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Personal finance experts don’t get wealthy by following their own advice

• dragontamer 5y ago
  I dunno who his target audience is, but I assume that the majority around here are computer programmers with anywhere from $70k/year single income to maybe $500k/year dual income ? Financial advice in general sucks. But when we get into the specifics... such as any say $150k/year programmer or higher, the generic financial advice of 6 months saving + max out 401k plan works. ------- The plan for people at average, 50k/year combined income is closer to the go to college and get some skills that will launch your career. What I do find amusing is our collective inability to talk about things that matter. Ex: the paycheck is the elephant in the room. And even though it is brought up in this post, the paycheck differences between families can lead to grossly different experiences.
  • giantg2 5y ago
    Yeah, but the audience of those financial gurus are the general public. So sure, their advice might work for the top 5%, but the rest of people will never "get rich" using that advice. Even that top 5% could be better off if building passive income, businesses, etc.
    • dragontamer 5y ago
      But the irony is that the generic advice actually applies to the hacker news audience pretty well. People reaching 100k/year or so single income should be able to save comfortably. And a lot of programmers are on an appropriate career path to get there in a few years
      • giantg2 5y ago
        I wish that were true for me. But I think you're missing the point. The advice for most people (the target audience of the gurus) is wrong. It's just a coincidence that this article is posted on HN and it would be disingenuous to examine it from only this position/context.
    • zhdc1 5y ago
      > So sure, their advice might work for the top 5%, but the rest of people will never "get rich" using that advice The median household income in the United States is $79.9K. Assuming that a family of four can live on $50K (including taxes) in - most - locations, which is twice the poverty limit, they can theoretically save $30K a year in a mix of 401K, IRA, and general investment accounts. This amount, if invested over thirty years with a 7.5% annual return (which is lower than what the S&P has historically returned by a fair amount), would give them a nest-egg of $3M. If they only manage to save half of that amount, they would still have $1.5M by retirement. Now, this is a very feasible scenario for families in their twenties to late thirties, which is why many of the names mentioned in the article harp on the importance of investing early. It doesn't work nearly as well once you reach that point. However, the opposite - not saving or investing, and having a large amount of consumer debt - leads to significantly worse outcomes.
      • dragonwriter 5y ago
        > The median household income in the United States is $79.9K. No, its not, that's the median family income, which only counts groups of two or more people related by birth, marriage, or adoption living in the same home, whereas median family income includes single-member households and those whose members have no family relation, and thus is significantly lower, about $65K.
        • zhdc1 5y ago
          If we want to be pedantic, I was using the median - family - income estimate from HUD, which includes Puerto Rico and extrapolates off of the 2018 ACS. The Census Bureau, which lags by a year or so, puts the figure at $86K.
      • giantg2 5y ago
        "The median household income in the United States is $79.9K. Assuming that a family of four can live on $50K (including taxes) in - most - locations, ... " I think the main problem here lies in assumption of the distribution over the various locations. $50k+ in Appalachia is good money and you might be able to save $30k out of $80k. One would not be saving and investing in many of the large cities and their suburbs (where more people live). One thing to note is that the $1.5M-3M is not inflation adjusted and would be worth much less than it is today. It will result in better outcomes, but it won't make people rich, like many claim. $1.5M is just enough to keep a couple out of poverty who will be retiring at 65 years old, 35 years from now. This is especially true if people live longer and the cost of healthcare continues to increase much faster than inflation. "(which is lower than what the S&P has historically returned by a fair amount)" The next decade is supposed to be much lower. (Past performance is not an indicator of future returns).
  • fossuser 5y ago
    The r/personalfinance and r/financialindependence subreddits are quite good and even cover more exotic details like the “mega back door roth” otherwise known as “after tax 401k contribution in plan conversions to roth” (which can let you add an additional 36k to a Roth IRA over the 6k limit each year in addition to the normal 19.5k for a traditional 401k). They’re mostly bogleheads so are a little risk averse, but for most that’s probably the right move anyway.
    • sokoloff 5y ago
      In the overall distribution of risk-aversion, bogleheads are more comfortable with risk than far too many savers. I’ve seen too many of my parents’ generation squander decades of investment returns because of the idea that stocks are risky.
      • Spivak 5y ago
        I mean once you reach a certain age you really can’t afford to just hold on to your investments for a few decades because of a financial downturn. That retirement money is also most people’s emergency medical fund which can and does hit people in their 40s.
        • sokoloff 5y ago
          I’m not saying to put 100% of every liquid dollar you have into the market, but in your 40s, I think it should be the majority of your investment funds. Boglehead advice agrees, with an explicit principle of “Never bear too much or too little risk”, suggesting 30-40% bonds in your 40s and the rest in stocks. I think more people underperform from being too risk-averse than under-perform from having too much equity exposure and having an unfortunate overlap of a large expense and a downturn in the market.
          • spekcular 5y ago
            The book "Lifecycle Investing," by Yale professors Nalebuff and Ayres, argues that a young person ought to invest 100% or even more (via leverage) in stocks. (More specifically, a young person with high future earning potential, which probably includes many people here with a career in tech.) I'm fairly risk averse and don't totally believe their leverage calculations. But it did convince me that any non-negligible bond allocation is probably suboptimal.
  • pushrax 5y ago
    Owning a small slice of a business where you're employed can also help make you rich if it grows a lot. In the tech world there are probably more financially independent employees than founders, because of the growth of some massive companies over the last few decades and high salaries. Probably a different story in the UHNW category though, very few employees can get to that level.
    • Nasrudith 5y ago
      The obvious pitfall is that it is putting both your income sources in the same basket. Unless you have sufficient liquidatable savings that is a bit of a "flying jump kick" - if it lands it works great, if it doesn't you are left committed to a train wreck and pain will follow.
      • pushrax 5y ago
        Definitely true - usually you don't have a choice though due to vesting schedules and/or illiquid markets pre IPO.
