7 ms·

The Millionaire Next Door is about as misleading as it gets, at least for today. Let's not forget that $1M in the mid 1990's is about the same as $2M today, at

The Millionaire Next Door is about as misleading as it gets, at least for today. Let's not forget that $1M in the mid 1990's is about the same as $2M today, at least in terms of terms of CPI. Even then, that is after 20+ years of housing prices outpacing inflation by 2x or more. In the mid 1990's, the top 20% could get to $1M with some good financial discipline and hard work. Today? Maybe the top 1% could save $1M, and unless you inherited the family home, you're still living a lifestyle that is somewhat median in 1995 terms. The fact that $1M is still some kind of mental benchmark that we hold up for being "rich" tells us everything we need to know about today's economic conditions. So the principles of the book may still apply, but the outcomes are worlds away from reality.

ericmay 5y ago
I can't speak to the book, but I would say that you should examine your thinking regarding the top 1% saving $1mm. While it might be that only the top 1% can save an actual million dollars in cash, saving about $10,000/year with somewhat conservative estimates will get somebody to around $900,000 over 30 years. Granted, that's still not most people, but it's a much larger group than the top 1%. I made a separate comment here with the same OP if you'd like to run some numbers yourself. Compound interest is crazy. > The fact that $1M is still some kind of mental benchmark that we hold up for being "rich" tells us everything we need to know about today's economic conditions. This is a very interesting comment. I wonder why the mentality of this benchmark amount hasn't changed. Economic conditions certainly have, $1mm isn't the same now as it would have been in 1970. Maybe it's a financial independence thing? At $1mm you really are independently wealthy in most cases.
- dhd415 5y ago
  Using the standard definition of "independently wealthy" as "no longer needs to work to cover living expenses", I would say that $1MM is nowhere enough to do that in almost any place in the US, especially if you have kids. I'd say at least $3MM in cash and as much as $5-6MM in higher cost-of-living areas would be required to maintain an upper middle class standard of living.
  - ericmay 5y ago
    If you had $1mm today you for sure no longer need to work to cover living expenses in most places in America. I guess healthcare is a question, but even then your annual income rate will probably qualify you for Obamacare subsidies. Even with kids. Though that makes the budgeting a little more tight.
  - sidlls 5y ago
    According to https://livingwage.mit.edu/states/48/locations https://livingwage.mit.edu/states/48/locations (based on https://livingwage.mit.edu/resources/Living-Wage-Users-Guide-Technical-Documentation-2021-05-21.pdf https://livingwage.mit.edu/resources/Living-Wage-Users-Guide...), $1MM invested (excluding equity in a primary residence) would certainly be enough in many areas, especially the midwest and southeast. On $1MM, one can almost certainly safely take out $35k/year (after taxes on any gains) and still grow the portfolio (so as to offset inflation). That's definitely sufficient to support the barest minimum of "lower middle class" living expenses. Without kids. Add a kid and it blows right up. But, yes, to support an upper middle class style of living one would certainly need more.
- sanderjd 5y ago
  > At $1mm you really are independently wealthy in most cases. This doesn't strike me as true. A big facet to consider also is liquidity. Are you talking about $1M in net worth? If so, I disagree with you: a big chunk of that $1M is likely very illiquid for a younger person, tied up in a house and retirement accounts with penalties for withdrawal. But sure, if you have managed to save $1M above and beyond equity in your home and tax advantaged retirement accounts, then you are probably independently wealthy (but your actual net worth is probably significantly higher than $1M).
  - ericmay 5y ago
    Well, I'd say if you look at what I wrote it was a savings rate of $10,000/year so my underlying assumption is that goes into the market, which will be liquid. You could choose to do a Traditional 401k or Roth 401k. Both are liquid enough. My point wasn't to really give a breakdown of all savings forms, but just to show that saving $10,000/year with historical returns will net you close to $900,000. You don't even have to put it in a tax-advantaged account. Though you should. And that amount is plenty to retire on and be independently wealthy at least today and for the next 5 or so years. Though I guess maybe that's not the best choice of words since what I mean to say is that you can just live pretty comfortably without working - more financially independent than "wealthy". Certainly economic conditions can change, so the more the better. And just to be clear, you could take $1mm right now with 0 assets and buy a decent enough house for <$200,000 and pay pretty low taxes. You'd still have $800,000 left over to appreciate with low cost of living in the vast majority of America.
