Or even the original couch potato investment allocation. It just boggles me that financial advisers find enough suckers to keep them in business (OK, it doesn’t really surprise me that much, human nature being what it is).
Really though, more important than deciding how to invest your money is being able to save it in the first place. Once you figure out how to save $5000 per year, you can put it under your mattress and you’re probably doing better than most Americans.
I do see shades of a previous thread. Top 1% in the US? I’m not rich, I’m middle class.
Yes, even if that includes your house, a million in assets is wealthy. You can go wherever you want on vacation. If you lose your job you’re not going to be on the street next year. Or in 5 years. Or in 10.
Maybe you have a point. If you went back five years and told me ad the misses how much we would have today we would have thought “wow, that’s a lot of money” but now it seems like no big deal; and then you start thinking what amount would really put us in unique circumstances; where our options and choices in life would drastically change - for that it would be like 3 million. On the other hand I have none of the financial insecurity of people living paycheck to paycheck- so there is that.
Assuming you can actually afford to save $5000 a year, what you do is get a savings account, or second bank account, and set up your Direct Deposit to automatically deposit $200 of each paycheck (if you’re paid bi-weekly) into that alternate account.
That way, your primary account never sees that $200, and you get used to not having it around. Meanwhile, $200 per pay period accumulates in your other account, and after the end of the year, you have $5200 built up.
There’s also the extremely nice advantage of not having to explicitly and consciously move money from your main account into the other- it’s taken care of, and at least in my experience, it’s a lot easier to keep myself from withdrawing from savings when money gets tight than it is to earmark $200 to save later when times are tight.
Maybe a million in net worth. A million in assets is meaningless if you have two million in debt and obligations.
A million in net worth buys you financial security, not financial independence (unless you are a VERY frugal person who lives a very small footprint sort of life). You might be able to not work for several years, but unless you are “of a certain age” you’ll probably need to go back to work at some point. To me, being “rich” or “wealthy” is synonymous with financial independence. For people happy living in a Tumbleweed home in Montana, that might not take much money at all. For a single person with no kids, it might be as low as a million. For most people, its going to be closer to that $3M.
It depends on where you live. I’m sure my wife and I have combined assets pretty close to $1 million but most is tied up in our house and retirement. Aside from not being out on the street in a year if we lost our jobs the rest don’t really follow. It’s not wealthy IMO, it’s solidly middle class for people of our age.
A million dollars spent modestly would likely last 33 years or more. And that’s without any interest or further investments. One million bucks is still very much in the wealthy side of things if you do it right.
I’m a former FA with Merrill, and any sweeping statement like “all financial help gurus are idiots” is way more idiotic than those authors. Dave Ramsey’s philosophy, in particular, is an excellent roadmap for personal finance and is in no way unethical. Anyone who calls his advice useless has absolutely no clue what s/he is talking about.
Modestly… as in nearly poverty. A million dollar annuity (what you’re basically proposing) would only pay out in the 30k per year range. Maybe enough for someone to live frugally on, but hardly enough to quit your day job over.
Now if you took that 30k on top of a regular salary, that’s a different story. Still doesn’t make anyone “rich” though.
And… to whoever said that a million dollars in assets makes one wealthy… it depends. If you’re talking a million dollar pile of cash, then yeah, that’s nice to have. If you’re talking primarily about non-liquid assets like real estate, or fine art, or other real property, then it’s entirely possible that you could not be able to afford vacations, and losing your job means that you could be out on your ass if you couldn’t convert them to cash fast enough (or to enough cash!).
Net worth isn’t just cash assets like bank accounts and stock holdings.
While I agree that guys like Kiyosaki and Dave Ramsey are simplistic blowhards, they do perform a valuable resource. If you listen to Ramsey, the level of financial knowledge of the average American is below abysmal. Guys with a $35K income having $1000/month truck payments (why is it always trucks?) and others making $125K being 75K in debt(not student loan debt.) They can do basic math if you put an x or a y after the numeral, but if you put a "" before it, they lose all ability to reason.
Sometimes, Dave, you need to borrow to make money. If you have a job offer in the country that public transport doesn’t come within 30 miles of and requires a vehicle for occasional customer visits, borrow the 5K, take the job, and deliver pizzas in the evenings and be out of debt in ten months. And, Kiyosaki, most people have no business starting one of their own.
What these people do, however, is transmit basic knowledge to people who lack it. Yes, using money to make more money is better than spending it on depreciating goods. Most people under 26 think interest is only paid, not earned. And of course, paying cash is better than financing a purchase, Wait a month to buy that $300 recliner in cash rather than end up paying $500 for the same item because you used a store credit card that “saved” you $75 at the checkout.