  • dheera 5y ago
    > max out 401k plan works What are the advantages of 401k instead of say dumping it into half-VOO half-crypto and making millions one way or another?
    • MattGaiser 5y ago
      A 401K is a box, not a specific investment. You can put things like VOO in the box. Anything in the box is tax advantaged however.
    • whateveracct 5y ago
      Tax advantages basically mean you make the dollars invested inherently worth more
    • pushrax 5y ago
      The variance in potential outcomes of holding VOO is much, much lower than the variance of holding crypto. Buying VOO buys a share of the profits of the work of many millions of people. It also speculates that other people will continue to want to buy those profits. Buying a token only speculates that more people will want to buy that particular token. It's much harder to project that people will continue to want it.
      • dheera 5y ago
        Oh yes. So that's why half-half.
        • pushrax 5y ago
          A risk parity approach would say more like 95% to 5%, but that works too.
          • dheera 5y ago
            Oh sure, one half can be bigger than the other half.
    • zhdc1 5y ago
• bdcravens 5y ago
  The biggest takeaway: it's easier to make money than it is to save it, and stacking cash, rather than aggressive budgeting, is the key to wealth.
  • Denvercoder9 5y ago
    Isn't aggressive budgeting a way to be able to stack that cash?
    • bdcravens 5y ago
      Maybe (depends on your income and what expenses you currently have). However for many, pouring that energy into an income-creating task will create a larger amount.
  • cardosof 5y ago
    While I generally agree, I think for many people it's easier to cut 10% of their annual spending instead of getting better return rates or a salary raise.
    • bdcravens 5y ago
      For the readers of this forum, perhaps, but for the typical person making $40-50k it maybe easier to get a side hustle.
    • anigbrowl 5y ago
      That's the sad thing though. While many people do spend their way to poverty, personal finance people almost never seem to address the question of how to negotiate/strategize to get more money in the first place. A lot of people semi-rationally conclude that the way to make money is to look successful by driving a new vehicle, wearing nice clothes, and 'fake it til you make it.'
  • PKop 5y ago
    It is "easier" for people that are capable of becoming wealthy to do so by making money and leveraging their skills to accrue wealth not by hours worked. It is unclear weather it is "easier" for everyone to do so, or possible. And if not, whether they are better off not trying, and instead saving and budgeting.
• PKop 5y ago
  Part of the discussion should be, can the 'masses' "Generate income not based on hours worked", "Minimize taxes", and "Leverage time and debt to become wealthy like the personal-finance gurus themselves did?"... in other words, is becoming wealthy possible? It is worth being honest about the false hope these authors are peddling about "becoming wealthy", instead of what they are really advising which is, to become above average / not poor. It is ultimately good advice for most while the crux of the issue is pretending everyone in America is a millionaire waiting to happen. I would add that much of the sensible advice provided by these types of authors is not taught in public schools as a basic necessity of general education.
  • giantg2 5y ago
    I think an even deeper question is, is it possible for the masses to get rich and what would the macroeconomics look like? I would think competition and resource scarcity would prevent this.
    • MattGaiser 5y ago
      I would argue that middle class today is a lot richer than 50 years ago. Larger average homes. More cars. More trips. Better healthcare. Food is cheaper as a percentage of income.
      • giantg2 5y ago
        The middle class has also shrunk, right? Those advances are adjustments in quality of living driven by efficiencies in manufacturing, etc. This would be more on the resource scarcity side and less on the rich/income side. I would exclude food as an indicator since that is heavily subsidized. Healthcare has also increased substantially as a percentage of income.
        • PeterisP 5y ago
          The global middle class has grown but the USA middle class has shrunk due to some rebalancing/equalization with other countries.
• brighton36 5y ago
  Average People require average advice. Above average people can figure it out on their own. This piece is fine and good, and I appreciate that it was written. I agree with its thesis.
  • PKop 5y ago
    I agree with this. Not everyone can be above average and not everyone should pursue self-employment, passive income and leveraging debt to grow wealth. For many many people lessons on saving and budgeting are the best course of action.
• dtjohnnymonkey 5y ago
  This is a mischaracterization of Ramit Sethi’s class. I’ve taken it and it’s the opposite of what the article claiming. It focuses on helping you build your business and income streams.
  • FabHK 5y ago
    Agreed. I haven't taken this class, but Ramit disparages the "skip a cappuccino a day and become rich" nonsense explicitly.
  • foogazi 5y ago
    Yeah, I read IWTYTBR back when it came out and even then he stressed how skipping the latte was not enough: you had to increase your income + assets
  • amarghose 5y ago
    Came here to say this. The author lost all credibility with me when including Ramit in the list as if he's actually paid any attention at all to what IWT says he'd realize that Ramit could have written the article he just published (and they would have been similarly condescending tones)
• brk 5y ago
  I think most financial advisors target people with no impulse control, spending the bulk of their income each month, with a measurable part of it on non-essentials. Those kinds of people can budget to some version of wealth (especially when you consider the median net worth of their peers is most likely only barely a positive number). To get into "real" money (5+ million dollars in savings?), then you can't budget yourself to riches if you simply do not have the gross income, and time horizon for some amount of compounding interest. The financial advisors in this bracket are usually not telling you what to save vs. spend, but instead more commonly discussing investment diversification strategies, ways to (legally) avoid or defer taxes, etc.
• tlogan 5y ago
  There is a saying: "Do not think how you are going to spend the money. Think how you are going to make money."
• umvi 5y ago
  > Except we used our cards to make $3,624 in spendable cash last year, all while paying zero in interest — because we paid the cards off in full each month. Yeah except the merchants probably marked up their prices 4% to cover card processing fees so really we are just paying more for goods than we otherwise would have with cash and the card company is giving us a tiny kickback. Let's not pretend credit card kickbacks are free money... The card companies are glutting themselves on merchant fees and we are all paying the price in the form of costlier goods in exchange for a small kickback.
