Millionaire tells millennials: if you want a house, stop buying avocado toast

[thebeave]

https://www.amazon.com/Millionaire-Next-Door-Surprising-Americas/dp/1589795474/ref=sr_1_1?ie=UTF8&qid=1495377494&sr=8-1&keywords=millionaire+next+door

I read this book back when it first came out, and found it to be good common sense, with regard to saving/spending habits and work ethic. It is a bit dated, as its definitely harder these days to buy a house than it was back then, but the advice is universal. It also goes to show that, despite the stereotype, most people with wealth are not driving around in Mercedes and wearing designer suits. They work hard, they're driving older cars and trucks, and generally don't give two fucks about having the latest trendy Iphone or eat at the fanciest restaurants. You probably pass by millionaires in the street all the time and don't even realize their high net worth, because their appearance is fairly modest. The archetype that a 1%'er is the Monopoly banker guy or Scrooge McDuck is sorta BS.

 

[fast]

Actually, with regards to dropping people off naked in the middle of the willderness, these people often die. Most times when they don't die, they're rescued.

Forest. Local friendly forest. I've watched the shows too. Drop my ass off in the jungle or no man's land wilderness, then my financial success plans will be put on hold in favor of shelter, fire, water, and food.

 

[lpetrich]

... It also goes to show that, despite the stereotype, most people with wealth are not driving around in Mercedes and wearing designer suits. ...

Who do you think buys Mercedes cars and designer suits???

 

[thebeave]

... It also goes to show that, despite the stereotype, most people with wealth are not driving around in Mercedes and wearing designer suits. ...

Who do you think buys Mercedes cars and designer suits???

The operative word you missed is "most". Plus, there is no shortage of people with luxury goods who have little to no wealth. My sister being one of them, despite being in the workforce for 35 years and having a salary that's probably greater than her 3 brothers put together.

 

[Horatio Parker]

Saw this this morning:

Three decades ago, 18-34-year-olds spent 10.5 percent of their income on entertainment and eating out. Millennials spend 8.6 percent. In real dollars, that represents a small decline. In other words, millennials are more frugal about dining and entertainment than past generations.

So what do millennials spend their money on each year? They may have $3,000 more in disposable income than young families of the 80s and 90s, but they also spend:

About $1,000 more on health care.
About $1,500 more on pensions and Social Security.
About $2,000 more on overall housing (rent, maintenance, utilities, etc.).
About $700 more on education.
If they're not buying houses, this is why. It's not because houses are more expensive: the average house costs about a third more than it did in the 80s and early 90s, but thanks to low interest rates the average mortgage payment is about the same or even a bit lower. But it's tough to scrape together a down payment when you're already running a tight ship on dining and entertainment and paying more than previous generations for health care, education, retirement, and student loans.

http://www.motherjones.com/kevin-drum/2017/05/what-do-millennials-spend-all-their-money

All of which suggests to me the old saying that the best defense is a good offense.

 

[lpetrich]

Who do you think buys Mercedes cars and designer suits???

The operative word you missed is "most". ...

Someone finds some misers who live like peasants and we are supposed to consider that typical of rich people? Is it welfare recipients who buy all the mansions and luxury cars and yachts and superfancy clothing and jewelry? Given what many right-wingers seem to believe about welfare recipients, I wouldn't be surprised if many right-wingers believe stuff like that.


I will concede that avoiding unnecessary spending is a Good Thing. One should consider whether it is worth getting, like how much use one will get out of it. But if everybody became a miser, much of the economy would collapse, and many people would be deprived of a living. It's the  Paradox of thrift, a form of the  Tragedy of the commons.

 

[Loren Pechtel]

Disagree. I'm married to a Chinese immigrant so I've had occasion to encounter a fair number of immigrants--and despite their greater handicaps they generally do pretty well.

Your wife got her education damn near for free. The same as many immigrants. That doesn't happen here very often.

Most immigrants (other than H1-B -> green card) do not have professional skills that are useable in the US.

- - - Updated - - -

https://www.amazon.com/Millionaire-Next-Door-Surprising-Americas/dp/1589795474/ref=sr_1_1?ie=UTF8&qid=1495377494&sr=8-1&keywords=millionaire+next+door

I read this book back when it first came out, and found it to be good common sense, with regard to saving/spending habits and work ethic. It is a bit dated, as its definitely harder these days to buy a house than it was back then, but the advice is universal. It also goes to show that, despite the stereotype, most people with wealth are not driving around in Mercedes and wearing designer suits. They work hard, they're driving older cars and trucks, and generally don't give two fucks about having the latest trendy Iphone or eat at the fanciest restaurants. You probably pass by millionaires in the street all the time and don't even realize their high net worth, because their appearance is fairly modest. The archetype that a 1%'er is the Monopoly banker guy or Scrooge McDuck is sorta BS.

