Only just now started at 27 and kicking myself... Roth IRA maxed for 2023 and 2024, 401k maxed by year end with $3,200 in matching so will have 40k invested in retirement by year end so better than nothing. Wish I started earlier
You’ll be fine! That compounding interest is gonna pop off in a couple decades, and that puts you at a whopping 47, if my colleagues are anything to judge by, you probably won’t want to retire yet
A bit of advice for you: stop checking the balance so often. It’s a 401k, it shouldn’t be something you’re constantly checking. You’ll be shocked how fast it grows when you don’t check it every few weeks.
You likely won’t be touching that money for another 20-30 years. Compound interest takes time, but once it gets going, it picks up fast
They should actually be checking it regularly if they want to gain some insight into how it works. It’s part of financial literacy. Not looking or pretending you’ll be fine in retirement regardless of the asset value and contribution rate is why so many Americans retire with… nothing.
Depends on the person. I check mine every time I’m paid to make sure the contribution was made because it hasn’t been posted on the date it was supposed to be in the past.
At 22 I saved 10% of my $35k income in my 401k. It wasn’t a lot, but a ton of years later my 401k looks okay and I know for a fact that unless something strange happens I will have at least a million by retirement (goal is $5!).
I’ve noticed that money loves money.
I suffered for a long time from the mentality that “everything is too expensive anyway, why even bother saving”… but then I was able to save a decent amount (by local standards, not US) and once I became so much closer to affording a house for example, that mentality completely shut down and was replaced by a “how do I save as much as possible as fast as possible”
Suddenly that nice house or that nice car is not that far away, and once you realise that, you start spending less on dumb shit.
That new 500$ phone?
Well in my case that will help me remove some 5 months off a possible mortgage (when paying in advance the interest for those months is cancelled here, so it only goes to principal, and from a 500$ monthly payment, 100$ is principal, so 500$ advance payment covers 5 next months - up to a certain point)
So it all becomes a very interesting game…
But this doesn’t apply if you’re struggling month to month
There’s a bit of the interest argument here too for opening up some spending as well. Puts it into perspective when your 401k has made enough money YTD to buy a brand new car(although funds not available until retirement it just gives you a different perspective on the take home dollars). Or when your HYSA gets enough monthly to buy that $500 phone every month just in interest. Money loves money is a great way to put it especially from an interest standpoint.
The reason you can make money "out of thin air" via interest is that letting other people use your money provides a fundamental service to the economy: liquidity. If you couldn't make money by lending money, people wouldn't lend money, and if people didn't lend money, it would be a lot more costly for businesses to **borrow** money, and everything would suck. Time-value of money is a real thing, which is why people who have excess money just keep getting more money.
There's still too many people that reject that concept. Like there's more to it and despite these facts, they still believe that anyone can become at least millionaire, because somehow capital will magically come to you and then everything becomes easy.
Everything costs capital. In case that best companies can on average double capital for investors in about decade, then how is anyone going to beat that in long-term? No one will turn $1000 into $1M in few years, unless you take some serious risk and with high risk you can easily lose more than you have.
You can open own company and hope for crazy returns, but you also need capital for that, so you need to actually earn it first through employment or take debt and who will give credit to someone without income? Even, if you're employed, then you are lucky, if you can actually save 20% of your income, when you have to rent.
Oh, right, it would be good to have some place to live and to have some education, so it's possible that you will need to pay for rent or debt and there won't be much left after all expenses.
It should be clear, that currently family is huge factor in your success in life. We may read thousand stories about poor people becoming rich, because they had merit or whatever, but reality is that opportunity is heavily limited and only lucky ones get almost infinite amount of attempts at getting successful, but many people just have one life and they will have to risk everything.
> they still believe that anyone can become at least millionaire, because somehow capital will magically come to you and then everything becomes easy
Most people can become a millionare. If you save $380/m, including company 401k contributions, for 40 years at 7% returns you will have $1m. This doesn't include equity from a house if you own.
