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You can become financially independent with considerably less money. I know someone who at 30 sold up, moved way into the boonies on a hobby farm. He's got enou

You can become financially independent with considerably less money. I know someone who at 30 sold up, moved way into the boonies on a hobby farm. He's got enough in the bank that he can live off the interest. Now he just potters around his farm. Grows all his own vegetables and fruit, raises chickens and cows and is getting "richer" by not spending all his interest. So him and his wife get to spend all their free time with their kids, which is what they wanted. The reason most people will never become rich is simply because they increase their expenses the more they make.

wellboy 12y ago
Yes, they are financially independant to remain where they are, but they are not financially independent to do do great things, e.g. they couldn't start a company, buy a new house, send their kids to college. (except your friend became a millionaire) This financial independence normally is temporary and normally doesn't last long. Humans crave for change, living on a pottery farm is really nice for the first 1-2 years, however, for the rest of your life? Humans are not built for that.
- christiangenco 12y ago
  On the contrary, I'd argue that it's much easier for them to do those things because they have considerably more time, free capital, and flexibility than non-financially independent people.
  - wellboy 12y ago
    True, you're right. Except for the college thing though. :)
genwin 12y ago
With bank interest rates at < 1%, having $2 million in the bank earns < $20K/yr. He must be rich or ultra frugal.
- michaeltoth 12y ago
  When people refer to interest they often are referring to investment gains, rather than actual bank interest. Specifically, it is generally assumed that a diversified investment portfolio will earn ~4% after inflation on average, and by spending 4% of your portfolio balance at any time you are reasonably safe in the assumption that your money will not run out. At 3% it's all but assured that your money will not run out. These are conservative assumptions and take into account the fact that in any given year your investment performance could be significantly less than 4%
  - genwin 12y ago
    Yes, a diversified investment portfolio could perform like that in the past, when the gov't wasn't minimizing interest rates. Nowadays only with much greater risk of loss of principal.
    - aggronn 12y ago
      The S&P 500 is up about 7% annually over the last 5 years, with inflation never exceeding 3% over that period. That leaves a calm 4% real return on one of the less risky investment options.
      - genwin 12y ago
        How has it done over 10 years? And that's with mega gov't help.
        jonknee 12y ago
        About the same... Over 10 years the S&P is up 83.6% excluding dividends. Going back to July so month to month comparisons are valid it looks like the annualized return is 6% excluding dividends and 8% including them. http://dqydj.net/sp-500-return-calculator/ http://dqydj.net/sp-500-return-calculator/
        12y ago
neilsharma 12y ago
"The reason most people will never become rich is simply because they increase their expenses the more they make." Words of wisdom right there. I think there is an underlying difficulty there. There's usually at least a few of your friends who also are financially well off and growing. Or perhaps your circle starts to include more well off people as you become wealthier. There is an endless social competitive pressure to be at or near the top of your peers, and the metric for measuring that is how much you own and spend. Leaving society to go on a farm, however awesome and healthy that may be, is breaking the vicious cycle that you may have been in for much of your life. And that is incredibly difficult.

wellboy 12y ago

Yes, they are financially independant to remain where they are, but they are not financially independent to do do great things, e.g. they couldn't start a company, buy a new house, send their kids to college. (except your friend became a millionaire) This financial independence normally is temporary and normally doesn't last long. Humans crave for change, living on a pottery farm is really nice for the first 1-2 years, however, for the rest of your life? Humans are not built for that.

christiangenco 12y ago
On the contrary, I'd argue that it's much easier for them to do those things because they have considerably more time, free capital, and flexibility than non-financially independent people.
- wellboy 12y ago
  True, you're right. Except for the college thing though. :)

genwin 12y ago

With bank interest rates at < 1%, having $2 million in the bank earns < $20K/yr. He must be rich or ultra frugal.

michaeltoth 12y ago
When people refer to interest they often are referring to investment gains, rather than actual bank interest. Specifically, it is generally assumed that a diversified investment portfolio will earn ~4% after inflation on average, and by spending 4% of your portfolio balance at any time you are reasonably safe in the assumption that your money will not run out. At 3% it's all but assured that your money will not run out. These are conservative assumptions and take into account the fact that in any given year your investment performance could be significantly less than 4%
- genwin 12y ago
  Yes, a diversified investment portfolio could perform like that in the past, when the gov't wasn't minimizing interest rates. Nowadays only with much greater risk of loss of principal.
  - aggronn 12y ago
    The S&P 500 is up about 7% annually over the last 5 years, with inflation never exceeding 3% over that period. That leaves a calm 4% real return on one of the less risky investment options.
    - genwin 12y ago
      How has it done over 10 years? And that's with mega gov't help.
      - jonknee 12y ago
        About the same... Over 10 years the S&P is up 83.6% excluding dividends. Going back to July so month to month comparisons are valid it looks like the annualized return is 6% excluding dividends and 8% including them. http://dqydj.net/sp-500-return-calculator/ http://dqydj.net/sp-500-return-calculator/
        12y ago

neilsharma 12y ago

"The reason most people will never become rich is simply because they increase their expenses the more they make." Words of wisdom right there. I think there is an underlying difficulty there. There's usually at least a few of your friends who also are financially well off and growing. Or perhaps your circle starts to include more well off people as you become wealthier. There is an endless social competitive pressure to be at or near the top of your peers, and the metric for measuring that is how much you own and spend. Leaving society to go on a farm, however awesome and healthy that may be, is breaking the vicious cycle that you may have been in for much of your life. And that is incredibly difficult.