
I hang around with two distinct groups of people a lot: grad student types with essentially no money and young professionals (doctors, lawyers, etc) with nice, solid salaries. From my experience, it's much easier to not spend money when I hang out with the first group, because they have no expectation of spending a lot of money. On the other hand, you'd feel out of place with the other group if you don't spend some higher base level for doing "normal" things like going out to eat, trip to Vegas, whatever.
I assume this scales if you are just the millionaire and you hang out with multimillionaires.
It depends. In NYC if you work in finance you'll probably find yourself getting taken out to nice cigar bars or steak houses after a good Friday trading session and running up several thousand dollar bar tabs on somebody's corporate card, rather than paying anything out of pocket.
> "Let's assume you want to live in a major metro area, send your kids to private school..."
That's his problem. When we moved to this country, my dad had an H1B visa and was making far below what an entry level Google employee is making. Nonetheless we had quite a comfortable life: rented an apartment in a suburb with a good school. Later, my parents (both of them finally rising to market rate) were able to afford a house and send me to college (two years of community college and then transferring to a university) without taking a penny of financial aid.
This isn't just a rant against the OP and this has nothing to do with "fuck you money" (I have my own opinion on it, but I am not qualified to state it). I am sick and tired of the premise that these days a comfortable family life is two six digit incomes. No, you don't need a private school, no you don't need to live in San Francisco or a New York (try a suburb instead, which also solves the "private school" problem), no you don't need a single family home, no you don't need two BMWs. Even if you don't retire, it makes sense to live below your means to have money available for a rainy day.
If you know how to live below your means than even as an employee (looking to make a few hundred thousand from options) you have the chance of earning de-facto "fuck you money": the sum of money which means you no longer have to accept a boring/stifling job just to have a job; the money you need to take the time off to work on a "science project" (a technical project that doesn't have an immediate business model).
Because the quality of life in US apartment buildings is appalling.
I don't want to hear every step that my upstairs neighbors take. I don't need to know when they go to the restroom in the middle of the night. I don't need my downstairs neighbor ask me not to walk after 10pm.
This is ridiculous. I'll live in a US apartment once the sound insulation issue is resolved (hint to US architects: It was solved by 1930 in the rest of the world).
Maybe you just picked the wrong building? The only noise I hear from my neighbors is when the windows are open and the kids are screaming two doors down. But no insulation is going to fix that problem.
Yeah, I'm not getting where that number comes from. (And I love the suggestion that it's merely "upper middle class".) Personally, I can live a pretty nice lifestyle on "only" a couple thousand in disposable income a month. I really can't imagine what I would do with $20-25,000 / month to spend.
With that in mind, I tried a few numbers in the spreadsheet. Just to be more "realistic" I dropped the payday back down to $4.5mil. I'm also assuming that the first thing I would do is to pay off my mortgage, so what remains is basically entirely discretionary spending.
On a restrained budget of $50K/yr ($4K/mo), my assets grow faster than I'm spending, and I die with $20M in the bank. On a more extravagant $100K/yr (over $8K/mo), things are a bit closer, but still earning more than I spend and leveling out at about $7M in the bank. The crossover point is about $125K, leaving you broke at 70.
So, I'm going to say that, yes, I really could retire and not work again with a $5-10M payout.
So, I'm going to say that, yes, I really could retire and not work again with a $5-10M payout.
I calculated some time ago that ~$4M would be enough for me to never think about money again. I could do anything that I wanted to do for the rest of my life. A key point, of course, is that I could do anything that I wanted to do--I don't want a Maserati or my own private jet or any of the other customary extravagances of the idle rich.
I'd say that most people who couldn't retire on $4M would not be able to retire on ten times that amount--you could give them $1M a year and they'd find a way to squander it. It's amazingly easy to spend money if you have expensive tastes.
I seriously don't mean this in an insulting/trollish way but I think you are either lacking imagination or underestimating how quickly you can adapt to a richer lifestyle. Given you are even here and thinking about entrepreneurial rewards I'd guess the latter. On the other hand perhaps I underestimate how... modest you like to live?
Whilst I also raised my eyebrows at "upper middle class", I know people in that range who have spent rather too much and fallen (not totally) in only a handful of years. They never seemed stupid or excessive. It's probably partly to do with expectations: exactly the bias this article tries to correct.
It seems obvious to you and many others here that everyone slides down the slippery spending slope. I have the same problem understanding this position that I have understanding "compulsive shoppers" who buy luxury goods on credit cards. Wouldn't one just... not do it? It seems that the type of person who overspends when rich will also overspend when poor, i.e. that it's more a function of willpower than income level. I don't overspend now; why would having more money make me any more likely to overspend?
I'm starting to think there's some major psychological division here; why is it so hard for you to imagine having willpower, or for me to imagine not having it? I'd like to say it's just that there aren't that many more things I want, but perhaps that feeling is a higher function of willpower, and I've just conditioned myself not to want things I can't afford. If this kind of cognitive shielding is involved, it might partially explain why the two sides have so much trouble relating.
Spending 10's of thousands a month is getting up there, but "blowing through" more than $4k per month isn't necessarily an extravagant lifestyle. My guess would be that you don't live an as expensive a metro area as the author is basing his calculations on.