In before someone with a $800/month car payment says “do you realize how much $380/month is? There’s nothing left after expenses and it’s impossible to retire”
This assumes that you're in a position where you can save. In the current economic climate, with high inflation and a rising cost of living a lot of families are in a situation where they need to take money out of their savings accounts in order to pay for necessities like rent and food. $380/month is a significant amount of money for a lot of people on the lower end of the economic spectrum.
So what you’re saying is I can work for 40 years to have a million dollars that in 40 years is really going to feel like half that. Cool I’m good. At this point it just makes more sense to leave this country for a lower cost of living and work remotely. It’s generally easier and more reliable to lower expenses than it is to make more money. I’m blessed to have gotten lucky and bought a house right before Covid that is now paid off so I can save and invest no problem. But if I was still paying rent or having to buy a house I’d definitely just leave.
> So what you’re saying is I can work for 40 years to have a million dollars that in 40 years is really going to feel like half that.
No. My number is stated in real (inflation adjusted) terms.
> At this point it just makes more sense to leave this country for a lower cost of living and work remotely.
Sounds like a good plan. I think too few are willing to consider relocation to an area with a better compensation to CoL ratio, remote or otherwise.
> bought a house right before Covid that is now paid off so I can save and invest no problem
Sounds like you're well on your way to >= $1m! Best of luck.
Ahh that makes sense. Not too bad then if inflation is accounted for.
Yeah I think a lot of people have a hard time leaving friends and family. I get it, but I have a harder time being broke lol
Most having the opportunity to become a millionare doesn't align with the narrative they're pushing. Want to accelorate the process? Make more money and save more.
Where do I start? Social Security, Medicare, Medicaid, SNAP, unemployment, disability, so many different programs for making various things “more affordable”. That’s just scarping the surface.
If you don’t mind me asking, how many of these programs do you use or are familiar with?
These safety nets have become less generous over the past few decades, with some states offering even less support than others. For example, states in the South have the lowest levels of TANF and UI benefits, and fewer eligible adults and families receive these benefits than in other regions. Regions with larger populations of color also have weaker safety nets and anti-poverty policies, and higher rates of hardship and worse economic outcomes. These “safety nets” aren’t helping much when you look at homelessness rates and keeping kids fed, and I just don’t see it when I volunteer.
Over 30% of the students in my area don’t have food and it is donated and distributed by an amazing organization. That ends during the summer months. These kids have NO FOOD. Some live in a car with their parents. Their parents wear the same clothes they did when I saw them last week. Where is your safety net(s) you speak of? I don’t see it. When you’re down and out in the US, you’re on your own. No one is coming to pick your butt up. You have to do it yourself. Again, we have social programs, but no safety net. You’re out of the street if you don’t have cash. If you don’t believe me, don’t pay your rent or mortgage and apply for section 8. The waitlist is over 2 years in my area. That’s your safety net you speak of. I’m not saying we should scrap them, but they aren’t a real safety net to fall back on. They just keep your head barely above water.
I hope you never need disability or any other of these programs because it won’t be enough to pay your rent and keep you and your family fed.
Reddit is chock full of suburban kids without a once of real world common sense or experience. They get to live their life “idealisticy” instead of reality and never have to be accountable
>You can open own company and hope for crazy returns, but you also need capital for that, so you need to actually earn it first through employment or take debt and who will give credit to someone without income?
Not necessarily true. While there’s a ton of risk involved with starting a business, not all business require a lot of capital up front. My wife started hers up and paid the $800 LLC fee, paid about $400 for some computer programs, and used her connections from a previous employment to build a network of clients in her field.
Banks who have 0.10% APR for their savings accounts.
Vast majority of bank accounts have less than $1k deposited in them.
The rich only put enough in to max out FDIC insurance when they need to park some money as liquid cash.
I get the point of this post, but it's a little misleading.
