- Earn as much as you can from your own work. Take a 2nd job, change to a higher paying job, ask for more responsibility and a raise at your current job, go back to school for a more lucrative degree, ...
- Spend much less than you earn. Economize, share an apartment, buy an inexpensive car, shop at Trader Joe's and Costco, ....
- Learn how to invest. This is really important. The most deliberate and highest probability of ultimate success is likely mutual funds. Individual stocks can goose it, but should only a small portion of your wealth, as they start to bring a luck factor into the mix ...
- Protect your investments. Health insurance is really a must in the US, might be a must elsewhere. Work for a company that offers health insurance. Car insurance is a must. Other insurance is probably wise.
- Be patient. The compounding effect of investing takes a long time, but once it gets rolling, it's pretty much unstoppable.
Not to mention, your life is going to be pretty miserable if you're working two jobs and spending a lot of effort on living frugal. There's just something off-putting about the thought of spending decades living frugally and working yourself to the bone so you can retire and finally have fun.
The exemplar folks who advocate doing this, a'la Mr. Money Mustache, are real pieces of work too. They tend to hide the fact that they went into the process with an inheritance to fund their their nest egg and are working nearly full time in their "retirement" as paid frugal advocates.
I think there needs to be a balance. The trend of working crazy hours to save as much as you can, living overly frugal, etc. will not always lead to happiness or fulfillment. I like to think of it as how can I optimize my time and finances for "life" rather than retirement. That doesn't mean I don't have a nest egg, it just means that not everything is going into that nest egg.
This speaks to a common fallacy: the notion that happiness is a permanent achievement. Many people believe that you work hard so eventually you can achieve a position where you live "happily ever after". That's however not how the brain works. Happiness is a reward mechanism for effort bearing fruit. Once you stop doing things to become happy, eventually the happiness goes away because the brain adapts to its situation (this also works in reverse, you can get used to surprisingly horrible situations). The trick to being happy all the time is doing new things that make you happy all the time.
Achieving "Financial Independence" -- when a portfolio meets all basic income needs -- can greatly enable this. The question is why people postpone their own "freedom" in favor of little wins now like trying expensive restaurants, etc.
The risk is real, there's been excellent progress in crashworthiness.
The point is find eliminate spending on stuff that doesn't really make you happier, and focus on the things that do. Also, find cheap hobbies, reading, etc. etc.
for software guys like mmm I'd wager that it's better to take the time and energy used on frugality and instead try to develop alternative income streams, which ironically is exactly what mmm did.
regrets over $10-30 purchases seem like a complete waste of time to me... https://www.newyorker.com/magazine/2016/02/29/mr-money-musta...
And as far as I know, he and his wife earned their money in tech jobs. The math is believable: let's say your household makes $130,000 a year (which I haven't done), and lives on $30,000 a year (which I've done... not fully voluntarily mind you but it wasn't hell on Earth either). You're saving $100,000 a year. In about 10 years you're a millionaire and could continue living on $30,000 forever without working. (Assuming 3% interest, which is doable without much investing effort, luck or expertise.) That's financial independence. Keep working at that point, and you only improve your lot. You can earn $10,000 a year as a full-time musician and live on $40,000. Or stay in tech and put 100% of your salary into principal while interest or dividends pay your living expenses.
Increase your monetary needs, i.e. your financial dependence, and it takes longer. Which is what most people do.
Unless you meant 130k after tax (which is doable today for many engineers).
For example, the ability to contribute to a 401k plan can defer $18,500 a year from taxes per person (more if over age 50, and more if there is a company match). For someone with a $130k gross, the employer having a 401k plan or not could affect the choice of which job they choose.
As the other commenter pointed out, why do you think 401k limits are low?
of course not - there are no certainties
> It included massive bull runs that may not be repeated
it also worked through times like the great depression; on aggregate it's amazingly resilient
> A lot of research has predicted lower real rates of return
This is a SUPER-important thing for making your own FI models!
EDIT: Missed that this was for a fixed period of time - 30 years.
But... what happens if you live more than 30 years past your retirement? It would really suck to retire on $750,000 (or $1M) savings at 45, and live to be 100.
EDIT: Again, the rate quoted is for withdrawals in perpetuity. It doesn't guarantee your savings will outlive you, but it's highly confident it will.
See, e.g. https://www.kitces.com/blog/adjusting-safe-withdrawal-rates-...
Much quicker than that if you invest it at 7% (average real return on the S&P 500).
Agreed, but try not to be the person who refuses to ever go out because you're too focused on being frugal. A few times here and there won't really hurt you in the long run (and having fun with friends is important and worth the money), but making it a habit every night will. Just avoid the latter.
> Frugal is buying an old reliable honda/toyota for $3,000 vs picking up a $40,000 entry level benz.
Definitely agree. Americans in particular tend to buy way more car than they need, and the difference in price is on an order of magnitude that really does matter in the long run for many of us (i.e. if you invest that marginal $20k, $50k, or $100k and wait 10-30 years instead of buying a quickly depreciating fancy car).
Not only that, they trade it in (sometimes with negative equity) every ~5 years.
I buy old, used Lexus'. Pretty much all modern features, quiet, and a fraction of the new price. Change the oil, and the timing belt if applicable, it will last forever. But people treat cars so much like appliances these days.
Also, there are some really modern features like rear-view cameras, sonar, etc., which are pretty cheap in newer cars but almost impossible to find in older ones
But, to run the numbers, get a the total cost of ownership (car payment, interest, and non-warranty or whatever maintenance) for a new/virtually new car, divide it over a span of the expected months of ownership (say, 60, 120, 180 months).
Do the same for a $5,000-$10,000 quality used car that you can pay with cash.
The hard part is estimating repair and maintenance costs, especially for non-car-persons. But I believe that car reliability is so good for recent cars that it's wasteful to purchase new.
