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Our path to be on track for a net worth of $1 mil: 1) Two good incomes on the professional track. We both have good degrees from universities and don't plan on

Our path to be on track for a net worth of $1 mil: 1) Two good incomes on the professional track. We both have good degrees from universities and don't plan on taking any breaks in employment. Even with kids, there are plenty of great childcare options available. Living near family helps too. 2) Drive paid off cars. Buy new cars if you want, but structure your costs so you can pay them off in 2-3 years max and then drive them for another 5 or more. Stagger your purchases so you never have more than one car payment at a time. 3) Buy a home well below your means in area with a lower cost of living. There are plenty of parts of the country where you can earn a combined six figure income while spending less than $100/sqft for a home in a good neighborhood. 4) Limit how often you eat out for lunches and dinners to twice a week or less. 5) Live frugally so that you can save 20-40% of your income. Don't cheapen out on things for you or your family, but don't let yourself be manipulated by the consumerism that surrounds us. If you have a disposable income, use it for experiences like travel rather than collecting stuff. 6) Avoid expensive hobbies/activities that consume a lot of time and don't contribute much to your marketable skills. If a hobby requires spending a considerable chunk of your monthly income, reconsider whether it's really worth it. TL;DR: It's really not that hard to save your way to $1 mil, you just have to be willing to work a little harder and spend a little less than most people to get there.

