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Climbing the Wealth Ladder

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Re: Climbing the Wealth Ladder

#61

Post by jacquesm »

nradov wrote: post #54
jacquesm wrote: post #46

Earlier quoted context omitted.

Key bit: right now. What will you do when interest rates change and you end up with an obligation to pay the now much higher monthly amount? If you have your interest locked down for an x period of time and you intend to keep your property always ensure that you can pay off enough of it to be able to continue to live there even if interest rates go back into the 5-10% range.

Most borrowers have 30 year fixed rate mortgages so future changes in interest rates are largely irrelevant to them.

Most?

The rate difference is so large that if you are a good earner that it could very well make sense to go for a much shorter fixed rate term. There are many different products ranging from free floating all the way to 30 years, depending on the age of the borrower 30 years fixed might not even be available to them.

Re: Climbing the Wealth Ladder

#62

Post by esotericn »

CPLX wrote: post #29
disintegore wrote: post #8

I understand this isn't the point of the article, but it seems like a roundabout way of saying "don't overspend". This part in particular bothers me : > More importantly though, the best way to climb the wealth ladder is to spend money according to your level. As far as I (a non-economist) can personally tell, any notion of climbing up some abstract wealth ladder is synonym with a salary increase for the vast majorit…

Yup. I see this kind of logic in personal finance discussions all the time but it's bullshit. There simply aren't any spending decisions you can make that will change you from not wealthy to really wealthy. Those things can just move you from poor to middle class at best, or to a better level of middle class. Outside of real outlier status where you're paid really, really large amounts of money for your services (lik…

It can give you the breathing room to actually _do_ something that can change your status and allow you to have a decent shot at "own the means of production", though.

I've probably had hundreds of conversations with people who will say "well, not everyone can afford to move town" or "not everyone can afford to take a week off work" or whatever else.

That's an enormous handicap - you're basically a slave to your current job, and if it tires you out enough that you can't train/learn/do other productive work outside of it, then you're stuck.

Personally I grew up with essentially zero, and pretty much self-enforced level 1 upon myself until this chart would have me at level 4.

People talk a lot about how certain startup founders aren't really risking anything because they start out with a safety net. You can create that safety net for yourself, with a little luck along the way, provided that you're sensible.

Re: Climbing the Wealth Ladder

#63

Post by bronco21016 »

Retric wrote: post #50
tibbon wrote: post #7

This is similar to how I’ve thought about money for a while. Through high school, I had dollar problems. As in, things in the $1-9 range were pretty important. Through college I had $10 problems. Early career it become $100 problems. Now anything under $1000 just doesn’t strike me as an issue. New hot water heater? Just go buy it. $10k things however are what feel like real issues now- new roof? I can do it, but’s it…

I agree, what’s useful about this mentality is not about becoming a multimillionaire, it’s about having your wealth match your income. A doctor making 250k is often living pay check to pay check while spending crazy money. Even with a steady paycheck their not accumulating wealth. Even worse, a football player with a 20million dollar contract is likely to end up broke if they instantly maximize their spending. Howeve…

It bothers me when people use the phrase living paycheck to paycheck to describe both someone who literally doesn’t make enough money to cover the essential bills of living as well as someone making $200k+. These people are not in the same boat whatsoever.

The doctor, or any professional making that much, simply needs to turn in the lease on the luxury car, or downsize their house, or cancel their vacation to materially change their financial circumstance.

A person truly living paycheck to paycheck has to choose between eating or paying rent and there’s no luxury car to sell or turn in to free up cash flow to make that decision easier. They are very much resource constrained.

This isn’t to say I don’t believe there are professionals in this boat. I just believe we need a different term for it as it’s not fair to lump these two very separate groups into the same definition. Perhaps describing them as living beyond their means.

Re: Climbing the Wealth Ladder

#64

Post by lordnacho »

Problem is that while there's a limit to how much you can spend on (I guess student, not mortgage) debt, groceries, and restaurants, the amount you can spend on holidays, houses and philanthropy vary on a much larger scales.

You can go on a holiday flight to another country for a few hundred dollars. Or you can rent a private jet to tour the world, staying at a 5-star hotel each place. That could easily be the difference between a 3 figure price and a 6 figure price.

Houses, you can get them for a few annual average salaries, or a few hundred. Depends on where you want to live.

