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Yup. I see this kind of logic in personal finance discussions all the time but it's bullshit. There simply aren't any spending decisions you can make that will
by CPLX 7y ago
Yup. I see this kind of logic in personal finance discussions all the time but it's bullshit. There simply aren't any spending decisions you can make that will change you from not wealthy to really wealthy. Those things can just move you from poor to middle class at best, or to a better level of middle class.
Outside of real outlier status where you're paid really, really large amounts of money for your services (like notable entertainer or cardiac surgeon) the way to wealth is to own the means of production. Period.
Same as it ever was.
- jlawson 7y agoSaving money, even from a salary job, gives you the breathing room you need to take economic opportunities. For example, if you save a year of expenses you can start a software business without external capital or connections. Most of the paths from middle-class to wealth involve avoiding frivolous spending.
- CPLX 7y agoYes but if you borrow like a maniac from credit cards and default on everything and live in a van but still start a successful software business you still get wealthy. My point being that actually owning that successful business is the mechanism for wealth. Avoiding frivolous spending can be very, very helpful to achieving that status, as you point out correctly, but it isn't actually the status itself. This article and many others seem to be unable to make that key distinction.
- hultner 7y agoIf you default on everything assets such as that successful business will be reclaimed by the creditors/government, of course this depends a bit on where you live but for instance in Sweden if you default you're required to live on minimum living expenses for five years, any assets you amass over this minimum living value will be claimed by the government.
- isoskeles 7y ago> you still get wealthy Do you think the bad habits go away just because you succeeded? That’s not how life works, and the evidence is people who win the lottery.
- chosenbreed37 7y ago> Yes but if you borrow like a maniac from credit cards and default on everything and live in a van but still start a successful software business you still get wealthy. What happens if the software business doesn't succeeded to the extent that it dwarfs the level of debt? What if it doesn't succeed at all?
- deleted 7y ago[deleted]
- brazzy 7y agoI really think this logic is more about avoiding spending decisions that can change you from middle class to poor rather than the other way round.
- OnlineGladiator 7y ago> like notable entertainer or cardiac surgeon Google says cardiac surgeons make $400-800k, assuming that's true a very talented engineer at FAANG can easily match this (staff or senior staff level) without being mired by an additional 10 years of school. I personally know engineers making 7 digits in liquid compensation. Obviously these are not your average engineers, but it's doable if you're the 1% (to be good enough for FAANG) of the 1% (to be amongst the best at FAANG) of engineering talent - so this isn't most people. Just throwing it out there because I imagine most readers here are engineers and you make it sound like it's an impossibility for any of us. I bet at least a handful of readers here are engineers making over $500k.
- disintegore 7y agoIt's not an impossibility. Nothing is an impossibility. We are all temporarily embarrassed millionaires and most of us are temporarily embarrassed for life.
- departure 7y agoYou also need to consider that the median tenure at these type of companies are 2-3yrs[0][1][2] (1.1 at google!). In my experience that's not enough to get the full stock grants. So even from those that could make it very few stay long enough to make these great riches your imagining. [0] https://www.payscale.com/data-packages/employee-loyalty/full-list https://www.payscale.com/data-packages/employee-loyalty/full... [1] https://www.businessinsider.com/average-employee-tenure-retention-at-top-tech-companies-2018-4 https://www.businessinsider.com/average-employee-tenure-rete... [2] https://brobible.com/culture/article/how-long-employees-stay-tech-companies/ https://brobible.com/culture/article/how-long-employees-stay...
- pb7 7y agoThe average tenure is short not because people are getting fired for underperforming. It is short because 1) a lot of people get hired with massive YoY growth even for their size, and 2) people leave to earn even more at other companies in which case they’re still getting the compensations discussed here.
- 7y ago
- hello_1234 7y agoYou are completely discounting the power of compounding. Saving every penny won't make you rich in a year or even in 10 years. But think about 20 years in the future. Think about retirement. Every extra dollar that you put into your 401K will make a meaningful difference on how you retire in 20-40 years. Here's one real example for you: 96-Year-Old Secretary Quietly Amasses Fortune, Then Donates $8.2 Million - https://www.nytimes.com/2018/05/06/nyregion/secretary-fortune-donates.html https://www.nytimes.com/2018/05/06/nyregion/secretary-fortun...