In a place like San Francisco, a few non-frivolous expenses can add up quickly:
- Your residence. A decent 2 bedroom place in a desirable part of San Francisco will run $3,000 per month in rent, a mortgage will be much higher. We're not talking anything extravagant here, just 600-900 sq ft.
- Travel. Paying for more than one person to travel to visit family/friends a few times a year can easily add up to $1,000 or more per month. We're not talking luxury vacations here, either -- just basic airfare (coach) and accommodations.
- Health expenses. As you earn more, you'll probably be more likely to spend more on optional health items. Things like LASIK for example. Also, as you get older, these expenses will get much larger.
- Kids. It doesn't even have to be private school we're talking about, but I imagine that clothing/feeding/entertaining more than one person adds up quickly.
- Any time/money trade-off. You have a limited amount of time and, similar to health expenses, you will be more likely to spend money to save time as you earn more. Each person's choices will be different here, but again, we're not talking luxury. Maybe paying for parking instead of a time intensive bus trip? Or arranging for laundry service? Or paying an unjust $40 bill that would otherwise take you 5 hours to fight?
Notice there's no talk of fancy cars, big screen TVs, luxury trips, large mansions, or extravagant dinners. I think this is the definition of "upper-middle class" that Tony is talking about. Nothing fancy, but a few things to make your life more convenient.
> Your residence. A decent 2 bedroom place in a desirable part of San Francisco will run $3,000 per month in rent, a mortgage will be much higher. We're not talking anything extravagant here, just 600-900 sq ft.
As I said, "I'm also assuming that the first thing I would do is to pay off my mortgage, so what remains is basically entirely discretionary spending." Now, I've chosen not to live in one of those 3 or 4 ridiculously expensive cities. You might not consider spending $3K for < 1000sqft extravagant, but let me assure you that most people do. (Also, FWIW, I have friends with a 2 bdrm apartment, across the street from golden gate park, surrounded by good restaurants, which they only pay $1600 for.)
> Kids. It doesn't even have to be private school we're talking about, but I imagine that clothing/feeding/entertaining more than one person adds up quickly.
You imagine, but I actually live it. Kids don't actually eat that much, and amuse themselves much more easily than people seem to give them credit for. Their clothing is fairly cheap, and since they usually grow out of things faster than they wear them out, you can pick up a lot of stuff even cheaper at second-hand shops.
I certainly enjoy travel, and it's a non-trivial portion of my discretionary spending. My point is not that you need to live live a pauper, just that you don't need as much money as you think to have an enjoyable life. There was a time in my life when I blew through twice what I spend today. And I use that phrase because I literally couldn't tell you how I did it. An attitude of "we've got money; might as well spend it" caused money to seemingly evaporate with nothing to show for it. I don't feel any less well off today. Honestly I feel better and richer knowing that I'm not spending every cent I make.
Exactly! It is surprisingly easy to buy something in a store instead of ordering from Amazon and waiting, for +20%, or taking a cab home instead of the subway/bus, or hiring a weekly cleaning service, or buying nicer ingredients and eating out at nicer places because it's convenient, or, ...
Its all the little things in life that really make your experience better and allow you to do the things you want to be doing, not the big ticket items that people traditionally associate with wealth. I think that that is what FYM is all about, really
Tom Wolfe's "Bonfire of the Vanities" (Going broke on a million a year), p.137
"One breath of scandal, and not only would the Giscard scheme collapse but his very career would be finished! And what would he do then? I’m already going broke on a million a year!
The appalling figures came popping up into his brain. Last year his income had been $980,000. But he had to pay out $21,000 a month for the $1.8 million loan he had to take out to buy the apartment...
Of the $560,000 remaining of his income last year, $44,400 was required for the apartment’s monthly maintenance fee… $18,000 for heat, utilities, insurance and repairs, $6,000 for lawn and hedge cutting, $8,000 for taxes. Entertaining at home and in restaurants had come to $37,000. This was a modest sum compared to what other people spent."
> Spending 10's of thousands a month is getting up there, but "blowing through" more than $4k per month isn't necessarily an extravagant lifestyle
I don't believe I ever said it was. In fact, I called $4K/mo a "restrained budget". Meaning I would need to pay attention to my spending and not indulge in all the discretionary activities I might like.
Or maybe I do have a child and have figured out that you don't actually have to send them to private school, pay for their college (my parents didn't for me), buy them a new car for their 16th birthday, etc.
Kids are expensive w/o doing all that rich kid stuff. With three kids I have Tae Kwon Do, Abacus, piano, Kumon and they go to public schools. Add on school supplies, clothing, shoes, good will bikes, etc and it gets expensive fast w/o even looking expensive.
Well, I wasn't saying it was impossible, just expensive. Also, I don't know where you live, but one child's extracurricular activities for me is ~400 (100 piano+100 TKD+100 kumon+100 math) and during the summer it is higher since they have camps to attend (since there are no crops to harvest). Once your daughter gets older, I guarantee your clothing costs will increase.
Well, yes, it's true. My daughter doesn't have 4 extracurricular activities going at once, she has one or two... or sometimes even none at all! The rest of the time, she and her friends just have unstructured play.
And, yes, her clothes will get a bit more expensive as she gets older, but I don't expect my spending there will ever more than double. If she feels that she needs more or fancier clothes, she can get a job to pay for them.