  • MattGaiser 5y ago
    If everyone used cash, maybe, but since that isn't happening, those who don't use credit cards are paying for those who do.
    • cowpig 5y ago
      I think both of these statements are true
    • ghaff 5y ago
      However, handling cash is not free. Now, most places still have to handle cash but it's a whole lot less than they would have to otherwise.
  • leetcrew 5y ago
    100% of the rewards don't have to come from transaction fees. they could also be funded in part from other customers' interest payments. I notice that the best rewards cards often have very high interest rates. this is also not a great state of affairs; you are essentially taking advantage (through an intermediary) of other people who can't manage their finances. but it's not quite paying into your right pocket by picking from your left.
  • larryludwig 5y ago
    As the author of this article, this isn't true. some comes from the merchant fees, many comes from the fact people don't pay off their cards every month and that far more subsidizes those payouts. Lastly have you tried paying with cash online? While Bitcoin is a neat idea we are far from yet mass acceptance of any digital currency yet.
• myfavoritedog 5y ago
  That blog is a false dichotomy built on top of a strawman. The strawman is that it's all about "getting rich". Ramsey (the one I've heard talk the most) is mostly about just getting people to stop digging themselves deeper and deeper into debt where they will have no hope for even the basic stability that you need to build greater wealth upon. The false dichotomy is that you either need a side hustle business or you need to follow sound day-to-day money management discipline. Following sound money management discipline is what gets you to the point of having some discretionary income to build your own business.
  • MattGaiser 5y ago
    Yeah, Ramsey rich is being an "everyday millionaire" by the time you retire. It isn't really rich, but it is just having a comfortable retirement and a large financial moat.
  • brandmeyer 5y ago
    I agree entirely, but would phrase it differently. The baseline advice isn't about how to get rich, its about how to live a financially comfortable middle-class life.
• Spivak 5y ago
  I feel like this is a pretty harsh take for what is good advice even if you do want to go down the starting a business route. Personal finance (i.e. managing your personal revenue, costs, and tax burden) is still necessary even when you’re running a business. You just have more tools as your disposal to manage your tax burden when you have a business. I really don’t think anyone believes they’re going to get rich after reading a personal finance book. The hash reality if even if your expenses were $0 your total salary times x years still wouldn’t make you rich is unavoidable and known to basically everyone. These books are for people who need to get a handle on their spending, pay down their debt, and start gradually accumulating positive net worth.
• BeetleB 5y ago
  If you give "start a business" advice to people, the majority will end up poorer than the advice he is complaining about. Sure, you may have more options to invest and pay less taxes, but that's only if your business is making money, which most don't.
  • hogFeast 5y ago
    I agree with the thrust of the article. Most personal finance experts are...a bit weird (I have no idea why Tony Robins is an expert...he knows literally nothing, isn't he a motivational speaker...only in America could this be a job). But there is a reason why spend less is the best advice for most people: they can't start a business, they have limited scope to increase their earnings significantly, and you can actually become relatively rich if you just spend less. Personal financial advice really isn't about attempting to become rich, it is about stopping people doing things that make no sense. We aren't talking about becoming Jeff Bezos...that isn't the goal for most people, the aim is to help people retire with dignity. Telling everyone to start their own business is terribly unhelpful because it won't improve anything as most people will fail (this is why personal finance experts exist...because most people think in these unreasonable ways i.e. the only way I can become rich is by taking huge risks...rather than just not buying stupid shit I don't need, ppl reason in very weird ways). To say this another way, most people do not understand the long-term value of a $1 saved today. Obviously, exactly how you calculate this is a little complicated but if people realised that $1 now was worth $4 or $6 or $8 in 30 years then they would consider what they do today more carefully (and even then, some people are just weird...they will say: I am going to die before then, or I don't care...then they will get to retirement and everything is fucked). Btw, I used to work in this industry, I have seen people who didn't consider any of this. We had a client who worked all his life in a decent paying job but had little savings, took to drink, wife divorced him, lost his job in his late 60s, got drunk one day, fell down the stairs when he was on his own in his rented house (he lost his house a few months before), died. This all happened within a few months. It will happen. You will get old. You can't control everything in life but something that is relatively easy to control is your spending. I try not to give people specific advice but the number one thing that everyone can do is: control your spending, think about what you need, you can't avoid some expenses but the peace of mind later down the road from small changes is huge. This kind of thing is unfashionable as hell though because it does put that pressure back onto the individual. Lots of young people today have this attitude of: everything is rigged, telling me to change anything when X person is so wealthy makes you an oppressor, etc. Unsurprisingly, this attitude tends to be linked with taking decisions that are unwise, and abrogating all responsibility for the consequences.
• MattGaiser 5y ago
  The goal of most personal finance experts is not to teach you to be mega rich, but rather to be average and while still being pretty average in terms of income, hours worked, and capability, remarkably comfortable to peers. > Yet you almost never hear the financial experts recommending that you start a business. Is the average business owner any better off? I know that there are plenty of successful business owners, but we tend to completely ignore the many that filed bankruptcy after taking cash advances on credit cards to live one more month. > Nor do these guys tend to mention the importance of understanding how taxes work. Only really matters if you make a lot of money. My Dad is a tax accountant. We optimize the heck out of our personal taxes. But at our 100Kish incomes, it doesn't make a big difference beyond what the personal finance people say.
  • folkhack 5y ago
    > Is the average business owner any better off? Obviously anecdotal, but not really IMO. I've bounced back and forth between being in business for myself and working for the man. Between healthcare, saving for retirement, etc. things are really optimized against someone "pulling themselves up by the bootstraps" in this way. I've listened to the politicians in the US scream how important small business only to vote against that very interest (tax cuts for rich + corporate tax breaks). I can't get good healthcare unless it's tied to my employment here. The healthcare I get independently is of lower quality for much, much more money out of pocket... Lord help you if you do something stupid and show a profit on your books... etc etc... The first 2-3 rungs of the "small business owner" ladder are missing by design. If I had a family I would likely never consider being a business owner again due to the health implications, financial risk, and time commitment. 100% the average working Joe is better off.
