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10 Things Millionaires Won't Tell You

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Re: 10 Things Millionaires Won't Tell You

#31

Post by netcan »

johnrob wrote: post #17
paul wrote: post #10

Earlier quoted context omitted.

Because real estate always goes up? The "houses are the greatest investment ever" myth is amazingly persistent.

I am also skeptical of the conventional wisdom of home ownership. I think a mortgage is simply a way to force yourself to save money. If people save with the same commitment as mortgage payments, even while paying rent, they should end up doing just fine.

Work it out. Play with unknown factors (future rent, interest & house prices) and see what you come up with.

Mostly it's about even.

But just as you say a lot of human elements come into play. People choosing a rental or a purchase choose radically different properties so usually saying 'I would be paying this rent' is meaningless since you would be living somewhere completely different paying different rent. And saying 'I would be saving X' is also meaningless because you probably wouldn't be.

I think these usually outweigh the pure financials. many people purchase houses that would have never saved a dime. But of course, that's beatable.

Re: 10 Things Millionaires Won't Tell You

#32

Post by nostrademons »

mattmaroon wrote: post #26
johnrob wrote: post #17

Earlier quoted context omitted.

I am also skeptical of the conventional wisdom of home ownership. I think a mortgage is simply a way to force yourself to save money. If people save with the same commitment as mortgage payments, even while paying rent, they should end up doing just fine.

That's not even remotely true. The interest rate for a mortgage right now is a few % points below what the stock market has returned, on average, over the last 50 years. That's not even counting the tax deduction for the interest. A mortgage is basically borrowing money with which to make more money. Your mortgage payment on a place is generally not much more than your rent payment would be, and it's tax deductible a…

> Your mortgage payment on a place is generally not much more than your rent payment would be

This is not true in most of the formerly booming real estate markets in the U.S. My coworker just bought a condo for $500K in Boston. At 6%, his interest payments are $30K/year, or $2500/month. My friends are renting a similar place for $2200/month.

I've heard it's worse in California, eg. people paying $3500/month in mortgage payments for houses that rent for $2000 or so. The recent Businessweek article on Merced mentioned homes with $3400/month that the owners walked away from, then out-of-state speculators bought it at a foreclosure auction and are now renting it back to the original owners for $1200/month.

> The interest rate for a mortgage right now is a few % points below what the stock market has returned, on average, over the last 50 years.

First rule of finance: any truly risk-free profit opportunities will be arbitraged away as soon as large numbers of people become aware of them.

That's exactly what happened in the 1990s. People suddenly realized that the stock market, on average, returned higher rates than a 30-year mortgage, so they took out mortgages and invested it in the stock market. As a result, the stock market quadrupled between 1995 and 2000. Then they pulled it out of the stock market and back into real estate between between 2001 and 2005.

It's highly unlikely that stock market returns over the next 50 years will match those of the previous 50 years, even with the cratering of the real-estate market.

Re: 10 Things Millionaires Won't Tell You

#33

Post by daniel-cussen »

timr wrote: post #22
IsaacSchlueter wrote: post #5

You may think I'm rich, but I don't. How very very true that is. I have friends that make less than half what I do. Once upon a time, I would have thought that my current income would mean I'd "made it". But somehow, here I am, still occasionally concerned about being overdrawn, still trying to be frugal, still feeling like I don't make enough to do all the things I want to do. By world standards, I was fantastically…

I thought that was a fairly inane point. While I have no doubt that Joe Millionaire feels like he's not rich if he can't buy a new Lotus without blinking, that's pretty much irrelevant to any practical discussion of wealth. When your income places you well into the top 1% of earners and you're still hurting for cash, that's your problem. Learn to live within your means.

Some people hurt for cash and are frugal no matter how rich they are. This helps them get rich.

Re: 10 Things Millionaires Won't Tell You

#34

Post by nostrademons »

dkokelley wrote: post #24
nazgulnarsil wrote: post #4

it's impossible to be happy if you're always comparing yourself to others. there will always be someone smarter, better looking, richer, and with a bigger ____ than you :p True happiness is contentment, contentment comes from financial security. I laugh at those millionaires who, as the article said, are squeaking by on 400k a year. The biggest key to financial security isn't making more money. It's reducing your liv…

plus it's tax advantaged I've never really liked that reasoning. Let's assume that someone is in the 30% tax bracket (paying 30% on all qualified income). Let's say this person makes $100,000/yr. They pay $30,000/yr in taxes. Let's say they also have a $100,000 mortgage at 5% APY. They're paying $5,000/yr in interest. That interest is deducted from their income of $100,000 leaving $95,000 taxable income. Assuming the…

The tax deduction on mortgage interest just means you cut the interest rate by the tax bracket, eg. if you're in a 33% tax bracket and have a 6% mortgage, the effective interest rate is 4%. Makes the math easy.

Re: 10 Things Millionaires Won't Tell You

#35

Post by mattmaroon »

nostrademons wrote: post #32
mattmaroon wrote: post #26

Earlier quoted context omitted.