    - sanderjd 5y ago
      Retirement accounts aren't liquid at all if what we're talking about is reaching financial independence and retiring really early (in your 30s or 40s say), which is what I thought we were talking about. But if you're strictly talking about being financially independent enough to retire at the normal time (when you can access retirement accounts), then I agree with you. On the house point, people always seem to forget that people already live someplace and also often have families. No, it is not possible to find a house for a family of four where I live for less than $200k.
- darksaints 5y ago
  The key factor in being able to do so is to have money to save early in your career. The median household may have 10k/year to spend, but the median household is already 10-15 years into their career, and thus 10-15 years behind on that compound interest. And nobody really has that kind of money early in their career, except maybe the top 1%. You either make a lot of money and spend most of it on housing, or you make a little bit of money and spend most of it on housing.
  - ericmay 5y ago
    All I’m doing is providing information. Saving $10,000 is very achievable. Some people get higher paying jobs by the time they are 30 and save $15,000/year instead. Some buy a house and save some. There are lots of paths. I completely disagree that saving $10,000/year is only something the 1% can do. I started my first job at a salary of $60,000 and was able to save $10,000/year via my 401K + 6% matching. I lived in a MCOL city, drove a Honda Civic, and traveled a little bit but not much. That’s not a 1% lifestyle. It’s better than average no doubt, but it’s accessible to many Americans. We should talk more about how people can do it and how we can help those who don’t make enough money instead. Maybe instead of paying into Social Security we could develop a different savings plan?
    - darksaints 5y ago
      Okay, but you have to understand that you're exceptional...at least top 1% in terms of capability. Only 88% of teenagers graduate high school. Some 60% of those will go to college, and only 46% of those will eventually graduate. Of those that eventually graduate, on average they will earn an average $50k starting salary, which takes your savings rate down to zero. 17% might get a salary of $85k. [Too lazy to cite the Google results, I'm on mobile]. So at least from my napkin math plus estimates, you've probably got less than a 10% chance of making enough to save any money at all for your first job out of college. And I don't know about you, but I spent the first 5 years out of college paying off student loans...and I had a pretty low student loan burden compared to most. And many others might start families sooner than you've chosen to, which is expensive as well...and half of them will get divorced which is even more expensive. I don't have anything against teaching people to do the best they can with the shit hand they've been dealt in life. But selling that by claiming that average people can be millionaires (even in today's terms, let alone 1990's terms) is selling an expectation that will never pan out for the vast majority of them. Any belief in the truth of that claim inherently relies on a very privileged view of the world, either because they were born with a silver spoon, or because they don't truly understand the scope of expenses that other people face, or because they think that average people are even capable of the kinds of jobs that they hold. It is flat out irresponsible to peddle this fantasy.
jandrewrogers 5y ago
The median US household has ~$12k/year available to save/invest after all ordinary living expenses, per the US government (BLS), and that number goes up very rapidly for people above the median. Americans are notoriously poor savers, also per the US government, but a large percentage of all households -- at least 40% -- could fairly easily accumulate $1M if they were diligent about saving and investing a decent fraction of that surplus income. The surplus income is available but Americans choose to use that income for things other than saving and investing.
- joshuamorton 5y ago
  Whiler I agree with the thrust of your comment, your committing an error: the distribution of incomes isn't uniform across time/age. That is, the set of under 30 and under 40 household with 12k/ year is lower than 40%. If you look at not the median household at this moment, but the lifecycle of the median household from when it started to when, it probably couldn't save 10k/yr until recently. And the early years are the most important ones.
- giantg2 5y ago
  That surplus income is only surplus until you have medical event, catastrophic loss, or need a major repair (roof). Ot to mention the need to save for retirement. It's those extraordinary living expenses that kneecap you.