    • mgkimsal 5y ago
      "small business" to national politicians typically means you employee under 500 people. Almost no one considers "self-employed" or "1-3 people" as "small business" when crafting tax legislation. I certainly consider "self-employed" and "I have a couple folks on payroll" to be "small business", but it's just not in the same league as the local brewery employing 85 people, for example. Perhaps we need the term "micro business" to gain more traction? I suspect that's where more work is heading.
• hesdeadjim 5y ago
  Tldr, you’ll only get rich by starting a business. Great advice for the tiny population of people who have the skills, the means, the discipline, and the time. That person he describes with $50k annual income, little or no savings, and significant credit card debt sure as hell isn’t starting a successful business, especially since they most likely have children and are working hard hours. He’s dismissive of being “less poor”, but for anyone who has actually been in or witnessed this average scenario, less poor is way the hell closer to rich than not. The real problem on display here is the capitalist dystopia we live in. Fifty years ago that average person would have been able to support a family, buy a house, and not live under the constant threat of bankruptcy from a surprise medical bill. But yea, start a business!
  • bbarnett 5y ago
    This may be true, but to be fair... 50 years ago, 70 years ago, an enormous series of treatments we now have, did not exist. And even disease treatment options, even knowing how some diseases worked? Nope. So medical care was less costly, because, there was literally less to be done. And people died at home more often too, as a result. So naturally medical care was less costly. And housing, the average family did not have a ginormous, 6000sq foot house. Try 1000 sq foot, 1500 sq foot as a norm. So sure, less cost. Same with all these fancy dodads. Yes, 100% housing is more expensive due to low rate mortgages, and other reasons. But in non-crazy priced locations, you can still build a small 150k, 250k house with land all in. Some of it is indeed changing wages vs costs, but some is "more" vs wage.
    • folkhack 5y ago
      I see the "we got more things and they got more expensive" point brought up constantly and it still doesn't change my opinion (same as above commenter): > Fifty years ago that average person would have been able to support a family, buy a house, and not live under the constant threat of bankruptcy from a surprise medical bill. I want to circle back to this. I read your comment assuming you are arguing that now things are "more" (cost++) this ideal is now less obtainable or unobtainable. Do you think that the average person (median wage earner) should be able to support themselves in this way? Should we let go of this ideal as "old fashioned"?
• markus_zhang 5y ago
  I think those low-middle "financial advisors" are generally BS. I have been a low level one for a few years and talked to middle level advisors from time to time. We didn't know much TBH.
• zrail 5y ago
  Not going to claim to be an expert, but if you struggle with the nuts and bolts of personal finances (ex: bounced rent checks even though you're a highly paid software developer) you might be interested in my radically simplified and fully automated system: https://www.petekeen.net/automatic-finances https://www.petekeen.net/automatic-finances I've been using it for about three years now and, modulo a couple tweaks, it's substantially identical to that write up and requires ~zero manual intervention.
• wincy 5y ago
  This seems like a good place to be vulnerable and ask for advice. I am 35 and still spend like in a teenager. I grew up really poor where if the money didn’t get spent right away it would just sort of disappear, into drugs or beer or whatever my mom and stepdad were spending it on. My only real asset is my house which has appreciate significantly in value, but all it would take is one job loss to get me behind on that. I take Adderall because it makes me an effective engineer and I’ve really struggled for multi year periods where I’ve tried to stop it, but my life gets measurably worse. I cashed out my $5,000 at one point and blew it on I don’t even know what, but it was something stupid I’m sure. I guess the real enemy is future me. I don’t feel like I can consistently trust myself to make good financial decisions so the me of right now acts as if future me will just blow all my savings irresponsibly anyway. It’s depressing just writing it out. I wish I could put money into an account that would then only disburse small amounts of it over the year, and I couldn’t override that. I’m really ashamed of it but end up paying the mortgage with one biweekly paycheck, paying all my bills with the next biweekly paycheck, and despite making a very good salary for where I live, I’m living paycheck to paycheck. I don’t really know how to develop impulse control, I spend hours and hours scrolling Amazon and websites trying to think of things to buy. I know the answer is “just act like an adult” but I guess spending has become a coping mechanism because I’ve got a disabled kid, I don’t really know how to enjoy things that aren’t going to Costco or buying a new 3D printer or a shiny new computer. Is there anyone here who has gone from being extremely irresponsible with money to having savings? How do I get over the trauma of my grandparents losing millions of dollars in the 2008 financial collapse, which happened right as I came of age? How do I stop “shopscrolling” Amazon until 2 in the morning? I know it’s pathetic, and I feel like this is a place I might get an answer that’s actionable.
  • tormeh 5y ago
    > I wish I could put money into an account that would then only disburse small amounts of it over the year, and I couldn’t override that. I think this is called a trust: https://en.m.wikipedia.org/wiki/Trust_law https://en.m.wikipedia.org/wiki/Trust_law Also, if you are so inclined, check if you can replace your habit of trawling Amazon for stuff to buy with trawling Amazon looking for stuff to buy in the future. Personally, looking forward to buying the thing is at least 60% of the enjoyment. Anyway, try seeing a psychotherapist. Someone serious with a degree. Your money problems seem to be at least partially learned, so they can be unlearned.
• hn_throwaway_99 5y ago
  I'd just like to point out the irony of the bolded, all caps statement in this article, "You’ll NEVER get rich by working for someone else", the recent HN frontpage article about how Tim Cook got a $750 million payout working for Apple, and that the title of this post is "All Personal Finance Experts Are Liars".