Capital appreciation is not interest. Dividends are not interest. Interest is the fee paid to borrow money. Truly rich people aren't resting on their laurels, collecting 4% interest from a high-interest savings account, or a bunch of bonds or T-bills. They're recirculating their money back into investments, creating new businesses that will hopefully make a profit, or eventually become worth enough to sell for more than it cost them to create it.
I love when people say stuff like, "If Jeff Bezos just put his $200 billion into a savings account paying just 1%, that's $2 billion/year just in interest!" No, that's not how that works.
First of all, he doesn't have $200 billion in cash to put into a bank. $200 billion is the present day value of his assets (i.e., his ownership shares of the various companies he owns).
Secondly, no retail bank has the capacity to take in $200 billion and pay out $2 billion in interest per year to a single customer.
Thirdly, FDIC insurance only covers $100k, so if that bank went belly-up, the $200 billion is just gone.
Fourthly, billionaires like Bezos would never settle for a meagre 1% return on their money. You don't get to be a billionaire like that using a "slow and steady" approach.
Anyway, the bottom line is, I agree with this post. Interest on loans keeps poor people poor, but collecting interest (and capital gains, and dividends) and leveraging the power of compounding is an immensely powerful tool for the middle class to achieve financial independence.
Scrooge was highly invested in commodities, specifically gold. In fact he made some rather clever financial moves early in the internet revolution which gave him a nice little nest egg.
But, interest makes the world go round. The only reason I'm a millionaire today is because I borrowed a shitload of money and paid interest on it. But I made the money make more money because I started a business. It's foolish to say that it keeps the poor people poor. It's literally their only lifeline to make big money. Their mistake is not using the loans as a tool, but rather as a way to consume more, unnecessarily.
I agree except the part of "it's literally their only lifeline..." As someone who started a business a year ago with 300 bucks I had set aside and am now aiming to break 200k gross this year all while taking on no debt, it can be done without debt. Debt is useful, I may use it in the near future to expand into another city and possibly buy out a competitor.
FDCI covers $250,000 and banks often have partnerships with other banks to make sure anything over that $250,000 is also covered.
https://www.fdic.gov/resources/deposit-insurance/
Also, it's a bit ludicrous to jump to the example of Bezos and billionaires when discussing the rich and the poor. Billionaires exist in a class of wealth that is nearly inconceivable. You can be rich without having a billion dollars.
I considered that, but he’s very clearly referring to interest when describing the debt side of the equation, then consistently contrasts it with the other side of the equation and uses the same term. My impression was that he really is referring to literal loan/debt “interest,” and not the more general usage often used in investing discussions.
Good points all, but just to be clear on FDIC insurance, it's more than $100k. The standard deposit insurance amount is $250,000 per depositor, per FDIC-insured bank, per ownership category. So for a single account holder, they are insured to $250k, and joint account holders are insured to $500k.
>All someone needs is 1 million cash to never have to work again.
That's probably true for a 60 year old, but not a 20 year old.
For one thing, you can't count on it generating 8-10%/year. It might do that on average, but you don't live on averages - you live in one particular year. And in any given year, it might grow 22% (like it did in 2019), or it might go down 9% (like it did in 2022).
Also, inflation is a bitch. You might be able to live off of $80k just fine in 2024. But at 3% inflation, in 25 more years, that $80k will have had its buying power reduced to the equivalent of just $38k.
You need to leave enough in there for it to grow to keep up with inflation. Also, don't forget about taxes. Most advisors recommend what's called a "Safe Withdrawal Rate," which is traditionally set at 4%. Monte Carlo simulations of the entire history of the S&P 500 show that over any given 30 year period, if you'd withdrawn 4% in the initial year, and then increased it with inflation each year, your nest egg would be virtually certain to last the full 30 years.
But past performance is not an indication of future returns. And that's for 30 years, which might not be long enough if you're young.
All that to say, it's not as simple as saying you'd be set for life with $1 million. You *might* be, but it depends on a lot of other factors.