Yup. This book is well worth reading if you want to understand the true route to wealth.

- - - Updated - - -

Saw this this morning:

Three decades ago, 18-34-year-olds spent 10.5 percent of their income on entertainment and eating out. Millennials spend 8.6 percent. In real dollars, that represents a small decline. In other words, millennials are more frugal about dining and entertainment than past generations.

So what do millennials spend their money on each year? They may have $3,000 more in disposable income than young families of the 80s and 90s, but they also spend:

About $1,000 more on health care.
About $1,500 more on pensions and Social Security.
About $2,000 more on overall housing (rent, maintenance, utilities, etc.).
About $700 more on education.
If they're not buying houses, this is why. It's not because houses are more expensive: the average house costs about a third more than it did in the 80s and early 90s, but thanks to low interest rates the average mortgage payment is about the same or even a bit lower. But it's tough to scrape together a down payment when you're already running a tight ship on dining and entertainment and paying more than previous generations for health care, education, retirement, and student loans.

http://www.motherjones.com/kevin-drum/2017/05/what-do-millennials-spend-all-their-money

All of which suggests to me the old saying that the best defense is a good offense.

Are their cell phone and cable bills considered "entertainment"?

 

[Jimmy Higgins]

Millenials don't do cable.


Sent from my iPhone using Tapatalk

 

[ZiprHead]

Your wife got her education damn near for free. The same as many immigrants. That doesn't happen here very often.

Most immigrants (other than H1-B -> green card) do not have professional skills that are useable in the US.

No, not most but Today’s newly arrived immigrants are the best-educated ever.

They are also here with a greater number of degrees than the equivalent American. http://www.migrationpolicy.org/article/college-educated-immigrants-united-states

 

[thebeave]

The operative word you missed is "most". ...

Someone finds some misers who live like peasants and we are supposed to consider that typical of rich people? Is it welfare recipients who buy all the mansions and luxury cars and yachts and superfancy clothing and jewelry? Given what many right-wingers seem to believe about welfare recipients, I wouldn't be surprised if many right-wingers believe stuff like that.


I will concede that avoiding unnecessary spending is a Good Thing. One should consider whether it is worth getting, like how much use one will get out of it. But if everybody became a miser, much of the economy would collapse, and many people would be deprived of a living. It's the  Paradox of thrift, a form of the  Tragedy of the commons.

Doing without luxury cars and clothes doesn't mean living like a peasant. Nice strawman with the welfare recipients buying mansions and yachts, too. And this is not, or at least shouldn't be, about right wingers or left wingers. Its living within your means and, yes, making some sacrifices along the way. Isn't that what we teach our children? Don't spend all your allowance the first day on candy and then come whining back to mommy for more money? Although with all the entitled little brats running around these days, maybe that is the modus operandi with parenting today.

On the other hand, if you are the type of person who just has to keep with the Joneses, be always fashionable and trendy and eat at fancy restaurants all the time, but has a pretty modest salary there is probably no hope that you will ever find your self financially stable and independent.

 

[lpetrich]

Let's see how good saving would do. Imagine that you save N0 per year and that your savings get multiplied by r per year: r = 1 + (yearly compound-interest rate). The amount of saving after n years is

N = (rⁿ - 1) / (r - 1) * N0

If you earn $60,000/year after taxes and you live on only $30,000 /year, you will have $30,000 left over -- not exactly a million dollars. But if you decide to save or invest it with returns of 5%/year, you should get $1 million in 20 years.

It ought to be evident that the "Millionaire Next Door" miser strategy is only practical if one has a high-enough income -- and only if one is willing to avoid spending much of it.

 

[Crazy Eddie]

Your wife got her education damn near for free. The same as many immigrants. That doesn't happen here very often.

Most immigrants (other than H1-B -> green card) do not have professional skills that are useable in the US.

They do, however, have connections and resources that give them opportunities they wouldn't have had in their home countries, which is part of the reason they decide to emigrate in the first place. An immigrant moving to a new country knowing nothing whatsoever about their new community, where to find jobs, where to find training, where to look for housing or how to search for or obtain a line of credit, is worse off than a homeless person (at least homeless people have social security numbers and can submit to a background check if they actually get hired somewhere).

Immigrants don't just randomly wander across borders and miraculously find good-paying jobs. Most of them are invited across borders by companies, family members, or family friends, any or all of which have job prospects and housing (or at least really solid leads on both) ready and waiting for them. ANYONE would do well with that kind of head start.