  • deleted 5y ago
    [deleted]
  • MattGaiser 5y ago
    One of the problems is that "rich" is relative. I was talking to a guy at an alumni event who said that managing partners are prone to fraud as they feel poor compared to their similarly ranked CEO friends.
  • paulpauper 5y ago
    Being the ceo is sorta an exception to this.
    • thefounder 5y ago
      Not any CEO either.
  • moltenguardian 5y ago
    Considering the majority of CEO pay is in company equity, they are working for themselves.
    • carnitine 5y ago
      That’s a fair point, what about traders then? There are people working for eg. RenTec who have earned tens of millions despite being regular employees who don’t even manage anyone. And this is not given as equity, bonuses are cash.
  • zffr 5y ago
    Yes and several members of professional sports leagues like the NBA/NFL are also very rich too. While it is possible to become very rich working for someone else, I think the author's point is that it is extremely unlikely.
• civilized 5y ago
  TLDR: "don't skimp and save on your meager salary, instead become a small business owner and aggressively exploit tax deductions like Donald Trump" I feel like some options are being ignored here? You can also acquire more skills and get a higher paying job? There's no easy way to have more money. If there was, everyone would do it and the value of the money would be inflated away.
• paulpauper 5y ago
  Its not bs but its incomplete. Putting money in index funds has proven to be a good way to grow wealth. Look at some of thefatfire and related threads on reddit.. a lot of ppl have amassed alot of wealth with indexing.
• cascom 5y ago
  This guy seems to be conflating “how to get rich/create wealth” with “how to not behave like a child financially”. Basically only four groups of people get richer 1) business owners, 2) people at the apex of a profession (professional sports/media/actors, partners at banks/law firms/consultancies, etc. 3) a subset of investors (this is where some FIRE types focus). 4) inherit/marry wealth Most personal financial advice is not focused on getting rich, it’s how to improve your financial health.
• magneticnorth 5y ago
  A lot of these points are reasons why I like the Mr Money Mustache approach to financial independence. You can be "rich" by having the freedom to spend your time on what you want, and appreciating the cornucopia of luxuries that make up a typical American middle class life. You can get there by living (happily!) on a lot less than 100% of what you make, and saving the rest. With some simplifying assumptions about investment returns, the actual dollar amount a person makes doesn't matter; it's just the fraction of their net income that they need to maintain their lifestyle that informs how long until retirement. E.g. if you can save 50% of your income, you can retire in 17 years. https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ https://www.mrmoneymustache.com/2012/01/13/the-shockingly-si...
• ball_of_lint 5y ago
  I consider myself rich, I work for someone else, and I don't have a side hustle. I read Mr. Money Mustache's blog frequently when I was young; he has an important addition to what many of the mainstream personal finance books address. Being rich is more about freedom and personal happiness than it is having a lot of money. For many people, adjusting to slightly less nice but more affordable things is significantly easier than increasing their income by that same amount. Furthermore, every dollar you adjust to not needing is better than adding income - it compounds even faster because it goes into retirement with you and reduces your target savings amount. But, going back to the post there are a _lot_ of people in the US and around the world that don't have the income required to have any sort of savings, even after adjusting down their lifestyle. This is a systemic but tractable problem. The solution isn't "get a side hustle" it's "the full time minimum wage should support a reasonable life".
  • foogazi 5y ago
    > The solution isn't "get a side hustle" it's "the full time minimum wage should support a reasonable life". Ugh I saw you getting close and then miss it Why would you think the solution to the savings problem is minimum wage? When is the minimum ever good enough? Frustrating how not enough people talk about increasing income way beyond the minimum
• logicalmonster 5y ago
  I think this is a pretty good article, though I'd think that most financial gurus aren't trying to lie, they're just trying to give advice that's feasible for a mass audience to try and learn. To give an example; the article mentions Dave Ramsey talking down to his callers and giving generic advice such as cutting up your credit cards. I don't follow Ramsey too closely and can't read his mind, but I'd bet he's optimizing his advice for the least common denominator within a mass audience of financially troubled people. A small percentage of financially desperate people would hear great advice about credit cards (only use cards to buy stuff you have 100% of the cash for, and pay them back instantly to get some cash and rewards back) and not internalize that as something like (it's okay to keep using my card because I'm getting money back as long as I try and pay my bill every month). For a mass audience, the safest advice on credit cards that might make an impact is to just tell everybody with a financial problem to stop using them. On an individual level, a financial expert can probably give better advice that's more suitable. If I had to give 1 bit of general financial advice though: develop your talent stack. It doesn't matter if it's learning a new programming language, wood-working, learning to fix cars or toilets, taking a foreign language class, learning how to paint, or growing a great garden. If you have multiple skills you have more opportunities to make money as well as combining those skills in unique ways to create new business ideas and concepts. And baring some health issue, nobody can ever take a skill away from you.
  • JamesBarney 5y ago
    > develop your talent stack. It doesn't matter if... I think its 100% matters which talent you pick. Some will on average pay out 1000x over others.
    • meowkit 5y ago
      Work to live. Doesn’t matter if you make 10x, 100x, or even a 1000x more over a lifetime if you’re miserable doing that job.
      • ericmcer 5y ago
        Everyone I know who has chose a career based on passion has grown to view it as work eventually, they still enjoy parts of it but monetizing something you love and doing it 40+ hours a week turns it into work. I have friends who loved animation/art but actually working for a gaming company ended up being miserable. And 1000x would mean I could work for 1 month and make ~85 years of income so… I would be fine with that lol.
• oakfr 5y ago
  You’ll never get rich unless you start a business. Oh by the way, lucky you, I happen to be selling tips for making millions off a blog (just click this sponsored link. I made $6M with mine, I swear). Seriously, since when did HN decide to sponsor this kind of self-interested clickbait?
  • jdlshore 5y ago
    Exactly. This is a terrible article that's designed to prey on people's FOMO. The basic financial advice he derides is solid advice. Do that first. Starting a business is very hard and often fails.
