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Personal finance experts don’t get wealthy by following their own advice

larryludwig.com

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Re: Personal finance experts don’t get wealthy by following their own advice

#181

Post by ghaff »

dionidium wrote: post #174
zhdc1 wrote: post #138

Earlier quoted context omitted.

> there's a "dirty little secret" that this article doesn't mention: most of them never get paid a dime by their own business. They are spending their way through a business loan, or they have family money, or some other source Over fifty percent of generic small businesses survive for more than five years, so it's unlikely that a majority of them are completely subsisting on government loans, investors, or family mo…

> However, depending on the country, tax laws can be fairly advantageous for small business owners My wife is a loan officer at a mortgage company. It's a running joke that it's a pain in the ass to qualify small-business owners, because so many of them claim so little actual income on their tax returns, even when they're quite obviously wealthy.

Many years ago, I had a small side software business. My revenue would be almost pocket change category for me today and honestly wasn't all that much for the effort I put into it at the time. But one nice thing was that it wasn't even a stretch to bring to income down to just over zero by offsetting various computer and office expenses (in addition to the costs the business incurred directly, which weren't much).

Re: Personal finance experts don’t get wealthy by following their own advice

#182

Post by pushrax »

dheera wrote: post #103
pushrax wrote: post #78

Earlier quoted context omitted.

The variance in potential outcomes of holding VOO is much, much lower than the variance of holding crypto. Buying VOO buys a share of the profits of the work of many millions of people. It also speculates that other people will continue to want to buy those profits. Buying a token only speculates that more people will want to buy that particular token. It's much harder to project that people will continue to want it.

Oh yes. So that's why half-half.

A risk parity approach would say more like 95% to 5%, but that works too.

Re: Personal finance experts don’t get wealthy by following their own advice

#183

Post by thewebcount »

It’s funny because there was an article here a few weeks ago slamming “The Millionaire Next Door.” Yet, that is one of the financial advice books that does tell you to start a business. Or at least it points out the same things as this article, namely that that’s how most rich people got there.

Also, despite what the article says, I’ve made a ton more money working for the man than I ever made working for myself. I’d probably be considered rich by most Americans’ standards. So it absolutely can happen, though there’s a lot of luck involved. I used to own a business, and while I manages to keep it alive for 5 years, it didn’t make much money. I sold it to a competitor and went to work for the man (not the company I sold it to). I kept getting royalties for a couple years, and by the time that ran out, my stock units were starting to vest, and that’s when things took off. The business helped make the transition smoother and faster, but I’d have made money on my stocks and higher salary either way.

Re: Personal finance experts don’t get wealthy by following their own advice

#184

Post by tommiegannert »

crunchyfrog wrote: post #92
wincy wrote: post #43

This seems like a good place to be vulnerable and ask for advice. I am 35 and still spend like in a teenager. I grew up really poor where if the money didn’t get spent right away it would just sort of disappear, into drugs or beer or whatever my mom and stepdad were spending it on. My only real asset is my house which has appreciate significantly in value, but all it would take is one job loss to get me behind on tha…

You're trying to cure the symptom, not the disease. You need a therapist, not financial advice. You know what you're doing is unhealthy but you can't stop. A good mental health professional can help you deal with the pain you're trying to cover up with buying junk.

And in this case, paying for the therapy is both an expense and an investment, which is probably a great combination.

Re: Personal finance experts don’t get wealthy by following their own advice

#185

Post by larryludwig »

zhdc1 wrote: post #142
logicalmonster wrote: post #55

I think this is a pretty good article, though I'd think that most financial gurus aren't trying to lie, they're just trying to give advice that's feasible for a mass audience to try and learn. To give an example; the article mentions Dave Ramsey talking down to his callers and giving generic advice such as cutting up your credit cards. I don't follow Ramsey too closely and can't read his mind, but I'd bet he's optimi…

> If I had to give 1 bit of general financial advice though: develop your talent stack. This is crucial, but having a relatively high savings / investing rate is as important. > And baring some health issue, nobody can ever take a skill away from you. Time absolutely can. Even someone in a sedentary job in a field where their expertise won't necessarily become outdated will eventually have to hang up their cleats for…

Talent stacking (as Scott Adams coined it) I highly recommended even if you don't own a business. I mentioned this in another blog post.

Re: Personal finance experts don’t get wealthy by following their own advice

#186

Post by jmstriegel »

ghaff wrote: post #133
hn_throwaway_99 wrote: post #115

Earlier quoted context omitted.

As others have pointed out, though, while I used an extreme example, you can take your average, middle-of-the-road yet high-quality software engineer, and if they make the right decisions (select jobs that pay well, live well below their means, invest with a standard diversified portfolio), they could easily retire in their 40s. I'm not saying this route is available to everyone, but certainly available to plenty of…

>easily retire in their 40s That's a stretch. An average of $150K/year before taxes throughout 20s and 30s is a pretty good job in the US. Say they save $50K/year--which is a lot on that salary--that's $1million saved overall which, depending on your assumptions, will give you about median US household income annually. So possible in a sense if retiring as soon as possible is your goal but certainly not to everyone's…

I think this doesn't account for investment returns. If you assume this money is invested for the duration of your 20s and 30s, you "only" need to invest $50k/yr for the first 10 years. At an average 7% growth, you can let it ride for a decade and still have just under 1.3mm by age 40.