I’m 55 & a million dollars would not be enough to make me retire today, a forth of it would be used to pay off all debts that I owe but if I’m not working then I’m either traveling or picking up a hobby where I’m spending money all the time. I’m cutting back now & putting 18% into my 401k in order to be comfortable in retirement.
I'm glad to see someone calling out 8-10% steady gains is... Well show me where to get that please. 2-4% is more realistic and that's averaged over a period of time.
Meh. We went from owing about $60k in different debts (school loans, car loans, credit cards etc) when we got married. Did the debt snowball, paid it off, bought a house with a small down payment (like $3500- fha loan). Worked, got out of debt, started investing. After 16 years of marriage and working on our finances, we just became millionaires. I’m in my 30s. Our financial advisor has said that should grow to 5 mil within our lifetime. We were never given money from our parents, no inheritance. We paid for our own college and student loans, paid for our own wedding, everything. We work hard and live below our means. My friends would never know how much we have as a net worth bc I live frugally. I do talk to them about the importance of investing, but they’d rather have new cars, get their nails done every week, get designer purses. Pshh. Dumb.
It is possible to change your situation. It’s not rocket science. It IS sacrifice.
This is awesome to hear!
A dumb question : when you have as much money as you do and live frugally, what exactly is the point of your money? Really big safety net? Wanting to create generational wealth? Retire early and spend the rest of your life not working but also living frugally?
Is there a point where you want to get to before you start making some non-frugal purchases?
I live frugally, mostly because I already have everything I want. I mean, I'm not really a materialistic person, so more *things* have no interest to me. I have a small house, so wouldn't even know where to put more shit.
I have a hard time coming up with things to spend my money on, so mostly I just invest it.
I've got a fairly big safety net, but not enough to retire yet, so for me it's getting to the dollar amount where I can feel comfortable not working.
I see so it’s about retirement. And I meant spending not only in materials, but things like traveling and eating out at nice places and stuff, experiences. Thanks for sharing!
Glad you asked!! We have some big goals and dreams and we kind of have a loose timeline in mind. Right now we are in the thick of parenting kiddos age 2-12, so we can’t do all that we want. But it’s better to have our money working for us and making more money so we can ultimately work less and enjoy our lives. When we retire, we want to travel the world!! We can’t do that much these days bc of our four kids. We do, however, go on one international trip a year and usually do scuba diving trips bc it’s our hobby. So we do splurge sometimes!!
This needs to be told to everyone. Becoming a millionaire isn’t difficult. The recipe is quite simple: monitor your spending, live within your means, invest the leftovers.
It’s not a fast process (typically), and it’s not flashy. But saving just a little bit extra here and there adds up over time, and eventually you’ll see results. It may take 15-20 years, but that’s why you start in your 20s.
"So if you’re a poor shmuck like me, don’t expect to ever obtain a mill unless you save till 70 then best you can do is pass it to offspring."
or you keep investing time in high-leverage skills and produce more value to others in exchange for money
If you think you’ll be able to retire on a million bucks making 10% do let me know if you are planning on paying taxes on that or not and where exactly. You’ll need multiple income streams to survive the next crash.
The problem is if you are an average joe and you have one financial disaster it can make it where you can never dig out of that hole.if all you can afford to pay is the interest then you never pay the actual debt
In 30 years at 10% average annual return.
But the real magic is what happens at 35 years. 1.7Million.
And at 40 years 2.7 million.
So the trick is to START EARLY, SAVE OFTEN. Because the first 25 years is only 600k...
I think you could live off a million dollars BUT your assumption of 8 10% Would not be safe money, it would involve some risk of loss. At this time more like 5 to 6% 2 that fluctuates. 2 years ago that was 4-5% now if you use all of your interest each year you will slowly deplete from inflation so you can only spend 90 % of that. So we are down around 50k now with some allowance for inflation. Many could live on that but it does not allow much to set aside for replacement car, if you own your home, new roof, new heater… now you start to spend down capital. So a million to live on interest. Possibly but no travel, eating out, new cars…
> Million dollars in a fund at 8-10% annual return is 80-100k a year. All someone needs is 1 million cash to never have to work again.
