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10 Things Millionaires Won't Tell You

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Re: 10 Things Millionaires Won't Tell You

#41

Post by dionidium »

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…

In addition, it seems to me that a lot of middle-class homeowners who use this argument would be just as well off (or very close to it) with the standard deduction.

I've never owned a house. Am I missing something?

EDIT: I live in the Midwest where 2000 sqft in a nice neighborhood is very often less than $200k. This is probably a factor.

Re: 10 Things Millionaires Won't Tell You

#42

Post by tricky »

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.

(heavily adapted/paraphrased/quoted from 28 Feb 2006 Berkshire Hathaway Chairman Letter by Warren E. Buffett)

The explanation begins with a fundamental truth: With unimportant exceptions, such as foreclosures (in which some of a seller's losses are borne by creditors) the most that a real estate investor, in aggregate, can earn between now and Judgment Day is what the market, in aggregate, earns.

True, by buying and selling clever or lucky, investor A may take more than his share of the pie at the expense of investor B. And, yes, all investors feel richer when prices soar. But an owner can exit only by having someone take his place. If one investor sells high, another must buy high. For owners as a whole, there is simply no magic-- no shower of money from outer space-- that will enable them to extract wealth from their homes beyond that created by the markets themselves.

Indeed, owners must earn less than their markets earn because of "frictional" costs. And that's my point: These costs are now being incurred in amounts that will cause homeowners to earn far less than they historically have.

Re: 10 Things Millionaires Won't Tell You

#43

Post by sah »

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 think the clearest line between rich and not is whether you have to work to earn a living. In my book, if you're an "earner" at all, you're not rich yet.

Re: 10 Things Millionaires Won't Tell You

#44

Post by pg »

A lot of this is wrong. For example, no one rich would "leverage their home equity to finance purchases." And though rich people often have assistants, they're not drawn from a special guild of "concierges" with connections for getting restaurant reservations. Nor would anyone rich rent handbags or Ferraris.

The parts that aren't false read like a description of someone who made money from e.g. developing shopping malls. People who get rich from technology are less likely to be B students, less likely to try to cheat the IRS by routing their personal expenses through their companies, and more likely to be "nice guys."

Re: 10 Things Millionaires Won't Tell You

#45

Post by nazgulnarsil »

dmv wrote: post #21
nazgulnarsil wrote: post #12

Earlier quoted context omitted.

putting money into a house that maintains its value or even drops slightly is better than paying rent. rent money is gone forever. a mortgage is building equity that you can draw on. plus I don't get how people don't realize that renting out a house to pay its mortgage is basically free money. Someone else is building equity in a house for you and all you have to do is pay the down payment and manage tenants. My pers…

Duplexes sell fairly frequently. For mine, the rent of each unit is greater than the mortgage... As a note, though, home ownership (esp. rental ownership) is more expensive than just the mortgage (and taxes, and utilities). Like any business, there is time and attention required. Like any other depreciating asset, there is also ongoing maintenance costs. And they are not smooth like the income stream. If your rent is…

as close to free money as you can get without lucking out I would say. Of course it requires attention and time but it beats pissing money away on rent, especially in silicon valley where rents are more than twice as much as the national average.

Re: 10 Things Millionaires Won't Tell You

#46

Post by nazgulnarsil »

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.

okay, let's compare scenarios.

scenario 1

you "save" 2000 a month by spending it on a mortgage

scenario 2

you pay 1500 a month for rent and save the other 500.

in which scenario do you come out ahead? that 1500 a month is GONE.

Re: 10 Things Millionaires Won't Tell You

#47

Post by netcan »

lsemel wrote: post #9
ambition wrote: post #6

This is really about how to get upper-middle class wealth. The psychology of these millionaires is very different from the mentality of big startup founders -- sure, half run businesses, but these are lifestyle-type companies with no ability to scale.

Just because a business isn't suited for investment by VCs doesn't mean it's not a great investment for its owners nor that they necessarily possess lesser business ability or some kind of inferior mentality.

Nor does it mean that they can't scale.

Re: 10 Things Millionaires Won't Tell You

#48

Post by nazgulnarsil »

Eliezer wrote: post #16
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…

there will always be someone smarter, better looking, richer, and with a bigger ____ than you Oh, come on, nazgulnarsil, where's your spirit? You can do it! Bart: You make me sick, Homer. You're the one who told me I could do anything if I just put my mind to it! Homer: Well, now that you're a little bit older, I can tell you that's a crock! No matter how good you are at something, there's always about a million peop…

my extreme pragmatism depresses most people. I always hear hope for the best but plan for the worst and I think it is unnecessarily pessimistic. Hope for the best, plan for the averages, have a backup plan for the worst.

But the bottom line is that we're already incredibly wealthy by historical standards. I am in the bottom quintile by income in the U.S. (poor college student) and yet i enjoy a standard of living that is probably in the top 1% of all humans who've ever lived.

P.S. assuming you are Mr. Yudkowsky your posts at overcoming bias singlehandedly turned me from an empiricist into a rationalist.

Re: 10 Things Millionaires Won't Tell You

#49

Post by dkokelley »

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…

So, in essence you're in favor of option B (use the money to invest in something that will net you more in the end), specifically in CDs, or possibly a money market account. Thanks for bringing that up. The CDs are FDIC insured and are a strong case for not paying off the mortgage.
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