$20,000 new car
36 month loan @ 2% = $28,072.59
Estimated average maintenance/year: $500
TCO 60/120/180: $30.5k/$33k/$35.5
$7,000 used car
Estimated maintenance/year: $1,000
TCO 60/120/180: $12k/$17k/$22k
Now an older car will generally cost more over time, eventually, than a new one. But every 10 years or so it's much cheaper to purchase a used one.
And if your stereo is replaceable you can get a rear-view camera hooked up if you desire. They also have wonky standalone ones.
- you're including interest for the new car but not the old
- you're ignoring the residual values of the cars at the end of the 5/10/15 year periods
[edit: and the "cost" of that 3 year/2% loan is $623, not $8073]
So the corrected 60/120/180: $23k, $25.5k, $28k.
And true, it will be worth something after 10 years or so, figure $10,000@60, $5,000@120, $3,000@180 but it varies vastly with the brand, mileage, and condition.
Corrected again: $13k, $20.5k, $25k
Damn, looks like it's close to a wash after 10 years. But, consider that the used car is a Lexus with heated/cooled seats, leather, nice audio, power seats and windows, automatic wipers, etc. etc. and the new car is a base model Toyota Corolla.
Plus, the use car will not be worth zero, hopefully, after 10 years. I guess 60/120/180 would be something like $3k/$2k/$2k:
So for the used car: $9k, $15k, $19k
So a bit ahead again.
It looks like with these napkin calculations the $20-25k mark is the break-even point at around 10 years. So any new car more expensive than that is going to be more costly, obviously, relative to a used car.
Well it was a fun thought experiment.
There are reasons why cars depreciate, amongst which are the fact that they need more money put into them over time.
I drove my last car to almost 300k miles and my current is at 240k miles. Of course there are major maintenance items but well worth it. When my car hit 200k I changed the timing belt, water pump, seals, etc. This is on a Lexus LS430. As expensive as it can get. Cost $1800. If I had a cheap car, it will be a $1000 job. Now you have to understand. Do I go get another car or spend $1800? Easy $1800. I'm at 40k more miles. What else have I changed? oil, brakes, tires. That's it. Nothing else!
Does it have issues? Meh. Navigation sometimes acts up and freezes which I suspect is the DVD but I can't be bothered. I use my cellphone in those rare moments I need it. Everything else works. All power seats, windows, heated seats, traction, etc And here's the kicker, it's a 2001. 17yrs old.
Most cars will hit 200k miles, some reliable ones like toyota, lexus, honda, will hit 300k easy with minimal maintenance. I rather spend $5k-$6k and add another 100k miles. :D
Yes, you're taking more risk with a used car. But I have multiple cars, and am a mechanic so it doesn't bother me.
There's a whole range there. You don't have to live on ramen. But you can be really aggressive about insurance premiums, utility bills, etc. You can learn home & auto repair & maintenance. You can make major life structure choices (Can your family live with one car?). These all can make a huge impact on your finances, and don't hurt the way perpetually living like a college student does.
Counterpoint: Your chances of dying before "making it big" and retiring are somewhere in the 1-in-10 range.
If this is the "get rich without getting particularly lucky" advice, perhaps we should assume it's also the "get rich without getting particularly unlucky" advice. There's an endless list of terribly unlucky things that would ruin just about anyone, but don't generally bear planning for.
As someone who knows a lot about car and motorcycle maintenance, repair, and modification, this is not good advice, and I see it all over.
You're far better off simply buying a new, cheap compact and taking it to Walmart for oil changes. You will come out far ahead of the person who invests money in tools and space, and time into learning how to do something that is so easily outsourced.
The opportunity cost of maintenance is high. Don't get involved unless it's going to be a hobby that brings you satisfaction in and of itself.
Sure, learn some very basics so you don't get blatantly ripped off by unscrupulous shops (bringing you a filthy air filter that doesn't even fit your car is one example), but don't invest much time or energy.
For just the depreciation cost of a new vehicle one could purchase every home auto repair tool they would likely need for a very long time.
You are right, the cost savings on doing your own oil changes isn't particularly significant. Although it's also worth pointing out oil changes are the most commoditized, sometimes-loss-leader service in the business- if there's a cost savings to be had, it's in moderate repairs that are a little more involved but don't require lots of equipment. Replacing an oxygen sensor or alternator, for example.
Also, walmart f*cked my drain pan, so it had to be fixed for ~$150.
I will do my own oil changes now.
It's really funny to read that. It's probably very american to think 2 cars per family is the norm. I think if I group the 10 adults I see the most on average, we own 2 cars together. And we are all between 30 and 55.
I also get that, living in a city in France, it's easier to avoid having a car.
yet I note that you could have a motorbike. You could not have kids. You could move close to your work. You could move in an area requiring less car. You could change your job to one not needing a car. You could bike. You could care pool with friends/neighbors/coworkers. You could use public transports. Etc.
But the car is an important artifact of the american culture. You kinda build the country around it, not the other way around.
Keep in mind, the shift from farming being a major employment sector happened while the current US infrastructure was being built. The highways and population distribution were in part because of that.
Also the US is one of the world's largest in area, and while urbanization is being pushed due to changes in the labor needs, it's something that happens over time not over night.
As for "you could do X" most of your statements aren't really proof of an American obsession with cars, just a different infrastructure choice relative to other nations.
The US has 27% more cars than France per capita. That's statistically significant and reflects difference in city planning/culture, but IDK that I'd draw the same conclusions as you.
Why is not having a car an ideal for you? Why do you have to bike? Can't you just walk places?
I don't have a car because society is telling me to have a car. I have a car because it's faster to get places I want to go; it's damn hot in the summer; and it's great for carrying around purchases and the family.
