Get Rich Slowly, Not Quickly

[Tenacity]

This section of Sosuave is a great section, as myself and others have shared different theories on wealth building. As everyone knows, I promote the "Get Rich Slowly" methodology, rather than get rich quick theories involving flipping real estate, or day trading/stock speculation, or MLM, etc.

I don't want to get all "spiritual" here, but Proverbs 13:11 says that: "Wealth gained quickly will dwindle, but whomever gathers it little by little will increase it".


#1.) What Is Tenacity's Definition Of A Millionaire?

I believe a Millionaire is the guy with a Million dollars in net worth, after adding up every single asset (including his house value, pre-paid balances, business contracts, and even the value of social security as I believe social security is an asset being that it's a forced retirement account) minus his debts, which include both installment and revolving debts.


#2.) How Do You Become A Millionaire (According To Tenacity)?

I believe it's done through making the right series of decisions over a long period of time (20 - 30 years), rather than crafting strategies to achieve it within a short period of time (1 - 10 years)...IF you are starting from zero, which means you have no Trust Fund or significant inheritance.

My suggested path to get there is the following path:

- Specialize in a skill/trade, service, or product area, that's in demand. Start your own business and/or work for an employer within said area.

- Through promotions, etc., get to at least $60,000 per year starting at age 27 and manage your expenses to where you can put away $15,000 per year into investments.

- For the next 26 years, from age 27 to age 53, put $15,000 per year into an S&P Index Fund and Total Bond Index Fund (you can do 50/50 allocation), which should give you a collective CAGR of 6% per year over the 26 years. This would produce $1,008,827.26 in the Index Funds at age 53.

- At age 53, your other assets come to let's say around $150,000 in value, so that's a total of about $1.16 million in assets. Let's say you have debt payments outstanding at $60,000 so this leaves you with $1,100,000 in net worth, or a Millionaire in your early 50's.

Dave Ramsey drives my concept home even further. The fact is that 95% of Millionaires became such over the long term 20 - 30 year path I lined out, NOT within a short term 1 - 10 year path.

 

[speed dawg]

A lot of this depends on cost of living too. Most high paying jobs are in cities, but it costs too much to live in those cities, so you spend your money on housing and driving back and forth to work. I just turned down a higher paying job in a different city because the cost of living increase was so big (among other things).

I don't really like looking at the 'millionaire' term as much. There is an equation in the book Millionaire Next Door that shows an equation that can tell you if you're a good earner or not. As long as I stay ahead of that, I consider myself alright. But yeah overall I agree with what you're doing.

I also think working for someone else is fool's gold, I'm figuring that out more and more everyday. I have got to find some other way. I'd like to use the tax shelter of an LLC too, in some way. It's there to use, so why not use it?

 

[EyeBRollin]

Nice thread Tenacity.

I tend to think bond funds are way too conservative for an investor in their 20s & 30s. I run 80% stocks, 20% in bonds, with most of them international. I don't care for international stocks, as most of the innovation happens in the USA. I also think international bonds will outperform domestic bonds over the long term, due to political instability of other countries vs. the US, along with the Eurozone situation.

One thing you didn't touch on is real estate. Adding to your formula is paying off your house. If you can pay off your house early in life, you can move on to another and rent it out for extra income.

Take me, I bought a 1 bedroom condo at 27 years old. It's worth $200,000. It's market rent is $1,500 / month. If I can pay it off by 45, it will probably be worth $300,000 or more, and allow at least $25,000 / year or so in cash flow indefinitely (before subtracting taxes, etc).

Again, this scenario is assuming nothing more than working and paying the mortgage diligently.

A lot of this depends on cost of living too. Most high paying jobs are in cities, but it costs too much to live in those cities, so you spend your money on housing and driving back and forth to work. I just turned down a higher paying job in a different city because the cost of living increase was so big (among other things).

Yes and no. Always chase income. Cost of living is way overblown.

Why?

Salaries are higher in high cost of living areas. Period. $100,000 in NYC may only be $40,000 somewhere else, but that $100,000 salary puts more into your 401k and social security over your lifetime. That's why people from the Northeast tend to retire to cheaper states and buy big ass houses. They have the money saved up!

Also, so your house in Metro NYC is more expensive? $500,000 vs. $200,000 somewhere else. When you go to sell, they can buy $500,000 worth of real estate, or can just cash out with a $200,000 condo + $300,000 into some other investment. It's all relative.

Don't listen to the noise about living somewhere cheap. Make as much money as possible. You can cut spending in other ways. You can't replace income.

 

[speed dawg]

Yes and no. Always chase income. Cost of living is way overblown.

Why?

Salaries are higher in high cost of living areas. Period. $100,000 in NYC may only be $40,000 somewhere else, but that $100,000 salary puts more into your 401k and social security over your lifetime. That's why people from the Northeast tend to retire to cheaper states and buy big ass houses. They have the money saved up!

Also, so your house in Metro NYC is more expensive? $500,000 vs. $200,000 somewhere else. When you go to sell, they can buy $500,000 worth of real estate, or can just cash out with a $200,000 condo + $300,000 into some other investment. It's all relative.

Don't listen to the noise about living somewhere cheap. Make as much money as possible. You can cut spending in other ways. You can't replace income.

These are good points. How much would you consider enough to pack up and move?

 

[BeExcellent]

These are good points. How much would you consider enough to pack up and move?