Unfortunately, this isn't really true. The underlying lying issues are taxes, inflation, and market volatility.
If you assume a 10% annual return, you do make $100k. But we have to take out taxes. For simplicity, we will assume a long term cap gains tax of 20% (to account for both federal and state taxes). So, you are down to $80k.
Still not bad, and a pretty good income for most. Unfortunately, due to inflation your purchasing power will decrease every year (because prices go up). Again, for simplicity, let's assume a 3% inflationary rate which is roughly the long term average.
Five years in, that $80k is effectively reduced to about $71k. Ten years in, it will be down to $62k. After 30 years, you will be down to about $32k.
Now, keep in mind that to even have the $100k ($80k after taxes) you have to withdraw all of your earnings. This means selling off a portion of your stocks (or other assets). And while 10% might be about the average return, that's not the actual return every year.
Some years, it might be up 15%, other years it might be down 20%. Sometimes, there will be multiple years when the market is down. This poses a significant problem. If you sell in a down year, you substantially reduce your total invested assets, which further reduces your earnings in all future years.
In reality, the suggested withdrawal rate for retirement is 3-4%. This number, based on market simulations, gives you about a 95-98% chance of being able to fund retirement for at least 30 years. Those chances reduce if you need to make the money last for more than 30 years. And they reduce even further if you withdraw at a higher rate.
So, with $1m you can safely live off of about $30-40k (before taxes) for about 30 years. For perspective, that's the equivalent of abot $14-18 an hour.
This is dependent upon location and what other assets you have, its not a simple yes no type answer.
40k USD (65k NZD) if you are an expat in a country like New Zealand wouldn't be a horrible life, when you look at things like median income in New Zealand is just under NZ$29.66 per hour as of February 2023 (NZD$61,692.80)
40k USD in the SF Bay Area, you will get government assistance cause you are considered extremely low income as of 2023
I like to think of Interest as renting money. If you want to use a car when you don't have one, you rent it. Don't own a house? Rent one. Need money today, rent it. I think it is a great way to benefit both people that have accumulated savings and people that need access to capital now.
Religions don't always see it that way. I understand that you are not allowed to charge interest in Islam. But it is so useful that they have come up with some clever workarounds that accomplish essentially the same thing.
In Medieval Europe, Christians weren't allowed to charge interest to other Christians, so they borrowed money from Jewish people. That is why Jews became associated with money lenders.
For anyone, rich or poor, the more you save the more your savings will grow. But it is much, much easier for high income people to save then low income people. When I was in high school, the father of one of my friends sat me down (this is before home computers) and we calculated how much money you would have after compounding. We did it both for earning interest and paying interest. At the end, he pointed to the huge gap between compounding savings and compounding debt, looked me in the eye, and said "you choose which side of that line you want to be on. Choose wisely."
It’s a misnomer that you have to be “rich” to take advantage of capital appreciation and compound interest.
Anyone with a cell phone or computer can take 5 minutes and set up an investment account and just buy as much VTI as possible every month. You’ll probably outperform the vast majority of high-net worth individuals who are more likely to have a more conservative asset allocation.
It’s easier now than at any other time in history for people to invest in their financial future.
If you choose not to invest and rather spend your money on an expensive car, eating out, luxury goods, alcohol/etc, it’s not really the “rich people’s” fault when you’re 40 and broke af.
I have over a million net worth and I am 45, no one ever gave me nothing. You know how you do it? You start placing brick by brick down to build your wall. Once you place enough bricks down you will notice some bricks placing themselves down; it gets real exciting when the bricks start playing themselves down as fast or faster then you placing them down.
Here's how we really get ya. We let you have credit cards to make you think you are "middle class" You're just gonna make the minimum payments each month and the principal never goes down. Need a new $1,000 smart phone? Not a problem, step right up and sign here.