That's not even remotely true. The interest rate for a mortgage right now is a few % points below what the stock market has returned, on average, over the last 50 years. That's not even counting the tax deduction for the interest. A mortgage is basically borrowing money with which to make more money. Your mortgage payment on a place is generally not much more than your rent payment would be, and it's tax deductible a…

> Your mortgage payment on a place is generally not much more than your rent payment would be This is not true in most of the formerly booming real estate markets in the U.S. My coworker just bought a condo for $500K in Boston. At 6%, his interest payments are $30K/year, or $2500/month. My friends are renting a similar place for $2200/month. I've heard it's worse in California, eg. people paying $3500/month in mortga…

Most economists still believe it will be above 7%. Thus a fixed rate mortgage now would still be worth it.

Of course the cost of renting vs buying is different depending where you go.

Re: 10 Things Millionaires Won't Tell You

#36

Post by [deleted] »

nazgulnarsil wrote: post #4

it's impossible to be happy if you're always comparing yourself to others. there will always be someone smarter, better looking, richer, and with a bigger ____ than you :p True happiness is contentment, contentment comes from financial security. I laugh at those millionaires who, as the article said, are squeaking by on 400k a year. The biggest key to financial security isn't making more money. It's reducing your liv…

[deleted]

Re: 10 Things Millionaires Won't Tell You

#37

Post by netcan »

nostrademons wrote: post #32
mattmaroon wrote: post #26

Earlier quoted context omitted.

That's not even remotely true. The interest rate for a mortgage right now is a few % points below what the stock market has returned, on average, over the last 50 years. That's not even counting the tax deduction for the interest. A mortgage is basically borrowing money with which to make more money. Your mortgage payment on a place is generally not much more than your rent payment would be, and it's tax deductible a…

> Your mortgage payment on a place is generally not much more than your rent payment would be This is not true in most of the formerly booming real estate markets in the U.S. My coworker just bought a condo for $500K in Boston. At 6%, his interest payments are $30K/year, or $2500/month. My friends are renting a similar place for $2200/month. I've heard it's worse in California, eg. people paying $3500/month in mortga…

Down Here (Melbourne) it's a lot more extreme then that. $2200 p/m for a $500k place is >5% return.

Here it's about 3.5%-4% for a normal family house and 4%-5% for a flat.

*Interest rates are about 8%

Re: 10 Things Millionaires Won't Tell You

#38

Post by ojbyrne »

timr wrote: post #22
IsaacSchlueter wrote: post #5

You may think I'm rich, but I don't. How very very true that is. I have friends that make less than half what I do. Once upon a time, I would have thought that my current income would mean I'd "made it". But somehow, here I am, still occasionally concerned about being overdrawn, still trying to be frugal, still feeling like I don't make enough to do all the things I want to do. By world standards, I was fantastically…

I thought that was a fairly inane point. While I have no doubt that Joe Millionaire feels like he's not rich if he can't buy a new Lotus without blinking, that's pretty much irrelevant to any practical discussion of wealth. When your income places you well into the top 1% of earners and you're still hurting for cash, that's your problem. Learn to live within your means.

I don't think its a matter of "hurting for cash." Its the thought that you could lose it all just as easily as gaining it all (or actually much, much easier). And as you get older and accumulate responsibilities, the overhead of families, good schools, retirement, all weigh on you making that thought all the more horrific.

Entrepreneurs are probably much more vulnerable to these kinds of worries, because that's what they worried about (losing it all) on the way up.

Re: 10 Things Millionaires Won't Tell You

#39

Post by whatusername »

litewulf wrote: post #20
Eliezer wrote: post #15

Earlier quoted context omitted.

So if you're the smartest person in the world, does everything stop being relative? Or do you start worrying about alternative Everett branches?

Well, smartness is a bit more complex. I may be better at skill A, but my friend is way good at B. Thus, he is "smarter".

And thus the problem with IQ tests...

Wealth isn't like that though. If I have X Peso's (Or Dollars, etc) and you have X + Y then you are richer (for any positive value of Y).

The only 2 limits to comparison that I can see is: * Liquidity - (ie - Bill Gates can't sell all his MSFT stock without the price crashing significantly) * Historical Data - How do BillyG/Buffet/Slim compare to Rockefellar and King Soloman?

Re: 10 Things Millionaires Won't Tell You

#40

Post by ksvs »

mattmaroon wrote: post #27
dkokelley wrote: post #24

Earlier quoted context omitted.

plus it's tax advantaged I've never really liked that reasoning. Let's assume that someone is in the 30% tax bracket (paying 30% on all qualified income). Let's say this person makes $100,000/yr. They pay $30,000/yr in taxes. Let's say they also have a $100,000 mortgage at 5% APY. They're paying $5,000/yr in interest. That interest is deducted from their income of $100,000 leaving $95,000 taxable income. Assuming the…

I'll show you the situation. If your mortgage is at 6% (I think mine is just below that) and you're in the 30% bracket (I am around there) you're effectively saving 1.8% in deductions (30% of the 6%) and therefore paying 4.2% interest right? A C.D. now pays over 5.25%. So to clarify the math, you borrow $200k, pay $12k in interest, but get to deduct it and therefore save $3.6k, thus really paying $8.4k in interest (o…

You forgot to deduct the income tax from the interest generated by the CD.
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