  • rchaud 5y ago
    I did a double take when I saw the navigation menu links like "Make money blogging". Is this 2004?
• SerLava 5y ago
  APFEAL. Especially finance advice given to low-income people is just horrible. Like starting a savings account is a great way to lose all your money to fees when you need to withdraw everything in an emergency.
• jandrewrogers 5y ago
  There are three levers for increasing wealth: increase savings rate, increase income, increase rate of return. For the average person, these are listed in order of difficulty, hence why most personal finance advice starts with increasing your savings rate. Owning a small business is a chance at increasing rate of return. That's playing personal finance on hard mode for the average person. If you are risk averse, you'll be much better served focusing on increasing your savings rate and income.
  • sokoloff 5y ago
    I think there’s a large subset of the population who is in savings and checking accounts (often with meaningful amounts of money that sit there for a long time) who could trivially easily increase their rate of return by buying VTSAX with a portion of those funds.
    • jandrewrogers 5y ago
      That is a fair point. I was assuming a VTSAX-like return as the default low-effort path but many people don't even do that.
• moltenguardian 5y ago
  "Rich Dad Poor Dad" also made a similar point: you should look at what your advisor is doing, rather than taking their advice. If your financial advisor suggests a mutual fund, ask them if they themselves invest in it.
• magnuspaaske 5y ago
  I've read Ramit's book and Tony Robbins' book. Both mention entrepreneurship. The latter mention taxes. Don't really see the big lie here. I'm most familiar with Ramit's work but he's also pretty clear that there's only so far you can go through savings but no upper bound on earnings. It seems to me a bit like a strawman argument he's making when in fact some (or all) of the other gurus do talk about entrepreneurship and earning more.
• dasil003 5y ago
  For a business owner this guy sure doesn’t understand much about market economics. Those gurus made their money by appealing to average people. In no way is it possible for a majority of that audience to all start successful businesses. So while a lot of what he says is technically true, and these gurus might be encouraging a lot of wishful thinking and fantasy, the authors message is likely to be a lot more misleading at scale if half the country all started businesses with the hope of getting rich.
• deleted 5y ago
  [deleted]
• astura 5y ago
  >Dave Ramsey down-talks to his callers as if they were petulant children and tells you to cut up your credit cards. Dave says they are the work of the devil and you aren’t mature enough to use them. Except we used our cards to make $3,624 in spendable cash last year, all while paying zero in interest — because we paid the cards off in full each month. The big thing you have to know about Dave Ramsey is he has a biblical approach to debt, not practical. God says debt is bad so it should be avoided. This leads to some odd advice. Dave advocates working as much as possible during college to avoid student loans but neglects that, in the aggregate, the more hours a student works the poorer their grades and the less likely they will graduate. He also advocates stopping 401k contributions until you're out of debt (because he believes debt is evil). That's almost never a great move financially if your employer has a decent 401k match. A better idea is to drop anything above the match until high interest debt is paid off. His advice is very one sized fits all and he does have a point that many people can't control themselves with debt. I'm really not a fan of the way he talks to his callers calling them stupid either, especially when he doesn't realize he doesn't really understand his caller's situation. He got super belligerent with a woman who didn't know exactly her husband's pay (who was a servicemember) and basically said she needed a marriage counselor because she didn't have an exact figure. (She said "around $xyz") But it seems he doesn't understand a significant portion comes in the form of several different allowances that are tax free and change based on their current orders, POC, and rank, so it's totally normal to have a non-precise figure off the ttopof your head.
  • foogazi 5y ago
    I think there’s a place for Dave Ramsey’s advice. I don’t care for the religious stuff- but the advice is solid to get out of debt He mostly talks to people that don’t realize the stranglehold debt has on them. The first step is to acknowledge the problem
    • astura 5y ago
      Yeah, there probably is. I just don't know that people really understand that his view of finance is biblical based rather than empirical based and advice is extremely one sized fits all. At the same time it is the kick in the ass that already well-to-do-people with too many Lexusus who are deep in debt probably need. People who don't have much income? Not sure what they are going to get from Ramsey other than shame. These people have a cash flow problem, they don't need to called a moron. Like TFA says, this advice is more about maintaining wealth, not creating it. (Of course, TFA ignores the risks of starting a business, but that's another topic) For me, the best thing I ever did in my life was take out loans to live while in college so that I could devote 100% of my time to my studies. It's the only way I would be able to graduate, and I'm glad I didn't worship the altar of Dave Ramsey at the time (or even know who he was) because I really didn't need extra stress or guilt, I put enough on myself. Dave just thinks people like me don't exist - people who take out debt reluctantly after cost-benefit analysis, pay it back ASAP, and who are better off for it. Of course, God says debt is bad, so Ramsey doesn't care if I exist.
• ng12 5y ago
  Personal finance is NOT about getting rich. It's about building a nest egg for retirement. The whole premise of this article is bunk.
• bradshaw1965 5y ago
  If by wealthy having 90th percentile investments 10 years before normal retirement age then these plans are well equipped to make you wealthy. Get rich slow totally works.
• black_13 5y ago
  A great way to get wealthy is have wealthy parents
• snarfy 5y ago
  Of course they don't. If you want to know how, sign up for my seminar on personal finance. Hurry up, seats are running out fast.
• fallingknife 5y ago
  > The average person: Has a salary of $49k Doesn’t have enough in emergency savings —19% of Americans have $0 and 31% have less than $500 saved Spends 56% on their food budget Has over $5,700 in credit card debt with a 17.89% interest rate Has only $150k in savings by retirement Relies on Social Security to fund most of their retirement Even in a high tax state, a single taxpayer with a 49K salary takes home about $40K. So you're telling me that this taxpayer spends $22.4K on food? That's $61 / day! Also, the median net worth in the US is about $120K, but this guy is telling us that 50% of Americans only have $500 in savings? What a load of bullshit!
