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10 Things Millionaires Won't Tell You

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Re: 10 Things Millionaires Won't Tell You

#51

Post by ambition »

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.

I didn't intend to imply anything about inferiority.

The people described here have a different mentality. They get rich by avoiding risks and cutting costs. It is a slow and systematic process with guaranteed results.

Startup people get rich by taking big risks and working hard to increase their top-line productivity and wealth-creation. It is relatively fast and chaotic process with unpredictable results.

Re: 10 Things Millionaires Won't Tell You

#52

Post by johnrob »

nazgulnarsil wrote: post #46
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.

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.

If the math were really that simple there would be a massive arbitrage opportunity :). I think there are other variables at play, such as:

- down payment: the renter takes the down payment and gets interest on it for N years

- closing costs

- repair costs

- property taxes

Re: 10 Things Millionaires Won't Tell You

#53

Post by ambition »

netcan wrote: post #47
lsemel wrote: post #9

Earlier quoted context omitted.

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.

Actually, it does. If they had businesses that scaled, they'd be well above the million-dollar mark and in the even-tinier minority.

But I'll go one further and suggest there's a causal link in play here: The half that are business owners are people who make their money precisely in businesses that don't scale. They own and operate local businesses which are natural geographic monopolies and they don't get crushed by large multinational competitors because of that fact. For example, these are businesses like landscaping companies, local shops, construction contractors, and services businesses.

Also note that a chunk of the 50% that don't own businesses are well-paid, sometimes independent professionals such as doctors, lawyers, architects and engineers. Again, their source of income does not scale, so they get rich by cutting costs.

Re: 10 Things Millionaires Won't Tell You

#54

Post by ambition »

JoelSutherland wrote: post #8
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.

http://en.wikipedia.org/wiki/Upper_middle_class#Income 10 Million households have $1 million+. There are an estimated 111,162,259 households in the US... This is upper class wealth...just not completely elite levels of wealth. I think the point of the article is that people with upper class levels of wealth tend to have upper-middle class lifestyles.

This is really an argument of semantics of "upper-middle-class" vs. "upper-class." Maybe there's standard definition I don't know about. My personal definition is that upper class is "don't need to work ever again."

You're right that upper middle class people have the same lifestyles as upper class. The difference isn't in material goods, it's in freedom.

Re: 10 Things Millionaires Won't Tell You

#55

Post by mattmaroon »

ksvs wrote: post #40
mattmaroon wrote: post #27

Earlier quoted context omitted.

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.

True, that's because I'd sooner invest in stocks and only pay capital gains.

Re: 10 Things Millionaires Won't Tell You

#56

Post by nazgulnarsil »

johnrob wrote: post #52
nazgulnarsil wrote: post #46

Earlier quoted context omitted.

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.

If the math were really that simple there would be a massive arbitrage opportunity :). I think there are other variables at play, such as: - down payment: the renter takes the down payment and gets interest on it for N years - closing costs - repair costs - property taxes

and you think that difference will exceed $18k a year for 30 years?

Re: 10 Things Millionaires Won't Tell You

#57

Post by kalid »

nazgulnarsil wrote: post #12
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.

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…

I think you're overlooking the interest payments, which are gone forever as well. If you have a 300k mortgage at 6%, you are paying 18k year (1500 month) in interest alone. Yes, there are tax advantages but I think this is negated by property taxes, PMI insurance, etc. Your mortgage payments aren't buying equity in your house.

Re: 10 Things Millionaires Won't Tell You

#58

Post by johnrob »

nazgulnarsil wrote: post #56
johnrob wrote: post #52

Earlier quoted context omitted.

If the math were really that simple there would be a massive arbitrage opportunity :). I think there are other variables at play, such as: - down payment: the renter takes the down payment and gets interest on it for N years - closing costs - repair costs - property taxes

and you think that difference will exceed $18k a year for 30 years?

I think your example is more realistic if the numbers are more like 3000/mo to buy and 1500/mo to rent. If rental prices were as close to mortgage rates as 2000/1500, then not only would buying be obvious, it would not even be a much larger financial commitment. The extreme case is when rent equals mortgage.

Re: 10 Things Millionaires Won't Tell You

#59

Post by xiaoma »

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…

True. However stock market returns have averaged about 10-12% a year going all the back to 1830. Furthermore, they've beaten real estate, bonds, gold and every other asset class over any given 15-year period. Even people who bought the day before the great crash in 1929, came out ahead of those who put the same money into real estate... as long as they didn't panic and sell at the bottom as most people did.

Of course we can't expect every decade to be like the 90's, but I think it is a reasonable expectation that the 200-year trend will continue barring a kurzweillian singularity or other freakish phenomena.

Re: 10 Things Millionaires Won't Tell You

#60

Post by _b8r0 »

pg wrote: post #44

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 ma…

Hmmm...

I wouldn't say I'm rich, but my accountant is creative when it comes to tax, and rightly so.

I completely agree on the handbags thing, Ferraris are a different matter - if you have a means of moving that cost from being a taxable depreciating asset to a tax writeoff then go for the latter. I know an entrepeneur who leases high end sports cars through his companies as a means of reducing tax liability. YMMV though (pun intended, sorry)

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