In your example, a high salary individual contributing $50k/yr for 20 years at 7% ends up with over $2mm by age 40. That's $80k/yr at a %4 withdrawal rate for the rest of your life.

More reasonably, a $25k/yr contribution for 20 years at %7, would pass $1mm by 40. If you let that sit for the next decade and retire just before you turn 50, that will roughly double over the decade to $2mm.

I agree that this isn't attainable for everyone, but contributing the $19.5k/yr max to a 401k pre-tax, and $5.5k/yr into a Roth IRA over your 20s and 30s, will likely make you a millionaire by 40 and a 2-millionaire by 50.

Re: Personal finance experts don’t get wealthy by following their own advice

#187

Post by rossdavidh »

jstummbillig wrote: post #137
rossdavidh wrote: post #129

From his own article: "I’m not suggesting the advice the gurus are giving is outright wrong. Their recommendations will make you modestly successful. You’ll more than likely live an OK life and have an above-average net worth." In fact, Suze Orman and the like are talking exactly to this audience, and their advice is in many cases a lot better than what they are doing now. Also, being married to a small business owne…

Are you alleging that most small business efforts fail before they make any profit -- as in +50%? That seems rather unlikely but if anyone has strong numbers on that I'd be very interested.

I cannot say the percentages, but my wife has been shocked to hear from business owners who ran their store for over a decade, that they never made a dime. This kind of confession usually only happens after they have given up and closed. I don't know of any trustworthy numbers on it; I would not be surprised if it was far larger than most people believe, but the difference between businesses that "fail" after two years and ones that last for five years or more, is often how stubborn they are or how much money they have from other sources to keep trying. I would not be surprised if it were over 50%, but I know of no source for strong numbers on it.

Re: Personal finance experts don’t get wealthy by following their own advice

#188

Post by paraph1n »

ericmcer wrote: post #180
meowkit wrote: post #176

Earlier quoted context omitted.

Work to live. Doesn’t matter if you make 10x, 100x, or even a 1000x more over a lifetime if you’re miserable doing that job.

Everyone I know who has chose a career based on passion has grown to view it as work eventually, they still enjoy parts of it but monetizing something you love and doing it 40+ hours a week turns it into work. I have friends who loved animation/art but actually working for a gaming company ended up being miserable. And 1000x would mean I could work for 1 month and make ~85 years of income so… I would be fine with tha…

I love programming. Always have. Been doing it since I was 10 years old. It was my dream to do it for a living, even before I realized that it pays well too!

But sadly, you're right. My 40 hr/week engineering job in big tech is miserable.

I still code for fun/passion in my free time. But I cry on the inside every time I think about how much of my time and mental energy gets wasted at my day job.

I hope that either (A) I am able to retire young, or (B) I find the mythical coding job that I can actually enjoy.

Sadly, neither (A) nor (B) seems likely to happen.

Re: Personal finance experts don’t get wealthy by following their own advice

#189

Post by rossdavidh »

dionidium wrote: post #174
zhdc1 wrote: post #138

Earlier quoted context omitted.

> there's a "dirty little secret" that this article doesn't mention: most of them never get paid a dime by their own business. They are spending their way through a business loan, or they have family money, or some other source Over fifty percent of generic small businesses survive for more than five years, so it's unlikely that a majority of them are completely subsisting on government loans, investors, or family mo…

> However, depending on the country, tax laws can be fairly advantageous for small business owners My wife is a loan officer at a mortgage company. It's a running joke that it's a pain in the ass to qualify small-business owners, because so many of them claim so little actual income on their tax returns, even when they're quite obviously wealthy.

They may well be cheating on their taxes, but they may also in many cases be wealthy in spite of, rather than because of, their small business.

Re: Personal finance experts don’t get wealthy by following their own advice

#190

Post by giantg2 »

zhdc1 wrote: post #147
giantg2 wrote: post #7

Earlier quoted context omitted.

Yeah, but the audience of those financial gurus are the general public. So sure, their advice might work for the top 5%, but the rest of people will never "get rich" using that advice. Even that top 5% could be better off if building passive income, businesses, etc.

> So sure, their advice might work for the top 5%, but the rest of people will never "get rich" using that advice The median household income in the United States is $79.9K. Assuming that a family of four can live on $50K (including taxes) in - most - locations, which is twice the poverty limit, they can theoretically save $30K a year in a mix of 401K, IRA, and general investment accounts. This amount, if invested ov…

"The median household income in the United States is $79.9K. Assuming that a family of four can live on $50K (including taxes) in - most - locations, ... "

I think the main problem here lies in assumption of the distribution over the various locations. $50k+ in Appalachia is good money and you might be able to save $30k out of $80k. One would not be saving and investing in many of the large cities and their suburbs (where more people live).

One thing to note is that the $1.5M-3M is not inflation adjusted and would be worth much less than it is today. It will result in better outcomes, but it won't make people rich, like many claim. $1.5M is just enough to keep a couple out of poverty who will be retiring at 65 years old, 35 years from now. This is especially true if people live longer and the cost of healthcare continues to increase much faster than inflation.

"(which is lower than what the S&P has historically returned by a fair amount)"

The next decade is supposed to be much lower. (Past performance is not an indicator of future returns).

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