And on the flipside, cars are cheaper than kids :)
Yet we travel around the area to state parks, bike trails, etc.. every weekend. Even if I lived in a city, that doesn't mean I would want to be confined to the same 10 square miles my entire life. We live in a vast, beautiful country. Why isolate yourself to a tiny little block? Life is too short for that.
It's just a matter of priority and way of life, with constraints yes, but a choice none of the less.
In my neck of the woods, the average is probably 4-6 cars per family.
I always thought so funny the american TV shows depicting a 16 years old fighting his parent over his/her first car, and finally getting it.
My brother and I, we shared one small motorbike ^^
So which is it?
816 per 1000 sounds reasonable when you consider how many are childern, live in big cities, are in the military, etc... There are some pretty big classes of people who own no vehicles whatsoever.
If you look at married suburban households the number will almost certainly be over 2. The most common case involves one person driving to work while the other shuffles kids around or has their own job. The public transport option may exist, but is likely inadequate (excessively slow) and undesirable.
Whoah, do you have evidence of this? I mean, yeah, some people have certain advantages, but if they are being paid for advocacy and if it's a trust-fund baby thing that would be really interesting.
On balance though, I'm not really opposed to a message to live frugally. We live in a culture that continuously bombards us with materialistic advertising, and this doesn't really lead to long-time happiness. I'm skeptical that being frugal implies some kind of deprivation or overwork. In fact if you're frugal then theoretically you can afford to work less.
As for the paid advocacy, have a look at their financials. You'll see a non-trivial amount of income from advertising on the website and speaking.
EDIT: The house wasn't inherited - he got it from a failed house building business. It's unclear if the costs of building came out of the business funds or his own funds.
> I'm skeptical that being frugal implies some kind of deprivation or overwork.
OP was advocating working multiple jobs and living frugally.
Because as we all know MMM's plan was always
1. Spend 20's saving
2. Save $600k
3. Quit job
4. Make blog
5. Make millions.
Yes, MMM makes bunches and bunches of money but he is pretty blatant about admitting the "early retirement" was a lie.
He never wanted to retire. He just wanted the option to not work and choose to work on what he wanted.
Fuck the modern web. Such a bunch of crap.
Someone needs to build a search engine for sites that don't carry any form of advertisement. charge subscription. seems worthy.
But i want to read content from people just wanting to write, without perverse incentives, as much as possible.
Frugal living are habits that accumulate gradually, as are any other habits one aims to develop. Eventually you don't have to think about them, things converge naturally. Some people might enjoy working two jobs, because everything syncs together that way.
Periods that are more frugal help you appreciate the pleasures of higher-end lifestyles while realizing that not having them isn't a catastrophe.
Plus the hedonic treadmill is a bitch. Someone earlier in this thread regretted his parents not having experienced certain things. Truly, it's a crying shame to die without having had truly fancy delicious dinners, for example -- that one time is almost priceless. But once a month is a nice, expensive habit. Twice a week you don't care anymore.
My parents said this quite a bit.
Of course, my dad did blue collar labor for an inflation-adjusted $30 per hour (the same position today pays around $11 an hour), plus overtime and a pension. My mom was a part time waitress to pay her way through 4 years of college.
It was surprising how quickly they stopped saying that when they looked at the cost of a new house because they had to move. Or when they looked at what it would cost to put their granddaughter through the same college my mom went to.
Similar to complaints about how one's parents were able to afford a house in Silicon Valley, why can't I? Well, gee, fifty years ago Silicon Valley was an orchard.
I started college in about 1992. My in-state tuition at the University of Utah -- a major university, not elite, but not community college -- was, I think ( * ), less than about $1500, which is about $2700 in today's dollars. In-state tuition today is $8,824, reflecting a substantial reduction in state support -- a 3.2x real dollar increase.
People in my generation and older who say "work your way through college", or "don't take out loans" need to make sure they've updated their mental model of the cost of college.
(*) I can't find historical data going back to '92; In '98 it was $2711: https://www.chronicle.com/interactives/tuition-and-fees which is $4203 in today's dollars.
I'm so glad I went to school 15 years ago. Students today are totally screwed.
It is extremely difficult to make $50k/year with no degree or experience. That is almost the house hold median income in the US (2 people working). (Currently: $59k/year)
This is wrong.
$30k - $12k standard deduction = 18k taxable, 0% tax on 0-$10k, 12% tax on $10k-$18k = -960 taxes owed, then you get 2500 American Opportunity Credit or $2000 Life Long Learning Credit. So if you earn 30k as a "full time student" you would take home ~$31k less 0-10% state income tax on $18k
Looks like the median for tuition and fees at state 4-year schools is around $10k. My contention: if you can make ~$15k per year, you can put yourself through school.
First, you can start at community college, which is very cheap in most states. And many states have a deal where you are guaranteed admission and transfer to the 4-year system if you get good grades at community college. So that'll save you some money.
Second, many states (and possibly the Federal government) offer grants to help defray these costs. You can also apply to tons of private scholarships.
Third, you can live very frugally in terms of lodging and food. Not fun, but doable.
Fourth, you can take out a little bit in loans. If you take out $5k / year in loans, you'll have $20k at graduation. Hardly crippling.
I actually did this, though I also had the GI Bill so I didn't have to do the loans part, so don't tell me it's not possible. It's not easy or fun, and I'm not saying we can't improve it, but today's students are hardly totally screwed.
Note: I'm not saying that we shouldn't do a better job of funding higher education, but this level of debt is not crippling. The real issue to me is people who run up high five figure or low six figure levels of debt for low-quality degrees or institutions, or who don't finish, or who are being trained for a career that will never make enough to have that be a positive ROI.
Average student debt of those who borrow is in the 20s-30s of thousands at most schools. $75k of debt for an undergraduate degree would be an outlier anywhere. https://lendedu.com/blog/student-loan-debt-statistics-by-sch...