rorrr 15y ago
This is a joke. What's the point of saving up $1M while living in a shitty cheap area, cheap shitty house, no going out, no fun hobbies. Even if you do make six figures (and most people don't), it will take you decades to get $1M, and by then it will not be worth that much. Inflation is a bitch.
- wmblaettler 15y ago
  ...and then you're dead.
- orangecat 15y ago
  If you have an above average income like many on HN, people who earn 15 or 20 percent less than you are not generally living in cheap shitty houses and never having fun. Inflation is a bitch. Fortunately, there are alternatives to keeping your savings in your mattress.
mikeryan 15y ago
I have to say I almost wondered if this plan was meant as a bit of a joke. I'd rather spread my income around now on a nice(r) house, some fun hobbies and a bit of abject consumerism, and enjoy life more evenly then save now not have as much fun but end up with more money in the bank later. You'll never get your younger years back.
- FraaJad 15y ago
  There lies the difference between Eastern(H. Karthik) and Western(Mike Ryan)approach to personal finances.
  - dpritchett 15y ago
    It would probably be easier for the Mikes of the world to be happy not spending that extra 20% on consumer goods if our peers and role models weren't all doing the same thing. Good reason to be a Karthik, I guess.
  - hkarthik 15y ago
    Just FYI, my family immigrated to the US when I was an infant and I've lived in the different parts of the US since then. So while I had a mostly eastern upbringing, I still grew up in the suburbs, went to public schools, and lived a typical American life.
    - FraaJad 15y ago
      Such is the influence of South Indian upbringing ;)
- Danieru 15y ago
  Yes but a new iPad doesn't make you younger either.
  - deleted 15y ago
    [deleted]
- 15y ago
psycho 15y ago
Em. I have always thought that having 1 mln. $ and more is about earning more - not about spending less. By the way, it doesn't mean you have to "work hard" - it's much better to work smart.
- hkarthik 15y ago
  By working hard, I meant more that you may need to spend more time working towards earnings rather than spend time on leisure pursuits. That could mean watching reading a technical book while another person watches a movie. The thing about earning more though, is that it also depends more on circumstances not directly in your control. In general, a person has far more control over how much they spend versus how much they earn.
girardy 15y ago
1) Two good incomes on the professional track. I read a book called The Millionaire Next Door that described how getting married and staying married was one obvious way to boost wealth. Not only is divorce really expensive, but married people on average use less space per person than single people. You can obviously construct scenarios where this isn't true—what if you marry a spendthrift?—but it was still a really interesting point.
- hippee-lee 15y ago
  I haven't read the book but my wife and I started investing in our mid twenties and were blessed with generous matched contributions from our employer. We both maxed out the 401k contributions and (she) still does. We also do ROTH's as much as we can. She is into finance and 'manages' it by logging into the accounts 2x per year, looking at performance and making adjustments as needed. The growth in the past few years is cool to watch now that we are ten years in and the curve is accelerating; even with the stock market crash in '08. We are sensible on how we spend but not spend thrifty. We take at least on nice vacation a year and are able to visit family in other parts of the country for holiday's etc. When we invest in equipment for hobbies etc - I tend to buy things that last: Burton snowboards, Patagonia gear (I have a winter coat that is almost 10 years old, etc ...) There was a monkey wrench thrown into the mix about four years ago but as she gets older her costs seem to be coming down. I'll know more how this affect the long term savings plan when she gets closer to being a teenager.
  - car 15y ago
    If you want to improve the returns on your 401k, a buddy of mine runs http://kivalia.com http://kivalia.com, where they provide advice on allocating the money to funds available in many companies 401k's. If your company is not listed, you can easily create a new plan (clever crowd-sourcing ;), which then gets optimized. You can also get feedback on your current allocations. HTH.
    - hippee-lee 15y ago
      Cool site. I'll pass it along to my CFO.
joevandyk 15y ago
For what it's worth, I just bought a new car for $35k. Came with a 5 year interest free loan with nothing down. If you can get that type of loan, you don't want to pay it off quickly.
- colmmacc 15y ago
  There is an interest rate on the financing, a cost for payment insurance, and almost certainly a margin on top of both, but they've both been built into the price of the car. It's very likely you could have gotten additional savings for paying cash up-front. It's usually cheaper to pass up these offers and negotiate the price down.
  - Domenic_S 15y ago
    > It's very likely you could have gotten additional savings for paying cash up-front. Payment method doesn't change your all-in cost significantly. The dealership has a minimum margin, and you'll pay it either on the front end (higher cash price) or on the back end (loan interest). Generally speaking, car dealerships are in the business of selling loans -- not cars. If you want to pay cash they'll sell you a car, obviously, but the cost benefit of writing a check is way overblown. Source: I sold cars in another life.
- hkarthik 15y ago
  what's the benefit in not paying it off quickly if you can? That monthly payment is extra cash you could put away into savings or other investments, presumably at a positive interest rate. Even if the market sucks and interest rates on most banks are terrible right now, at the very least, it's still money you could have invested in yourself with some positive return.
  - tedunangst 15y ago
    You basically just advised doing exactly the opposite of what you wanted to advise. The money used to pay it off quickly is the extra cash you put away in other investments. If your choices are pay off a zero percent loan or invest for a positive return, you don't pay off the loan.
mcdowall 15y ago
I own a car, I own a nice flat in a popular beach town and earn a very good wage. This may sound cliche, but I woke up a year and a half ago and realised I had so many things I wanted to do but just never did. So I wrote a bucket list of activities, things to learn, places to travel to / general life goals and through going out and doing these I am so much more happy. In the last year Ive taken up Spanish, learnt to surf, sailed the whitsundays, camped on Fraser Island, visited a Damien Hirst exhibition, partied in Ibiza, in the next few months I'm going to my first festival, to the European Football Championships, a number of Olympics events and La Tomatina festival in Bunol, added to that I've just planned my next trip to Central & S.America for 3 months in September. I suppose the moral of my point is not to be fixated on attaining a net worth, enjoy each day for what it is and get out and do the things you want to do. In a few years do you want to sit back and look at your bank balance or think back to the life you've led. Either way I'm not judging but moreso hoping some others don't fall into the millionaire pursuit.
sukuriant 15y ago
6) Avoid expensive hobbies/activities that consume a lot of time and don't contribute much to your marketable skills. If a hobby requires spending a considerable chunk of your monthly income, reconsider whether it's really worth it. I only have an issue with this remark. But perhaps it's because when I "reconsider whether it's really worth it", I consistently find that yes, yes it is worth it. I rather enjoy extreme sports, and spending $100 on a trip to the mountains + gas is quite a lot of money. (It'll be dropping to around $50 + gas when I buy a snowboard). I suppose it could also be added that, while certain hobbies may start expensive (snowboarding at $600 for a good board + bindings + other snow gear if it's your first time; or, photography for $1100 for camera + $2000 for a few lenses specialized to your primary interests), they become much, much less expensive as time goes on. (I pay virtually no maintenance on my camera and haven't needed a new lens in a while; so, my camera hasn't cost me any more money in a while. I haven't bought new snowboarding clothes either; and after I buy my board I probably won't buy another for a couple-few years) That has to be considered as well. TL;DR: I do have a bit of a problem with #6, but it's probably my own personal issue; and, rare/one-time costs are just that. rare/one-time costs.
- sliverstorm 15y ago
  The real question I struggle with is related to this. Quite simply, what use is a million bucks just sitting in the bank? Once you've got your retirement, mortgage and rainy day fund covered, money you never use is a piece of your life you traded away for... nothing. So I guess what you could say is, if you grow to a million in net worth because you have a booming business with great returns, that's wonderful. But I wonder if getting to a million (or whatever number) over a lifetime by simply saving every possible dime is simply wasted opportunity.
  - gjm11 15y ago
    That "retirement, mortgage and rainy day fund" could very reasonably be more than $1M. Especially as the $1M figure here includes your home, which isn't something you can extract an income stream from without grave risk. (Back of envelope: Suppose you reckon you can safely spend 5% of your initial retirement fund per year, without running out before you die. And suppose you want $50k for medical emergencies, because you're in the USA and aren't sure Medicare will (1) still exist and (2) cover everything. And suppose you want $30k/year of effective income after retirement, which doesn't seem insane. Then you need $650k in that fund. Note that that 5%/year figure depends on the overall growth of the economy and how long you expect to live after retirement.) Yes, saving a lot of money can just be pointless avarice. But I think the level at which that becomes a reasonable suspicion is rather higher than "total assets of $1M".
ebaysucks 15y ago
Coming out of college, I used to be a "Boglehead" like this - had a job at a top 3 management consulting firm and put as much as I could into Vanguard index funds, up to 80% of my net income in certain months. After a year I realized the real psychological reason for my extreme saving habit was that I hated my job. The lesson I learnt is this: If you calculate every expense in terms of hours of life worked to attain it, you probably don't like your job very much and you are better off (in the long run) by quitting. Edit: Now that I run my business, I will spend lavishly on my childhood boy dreams once I can afford it. For me that's cars, and compared with employing people stuff like leasing a top of the range BMW (400 pounds a month deal on a 640d 2 months ago) or even stuff like participating in the Volkswagen Race Cup (15K pounds for second hand race car, 10K pounds a year to run and it's televised advertising) are really very attainable. It also makes for a more interesting life story.
notphilatall 15y ago
"3) ... There are plenty of parts of the country where you can earn a combined six figure income while spending less than $100/sqft for a home in a good neighborhood." Where are these magical lands? I've lived in Atlanta and the SF Bay Area, and the salary difference between the two for engineers is around 30%, although house prices aren't much cheaper in the former - unless you want to live in the suburbs, and then you make up the difference in gas. Medical specialists are tied to hospitals, some of which may be more affordable areas, but technologists (who this site arguably caters to) tend to be bound to tech hotspots, where house prices near $1MM don't raise eyebrows.
- ajju 15y ago
  Hmm..I think we went to Tech around the same time. Regardless, prices in Atlanta suburbs are less than 1/3rd of the prices in the bay area - and I am talking about suburbs just outside 285 - like Dunwoody that are <10 from Buckhead. A $300K house in Dunwoody would easily cost more than $1MM in almost all of south bay. There's no way you can make that difference up in gas - unless you go back and forth 5 times a day. Having said that, your expected income in the bay area more than makes up for that difference if you are working in technology and entrepreneurial.
- hkarthik 15y ago
  If you talk about Urban living, the costs are universally high, and only get worse once you have a family. Suburbs get a bad rap, but they are way more economical once you have kids. And not everyone has to commute. Plenty of us work from home or work in nearby Suburban office parks. I live in Dallas where costs are similar to Atlanta. Living in the Bay Area would mean four times the cost for family friendly housing at maybe a 40% increase in salary.

