3 ms·

This is a bit tangential to your point, but if my math is right and your $90K/yr .NET developer is spending no more than the typical 30% of income on housing, s

by spokey 16y ago

This is a bit tangential to your point, but if my math is right and your $90K/yr .NET developer is spending no more than the typical 30% of income on housing, she's just paid off a $300,000 3-bedroom condo (approximately $2250/month payments, ignoring taxes, insurance, association fees and all that jazz). Even in this depressed market, that's a steal in many (possibly most) large markets. While the odds of hitting the startup jackpot may be low, you may be overestimating the benefits of the nose-to-the-grindstone approach.

Retric 16y ago
You can gain significant leverage by having roommates in that 3br apartment. With 2 roommates paying market rates she could be making 4k per month mortgage payments. After 5 years of this she could refinance and pay less than market rate for a 1br apartment in the area, or rent the whole thing out can still pay it off early. PS: A 90k/per year developer can easily have a family and 1/2 mill in the bank by their late 30’s.
- spokey 16y ago
  > PS: A 90k/per year developer can easily have a family and 1/2 mill in the bank by their late 30’s. I'm not sure that's true, but maybe your definition of "easily" is different than mine. Certainly that doesn't seem to be the case if you're working from salary alone. Let's assume our developer enters the workforce at 24 and we're considering 38 to be "late 30s". Then she's worked 14 years, we'll assume at an average of $90K/yr, yielding 1.26 million in total income if you ignore interest, inflation, etc. Various forms of tax will eat about 40% of that [1], so you're left with $756K out of the gate. Suppose by shrewd living you're spending no more than 15% of your income on housing (which is half of the typical assumption), that's $189K over 14 years, leaving $567,000. In 2005, the average cost of food at home for a family of 2 on a "moderate" plan was ~$475 (for a family of 4 that jumps to $675 to $810 depending upon the age of the children) [2]. Let's use $475 as an average. So that's another $79,000 for the 14 years (168 months), leaving you with $488,000 for a family of 2, or $453,600 for a family of 4. So working from salary alone, you're under half a million just by taking into account quite frugal budgets for housing and food, and that's without accounting for costs of transportation, insurance, medical, entertainment, etc. let alone the costs of raising children. I'm certain with the right decisions or investments it can be done, but I think if this were "easy" to do you'd see a lot more people with a lot more money in the bank. [1] http://articles.moneycentral.msn.com/Taxes/Advice/YourRealTaxRate40.aspx http://articles.moneycentral.msn.com/Taxes/Advice/YourRealTa... [2] http://www.cnpp.usda.gov/Publications/FoodPlans/2005/CostofFoodJun05.pdf http://www.cnpp.usda.gov/Publications/FoodPlans/2005/CostofF...
  - Retric 16y ago
    By "easy" I mean assuming no major issues or windfalls. Now, starting at 24 is really late IMO. By, 39 "She" should have 16 years of work experience, if "She" contributed the cap into her 401k (16,500$) each year and got a 5% return over inflation that works out to 390,348$ in 16 years. Granted that's pre tax, but some company matching is also fairly common so let's call it 300,000k and assume she contributed a little less when starting out. <I>Down to (90 - 16.5k) = 74.5k which needs to create 200k in assets.</I> Now let's assume she bought a 2br condo @ 26 and had 1 roommate to reduce her rent. At 30 that becomes a BF and at 33 she had her first child etc. By 29 she is easily 13 years into a 30 year mortgage and after 13 years it is probably worth more than when you bought it so 150-200k of equity is reasonable as is someone living off of 73k having other assets to make up the difference. (The assumes the husband followed a similar path and maintained equivalent savings.) As to having that much money earlier conceder what happens when two 24 year old 90k / year developers get married. Split a 1br apartment and they can each live off of 60k vary comfortably while each saving 30k pre tax in a mix of 401k and other investments. In 2 years they can save up a 60k down payment while maxing their 401k's. Once they have children saving money becomes far more difficult, but until then they can create a significant nest egg. PS: You could also have long stretches of unemployment a crack habit and a husband with a gambling problem. I am simply suggesting that the “happy path” represents a significant opportunity cost when you’re looking to start a startup.
    - spokey 16y ago
      Note that from December 1999 to December 2009, the average annual compounded rate of return for the S&P 500 was -0.6%, and the average annual inflation rate in that same period is around 2.8%. A 5% return over inflation may be a little optimistic. Also, "in the bank" has now become "net worth" and our family with a 3 BR condo has now become a couple with a 2 BR that has what, doubled their investment on the condo bought in 1997? I'm not sure that's a typical case. Even at the height of the housing bubble I think that represents a fairly exceptional return, e.g.: http://en.wikipedia.org/wiki/File:USA_home_appreciation_1998_2006.svg http://en.wikipedia.org/wiki/File:USA_home_appreciation_1998... But you don't need to convince me. I agree with you: I'm 100% confident that there are many reasonable scenarios that lead to well over $500,000 in net worth by 39. I'm just pushing back on the "easy" part: If this were easy more people would be doing that, but that fact is $0.5M is 10 times the net worth of the average American in the cohort we're talking about, and more than twice the net worth of the average American at the time of retirement. By living frugally and choosing investments wisely you can certainly do it, but those are easier choices to make in retrospect than working forward. (Edit: I said $500,000 is 100 times the net worth of the typical American 40 year old, but it is really just 10 times.)