Are their cell phone and cable bills considered "entertainment"?

Cell phone would not be for people who do not have a landline phone. Strictly speaking, neither would internet service for people who do not pay for a cable subscription.

 

[Crazy Eddie]

Let's see how good saving would do. Imagine that you save N0 per year and that your savings get multiplied by r per year: r = 1 + (yearly compound-interest rate). The amount of saving after n years is

N = (rⁿ - 1) / (r - 1) * N0

If you earn $60,000/year after taxes and you live on only $30,000 /year, you will have $30,000 left over -- not exactly a million dollars. But if you decide to save or invest it with returns of 5%/year, you should get $1 million in 20 years.

It ought to be evident that the "Millionaire Next Door" miser strategy is only practical if one has a high-enough income -- and only if one is willing to avoid spending much of it.

Meanwhile, most professional jobs for people with 3 to 5 years of work experience (to say nothing of the fresh-out-of-college graduates with NO practical experience) have salaries starting between $25 and $35k per year. A company that really takes care of its employees and really rewards retention might give that employee a 5% annual raise, UNLESS they are really sure that employee isn't going anywhere (e.g. graduate students or young parents who can't afford to have job insecurity) in which case they're lucky to get a raise every other year.

So an employee who does absolutely everything right, stays with the same really-great company for ten solid years where everything works out wonderfully might make as much as $57k in his mid 30s. If he's still able to live on $30k a year for that entire duration, he'll have been able to save enough for retirement by the time he's in his 60s.

If that employee DOESN'T do everything right -- if he changes jobs, changes careers, goes back to grad school, doesn't get a regular wage, if he wants to get married or has any children, if he has a serious medical problem or if he suffers some sort of major financial setback (e.g. mortgage goes under water), he'll still probably be able to get by, but he won't have any savings by the time he gets to retirement.

Key to all of this discussion is whether or not it is possible to buy a house and/or raise a family on a budget of just $30k a year. Experience suggests that starting a family AND buying a house are not both doable on that tight budget; almost any place you can live that isn't a crime-infested shithole will see you paying $15 to $20k mortgage every year plus $5 to $10k in property taxes (and the lower end estimate is basically a two-bedroom condo).


tl;dr: Almost any way you look at it, financial stability -- let alone wealth -- doesn't actually come from saving. Even if you could save your way to wealth, you would only be able to squirrel away enough money to pay for the rest of your expenses until you die of old age. Which isn't wealth so much as "not having to work right up until you drop dead from old age." No, wealth comes from INCOME. In that, even if you aren't making a conscious effort to save, you can still accrue a considerable amount of wealth if you are making more money than you are actually spending. Investments and savings can maximize the impact of that extra income, but one must HAVE that income in the first place in order to be able to maximize anything.

So telling poor people that the path to wealth is "save money and live within your means" is like telling a fat kid that the path to the Olympics is "eat fewer calories and take your vitamins." That's not bad advice, exactly, but it's also not how any of that works.

 

[bilby]

Let's see how good saving would do. Imagine that you save N0 per year and that your savings get multiplied by r per year: r = 1 + (yearly compound-interest rate). The amount of saving after n years is

N = (rⁿ - 1) / (r - 1) * N0

If you earn $60,000/year after taxes and you live on only $30,000 /year, you will have $30,000 left over -- not exactly a million dollars. But if you decide to save or invest it with returns of 5%/year, you should get $1 million in 20 years.

It ought to be evident that the "Millionaire Next Door" miser strategy is only practical if one has a high-enough income -- and only if one is willing to avoid spending much of it.

And if one is able to live on a small fraction of one's meagre income, for two decades, what's the purpose of becoming a millionaire?

Money is worthless if you never spend it. Wealth isn't just a competition to see how many digits you can get on your bank balance. Or at least, it shouldn't be.

 

[DrZoidberg]

Most immigrants (other than H1-B -> green card) do not have professional skills that are useable in the US.

No, not most but Today’s newly arrived immigrants are the best-educated ever.

They are also here with a greater number of degrees than the equivalent American. http://www.migrationpolicy.org/article/college-educated-immigrants-united-states

That's because extreme poverty is almost eradicated in the world. In the 1960'ies three quarters of the world's population was in extreme poverty. Today not even one in ten do. Back in the 70'ies most people couldn't afford a higher education. Today almost everybody can. The world has changed.

 

[Loren Pechtel]

Doing without luxury cars and clothes doesn't mean living like a peasant. Nice strawman with the welfare recipients buying mansions and yachts, too. And this is not, or at least shouldn't be, about right wingers or left wingers. Its living within your means and, yes, making some sacrifices along the way. Isn't that what we teach our children? Don't spend all your allowance the first day on candy and then come whining back to mommy for more money? Although with all the entitled little brats running around these days, maybe that is the modus operandi with parenting today.