rorrr 15y ago

This is a joke. What's the point of saving up $1M while living in a shitty cheap area, cheap shitty house, no going out, no fun hobbies. Even if you do make six figures (and most people don't), it will take you decades to get $1M, and by then it will not be worth that much. Inflation is a bitch.

wmblaettler 15y ago
...and then you're dead.
orangecat 15y ago
If you have an above average income like many on HN, people who earn 15 or 20 percent less than you are not generally living in cheap shitty houses and never having fun. Inflation is a bitch. Fortunately, there are alternatives to keeping your savings in your mattress.

mikeryan 15y ago

I have to say I almost wondered if this plan was meant as a bit of a joke. I'd rather spread my income around now on a nice(r) house, some fun hobbies and a bit of abject consumerism, and enjoy life more evenly then save now not have as much fun but end up with more money in the bank later. You'll never get your younger years back.

FraaJad 15y ago
There lies the difference between Eastern(H. Karthik) and Western(Mike Ryan)approach to personal finances.
- dpritchett 15y ago
  It would probably be easier for the Mikes of the world to be happy not spending that extra 20% on consumer goods if our peers and role models weren't all doing the same thing. Good reason to be a Karthik, I guess.
- hkarthik 15y ago
  Just FYI, my family immigrated to the US when I was an infant and I've lived in the different parts of the US since then. So while I had a mostly eastern upbringing, I still grew up in the suburbs, went to public schools, and lived a typical American life.
  - FraaJad 15y ago
    Such is the influence of South Indian upbringing ;)
Danieru 15y ago
Yes but a new iPad doesn't make you younger either.
- deleted 15y ago
  [deleted]
15y ago

psycho 15y ago

Em. I have always thought that having 1 mln. $ and more is about earning more - not about spending less. By the way, it doesn't mean you have to "work hard" - it's much better to work smart.