And donations can vary as much as you like, a dollar or 100M.

For software devs, I would think the real ladder is not whether you can buy the groceries you want. My guess is most of us in the West can buy the truffles every week if we really felt like it, and likewise with restaurants.

What you perhaps want to consider is whether you have the resources to not work for a while, whether to educate yourself, travel, or do your own startup. This comes down to the opportunity cost of lost income being worthwhile to do those things.

Re: Climbing the Wealth Ladder

#65

Post by howeyc »

The part at the end about his new millionaire friend not having a much different life is what I think about quite a bit. Until you reach "buy my own plane without worrying too much about cost" levels of wealth your life is pretty much like everyone else...

You likely: * commute to work every day * work 8+ hours per day * spend weekend hours doing choirs (laundry, grocery shopping, etc)

Sure the size and comfort (of house, car, food, etc) may vary, but you have a similar day-to-day life as a waiter, just the job and numbers are different.

Re: Climbing the Wealth Ladder

#66

Post by namdnay »

maire wrote: post #56

So the funny thing is this article is the exact opposite of the two most influential financial books in my life: "The Millionaire Next Door" and "Rich Dad Poor Dad". The true wealthy don't ever think of spending money as if it isn't important. Instead they distinguish between spending on income generation vs spending on luxury. They only spend on luxury intentionally but will spend on income generation freely. In oth…

I would steer clear of the bullshit peddled by Kiyosaki... https://www.johntreed.com/blogs/john-t-reed-s-real-estate-in...

It's exactly this kind of get-rich-quick crap (that always seems to revolve around heavily leveraged real estate) that was one of the causes of 2008

Re: Climbing the Wealth Ladder

#67

Post by nradov »

jacquesm wrote: post #61
nradov wrote: post #54

Earlier quoted context omitted.

Most borrowers have 30 year fixed rate mortgages so future changes in interest rates are largely irrelevant to them.

Most? The rate difference is so large that if you are a good earner that it could very well make sense to go for a much shorter fixed rate term. There are many different products ranging from free floating all the way to 30 years, depending on the age of the borrower 30 years fixed might not even be available to them.

Yes I would say that 87% counts as "most".

https://www.debt.org/real-estate/mortgages/30-year-fixed/

Re: Climbing the Wealth Ladder

#68

Post by hultner »

CPLX wrote: post #43
jlawson wrote: post #34

Earlier quoted context omitted.

Saving money, even from a salary job, gives you the breathing room you need to take economic opportunities. For example, if you save a year of expenses you can start a software business without external capital or connections. Most of the paths from middle-class to wealth involve avoiding frivolous spending.

Yes but if you borrow like a maniac from credit cards and default on everything and live in a van but still start a successful software business you still get wealthy. My point being that actually owning that successful business is the mechanism for wealth. Avoiding frivolous spending can be very, very helpful to achieving that status, as you point out correctly, but it isn't actually the status itself. This article…

If you default on everything assets such as that successful business will be reclaimed by the creditors/government, of course this depends a bit on where you live but for instance in Sweden if you default you're required to live on minimum living expenses for five years, any assets you amass over this minimum living value will be claimed by the government.

Re: Climbing the Wealth Ladder

#69

Post by philwelch »

CPLX wrote: post #29
disintegore wrote: post #8

I understand this isn't the point of the article, but it seems like a roundabout way of saying "don't overspend". This part in particular bothers me : > More importantly though, the best way to climb the wealth ladder is to spend money according to your level. As far as I (a non-economist) can personally tell, any notion of climbing up some abstract wealth ladder is synonym with a salary increase for the vast majorit…

Yup. I see this kind of logic in personal finance discussions all the time but it's bullshit. There simply aren't any spending decisions you can make that will change you from not wealthy to really wealthy. Those things can just move you from poor to middle class at best, or to a better level of middle class. Outside of real outlier status where you're paid really, really large amounts of money for your services (lik…

Here's the thing: if instead of spending your money, you invest it, guess what you end up doing with that money? Owning the means of production. Period.

Re: Climbing the Wealth Ladder

#70

Post by seibelj »

I don't care how much money I make - I shop at the cheap grocery store, pay attention to restaurant prices, look for deals, don't waste money. This is a good lifestyle no matter how much you make. It's called being frugal.
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