by spokey 16y ago

Retric 16y ago

You can gain significant leverage by having roommates in that 3br apartment. With 2 roommates paying market rates she could be making 4k per month mortgage payments. After 5 years of this she could refinance and pay less than market rate for a 1br apartment in the area, or rent the whole thing out can still pay it off early. PS: A 90k/per year developer can easily have a family and 1/2 mill in the bank by their late 30’s.

spokey 16y ago
> PS: A 90k/per year developer can easily have a family and 1/2 mill in the bank by their late 30’s. I'm not sure that's true, but maybe your definition of "easily" is different than mine. Certainly that doesn't seem to be the case if you're working from salary alone. Let's assume our developer enters the workforce at 24 and we're considering 38 to be "late 30s". Then she's worked 14 years, we'll assume at an average of $90K/yr, yielding 1.26 million in total income if you ignore interest, inflation, etc. Various forms of tax will eat about 40% of that [1], so you're left with $756K out of the gate. Suppose by shrewd living you're spending no more than 15% of your income on housing (which is half of the typical assumption), that's $189K over 14 years, leaving $567,000. In 2005, the average cost of food at home for a family of 2 on a "moderate" plan was ~$475 (for a family of 4 that jumps to $675 to $810 depending upon the age of the children) [2]. Let's use $475 as an average. So that's another $79,000 for the 14 years (168 months), leaving you with $488,000 for a family of 2, or $453,600 for a family of 4. So working from salary alone, you're under half a million just by taking into account quite frugal budgets for housing and food, and that's without accounting for costs of transportation, insurance, medical, entertainment, etc. let alone the costs of raising children. I'm certain with the right decisions or investments it can be done, but I think if this were "easy" to do you'd see a lot more people with a lot more money in the bank. [1] http://articles.moneycentral.msn.com/Taxes/Advice/YourRealTaxRate40.aspx http://articles.moneycentral.msn.com/Taxes/Advice/YourRealTa... [2] http://www.cnpp.usda.gov/Publications/FoodPlans/2005/CostofFoodJun05.pdf http://www.cnpp.usda.gov/Publications/FoodPlans/2005/CostofF...
- Retric 16y ago
  By "easy" I mean assuming no major issues or windfalls. Now, starting at 24 is really late IMO. By, 39 "She" should have 16 years of work experience, if "She" contributed the cap into her 401k (16,500$) each year and got a 5% return over inflation that works out to 390,348$ in 16 years. Granted that's pre tax, but some company matching is also fairly common so let's call it 300,000k and assume she contributed a little less when starting out. <I>Down to (90 - 16.5k) = 74.5k which needs to create 200k in assets.</I> Now let's assume she bought a 2br condo @ 26 and had 1 roommate to reduce her rent. At 30 that becomes a BF and at 33 she had her first child etc. By 29 she is easily 13 years into a 30 year mortgage and after 13 years it is probably worth more than when you bought it so 150-200k of equity is reasonable as is someone living off of 73k having other assets to make up the difference. (The assumes the husband followed a similar path and maintained equivalent savings.) As to having that much money earlier conceder what happens when two 24 year old 90k / year developers get married. Split a 1br apartment and they can each live off of 60k vary comfortably while each saving 30k pre tax in a mix of 401k and other investments. In 2 years they can save up a 60k down payment while maxing their 401k's. Once they have children saving money becomes far more difficult, but until then they can create a significant nest egg. PS: You could also have long stretches of unemployment a crack habit and a husband with a gambling problem. I am simply suggesting that the “happy path” represents a significant opportunity cost when you’re looking to start a startup.
  - spokey 16y ago
    Note that from December 1999 to December 2009, the average annual compounded rate of return for the S&P 500 was -0.6%, and the average annual inflation rate in that same period is around 2.8%. A 5% return over inflation may be a little optimistic. Also, "in the bank" has now become "net worth" and our family with a 3 BR condo has now become a couple with a 2 BR that has what, doubled their investment on the condo bought in 1997? I'm not sure that's a typical case. Even at the height of the housing bubble I think that represents a fairly exceptional return, e.g.: http://en.wikipedia.org/wiki/File:USA_home_appreciation_1998_2006.svg http://en.wikipedia.org/wiki/File:USA_home_appreciation_1998... But you don't need to convince me. I agree with you: I'm 100% confident that there are many reasonable scenarios that lead to well over $500,000 in net worth by 39. I'm just pushing back on the "easy" part: If this were easy more people would be doing that, but that fact is $0.5M is 10 times the net worth of the average American in the cohort we're talking about, and more than twice the net worth of the average American at the time of retirement. By living frugally and choosing investments wisely you can certainly do it, but those are easier choices to make in retrospect than working forward. (Edit: I said $500,000 is 100 times the net worth of the typical American 40 year old, but it is really just 10 times.)