This belief could cost you a lot of money.
Watching something that once was a "sure bet" go bust is very humbling. Watching those speculators go bankrupt by the hundreds is very sad. It made me realize that this particular dinosaur could be very real.
Yeah, if you are dumping money into a bubble hoping to cash out at the top, you are taking a major risk. If you’re investing long term in an asset with literally centuries of history of growth, then you’re probably going to be okay.
And realistically, what’s the alternative? I guess government bonds?
Even if you believe that in your lifetime the human race will collapse under the strain we’re creating on the planet, investing is still the appropriate hedge for your doomsday “die in a catastrophe” plans. You can refuse to call it “investing”, but then you’re just arguing for a pointless definition that no one else really agrees with.
according to that definition, your parent poster would be correct, even if (or maybe once) your fears come true.
This is not to say I don't think we are in a large bubble.
So there's no point in worrying about such scenarios.
I'd like to see how you came to this conclusion.
Painting with broad strokes, one can retire after working in tech for 15-25 years. Start at 25 and they are done by 50. Current death rates for dying between 25 and 50 are less than 0.7% ; that's not even correcting for the fact that the wealthy likely have a reduced mortality rate .
 - https://www.cdc.gov/nchs/products/databriefs/db293.htm#age_s...
 - https://scholar.harvard.edu/files/cutler/files/jsc160006_01....
to get the probability of dying before 50 you have to look at the total number of deaths/pear, distributed by age: https://www.statcan.gc.ca/pub/91-209-x/2013001/article/11867...
the area under the curve for 0->50 looks about 1/10 of the overall, so I'd say the op is about right.
Yes, which is why I took the sum of those numbers for ages 25 to 50.
>the area under the curve for 0->50 looks about 1/10 of the overall, so I'd say the op is about right
You're describing the conditional probability that, given you have died, you are under the age of 50.
this means that out of 100k 25-50 yr olds 726 died during 2016. This is the probability that you will die during this year, given that you are a 25-50 year old, which is different from the probability that you will die before the age of 50. (the prior number ignores the cumulative probability that you have died as a <50 yr old during all years prior to 2016)
Given that all of us will die, the only question is the age at which we die. The conditional probability that, given you have died, you are under the age of 50 is exactly what we should be looking at.
Ah you're right about that. Looks like I'm probably way off. This random thing google turned up  says that a 25 y/o male has like a ~70% chance to make it to 50!
>Given that all of us will die
Something doesn't feel right about this, but I can't figure out what. I'll let it simmer and assume you're correct in the meantime.
 - http://flowingdata.com/2015/09/23/years-you-have-left-to-liv...
just intuitively though, a probability of .7% for dying before 50 seems way too low
Start at say 25 and that's going to give you a much better than 1:10 chance of being able to very comfortably retire someplace cheap. If nothing else 1 year of work = 1.5 years not working, but at 4% return (over inflation) and 15% investment taxes you can retire in 15 years.
If you’re not making enough, and having financial flexibility is important to you, then considering a career change is in order. You might need to go down before you go up. Invest in yourself through education and experience and leverage that to get into a higher paying path (see more on this here: https://ramenretirement.com/2018/04/30/wealth/)
Once you have some real savings and wealth, then it’s all about investing it properly to generate inflation protected passive income (IPPI). I prefer real estate for this (see here for more on RE investing: https://ramenretirement.com/2018/03/18/ultimate-guide-to-rea...). I don’t think enough people consider alternative investments. Putting all your eggs in public markets is a low cash flow proposition, along with lower long term returns (see how returns compare here: https://ramenretirement.com/2018/03/18/ultimate-guide-to-rea...). If you have excess savings, you don’t need all that liquidity and should consider less liquid investments that might have higher returns: https://ramenretirement.com/2018/02/23/youre-too-liquid/
Lastly, people talk about the 4% rule, but that’s bullshit for a whole host of reasons: https://ramenretirement.com/2018/01/21/4-percent-rule/
Save money. Build wealth. Invest it wisely, considering alternatives other than the stock market. That’s the path. Simple, but not necessarily easy.
Agreed. A few follow-up points:
1. Frugality isn't a binary state. There's a balance to be struck. Some people really do waste money on frivolous things that don't actually bring them much real satisfaction, and in that sense being more frugal is definitely worth it. But once you've eliminated most of the excessive spending habits, the payoff of frugality really starts to drop aggressively as you cut out more and more (diminishing returns). Skipping your $4 latte isn't really gonna change the game for you if you're trying to become Bill Gates.
2. Frugality to me is kind of the "lowest common denomitator" of financial strategies, which is why so many "experts"/"gurus" tend to preach it. "Spend less than you earn" is a dead-simple concept and worthy advice to a certain extent. But trying to increase wealth more and more by cutting out less and less is not really a great long-term strategy, especially if you're interested in achieving significant gains in wealth. It's arguably much more effective to invest time and energy into things that will increase your earning potential over time rather than fretting about small guilty pleasures or trying to squeeze a couple more basis points of return out of your portfolio of mutual funds. Things like: gaining a valuable skill that's in-demand; honing and improving those skills over time; taking on leadership/management responsibilities; starting a business; meeting and forming relationships with people who are smart & successful or at least aspiring to be; etc.
See also: https://xkcd.com/947/
Also, after being a small time landlord for a while, I've decided the true magic of interest is, over those ten years you didn't have to lift a finger. If you've got money to park while the rest of your life is chaos, interest is the totally-hands-free option, and I am coming to see that as magical.
If you're having $4 lattes once a week, they're worthless. If you have a $100 dinner twice a year... man, those are nice.
Your mileage will vary. Personally, I love a good latte: it gives me a great deal of pleasure, especially when I can hang out at an inspiring 3rd place, read a good book or get some work done.