hkarthik 15y ago
By working hard, I meant more that you may need to spend more time working towards earnings rather than spend time on leisure pursuits. That could mean watching reading a technical book while another person watches a movie. The thing about earning more though, is that it also depends more on circumstances not directly in your control. In general, a person has far more control over how much they spend versus how much they earn.

girardy 15y ago

1) Two good incomes on the professional track. I read a book called The Millionaire Next Door that described how getting married and staying married was one obvious way to boost wealth. Not only is divorce really expensive, but married people on average use less space per person than single people. You can obviously construct scenarios where this isn't true—what if you marry a spendthrift?—but it was still a really interesting point.

hippee-lee 15y ago
I haven't read the book but my wife and I started investing in our mid twenties and were blessed with generous matched contributions from our employer. We both maxed out the 401k contributions and (she) still does. We also do ROTH's as much as we can. She is into finance and 'manages' it by logging into the accounts 2x per year, looking at performance and making adjustments as needed. The growth in the past few years is cool to watch now that we are ten years in and the curve is accelerating; even with the stock market crash in '08. We are sensible on how we spend but not spend thrifty. We take at least on nice vacation a year and are able to visit family in other parts of the country for holiday's etc. When we invest in equipment for hobbies etc - I tend to buy things that last: Burton snowboards, Patagonia gear (I have a winter coat that is almost 10 years old, etc ...) There was a monkey wrench thrown into the mix about four years ago but as she gets older her costs seem to be coming down. I'll know more how this affect the long term savings plan when she gets closer to being a teenager.
- car 15y ago
  If you want to improve the returns on your 401k, a buddy of mine runs http://kivalia.com http://kivalia.com, where they provide advice on allocating the money to funds available in many companies 401k's. If your company is not listed, you can easily create a new plan (clever crowd-sourcing ;), which then gets optimized. You can also get feedback on your current allocations. HTH.
  - hippee-lee 15y ago
    Cool site. I'll pass it along to my CFO.

joevandyk 15y ago

For what it's worth, I just bought a new car for $35k. Came with a 5 year interest free loan with nothing down. If you can get that type of loan, you don't want to pay it off quickly.

colmmacc 15y ago
There is an interest rate on the financing, a cost for payment insurance, and almost certainly a margin on top of both, but they've both been built into the price of the car. It's very likely you could have gotten additional savings for paying cash up-front. It's usually cheaper to pass up these offers and negotiate the price down.
- Domenic_S 15y ago
  > It's very likely you could have gotten additional savings for paying cash up-front. Payment method doesn't change your all-in cost significantly. The dealership has a minimum margin, and you'll pay it either on the front end (higher cash price) or on the back end (loan interest). Generally speaking, car dealerships are in the business of selling loans -- not cars. If you want to pay cash they'll sell you a car, obviously, but the cost benefit of writing a check is way overblown. Source: I sold cars in another life.
hkarthik 15y ago
what's the benefit in not paying it off quickly if you can? That monthly payment is extra cash you could put away into savings or other investments, presumably at a positive interest rate. Even if the market sucks and interest rates on most banks are terrible right now, at the very least, it's still money you could have invested in yourself with some positive return.
- tedunangst 15y ago
  You basically just advised doing exactly the opposite of what you wanted to advise. The money used to pay it off quickly is the extra cash you put away in other investments. If your choices are pay off a zero percent loan or invest for a positive return, you don't pay off the loan.

mcdowall 15y ago

I own a car, I own a nice flat in a popular beach town and earn a very good wage. This may sound cliche, but I woke up a year and a half ago and realised I had so many things I wanted to do but just never did. So I wrote a bucket list of activities, things to learn, places to travel to / general life goals and through going out and doing these I am so much more happy. In the last year Ive taken up Spanish, learnt to surf, sailed the whitsundays, camped on Fraser Island, visited a Damien Hirst exhibition, partied in Ibiza, in the next few months I'm going to my first festival, to the European Football Championships, a number of Olympics events and La Tomatina festival in Bunol, added to that I've just planned my next trip to Central & S.America for 3 months in September. I suppose the moral of my point is not to be fixated on attaining a net worth, enjoy each day for what it is and get out and do the things you want to do. In a few years do you want to sit back and look at your bank balance or think back to the life you've led. Either way I'm not judging but moreso hoping some others don't fall into the millionaire pursuit.