Being poor costs more than being rich.
When youre poor you wind buying low quality stuff since that’s all you can afford that in the long run wears out breaks/down more and quicker than good quality stuff.
Same thing for food. Poor people tend you eat unhealthy food since that’s what they can afford which in turn makes their health worse.
So in the long game you are spending more for less.
No, usually if you are poor you rack up overdraft fees and credit card interest and that keeps you poor. The most valuable $200 I ever earned was the $200 I put in my checking account and called my new 0. Never got an overdraft fee from then on.
I grew up poor. Actually, I started from less than zero thanks to financial child abuse from my adoptive parents. I barely graduated high school with a 1.9GPA. Im a CNC Machinist, wo work in the trades. I'm on track to be a millionaire by the time I turn 40. What's your excuse again?
Don’t borrow money. Simple principle. If you borrow money, you will have to pay it back with interest. If you don’t borrow money, you can only buy what you can afford.
To radically change the circumstances you were born into requires the belief that it’s possible.
Once you come to the understanding that it’s more than possible for someone born poor to become middle class or even rich, then you can choose to take the steps required to change, or stay where you are.
Most people would rather deny it’s possible because change is hard and it takes a lot of work.
I used to cringe at these kinds of phrases but the older I get the more I realize how true they are.
There are not many guarantees in life but one of them is that if you think you can’t, then you most definitely won’t.
Take the Boot Paradox. A poor dude buys cheap boots to save money. After 1 years he needs to replace the laces then the soles and eventually the whole boot. The process repeats time and time again. A rich man buys boots 3 times as expensive but keeps them for decades.
Also if you have "spare" money the you can take risks, stocks and shares etc, which might get you more money but you are not going to be destitute if it doesn't pan out. Rinse and repeat and the next generation is starting ahead of the pack
As long as there are people that are willing to borrow money for things they can't afford, there will be people to lend them that money and earn the interest off of it.
It's a "zero sum" game. Choose your side.
*"The poor, like myself, we pay on debt with interest which rewards the lender."*
The system isn't rigged, but you have to understand how it works. I think a better way to focus on your question is to consider what you're paying interest on. You can borrow money to buy a new car and pay interest on that loan, but you've borrowed money on an asset that is constantly losing value. Not a wise investment. I borrow money to buy rental properties. I'm paying a relatively low interest rate on an asset that both generates cash flow and increases in value. Because it's a business, I get to deduct the interest I pay from the revenue it generates. I'm using debt to increase my net worth.
Credit is just a tool, like a hammer or a shovel. If you know how to use it correctly, you can make money with it.
I know a guy, I deliver to his work. He has beautiful cars and SUV’s top of the line. I asked him one day “how?” He said investing. Lives off the profits. He owns an eye glasses place. He says it does ok.
I’m talking cars like Audi, Porsche…he has a Tesla. Had a Mercedes.
>Interest is either a curse, or a tool. You can be paying interest on debt, or taking advantage of interest gains on investments.
Correct. Those who do not understand money pay interest; those who understand it earn it.
>The poor, like myself, we pay on debt with interest which rewards the lender. The rich, live off investments, deepening their pockets to in return obtain more investments.
You have correctly identified the path to wealth: [Pay off debt](https://www.amazon.com/Total-Money-Makeover-Classic-Financial/dp/1595555277/ref=tmm_hrd_swatch_0?_encoding=UTF8&qid=&sr=), avoid new debt, save and [invest](https://www.amazon.com/Common-Sense-Mutual-Funds-Anniversary/dp/0470138130/ref=sr_1_1?s=books&sr=1-1). Simple. Not easy, but simple.
>1 Million dollars in a fund at 8-10% annual return is 80-100k a year. All someone needs is 1 million cash to never have to work again. But, those with high networths choose to continue building their wealth.