On the other hand, if you are the type of person who just has to keep with the Joneses, be always fashionable and trendy and eat at fancy restaurants all the time, but has a pretty modest salary there is probably no hope that you will ever find your self financially stable and independent.

Exactly. It's amazing how much you save by careful spending.

There are zero luxury products in our house.

 

[Loren Pechtel]

Let's see how good saving would do. Imagine that you save N0 per year and that your savings get multiplied by r per year: r = 1 + (yearly compound-interest rate). The amount of saving after n years is

N = (rⁿ - 1) / (r - 1) * N0

If you earn $60,000/year after taxes and you live on only $30,000 /year, you will have $30,000 left over -- not exactly a million dollars. But if you decide to save or invest it with returns of 5%/year, you should get $1 million in 20 years.

It ought to be evident that the "Millionaire Next Door" miser strategy is only practical if one has a high-enough income -- and only if one is willing to avoid spending much of it.

Lets extend the timeframe.

To reach that million in 30 years only takes $15k/yr.

$8.5k/yr does it in 40 years.

$6.3k/yr does it in 45 years (age 20 to 65, so you have a million at retirement.) This a quite reasonable level of retirement savings for anyone in the middle class.

 

[Loren Pechtel]

Most immigrants (other than H1-B -> green card) do not have professional skills that are useable in the US.

They do, however, have connections and resources that give them opportunities they wouldn't have had in their home countries, which is part of the reason they decide to emigrate in the first place. An immigrant moving to a new country knowing nothing whatsoever about their new community, where to find jobs, where to find training, where to look for housing or how to search for or obtain a line of credit, is worse off than a homeless person (at least homeless people have social security numbers and can submit to a background check if they actually get hired somewhere).

Virtually all non-H1-B immigrants are family sponsored. Thus they have the connection of generally a middle class American.

Immigrants don't just randomly wander across borders and miraculously find good-paying jobs. Most of them are invited across borders by companies, family members, or family friends, any or all of which have job prospects and housing (or at least really solid leads on both) ready and waiting for them. ANYONE would do well with that kind of head start.

Companies--yes, that means a good paying job.

Family member--says nothing about their job prospects other than that the family member has evaluated them and figured they are going to do ok here. (Said family member has to sign a pretty draconian financial support document.)

And that's not a big head start. Most people setting out from home have time to find the same things.

Are their cell phone and cable bills considered "entertainment"?

Cell phone would not be for people who do not have a landline phone. Strictly speaking, neither would internet service for people who do not pay for a cable subscription.

I was thinking more of the data portion of it. You can get minimal phone service for a lot less than a typical cell bill.

 

[Loren Pechtel]

Meanwhile, most professional jobs for people with 3 to 5 years of work experience (to say nothing of the fresh-out-of-college graduates with NO practical experience) have salaries starting between $25 and $35k per year. A company that really takes care of its employees and really rewards retention might give that employee a 5% annual raise, UNLESS they are really sure that employee isn't going anywhere (e.g. graduate students or young parents who can't afford to have job insecurity) in which case they're lucky to get a raise every other year.

What professional job pays only $25k??? Why would you go to to school for a position like that?

So telling poor people that the path to wealth is "save money and live within your means" is like telling a fat kid that the path to the Olympics is "eat fewer calories and take your vitamins." That's not bad advice, exactly, but it's also not how any of that works.

You are painting a very poor picture of the actual labor market.

 

[beero1000]

Let's see how good saving would do. Imagine that you save N0 per year and that your savings get multiplied by r per year: r = 1 + (yearly compound-interest rate). The amount of saving after n years is

N = (rⁿ - 1) / (r - 1) * N0

If you earn $60,000/year after taxes and you live on only $30,000 /year, you will have $30,000 left over -- not exactly a million dollars. But if you decide to save or invest it with returns of 5%/year, you should get $1 million in 20 years.

It ought to be evident that the "Millionaire Next Door" miser strategy is only practical if one has a high-enough income -- and only if one is willing to avoid spending much of it.

Lets extend the timeframe.

To reach that million in 30 years only takes $15k/yr.

$8.5k/yr does it in 40 years.

$6.3k/yr does it in 45 years (age 20 to 65, so you have a million at retirement.) This a quite reasonable level of retirement savings for anyone in the middle class.

Ok, it's been 45 years of scrimping and saving and you've saved your million, only to realize that that now $1 mil only buys $250k worth of stuff (in 2017 dollars), and the average Sydney house costs $10 million.

But you're a millionaire, so there's that...