ericmay 5y ago

I can't speak to the book, but I would say that you should examine your thinking regarding the top 1% saving $1mm. While it might be that only the top 1% can save an actual million dollars in cash, saving about $10,000/year with somewhat conservative estimates will get somebody to around $900,000 over 30 years. Granted, that's still not most people, but it's a much larger group than the top 1%. I made a separate comment here with the same OP if you'd like to run some numbers yourself. Compound interest is crazy. > The fact that $1M is still some kind of mental benchmark that we hold up for being "rich" tells us everything we need to know about today's economic conditions. This is a very interesting comment. I wonder why the mentality of this benchmark amount hasn't changed. Economic conditions certainly have, $1mm isn't the same now as it would have been in 1970. Maybe it's a financial independence thing? At $1mm you really are independently wealthy in most cases.

dhd415 5y ago
Using the standard definition of "independently wealthy" as "no longer needs to work to cover living expenses", I would say that $1MM is nowhere enough to do that in almost any place in the US, especially if you have kids. I'd say at least $3MM in cash and as much as $5-6MM in higher cost-of-living areas would be required to maintain an upper middle class standard of living.
- ericmay 5y ago
  If you had $1mm today you for sure no longer need to work to cover living expenses in most places in America. I guess healthcare is a question, but even then your annual income rate will probably qualify you for Obamacare subsidies. Even with kids. Though that makes the budgeting a little more tight.
- sidlls 5y ago
  According to https://livingwage.mit.edu/states/48/locations https://livingwage.mit.edu/states/48/locations (based on https://livingwage.mit.edu/resources/Living-Wage-Users-Guide-Technical-Documentation-2021-05-21.pdf https://livingwage.mit.edu/resources/Living-Wage-Users-Guide...), $1MM invested (excluding equity in a primary residence) would certainly be enough in many areas, especially the midwest and southeast. On $1MM, one can almost certainly safely take out $35k/year (after taxes on any gains) and still grow the portfolio (so as to offset inflation). That's definitely sufficient to support the barest minimum of "lower middle class" living expenses. Without kids. Add a kid and it blows right up. But, yes, to support an upper middle class style of living one would certainly need more.
sanderjd 5y ago
> At $1mm you really are independently wealthy in most cases. This doesn't strike me as true. A big facet to consider also is liquidity. Are you talking about $1M in net worth? If so, I disagree with you: a big chunk of that $1M is likely very illiquid for a younger person, tied up in a house and retirement accounts with penalties for withdrawal. But sure, if you have managed to save $1M above and beyond equity in your home and tax advantaged retirement accounts, then you are probably independently wealthy (but your actual net worth is probably significantly higher than $1M).
- ericmay 5y ago
  Well, I'd say if you look at what I wrote it was a savings rate of $10,000/year so my underlying assumption is that goes into the market, which will be liquid. You could choose to do a Traditional 401k or Roth 401k. Both are liquid enough. My point wasn't to really give a breakdown of all savings forms, but just to show that saving $10,000/year with historical returns will net you close to $900,000. You don't even have to put it in a tax-advantaged account. Though you should. And that amount is plenty to retire on and be independently wealthy at least today and for the next 5 or so years. Though I guess maybe that's not the best choice of words since what I mean to say is that you can just live pretty comfortably without working - more financially independent than "wealthy". Certainly economic conditions can change, so the more the better. And just to be clear, you could take $1mm right now with 0 assets and buy a decent enough house for <$200,000 and pay pretty low taxes. You'd still have $800,000 left over to appreciate with low cost of living in the vast majority of America.
  - sanderjd 5y ago
    Retirement accounts aren't liquid at all if what we're talking about is reaching financial independence and retiring really early (in your 30s or 40s say), which is what I thought we were talking about. But if you're strictly talking about being financially independent enough to retire at the normal time (when you can access retirement accounts), then I agree with you. On the house point, people always seem to forget that people already live someplace and also often have families. No, it is not possible to find a house for a family of four where I live for less than $200k.
darksaints 5y ago
The key factor in being able to do so is to have money to save early in your career. The median household may have 10k/year to spend, but the median household is already 10-15 years into their career, and thus 10-15 years behind on that compound interest. And nobody really has that kind of money early in their career, except maybe the top 1%. You either make a lot of money and spend most of it on housing, or you make a little bit of money and spend most of it on housing.
- ericmay 5y ago
  All I’m doing is providing information. Saving $10,000 is very achievable. Some people get higher paying jobs by the time they are 30 and save $15,000/year instead. Some buy a house and save some. There are lots of paths. I completely disagree that saving $10,000/year is only something the 1% can do. I started my first job at a salary of $60,000 and was able to save $10,000/year via my 401K + 6% matching. I lived in a MCOL city, drove a Honda Civic, and traveled a little bit but not much. That’s not a 1% lifestyle. It’s better than average no doubt, but it’s accessible to many Americans. We should talk more about how people can do it and how we can help those who don’t make enough money instead. Maybe instead of paying into Social Security we could develop a different savings plan?
  - darksaints 5y ago
    Okay, but you have to understand that you're exceptional...at least top 1% in terms of capability. Only 88% of teenagers graduate high school. Some 60% of those will go to college, and only 46% of those will eventually graduate. Of those that eventually graduate, on average they will earn an average $50k starting salary, which takes your savings rate down to zero. 17% might get a salary of $85k. [Too lazy to cite the Google results, I'm on mobile]. So at least from my napkin math plus estimates, you've probably got less than a 10% chance of making enough to save any money at all for your first job out of college. And I don't know about you, but I spent the first 5 years out of college paying off student loans...and I had a pretty low student loan burden compared to most. And many others might start families sooner than you've chosen to, which is expensive as well...and half of them will get divorced which is even more expensive. I don't have anything against teaching people to do the best they can with the shit hand they've been dealt in life. But selling that by claiming that average people can be millionaires (even in today's terms, let alone 1990's terms) is selling an expectation that will never pan out for the vast majority of them. Any belief in the truth of that claim inherently relies on a very privileged view of the world, either because they were born with a silver spoon, or because they don't truly understand the scope of expenses that other people face, or because they think that average people are even capable of the kinds of jobs that they hold. It is flat out irresponsible to peddle this fantasy.

jandrewrogers 5y ago

The median US household has ~$12k/year available to save/invest after all ordinary living expenses, per the US government (BLS), and that number goes up very rapidly for people above the median. Americans are notoriously poor savers, also per the US government, but a large percentage of all households -- at least 40% -- could fairly easily accumulate $1M if they were diligent about saving and investing a decent fraction of that surplus income. The surplus income is available but Americans choose to use that income for things other than saving and investing.

joshuamorton 5y ago
Whiler I agree with the thrust of your comment, your committing an error: the distribution of incomes isn't uniform across time/age. That is, the set of under 30 and under 40 household with 12k/ year is lower than 40%. If you look at not the median household at this moment, but the lifecycle of the median household from when it started to when, it probably couldn't save 10k/yr until recently. And the early years are the most important ones.
giantg2 5y ago
That surplus income is only surplus until you have medical event, catastrophic loss, or need a major repair (roof). Ot to mention the need to save for retirement. It's those extraordinary living expenses that kneecap you.