- yellowstuff 7y agoYes, it's a really good idea to live within your means and start saving early for retirement. No, most people who are young today will not be able to save anything like $8M doing that. Some things that are exceptional about the woman in this story: * She worked 67 years at the same job. * She invested in individual stocks, mostly during a period when index funds weren't available. This lack of diversification is almost unanimously not recommended for regular people because the vast majority of people who try it dramatically underperform index funds. But if enough people do it someone will dramatically outperform and you'll read about them in the paper. * It sounds like she lived more frugally than most people would find tolerable. * She lived in a rent controlled apartment, meaning her rent was probably closer to free than to market rates for much of her life. Needless to say, this subsidy isn't available to young people today. * Presumably she avoided major illness or other setbacks during her long working life. * It's also possible that she had an inheritance or some other significant source of income besides her salary. $1M or $2M in inflation-adjusted savings is probably a realistic goal for a middle class American to have for retirement after a long career and prudent investing. $8M is not.
- thatfrenchguy 7y ago> * She invested in individual stocks, mostly during a period when index funds weren't available. This lack of diversification is almost unanimously not recommended for regular people because the vast majority of people who try it dramatically underperform index funds. But if enough people do it someone will dramatically outperform and you'll read about them in the paper. Sampling biais: there's no going to be any article on the people who lost all their money doing this
- esotericn 7y agoIt can give you the breathing room to actually _do_ something that can change your status and allow you to have a decent shot at "own the means of production", though. I've probably had hundreds of conversations with people who will say "well, not everyone can afford to move town" or "not everyone can afford to take a week off work" or whatever else. That's an enormous handicap - you're basically a slave to your current job, and if it tires you out enough that you can't train/learn/do other productive work outside of it, then you're stuck. Personally I grew up with essentially zero, and pretty much self-enforced level 1 upon myself until this chart would have me at level 4. People talk a lot about how certain startup founders aren't really risking anything because they start out with a safety net. You can create that safety net for yourself, with a little luck along the way, provided that you're sensible.
- lowercased 7y ago"not everyone can afford to take a week off work" even if you can, financially, it's often hard to do so mentally/emotionally. if you're taking time away from work, that means no income - whether you desperately need it or not may be immaterial to the mental state you've built for yourself.
- esotericn 7y agoI think that's the point of the article. If you have 4 weeks' worth of spending saved then it's difficult. If you have 40, then it's fairly easy. If you have 400, it's trivial.
- lowercased 7y agowell.. I was getting at, it still can be mentally difficult to pry yourself away from it, even if you financially can 'afford' it.
- icedchai 7y agoTell me about it. I have over 25 years worth of living expenses and still haven't gotten the nerve to just get out.
- philwelch 7y agoHere's the thing: if instead of spending your money, you invest it, guess what you end up doing with that money? Owning the means of production. Period.
- SketchySeaBeast 7y agoA bit confused by this - you're now not actually buying anything that produces anything. I guess you could argue it produces more money, but you have no control over those things - you can only choose what you invest in, but have no control over how those things perform. Otherwise then savings is owning the means of production, given that you're still making money with it.
- philwelch 7y agoIf you buy one share of Toyota Motor Company, you are now a part-owner of a car company, including all the factories and equipment and supply contracts and whatnot that such a thing entails. Owning stock literally entails “owning the means of production”. Buy some stock today and become an evil capitalist!
- SketchySeaBeast 7y agoSo only if I buy direct? Not index funds?
- pathseeker 7y agoIndex funds too. What do you think index funds are investing in?
- zrail 7y ago(assuming you're asking in good faith) It's the same thing, just on a different scale. If you own, say, one share of VTSAX (Vanguard Total Market Index) you now own, by proxy, 1.8% of one share of Microsoft stock. You don't have any direct voting or economic rights but because of the way a mutual fund is structured you get most of the economic benefit of that fraction of a share. I.e. you get the benefit of most of the capital gain and dividends that it distributes. I would personally say that if you want to actually "own the means of production" then directly owning shares is the way to go, but if you don't actually care about making decisions for specific companies then you get most of the benefits without any of the day-to-day thought and worry by owning shares in a mutual fund.
- atwebb 7y agoGotta disagree, I have personally watched people spend away 2-300k a year for decades. It's easily millions, especially considering the ROI of the markets since the 80s.