I've been hearing that forever. Yet still the market goes up an average of 7% per year after inflation.
> Any failure in your investment strategy
You'd still be doing well with a diversified portfolio even living through the 2000 and 2008 crashes. The 100% guarantee of failure is to do nothing.
My pay + company benefit == $650/month to Anthem.
I still end up paying $5000 for all pre-pregnancy costs out of pocket and the baby isn’t even here yet.
In Australia it would be 10% of that, purely because they got their shit together a long time ago.
Why? The 80/20 Rule ("Medical Loss Ratio" rule).
> The 80/20 Rule generally requires insurance companies to spend at least 80% of the money they take in from premiums on health care costs and quality improvement activities. The other 20% can go to administrative, overhead, and marketing costs.
Meaning insurance company executive wages can only come out of 20% of your premium, so if the CEO wants that pay increase they have to increase overall healthcare expenditure, premiums, and by extension their 20% cut.
While the 80/20 rule was a fantastic idea on paper, it changed insurance company's incentives in such a way so that premium increases are good for them.
You might be thinking "but in a competitive landscape people would just switch!" but there's nothing competitive about health insurance, people cannot even pick their own (their employer does) and most employers only offer two of the larger ones from that state.
Insurers do actively try to reduce healthcare costs but in many cases they are at the mercy of providers
If premiums increase from e.g. $500 to $600/month, the insurance company makes $20 more per insured via their 20% share.
The other 80% ($480) really does go towards medical costs, but the issue is that insurance companies aren't incentivized to help you keep those medical costs down (via negotiation with hospitals/drug companies), but may be incentivized to increase them. That's a problem.
In an ideal world insurance company's incentives and their customer's goals should be aligned (e.g. both save money). That makes them the ultimate advocate for you and fighting to keep healthcare costs low, that isn't what is happening (either before or after Obamacare).
All checkups + scans pre-birth were free.
It would have cost money only if we decided to go for a private obstetrician, I think it’s the same in Australia.
So if it’s one of the 90% of births with no complications, going for the free public option just makes sense.
Frugality (minimizing expenses) is the easiest strategy to execute and it covers the broadest range of individual situations.
I know some engineers that take the approach of aggressively maximizing income, which requires a different kind of investment/sacrifice, allowing them to achieve their goals without hyper-optimizing expenses or rate of return. I would make the observation that this strategy tends to take a human toll, so not for everyone.
The rarest strategy in the wild, because it is the most technical to execute, is hyper-optimizing rate of return. I only know a couple examples of this, including one who went from -$50k (debt with no assets) to financial independence in ten years (and handily beat the S&P500 every single year) on a modest engineer's salary. This requires a deep investment in understanding a foreign domain almost no one is familiar with and achieving a degree of mastery. It has the highest payoff long-term but it also requires the most diligence and effort upfront. Making this work requires an unusual kind of person.
Being frugal and investing in index funds is definitely the path of least resistance for many people, but many people (or their partners!) do not want to live a hyper-frugal lifestyle. Fortunately, there are other options available with their own set of tradeoffs and engineers are well-positioned to take advantage of them.
6 months of living expenses in liquid cash (savings accounts, rotating CD ladder, money-market funds, etc.).
Any money that you'll need in the next 5 years in low-risk, non-volatile investments (eg. bonds, T-bills). This usually applies to retirees, but also to folks like entrepreneurs or commission salespeople that have unsteady incomes.
Only invest in real-estate, individual stocks, crypto, precious metals, foreign currencies, collectibles, etc. if you know what you're doing. If it's not your full-time job (eg. a venture capitalist or real estate developer), no more than 10% of your net worth in these investments.
Put the rest into broad-based stock index funds.
Looking at the math, it's not difficult to find a mainstream mutual fund like FCNTX that has been pretty big for a long time. Since 1993, 25 years ago and encompassing both the dot com bust and the sub-prime catastrophe, it has returned, on an annualized basis, around 9%. I use that example because it's a pretty mainstream fund that has been highly rated by Morningstar most of those years, so it isn't hard to identify it as a fairly safe place to get excellent returns. I've been in it for most of those 25 years and when I first chose it, I was for sure a novice at investing. Note that today, it is only one of several funds in multiple sectors that I hold, I've diversified over time.
There really is no way to get rich quickly that does not involve a large dose of luck. The <30 multi-millionaires in Silicon Valley tilted the odds in their favor via a variety of means, but I'd guess that for every example of those people, you'd find dozens who moved to the area, worked their asses off in startups for a few years and then crashed and either settled for a regular job or moved elsewhere.
I'm interested in this guy's approach to take most of the downside risk out of recessions/bear markets/crashes compared to buy-and-hold. Basically, start with a diversified portfolio, and when any of them closes below their monthly 12mo moving average, sell it and buy treasuries.
I'm sure there are thousands of more sophisticated models out there, but the nice thing about this is its simplicity - minimal management, just rebalance once a month according to a single rule and forget about it. Looks like it works well, backtested against lots of historical market data sets.
Edit: To add to this instead of using the mutual funds as a store value and being scared of holding stocks, you can buy puts as protection on your stock. Or you can buy spreads on stocks you like.
Huh? Was that trying to say save money at the supermarket? Because those are two stores I don't associate with saving money, they're stores that offer premium products at reasonable prices, but they aren't going to compete with actual discount retailers.
It is just really odd examples/usage in that context...
I used those examples as a versus to the daily $7 Starbucks breakfast that many young folks seem to go for.
Where I live in California, my options are Safeway, Whole Foods, Trader Joe's, and a co-op more-organic-than-thou each egg has a name tag and resume type place. Trader Joe's is by far the cheapest of them all. The fact that Trader Joe's fixes their prices nationwide makes them much cheaper than the alternatives in expensive metros.