I just helped my oldest through signing up for her first 401K. She was National Honor Society in High School, graduated from a top University with honors in geology, but she knew nothing about finances. Walking her through compound interest and the time value of money blew her mind. I had no idea.
$30,000 for an individual is not “living frugally”. The U.S. median individual income in 2012 was about $27,000 (average is about $40 k). If you can earn the median income without working, you are wealthy. No, maybe you can’t buy the million dollar home you want, but you can own a home. You can go on vacations (wherever you want). You can go out to fancy restaurants, or just sit in your underwear and play video games all day. You probably can’t sniff cocaine off a hooker’s back every night, but you can indulge yourself occasionally.
Exactly! I’ve never understood these people who are like, “You can’t retire on a million dollars.” You most certainly can. $33,000 for 30 years (plus whatever interest and investments you can scrape together) is how MOST people already live. At that point, you don’t have to work. You only work if you want to. And that is the very definition of wealthy.
Yes, but most people at the median income level aren’t going on vacations “wherever they want”, going out to fancy restaurants, or possibly even owning a home. At that income level, people are living quite modestly.
But, my point is, they don’t have to. Without a job, you don’t need a car for a commute or you don’t have to live in an area that might be high-priced because it’s near work. You can go to that fancy restaurant because you don’t have to worry where next month’s paycheck will come from. It comes directly from the bank, where it’s earning (at minimum) a 2% return (IIRC, that’s the going rate for the best CDs).
Not having to live paycheck to paycheck (even if it is only $30,000 a year) is a powerful thing. More people need to realize that.
I live in an area that’s fairly high priced because we love living here. It’s a great neighborhood, close to everything we like (restaurants, shopping, the river, the subway) and it’s not close to work anymore. We just love it here and we couldn’t live here on 30K/year. We travel a lot and we expect to travel more as our work life winds down, especially overseas. We spend a lot of the winter skiing which is not an inexpensive hobby.
We could certainly live on $30,000/year but it would be a complete change and we’d have to abandon a lot of the things we love about life.
We vs. I is an important difference.
We COULD live off $30k a year, but we wouldn’t be traveling. Health insurance would be subsidized at that level, but property taxes would eat up a chunk. Plus heat and lights. Just feeding a family of four is about $400 a month if you do milk and fresh fruit and vegetables.
Last week we fixed the furnace - that was $2k, and the dog and cat went to the vet - $700 including blood work and antibiotics for an ear infection.
The poverty line for a family of four is $24k a year. An extra $6k a year isn’t exactly “you can take a months vacation in Venice and go out to eat several times a week at nice places” territory.
How are you going to get to that fancy restaurant with no car to eat there?
Now, just me… yeah, I can live off $30k a year pretty easily. But like above, I’d have to abandon a lot of the things I do now.
ETA: At $30k a year in Minnesota, my family would get SNAP, and reduced school lunches. They aren’t giving those to rich people.
I think people in this thread are misreading the hypothetical. The hypothetical states that you have $1 million in the bank, are you rich? I pointed out that $1 million could last you 33 years at $30,000 a year. And that’s before interest and investments. The only way it becomes “not rich” is if you twist it to assume that the other $970,000 isn’t there. But it is. Ergo, rich.
A family earning that much has to live modestly, but an individual does not. This is essentially what I and my coworkers are making, and I would say most of us are living pretty well. We certainly do go to fancy restaurants. Not every week, but several times a year. Some of us go out to eat at less-fancy restaurants for every meal. Some of us have made down payments on property (we’re too young to have paid anything off yet). We don’t travel a ton because we do have to work jobs, but some of us do go skiing in Colorado, or take an international vacation every year. Some of us are spending quite a bit of money on intoxicants, both legal and not. If I could maintain this lifestyle without having to work… Yeah, I would be a rich man.
But anyways, we are straying a bit far afield from the original question. I don’t have any statistics for how many people have used the stock market to grow rich, but it’s not particularly hard to do if you’re diligent about saving. That’s the magic of compound interest. The stock market, over long enough periods, tends to average around 10% annually (inflation eats into that, cutting it down to more like 6%) If you can be diligent about saving a little bit of money, when you retire you will be quite wealthy indeed.
But it’s not rich. Living on $30K/year is not a lifestyle that is a rich lifestyle, IMO. Money in the bank that you can’t use because you’re saving it for 30 years from now isn’t going to cut it.
It doesn’t have to be $30K per year. It could be any number for as long as you want the money to last. And with proper investing, the money will last indefinitely.
Seriously, why is this so hard?