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...where retiring rich is defined as spending $300,000 annually. I'd personally move somewhere cheaper once my income no longer depended on my location.

by jdc 16y ago

mechanical_fish 16y ago
Looks like it's time to recommend The Millionaire Next Door: http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206 http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/d... 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.
- StavrosK 16y ago
  So you'll either be a poor-ish young playboy or a rich old guy? Why does the first option sound more attractive? Of course, fast cars and country clubs are all superficial, but being a miser just so you can die with millions isn't that much better...
  - jacquesm 16y ago
    Saving a buck is a lot easier than making a buck. That's one very good reason why plenty of rich people are seen as 'misers', if they let it roll then they'd stop being rich pretty quickly. The secret to that is to not make it plain what your financial situation is and to live well within your means.
    - leot 16y ago
      The tax situation on work you do for yourself (saving money) is also as favorable as it gets. There's a sense in which dollars saved are like tax-free income.
  - mechanical_fish 16y ago
    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.
    - jacquesm 16y ago
      Anybody can buy a fast car, but few can actually afford to maintain it. A $10K fast car you buy might cost you a good bit of money per year to drive and keep in shape. Especially when it's thirty years old. That's mostly the reason it's only $10K to begin with (and the fact that the market for impractical cars is not too large).
      - vaksel 16y ago
        well the car doesn't really need to be 30 years old. sure if you buy some unreliable piece of crap...but there are plenty of fast cars that only require regular oil changes to keep in shape. granted there are different definitions of fast, some people are fine with 14 second cars, others need 12s...and others don't consider anything fast that doesn't run 10s. But overall, $10K is plenty to get yourself a reliable 6-7 year old car that's quick/fast.
      - Daniel_Newby 16y ago
        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.
  - lotharbot 16y ago
    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.
  - jerf 16y ago
    "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!
    - tocomment 16y ago
      Any tips on finding a reliable, inexpensive car?
      - bconway 16y ago
        Used Japanese. Any of them.
      - jerf 16y ago
- maxawaytoolong 16y ago
  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.
  - RK 16y ago
    Hmmm... 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.
    - illumin8 16y ago
      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.
kscaldef 16y ago
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.
- sambe 16y ago
  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.
  - kscaldef 16y ago
    It was more of a rhetorical device. It's not that I can't imagine how to blow through tens of thousands of dollars a month. It's that that lifestyle just isn't appealing to me.
    - drusenko 16y ago
      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.
strlen 16y ago
> "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).
- ora600 16y ago
  Agree, except the single family home. 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).
  - houseabsolute 16y ago
    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.
dedward 16y ago
Defining "rich" as a fixed amount is silly - define "Rich" as "all your time is your own, and the passive income you make on the side is enough to cover your expenses, whatever they are".

...where retiring rich is defined as spending $300,000 annually. I'd personally move somewhere cheaper once my income no longer depended on my location.

by jdc 16y ago

...where retiring rich is defined as spending $300,000 annually. I'd personally move somewhere cheaper once my income no longer depended on my location.

mechanical_fish 16y ago

Looks like it's time to recommend The Millionaire Next Door: http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206 http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/d... 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.

StavrosK 16y ago
So you'll either be a poor-ish young playboy or a rich old guy? Why does the first option sound more attractive? Of course, fast cars and country clubs are all superficial, but being a miser just so you can die with millions isn't that much better...
- jacquesm 16y ago
  Saving a buck is a lot easier than making a buck. That's one very good reason why plenty of rich people are seen as 'misers', if they let it roll then they'd stop being rich pretty quickly. The secret to that is to not make it plain what your financial situation is and to live well within your means.
  - leot 16y ago
    The tax situation on work you do for yourself (saving money) is also as favorable as it gets. There's a sense in which dollars saved are like tax-free income.
- mechanical_fish 16y ago
  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.
  - jacquesm 16y ago
    Anybody can buy a fast car, but few can actually afford to maintain it. A $10K fast car you buy might cost you a good bit of money per year to drive and keep in shape. Especially when it's thirty years old. That's mostly the reason it's only $10K to begin with (and the fact that the market for impractical cars is not too large).
    - vaksel 16y ago
      well the car doesn't really need to be 30 years old. sure if you buy some unreliable piece of crap...but there are plenty of fast cars that only require regular oil changes to keep in shape. granted there are different definitions of fast, some people are fine with 14 second cars, others need 12s...and others don't consider anything fast that doesn't run 10s. But overall, $10K is plenty to get yourself a reliable 6-7 year old car that's quick/fast.
    - Daniel_Newby 16y ago
      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.
- lotharbot 16y ago
  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.
- jerf 16y ago
  "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!
  - tocomment 16y ago
    Any tips on finding a reliable, inexpensive car?
    - bconway 16y ago
      Used Japanese. Any of them.
    - jerf 16y ago
maxawaytoolong 16y ago
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.
- RK 16y ago
  Hmmm... 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.
  - illumin8 16y ago
    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.

kscaldef 16y ago

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.

sambe 16y ago
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.
- kscaldef 16y ago
  It was more of a rhetorical device. It's not that I can't imagine how to blow through tens of thousands of dollars a month. It's that that lifestyle just isn't appealing to me.
  - drusenko 16y ago
    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.

strlen 16y ago

> "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).

ora600 16y ago
Agree, except the single family home. 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).
- houseabsolute 16y ago
  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.

dedward 16y ago

Defining "rich" as a fixed amount is silly - define "Rich" as "all your time is your own, and the passive income you make on the side is enough to cover your expenses, whatever they are".