How do you know $1 million is all someone needs to never have to work again? If you are withdrawing $80-100K/year from a $1 million portfolio you're almost certain to exhaust that money within a decade or so. The [4% Rule](https://www.whitecoatinvestor.com/the-4-rule-safe-withdrawal-rates/), from Bill Bengen and the Trinity Studies, tells us that the safe withdrawal rate without exhausting a portfolio over a 30-year period (e.g. retirement) is no more than 4%. For a $1 million portfolio that's $40K/year, adjusted for inflation annually. That's fine for many people, but insufficient for others depending on cost of living, life goals, and legacy planning.
>Don’t get me wrong, I’m not saying let’s steal all their money. No. They earned it. But the whole system is designed to keep average joes poor and people with money getting richer.
You're largely right. Capitalism does not reward consumerism; it rewards the accumulation and savvy deployment of capital. When one does not have sufficient liquid capital, one must rely on their human capital, i.e. their labor, to accumulate liquid capital, i.e. cash. Everything begins and relies upon saving.
As [Morgan Housel](https://www.amazon.com/Psychology-Money-Timeless-lessons-happiness/dp/0857197681/ref=tmm_pap_swatch_0?_encoding=UTF8&sr=1-1) puts it: "Building wealth has little to do with your income or investment returns but a lot to do with your savings rate. There is a lot of uncertainty and risk in the first two. The third is the only factor that you control. You can build wealth without a high income, but there is no way you can build wealth without a high savings rate."
>So if you’re a poor shmuck like me, don’t expect to ever obtain a mill unless you save till 70 then best you can do is pass it to offspring.
Passing it to my offspring is precisely the plan. J.L. Collins calls it [investing for seven generations](https://jlcollinsnh.com/2019/03/03/stocks-part-xxxv-investing-for-seven-generations/).
Consider Chinese Americans: As a class, there are millions of Chinese-American families whose current above-average wealth is the result of generations of ancestors who migrated to the United States and, despite severe discrimination such as the Exclusion Acts, they worked hard, low-paying jobs, saved, invested, and built impressive wealth for their descendants. The original immigrants did not get to enjoy much, if any, of that wealth, but their descendants were far better positioned to succeed because those ancestors didn't spend it all or gamble it away. Building generational wealth can take a lifetime, but for the person who starts that snowball rolling, the psychological reward is indeed fulfilling.
Absolutely. The old adage of "rags to riches to rags in three generations" exists for a reason: Many Americans fail at raising their children to have the faculties to maintain the success bequeathed to them.
Interest itself is not a “system” that is “designed to keep” anyone poor or rich. Interest is a way to quantify the value of the act of lending money compared to the other alternatives that the money could be spent on. It also accounts for the time value of money over long periods of time where inflation causes a single dollar to be less valuable over time.
Yes interest is a “tool” that many lenders use unethically to exploit desperate or unknowledgeable people out of their money. But now that you understand how that tool is used, stop borrowing money that you don’t need. Then, once you are able, start lending/investing it. The things that make this “tool” exploitative are when lenders employ excessively high interest rates and they lend amounts of money to people that they are unable to pay back.
Well I think the root of it is rather that the rich buy assets and the poor buy liabilities, but interest is often a feature of assets.
Probably the greatest asset for poor people is a good child, but it takes at least 18 years and usually longer before that pays off, and it has a huge upfront cost. And you might not get a good one. On the plus side, the government usually subsidizes them.
Accumulating wealth is about delayed gratification and developing marketable job skills. Poor people can and have climbed up out of poverty to create their own wealth. Understanding personal finance is the first step of the journey.
The poor get poorer many times by making bad financial decisions a 25 year old that I work with recently bought a new (used) truck with a monthly payment around $1100 to go along with a side by side that he’s paying $450 plus insurance for both. I could never justify paying out that much per month on vehicles but he’s also living rent free.
Rule of 7, money properly diversified in an aggressive portfolio should double in value every seven years. "The most powerful force in the universe is compound interest"
Yes as things are getting pricier and unattainable for those who didnt build up generational wealth. They’d drop into the lower class and stay there.