sukuriant 15y ago

6) Avoid expensive hobbies/activities that consume a lot of time and don't contribute much to your marketable skills. If a hobby requires spending a considerable chunk of your monthly income, reconsider whether it's really worth it. I only have an issue with this remark. But perhaps it's because when I "reconsider whether it's really worth it", I consistently find that yes, yes it is worth it. I rather enjoy extreme sports, and spending $100 on a trip to the mountains + gas is quite a lot of money. (It'll be dropping to around $50 + gas when I buy a snowboard). I suppose it could also be added that, while certain hobbies may start expensive (snowboarding at $600 for a good board + bindings + other snow gear if it's your first time; or, photography for $1100 for camera + $2000 for a few lenses specialized to your primary interests), they become much, much less expensive as time goes on. (I pay virtually no maintenance on my camera and haven't needed a new lens in a while; so, my camera hasn't cost me any more money in a while. I haven't bought new snowboarding clothes either; and after I buy my board I probably won't buy another for a couple-few years) That has to be considered as well. TL;DR: I do have a bit of a problem with #6, but it's probably my own personal issue; and, rare/one-time costs are just that. rare/one-time costs.

sliverstorm 15y ago
The real question I struggle with is related to this. Quite simply, what use is a million bucks just sitting in the bank? Once you've got your retirement, mortgage and rainy day fund covered, money you never use is a piece of your life you traded away for... nothing. So I guess what you could say is, if you grow to a million in net worth because you have a booming business with great returns, that's wonderful. But I wonder if getting to a million (or whatever number) over a lifetime by simply saving every possible dime is simply wasted opportunity.
- gjm11 15y ago
  That "retirement, mortgage and rainy day fund" could very reasonably be more than $1M. Especially as the $1M figure here includes your home, which isn't something you can extract an income stream from without grave risk. (Back of envelope: Suppose you reckon you can safely spend 5% of your initial retirement fund per year, without running out before you die. And suppose you want $50k for medical emergencies, because you're in the USA and aren't sure Medicare will (1) still exist and (2) cover everything. And suppose you want $30k/year of effective income after retirement, which doesn't seem insane. Then you need $650k in that fund. Note that that 5%/year figure depends on the overall growth of the economy and how long you expect to live after retirement.) Yes, saving a lot of money can just be pointless avarice. But I think the level at which that becomes a reasonable suspicion is rather higher than "total assets of $1M".

ebaysucks 15y ago

Coming out of college, I used to be a "Boglehead" like this - had a job at a top 3 management consulting firm and put as much as I could into Vanguard index funds, up to 80% of my net income in certain months. After a year I realized the real psychological reason for my extreme saving habit was that I hated my job. The lesson I learnt is this: If you calculate every expense in terms of hours of life worked to attain it, you probably don't like your job very much and you are better off (in the long run) by quitting. Edit: Now that I run my business, I will spend lavishly on my childhood boy dreams once I can afford it. For me that's cars, and compared with employing people stuff like leasing a top of the range BMW (400 pounds a month deal on a 640d 2 months ago) or even stuff like participating in the Volkswagen Race Cup (15K pounds for second hand race car, 10K pounds a year to run and it's televised advertising) are really very attainable. It also makes for a more interesting life story.

notphilatall 15y ago

"3) ... There are plenty of parts of the country where you can earn a combined six figure income while spending less than $100/sqft for a home in a good neighborhood." Where are these magical lands? I've lived in Atlanta and the SF Bay Area, and the salary difference between the two for engineers is around 30%, although house prices aren't much cheaper in the former - unless you want to live in the suburbs, and then you make up the difference in gas. Medical specialists are tied to hospitals, some of which may be more affordable areas, but technologists (who this site arguably caters to) tend to be bound to tech hotspots, where house prices near $1MM don't raise eyebrows.

ajju 15y ago
Hmm..I think we went to Tech around the same time. Regardless, prices in Atlanta suburbs are less than 1/3rd of the prices in the bay area - and I am talking about suburbs just outside 285 - like Dunwoody that are <10 from Buckhead. A $300K house in Dunwoody would easily cost more than $1MM in almost all of south bay. There's no way you can make that difference up in gas - unless you go back and forth 5 times a day. Having said that, your expected income in the bay area more than makes up for that difference if you are working in technology and entrepreneurial.
hkarthik 15y ago
If you talk about Urban living, the costs are universally high, and only get worse once you have a family. Suburbs get a bad rap, but they are way more economical once you have kids. And not everyone has to commute. Plenty of us work from home or work in nearby Suburban office parks. I live in Dallas where costs are similar to Atlanta. Living in the Bay Area would mean four times the cost for family friendly housing at maybe a 40% increase in salary.