- wonderwonder 7y agoI would argue that this overlooks the factor of time and compound interest. Lets say I make 60k a year and am 25 years old. If I am living paycheck to paycheck due to bad choices (partying, eating out, etc.) and then I switch my spending habits and can now live comfortably on that 60k and I can save / invest. Lets say my take home after taxes and health insurance (32% reduction) is $3,400 a month. If I can invest $1,200 a month of that, and assume a safe 7.5% return by the time I retire at 67 I have ~$4 million which is considered wealthy, but not really wealthy. But yes in the short term the only way to gain wealth is to earn more money. Edit: This assumes a perfect scenario, 98% of the time, that person making 60k a year ends up on social security barely making it at 67.
- auiya 7y ago42 years in the future your $4 million has deflated in value to the equivalent ~$1.4 million worth of buying power today assuming 2.5% inflation rate. Which isn't really worth much in the U.S., certainly not enough to recover from a major medical disaster.
- pwinnski 7y agoGP was talking about saving $1200 out of $3400 take-home, which means living expenses are $2200/mo, or $26,400/year. Let's leave things in "today's dollar" terms for simplicity: A 4% annual withdrawal from $1.4M would be $56,000, or a big upgrade over $26,4000. A 4% annual withdrawal from $4M is $160k. But as you say, it's the equivalent of $56k today.
- doubleInt 7y agoIt's blatantly obvious that you can make decisions that will move you from not wealthy to really wealthy. However, if you want to do it without risk, it takes time, patience and iterating the same frugal choices many times over the years. If this isn't your cup of tea, fine. Don't pretend it's impossible.
- mnky9800n 7y agoi feel like by definition spending decisions only make you less wealthy.
- pathseeker 7y ago>Outside of real outlier status where you're paid really, really large amounts of money for your services (like notable entertainer or cardiac surgeon) the way to wealth is to own the means of production. Period. This is a lazy view, or a really privileged one at least. I know a couple of people in their fifties who have retired from putting as much money into the market as possible (post-tax and pre-tax) while living modestly through their younger years. Having enough money to retire early is having wealth. Views like the one you espouse are insidious because they give people a justification to stop trying and spend everything they make. Why not get the $1500/mo apartment instead of the $900/mo one? If you can't build wealth, what's the point in trying to accumulate it at all?
- ip26 7y agoHaving enough money to retire early is having wealth. Sort of. There's two pieces to FIRE. Saving aggressively, yes. But also by learning to live modestly, you need less wealth to retire. So half of FIRE is accumulating wealth, but the other half is needing less wealth.
- omgwtfbyobbq 7y agoExactly. At some point the decrease in annual spending converges with the increase in annual income, and that's FIRE. It's not like people have to retire at that point either. The general idea is that they can do what they want and aren't tied to a specific field, career, job, and so on...
- pathseeker 7y agoRight, I didn't imply that they had to retire. It's just that even having that option means you are wealthy. People who can live a middle-class lifestyle in the US without working are super fucking wealthy on a global perspective.
- disintegore 7y agoAre you aware of the fact that your anecdotal evidence from the fifties may no longer be pertinent? Have you seen what happened to wages since then? To the cost of living? To the cost of homes?
- leetcrew 7y agosaving your entire salary won't make you as rich as Jeff bezos, but the end of your life will look a lot different if you save $1000 every month instead of $500. if you have any disposable income, you can save for a decent retirement. it's useful to have a framework for deciding what indulgences you can pay for in the present without crippling yourself in the future.
- josephdviviano 7y agoWell, there are always ways to make yourself more wealthy. You spend less on consumables and spend more on investments. People who typically become extraordinarily wealthy do so via high-risk, high-reward activities like business ownership. Now you can argue that the risk reward equation isn't the same for people who have 20 million in the bank and 200 dollars in the bank, and that is very true, but it doesn't make the advice to spend as much as you can on investments incorrect.
- slothtrop 7y agoExactly, we can't even save our way to retirement (we need to invest), let alone expect frugality to translate to wealth. If you aren't in business for yourself, pay raise is the way up.
- chooseaname 7y agoNo, but you can change your spending habits such that you can save up an emergency fund. That will give you some breathing room in case something happens. This alone would be a game changer for most people.