• BooneJS 5y ago
  Can I apply this article to the theme of the site? You’ll never get rich by joining a startup. Founders and investors have too much control writing the rules and making the decisions. Everyone hates bureaucratic institutions but the alternative with a startup is an oligarchy consisting of (often) inexperienced people playing the role for the first time. Even bad exits favor the founders over the employees.
• rossdavidh 5y ago
  From his own article: "I’m not suggesting the advice the gurus are giving is outright wrong. Their recommendations will make you modestly successful. You’ll more than likely live an OK life and have an above-average net worth." In fact, Suze Orman and the like are talking exactly to this audience, and their advice is in many cases a lot better than what they are doing now. Also, being married to a small business owner who knows a lot of other small business owners, there's a "dirty little secret" that this article doesn't mention: most of them never get paid a dime by their own business. They are spending their way through a business loan, or they have family money, or some other source. Yes, there are people who get rich from starting a business, but if popular finance experts told everyone to start their own business, that would be a lot worse advice than what they are saying.
  • jstummbillig 5y ago
    Are you alleging that most small business efforts fail before they make any profit -- as in +50%? That seems rather unlikely but if anyone has strong numbers on that I'd be very interested.
    • edoceo 5y ago
      Data from the BLS shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.
    • rossdavidh 5y ago
      I cannot say the percentages, but my wife has been shocked to hear from business owners who ran their store for over a decade, that they never made a dime. This kind of confession usually only happens after they have given up and closed. I don't know of any trustworthy numbers on it; I would not be surprised if it was far larger than most people believe, but the difference between businesses that "fail" after two years and ones that last for five years or more, is often how stubborn they are or how much money they have from other sources to keep trying. I would not be surprised if it were over 50%, but I know of no source for strong numbers on it.
• mgkimsal 5y ago
  "Yet you almost never hear the financial experts recommending that you start a business." And... many times when I do hear people recommend "start a business", it's "for the tax write-offs". Or at least that's the one bite-size thing some folks internalize. Have seen friends and neighbors get in to "business" - like various MLMs - and talk about "write offs". Naive at best, and dangerous at worst, I'm not surprised more people aren't specifically pointing out "start a business" to mass audiences - I'm not sure most people can do that responsibly. But most people can enroll in a company 401k and save a bit of money for later. The biggest damage they may do is lock up some money until they're 59. "Start a business" without much thought can lead to a lot more problems for folks.
  • larryludwig 5y ago
    Without question, not everyone should start a business. That wasn't the point of the article. It's about the advice you get and how they themselves not follow that same advice.
• daveguy 5y ago
  > Investing that $2.50 you spend every day on a latte in the stock market instead can lead to a life of riches. How’s that for putting a damper on one of the little joys in life? Budgeting will let you realize there are essentially infinite ways to spend your money. You have to decide the best way to do that. If you're trying to make money, buying yourself a latte is not the best way to do it. If you're trying to enjoy the money you earned, buying a latte may be the best way (but probably not). Budgeting helps you better understand the balance between spending and earning. When you start considering the best investment for the dollar you have earned, it makes a difference.
  • edoceo 5y ago
    Where can I get these cheap lattes? Seattle prices are >$5
    • ghaff 5y ago
      If they're that important to you, you can buy a relatively inexpensive expresso machine/milk frother and make them at home. People can spend their money and time however they want of course, but I'm always astounded by the lines at Starbucks whether people standing in line or the drive-through. I certainly use such places when traveling (though I try to go to local shops) but I've never especially understood the 8am stand in line for 20 minutes ritual.
• codyswann 5y ago
  This article is laughable. 1) Most of the personal finance experts he lists aren’t telling you how to get rich. They’re telling you how not to be poor. 2) Most people do need a coach or a mom or whatever to tell them they can’t afford something. Most people don’t even know how to balance a checkbook or calculate the real interest rate of a credit card. 3) Most people don’t know how compounding interest works. 4) There’s no definition of “rich” 5) I know plenty of people making mid-6 to low-7 figure incomes while “working for someone else” and some retired in their late-40s, early 50s 6) Most businesses fail
  • jstummbillig 5y ago
    > I know plenty of people making mid-6 to low-7 figure incomes while “working for someone else” and some retired in their late-40s, early 50s Plenty to satisfy what? Why would you bring anecdotes to a gun fight?
    • codyswann 5y ago
      Author said “no one gets rich working for someone else” - I would consider all of these people rich.
      • luckylion 5y ago
        It's not to be taken literally. Someone might offer you some dessert and, if you don't accept, say "no one ever died from eating some sweet dessert", but that's not a claim that literally no one ever died from eating sweet dessert. I'm sure more than one person choked on it and died in the history of humanity. It doesn't mean that, it means "very very few people get rich working for someone else".
        • civilized 5y ago
          Very few people get rich period. Many more get to the upper middle class, say the top 10-20% of income. And the vast majority of those do so by ordinary employment, not starting a business. If we go by the numbers and the odds rather than pithy-but-misleading slogans, the easiest, safest path to a higher income is probably acquiring skills that are more rewarded in the labor market. Which is still far from easy, but there is no easy way to make a lot of money. That much I agree with the article writer on.
• larryludwig 5y ago
  Thanks for the mention! As I expected from this audience, some of the comments are funny and completely miss the mark of my article. But such is life.
  • windsignaling 5y ago
    Actually these seem like fair criticisms especially regarding your mischaracterization of Ramit Sethi. Your conclusion in the article (under "What would I recommend you do?") turns out to be the same thing Ramit Sethi recommends you do (among other points in the article which are in agreement with his writings). So, you are not calling out Ramit Sethi as much as you think you are. It also conflates the fundamentals (not having credit card debt, investing in a tax-advantaged retirement fund) with the next step of not trading money for time. How is someone who can't manage their (small) amount of money going to manage the large amount of money earned from a successful business? They can't. As a further thought to consider, what are the chances they would be able to start a successful business to begin with? In other words, "you learn to crawl before you walk".