- Become a hermit
Saving money was so easy before I had kids. Once you have kids you need a car big enough to transport them. You need a house big enough to hold them. The missus insists that just going camping isn't really a vacation and they need to see some sights (real travel). And travel with kids isn't cheap. You gotta start getting the family insurance plans and the million little school fees and your bigger house has more stuff to break in it and the kids break stuff... Worst of all you multiply your chances of having some big medical problem--the death knell for any frugal living plan--the more people you have to care for.
Also, Costco doesn't really save you that much money unless you were the kind of person who always bought the top-of-the-line premium whatever. For people who typically only buy the base model widget the price is pretty similar or slightly more expensive typically.
After certain age family is the biggest and maybe the only close friend.
Social ties are important and usually healthy. Having kids and family can also be very motivating. After all, why do we live?
Small nitpick: You can always buy your own insurance. Obamacare made it harder to buy good high-deductible plans for yourself but even so, you can get your own directly. Don't go without health insurance, especially catastrophic coverage, unless rent and food are all you can afford.
I think the most valuable advice in getting rich is from people who are moderately rich.
Advice from people who aren’t rich is stupid.
Advice from billionaires seems irrelevant because their circumstances are so exceptional.
How did the friend of a friend make $20million ... there’s an interesting question.
I could give you advice on how to not get rich.... just make what are in hindsight a constant flow of wrong decisions about things that could have led to financial gain. I’m an expert at that.
So he went from being not-rich 10 years ago, to being very rich now due to his success with AngelList and related investments.
I think the advice he shares in this post is consistent with how he's built his own success. Both Naval and his brother, Kamal, have long been writing and speaking about concepts like stoicism, mindfulness and other techniques for developing good judgement and emotional health, so it's likely these ideas were imparted via their family and have influenced their thinking for a long time.
Investor in Uber, Twitter, Postmates, Yammer, and about 60 others. Wouldn’t surprise me if that’s a fraction of the total. Not to mention cofounding AngelList. I doubt he’s scraping by :)
And I got the book mentioned in the article - The Luck Factor by Richard Wiseman.
One of the exercises in the book is to think over how things have unfolded in your life - what would have happened if you took left inside of right when you met your partner or got a great job? And when I thought it over, there has been some element of luck involved. At my first job I wasn't supposed to be there for an interview but went along with a roommate as I had nothing better to do.
Now I believe sure you can work hard and do most of the work in Naval's list but all of it will ensure you are lucky when you run into one of the long term people in a long term industry. And everything will fall in place.
Meeting driven, creative and important people is a huge multiplier for luck. It, perhaps more than anything I've done, has changed my life for the better.
I had a solid job in Mobile, AL working for an ad agency. Although, it felt isolating from the tech world. To combat that I started a publication interviewing designers and entrepreneurs just to stay plugged into the community.
So much good has come from a couple years and dozens of interviews. I met a co-founder, was paid to host a similar podcast and have made a ton of friends around the world. Not to mention, I might not be working as a designer had I never started doing interviews.
Give yourself opportunities to be lucky.
> So much good has come from a couple years and dozens of interviews. I met a co-founder, was paid to host a similar podcast and have made a ton of friends around the world. Not to mention, I might not be working as a designer had I never started doing interviews.
This is a really cool idea that makes perfect sense. It's basically a way to get plugged into an ecosystem of effective and interesting people. And everyone loves to talk about themselves, so I'm guessing it wasn't too difficult to find interviewees (at least once you got past the first barrier of being a publication with no history).
How did you get the idea? Did you have any relevant experience prior to starting the interviews and then making a publication out of it?
What do you think might be some less intensive alternatives? Starting a publication is not for everyone.
I was bored. There were only a handful of designers and no tech people in Mobile. I was (and still am) a big fan of Andrew Warner and Mixergy. I was listening to a show and had this epiphany—what's stopping me from doing something similar?
Sure I couldn't go out and interview Bill Gates. But I had friends that were working on interesting things and started with them. I worked in various editor positions for the school paper in college and had an interest in niche publications. That was about all the prior experience I had.
As for an alternative:
—Make a list of people that you're genuinely interested in. It's helpful if they are in an industry you want to be in.
—Come up with a list of questions you'd like to ask them.
—Find their Twitter handles or email addresses.
—If they live in your city send them a tweet or email saying why you admire them, and ask to buy them a coffee. If not, see if they'd be open to a 15-30-minute call.
—Follow-up with them occasionally.
I have a friend who is about a year into her career as an occupational therapist. Recently she was asking questions about how she could get ahead. The above is what I recommended. I think it's a valuable exercise regardless of career.
You can make a living as an english teacher and translator in A LOT of places.
For the same reasons people flee into the US from all over the world.
You still have things pretty well. Sure they are getting worse, and it's worth fighting that process, but fleeing is not a great option.
- Student debt
Determination + Opportunity = Luck
In short, you take frequent calculated risks when the downside of failure is low. I think a similar strategy can be very effective in life.
and i haven’t really played poker in the past 12 years.
If you're playing against 9 other skilled players, money will mostly move around the table, and the only winner will end up being the casino due to rake.
The easiest way to increase profitability in poker is to play against people significantly worse than you are. Not unlike life, where the biggest factor of success is being born in the right country to the right parents.
If you can ignore the constant “only rich people are meaningful human beings” message that is blared 24/7 from western culture, you might find that it’s easier to just go after what you want, directly.
- The ability to secure the best medical care for yourself and your family in a country where this takes money to do.
- The ability to walk away from abusive employment relationships without a second thought or any stress.
- The ability to engage in high-level economic actions, the kind that aren't designed for your failure. (Buying a few franchises vs. buying a payday loan)
- The ability to, fundamentally, own yourself instead of being forced to act according to the interests of people with the money to pay you. Maybe you'll use that time to act in the interests of people who can't pay you.