Due to some turbulence in my industry when 2008 fall out was going on I put my house on the market in a major metro. It sold immediately. I already owned a second home in a small town so my family moved there.

I reduced my housing costs by 80% doing this. And I live in a grand house. Think about that for a minute. My money goes 5X farther in a small town compared to a major metro area. And because I make NYC money...and increased my buying power by a multiple of 5...I was able to quadruple my real estate holdings in 5 years...buying often for cash free & clear.

Now my gross rents are higher than my professional income. My professional income is about 150-200K. So now my gross income is 300-400K. That's a pretty neat trick. I doubled my gross income in less than 10 years. Now I'm paying down debt to increase cash flow...so eventually I won't need my professional income stream at all. I'm already taking professional clients on MY terms. How sweet is that?

Meanwhile values and rents are gradually rising. That combined with retiring debt grows my net worth.

I am fortunate in that my professional income is not restricted by geography (I can live anywhere), but many careers are like that now. I also get the benefits of raising my kids in a small town community where there are still traditional values and a solid community social network.

I'm all about building wealth as quickly as one is able. But I agree 100% with @Tenacity about building something solid.

I'm in the Get Rich Permanent advocacy camp for sure.

If you can stomach the drop in social opportunity (not lots of worthwhile dating prospects for me in a small town...like none...) then you can accelerate wealth creation.

Once you've built your financial engine you can grow it & go anywhere. Now days I spend 50% time back in a major metro. So getting the best of both environments.

How fast could you build wealth if you could live on 1/3 of your annual income & were able to deploy the other 2/3 toward wealth creation? It's not an option for everyone but it sure catapulted me forward.

I've got braces to finish paying for (not cheap at 6K per kid X 3) and college to fund in the coming years...but I'm also starting to look for big projects I can get involved in as well as pursuing some creative endeavors...now that I've created the financial security to do that in the very near future...

I'm not filthy rich by any stretch but I can see the landscape before me. If I decide to build serious 8 figure & up net worth, I know I can.

If I can do this anybody can. You just have to want to and make a plan. But you have to want to real REAL bad. It's simple. But it may not be easy.

 

[EyeBRollin]

These are good points. How much would you consider enough to pack up and move?

Don't use a cost of living calculator. Itemize the living expeditures yourself.

Figure what the difference is with your salary, estimate your taxes, and come up with how much extra monthly income you'll get. Then take a look at the rents in the areas where you may be working and living. Remember to account for commute.

Moving to Metro NYC netted me a 60% increase in salary, in exchange for $300 / month extra rent (before I bought). Since the position wasn't in NYC itself (but NJ), there was no need to factor in NYC commuting costs or rent. Major expenditures such as car insurance and groceries were unchanged or within 10% of what I was paying. Housing costs are the largest factor in COL discrepancies. So for $3,600 of after tax income per year, (roughly 5,000-5,500 gross salary), the move became beneficial. Since my new salary reflected a much higher number than that, I jumped.

And the estimations proved accurate. My discretionary income is leagues above what it was before. **** a cost of living calculator.

Another final point. Those of us living in higher salaried areas such as Metro NYC, California, or DC... if we are to leave we get more negotiating leverage in future positions. It's a lot easier for an employer to offer a guy from middle America making $50,000, a 10% raise to $55,000, than offer someone making $75,000 a pay cut down to $60,000. I know folks who leave Metro NYC who get matching salaries in other Metros based of the sheer strength of negotiation.

 

[speed dawg]

Don't use a cost of living calculator. Itemize the living expeditures yourself.

Figure what the difference is with your salary, estimate your taxes, and come up with how much extra monthly income you'll get. Then take a look at the rents in the areas where you may be working and living. Remember to account for commute.

Moving to Metro NYC netted me a 60% increase in salary, in exchange for $300 / month extra rent (before I bought). Since the position wasn't in NYC itself (but NJ), there was no need to factor in NYC commuting costs or rent. Major expenditures such as car insurance and groceries were unchanged or within 10% of what I was paying. Housing costs are the largest factor in COL discrepancies. So for $3,600 of after tax income per year, (roughly 5,000-5,500 gross salary), the move became beneficial. Since my new salary reflected a much higher number than that, I jumped.

And the estimations proved accurate. My discretionary income is leagues above what it was before. **** a cost of living calculator.

Another final point. Those of us living in higher salaried areas such as Metro NYC, California, or DC... if we are to leave we get more negotiating leverage in future positions. It's a lot easier for an employer to offer a guy from middle America making $50,000, a 10% raise to $55,000, than offer someone making $75,000 a pay cut down to $60,000. I know folks who leave Metro NYC who get matching salaries in other Metros based of the sheer strength of negotiation.

Ha, man you had me thinking I had made the wrong decision for a little bit. 60%? I turned down 15%, and it was in an area where the average payment for what I wanted would be minimum $500 more per month. I did itemize it and figured I'd be bringing home $710 extra per month, so that extra payment eats that up right there. Plus I was going to have to commute 45 minutes when my commute now is 10 minutes. However, yes, I would be putting more away in 401K and obviously have negotiating power wherever I went next.

But yeah, if you're getting a 60% increase, that's a no-brainer, you have to take that. I had in my mind a 22% increase as the low-ball price that I'd take, so when they settled in at 15% I told them no.

 

[Eve Borges]

Nice thread.