• politelemon 5y ago
  For those of you in the UK, this flowchart has been particularly useful in terms of safely managing debt and growing wealth. https://ukpersonal.finance/ https://ukpersonal.finance/ The mods tend to update it regularly in line with changing economic conditions and laws etc.
• WalterBright 5y ago
  The basic strategy is: 1. stay in school 2. don't do drugs 3. don't commit crimes 4. learn a skilled trade or go to college. remember to google starting salaries for your major before committing.
• deleted 5y ago
  [deleted]
• thewebcount 5y ago
  It’s funny because there was an article here a few weeks ago slamming “The Millionaire Next Door.” Yet, that is one of the financial advice books that does tell you to start a business. Or at least it points out the same things as this article, namely that that’s how most rich people got there. Also, despite what the article says, I’ve made a ton more money working for the man than I ever made working for myself. I’d probably be considered rich by most Americans’ standards. So it absolutely can happen, though there’s a lot of luck involved. I used to own a business, and while I manages to keep it alive for 5 years, it didn’t make much money. I sold it to a competitor and went to work for the man (not the company I sold it to). I kept getting royalties for a couple years, and by the time that ran out, my stock units were starting to vest, and that’s when things took off. The business helped make the transition smoother and faster, but I’d have made money on my stocks and higher salary either way.
  • imtringued 5y ago
    Yeah I find it a bit ironic that people complain that "rich" people aren't trying to sell their own story and instead think about how to help a non rich mortal. Of course it is a bit hypocritical because they may not know much about the middle class or below but the point is that they are trying instead of assuming that you just walk down the golden path you were born into.
• pbourke 5y ago
  > You’ll NEVER get rich by working for someone else Counterpoint: I know many people who have done just that. If you want to define "rich" as hundreds of millions of dollars, sure - start your own business. Otherwise, a few million and retiring before age 50 is a pretty good outcome and I have seen multiple software engineers do that, even before the most recent explosion in compensation.
• ixacto 5y ago
  This is not the greatest advice. Something more akin to being a software developer or travel nurse and then FIRE would be a better message to preach… Then you get to retire at like 40 with a much higher probability of success.
• Rd6n6 5y ago
  Speaking of starting a business, it’s really hard to find reliable information on how to do this in Canada from a paperwork, legal, and accounting point of view. It’s a real chore sorting out all your requirements and responsibilities
• ffggvv 5y ago
  most financial “experts” made the bulk of their fortune by selling their advice. not actually earning wealth first then giving advice. like meet kevin or graham Stephan.
• Mvandenbergh 5y ago
  The challenge with any writing for a general audience is that unlike actual advice, which is tailored to the person receiving it, it just goes out into the aether for anyone to see so will be inapplicable for at least some people. Sure, some mass-market dude with a radio show (I don't know anything Dave Ramsey or Suze Orman beyond their wikipedia pages) is going to have advice that "technically" doesn't make sense or that doesn't apply to some people. A very large number of people are deeply in consumer debt, have secured vehicle debt for more expensive cars than they should really have, and may well have taken the advice to get the biggest mortgage they could for a house in a place that requires that they maintain the whole shebang or go bust. Telling those people "cut up your credit cards" and "if you don't have the cash, don't buy it" is actually good advice. The "snowball" thing that Ramsey is into is innumerate but may be just the thing for someone struggling to see their way through all their debts. I would no more tell someone with serious struggles with consumer debt that clever use of credit cards could increase their income overall than suggest a killer wine pairing to a recovering alcoholic. I also don't think that it's a very fair categorisation of Sethi. He's never made any secret of the fact that these days most of his wealth has come from his writing and despite the name of his book, the advice he gives is more "I will teach you to be a financially prudent member of the upper middle class (if you are a well paid professional)" they just couldn't get that on the cover.
• whoomp12342 5y ago
  can I point out that the person writing this article is making money by pointing you to their "how to make money" article, which is pretty much the exact thing they warn you about?
• mjklin 5y ago
  > Six decades ago, Fred Schwed wrote a book called Where Are the Customers' Yachts? The title came from a story about a visitor in New York more than a century ago. After admiring yachts Wall Street bought with money earned giving financial advice to customers, he wondered where the customers' yachts were. Of course, there were none. There is far more money in providing financial advice than there is in receiving financial advice. > The title is as relevant today as it was back then. There are few industries that pay themselves so much for doing so little as financial services. https://www.fool.com/investing/general/2014/02/21/where-are-the-customers-yachts.aspx https://www.fool.com/investing/general/2014/02/21/where-are-...
• mproud 5y ago
  Counter argument: I have a salary not that far from $49k. Over the span of about 15 years I’ve put in 10% to my ESPP and put in even more to my 401k and I do have a million dollars now. I’ve gotten lucky; the company I work for has done really well. If it hadn’t, sure, I’d have a fraction of my overall wealth. But I did follow the advice, and it did work for me.
• jameshush 5y ago
  “You’ll never get rich working for someone else” is one of the most repeated lies I’ve ever seen. I used to believe this, but after seeing first hand friends and colleagues, for lack of a better word, get rich by being employee number 30 at a startup or working as an engineer at Amazon Detroit for 8 years and just saving their money I realized this is wrong. You 100% can become a multi millionare as an employee. You can go the SV route and make $300k+ as an engineer or go the traditional route and make $100k working as an engineer remotely in a low cost of living location.
• seastonATccs 5y ago
  Do you want a yacht? Start a business. Do you want to retire? Spend less then you earn and put the rest in a retirement account.
• mbrodersen 5y ago
  A few years ago I was chatting with a guy who was the CEO of an accounting company. He said that personal finance “experts” usually had more financial problems than the average joe. Because they made lots of mistakes falsely believing they knew what they were doing.