> The ability to secure the best medical care for yourself and your family in a country where this takes money to do.
I can only speak to the US but this is much more an insurance issue than a wealth issue. When I made $30k a year I had a ~$75k surgery and it cost me about $1200 all in, including follow-up copays with the surgeon, because I had good insurance through my employer. I probably had $15k in credit card debt at the time and rented a $400/mo room in someone else's house - certainly not rich by any stretch.
> The ability to walk away from abusive employment relationships without a second thought or any stress.
This is all about skills, not wealth. Most folks on HN could leave their job today and walk into something making 95-120% of their current salary without much issue.
> The ability to engage in high-level economic actions, the kind that aren't designed for your failure. (Buying a few franchises vs. buying a payday loan)
You don't need to be rich to get a franchise loan.
> The ability to, fundamentally, own yourself instead of being forced to act according to the interests of people with the money to pay you.
This is so esoteric it's hard to even know what you're trying to say here. I'm sure you could find plenty of people with $10+ million net worths who feel beholden to act a certain way in the interests of certain people.
Insurance is just to cover not dying. Being rich makes it a comfortable experience.
Yup, I believe that's their point. If you realize the reason you want to be rich can be had for less cost than actually becoming rich, you can save yourself a lot of time and stress.
Anecdotally, I cut my salary by 60% this year to directly pursue what I wanted, instead of saving to do it years later. I suppose I may regret it some day, but at this point I'm confident it was the right choice.
I think with OP is trying to say is that more money means more leverage – not in the credit sense – to only feel beholden to people that have interests that align with yours (family, peers, mentors) and less with those that don’t (boss, managers or people who know how to manipulate your behaviour by using lack of money as a tool).
However, you only get this peace of mind without being rich thanks to Obamacare (whose days may be numbered...). Before, you had to be rich to self-insure against the following events:
- What if you lose your job? It could take you longer to find one again than whatever Cobra covers, or a pre-existing condition could make individual insurance unaffordable.
- What if your insurance is not as good as you thought, and you hit a lifetime cap?
- What if the insurance company managed to conjure up a pre-existing condition to escape their obligations?
Well that's really weird since this was in 2009.
This isn't rich. Rich is the ability to direct people to research life extension and disease prevention. It's to be able to have access to the newest techniques and best doctor, regardless of world location.
It's the ability to have a sick child with 24/7 doctors and only worry about the child.
Rich is the ability to buy an island and create a clone army of yourself, using that army to construct the largest ai supercomputer the world has ever seen, then solving aging and disease ultimately merging with the machine, redefining and extending what it means to be human.
Err sorry wrong thread.
"I'll provide X" needs to be immediately though about on the terms that it will cost the planet (and everyone living in it) Y.
This is not exactly what you posted, but related: I'm not an environmental nut, I just think that this 'we create wealth' discourse more often than not ignores the fact that we're actually just borrowing quality of life from people in the future. They get to deal with bad water, worse weather, natural disasters, droughts, terrible air quality, etc. while we 'provide valuable insights to customer relations', 'maintain a pseudonymous decentralized currency' or some other obviously-not-worth-it bullshit
I pointed out that one that was overlooked (but that IHMO is the most important), is to re-invest it in making the world better.
Making the world better for the future is implied in that, and I think that's what you see in, for example, Elon Musk's efforts to make electric transportation viable and ubiquitous, along with the some of the philanthropic efforts of Gates, Buffet, etc.
Sure there are some bad actors who believe it's fine to plunder and trash the earth for short-term benefit, but the trend is in the opposite direction, and it's becoming far more commonplace, even among traditionally very destructive companies like petrochemical companies, to invest substantially in innovations and projects that reverse the damage and create benefits for the future. That's happening because more and more people are demanding it.
Don't forget also, that just as people who were inventing technologies and making medical discoveries 100 years ago were making improvements that benefit most of us living today, inventions of today will benefit future generations.
None of this is black and white; there are benefits and costs in everything, and it's important to be mindful of both as we progress and ensure things stack up positive in the end.
And even then, that just lets you live there. You don't become a citizen will full benefits for five years.
But once you meet those requirements... you're probably well-off enough that it doesn't matter anymore.
When asked why, they need only the things they would get from living 5 years of an imperfectly richer life first?
(Is there a probable way to get from an education and/or 25k in the bank to the rest of rich in less than 5 years and/or with better partial benefits during the interval?)
But as yayana points out, none of those factors depend on being rich in well run countries. (There are alternatives to the scandinavian models with a bit less nanny state that also achieve all of those factors, but the Scandinavian countries are the most famous for letting you not care about medical care and bad employers.)
I don't think it's only Western culture that is to blame. Middle Eastern, Indian and Chinese cultures seem to have even more ingrained versions of this core assumption.
Is this sarcasm? What are you basing this on?
I don't think I've ever heard anyone opine this before.
Religious orders seem to be the easy-to-identify exception and those exist in all the large cultures.
Definitely a sobering thought. How rich I really am...
Though to me living here it seems that people are still all the time complaining and demanding more and more, though we have more safety nets than about any other place on earth.
Also living in Scandinavia and I would disagree with this advice. To be dependent on the welfare system is not exactly being free and have security.
Like the Swedish Prime Minister Göran Persson said: "One who is in debt is not free".
And living off of the welfare system is in my view to be indebted to society. I would not be able to shake that feeling if I was, at least not if it was voluntarily. Add to that the social stigma, even from close friends and family. This would limit your freedom of having an agency in social interactions.
Also I would not consider it secure, since the rules of the welfare system changes quite a lot over time. Which you have no way of impacting, meaning you are dependent and not free.
EDIT: Just realized the question was about "security+free time". I guess you would have free time, which is not exactly the same as being free in any meaningful sense.
EDIT: Not sure why I'm being downvoted. But for clarification I can add that I think this applies if you voluntarily would live off of the welfare system, thus leeching from the ones who really needs it. It's of course a totally different story if you are involuntarily need to get welfare to survive and live a decent life.
It might not be the popular opinion on HN, but I would hate that. Make sure to structure things properly from the beginning so that you can leave when appropriate.
The parent post was saying how living in a country with a generous welfare system can make a lot easier to have more free time and easier to take risks, and you're worried that if you take advantage of that, you might need to help pay that off if you're successful?
Most decent entrepreneurs manage to sustain themselves and find a way to build out something regardless of whether the state is handing out money. If I manage to get a win, I want to keep most of my winnings.
I'm European but wouldn't want to live in a country with high income taxes, high capital gains taxes, various hidden levies (luxury cars costing hundreds of thousands, gas being super expensive), high corporate and dividend taxes, and to top it off a nice annual wealth tax. Why even bother trying to achieve more than your fellow citizen in that kind of setting?
The state gives a lot to you, when you're poor, and it takes a lot from you, later on after you're not poor anymore. Why do you think you should get to live in a nice place full of nice things paid for by other people, and not pay your own share? How is that morally different from spending the night in a hotel and then skipping out on the bill?
> Why do you think you should get to live in a nice place full of nice things paid for by other people, and not pay your own share?
By definition, if you pay everything you owe, aren't you paying your share?
> By definition, if you pay everything you owe, aren't you paying your share?
The line between tax avoidance and freeloading is debatable. Maybe you use less tax-funded things than most people. Maybe you refuse to drive on streets, cross rivers in a rowboat instead of walking on bridges, and resolutely close your eyes when walking by a beautiful piece of taxpayer-funded art. But morally, if you're enjoying nice things that other people paid for, you're freeloading (which is emphatically not a political stance, or an "unpopular opinion").
Ok, but if I'm already living the life I want to live... who cares?
Some people care about this, others don't.
If you make sure, for example, your intellectual rights (if we're talking a software company) aren't held in a country with a super high corporate tax rate, that would be a good start.
It's one thing to pay on gains you make after you've gotten rich, i.e. if you're making 5% a year on €10m, than on the initial capital you're building up.
I think this is an issue that just isn't that black and white as you want to portray it.
2. Avoid industries with boom and bust cycles. Additionally, avoid career paths that may become irrelevant in 20-30 years.
3. Instead, learn skills that will always be useful, regardless of the state of the economy. Typically this means the trades, but be careful there - certain trades are too dependent on a good housing market. Most medical fields (like nursing) are also pretty secure. Also consider boring fields like accounting or certain governmental positions. Many government jobs are a bit more stable than the open market - you are sacrificing income for reliability.
4. For bonus points, pick a field that allows you to easily freelance. In the future, when you have enough money and want more time, you can scale your work hours down.
Then the problem is to find a way to be happy enough, you can have enough money but be unhappy.
Many people in developing countries have less than $1,000 in monetary/material assets, but have plenty of free time and a decent level of security.
They may not have the nicest house in the nicest location (a tin or concrete square box on a dirt road in a rural location with no jobs), but they are not in any immediate danger in terms of crime or disease.
Another way to create this by proxy in the US is by living in a camper van or large car or perhaps a cheap used RV and parking in one of the millions of free locations we have in the USA (BLM land, national forests, street parking, private land negotiated with a friendly owner).
But if you were wondering like, you know, where can I get a free house with no property taxes in a nice city neighborhood with free health insurance, I'm afraid it doesn't exist unless you are the child of a rich and loving parent.
As someone with fairly deep knowledge about such a country, many poorer people tend to have no security when they get older or if they get a severe accident. On average, they have little or no savings and often significant debt. Having kids is their insurance against the future, but it is like playing roulette since many/most young people do not earn enough to support their parents (or even live comfortably themselves).
If they wish to raise their kids well, while not having much education themselves, they need to work really hard, not unlike two- or three-jobbers in the States. Otherwise, their kids will have bad education and often need to work minimum wage or only a bit better as an adult.
Free time, yes but only for those who don't prepare much for the future. Security, not really.
(Check out statistics of working hours in developing vs developed countries. People in developing countries often work harder and earn less even in PPP terms.)
I spent many months in developing countries too, and I currently live in the USA in my car on like $7,000 a year all in.
Btw, US salaries are dropping/leveling off because of all the increasing work that is able to be performed abroad. I applaud this :)
And as for having kids as an insurance policy for an accident, my gf and I have already decided that we would never subject someone to such imprisonment. We escaped similar situations ourselves, where our parents feel like they own us because they birthed us.
Die when you die; when you die, you're gonna die
Even if you love your job and would do it if you were wealthy, it's still the same analogy... it's much better to go drive from A to B for fun every day you want, than to have to drive from A to B for work every day.
In fact, thinking of my own situation, I like my job and I like to code in my free time... but both being burned out occasionally and just having less free time means I do much less of the latter than I want to. So instead of writing some code I find interesting I have to fix somebody's legacy systems at work... or even create something nice at work, but less interesting to me (although more commercially viable, obviously) than what I would do otherwise.
Don't believe me? See how most people treat or think about rich children, who have no accomplishments beyond being born wealthy.
Interestingly, in this same way, money can also buy happiness, through happiness coaching. :)
Kind of like this? http://mimiandeunice.com/wp-content/uploads/2011/05/ME_353_D...
But, if you decide to stop suffering and are able to achieve that, pleasure and “happiness” actually don’t serve much of a purpose anymore, but you still feel really good; it’s more of a “well-being” sensation.
> When you're finally wealthy, you'll realize that it wasn't what you were seeking in the first place. But that's for another day.