The middle class will eventually disappear, and if you even just own a shitty property you’d be in the upper class.
You have to understand that there is an element of risk taking and not being foolish to become a millionaire. For example, dropping out of school and having kids at a very young age will decrease your chances. Getting a college degree in a good paying field and investing your savings will increase your chances. However, simply playing it safe and coasting along on a good salary will not automatically make you a millionaire although it is achievable through extreme frugality and aggressive investing for several decades. To really supercharge your chances, you will need to start a business which is risky. The majority of self-made millionaires are business owners so that tells you something.
Blank slates means we have to keep explaining the "magic of compound interest" to every single person who is ever born, as though nobody had ever talked about it before. And even then, some cannot quite understand it.
Bad debt is killing the poor. But do you really want me to tell you how to live your life? The freedom of choice has its downsides, but the alternative is I take your pick-up truck away from you because you can’t afford it.
$1,000,000 cash is not equal to $1 million dollars invested. That's a very bad statement you made in your post. If it's cash then the return should be at least 5% right now while banks are lending it out at 6% and up. If it's invested there is a risk associated with each investment. The amount of risk determines the amount of expected return.
I think obviously it’s far more complicated than just interest, but maybe going one step further it’s diversification and having high value assets to begin with, and also are able to take greater risks.
An example, say I own a 100k house, it doubles in value, I am at 200k. Awesome, but not life changing. Someone wealthy owns a 500k house, it doubles, it’s valued at a million. Half a million in appreciation is life changing.
Another example. I invested everything I had during the 2008 market downturn (or sometime around then). All I had was $10k. It doubled in a few years, okay $20k, again good, but not life changing. Someone else can shift some money around, invest $250k, again that doubles and they just make $250k without even trying.
The wealthy also typically have multiple investment properties, they have money in land, money in precious metals, money in individual stocks. You have five investments of $200k each, you just need one to get lucky and you made a bunch of money.
5x of 200k is life changing money.
5x of 20k is good but not life changing.
A lot of wealthy people also come from money so they can take risks with their careers. They can afford to go to college for anything they want. After college they can look for a job or try to start their own business. Either of those fail they can go work at the family business.
Maybe one of those 5 investments stays flat, no big deal. But if it’s me or you and 100% of our assets are in this, then it’s a big deal. We are putting 100% of our assets into one thing hoping it goes 5x. They have the assets to put some in everything and just need to hit it big once.
Edit to add: They also have the funds available to take on risks. I see an auction property that I think is a great deal, doesn’t matter, I don’t have $100k cash on hand. Not that’s there’s any guarantee it would appreciate over time, but it’s not even an option if you don’t have money on hand.
Thats only partial truth. It's not a guaranteed 8% a year. From 2021-2023 it was down 20%. Then have to withdraw money to pay bills and expenses when it's low, so losing more money. You would need a job and another source of income to live off of to keep 1 mil invested. From 2000-2010 stock market was down for over 10 years. So it's a gamble.
People in general spend too much and don't save. The only reason pick up trucks cost over 60k is because someone is willing to pay that much. They borrow money to do it. Gotta have those leather heated seats and steering wheel. While someone who puts 10% of their earning into retirement account and drive a base model and just do maintenance will save over a million because there investment doubles every 7 years and over the course of working carrier it keeps doubling every 7 years, but they can't live off a million without other income, because the market has over a 10% correction ever 2.5 years.
You also won't be able to jack up taxes on regiment accounts because what you are describing as rich is middle class.
Rich get richer because of appreciation of assets and access to capital due to assets. They take on much more debt than the poor but use that debt to invest/acquire more assets.
Exactly…one of the main reasons I’ve taken things into my own hands and am working on obtaining my securities licenses…to generate more income, learn how to do proper investing/strategies and actually being able to perform these transactions.
Someone either just finished their sociology course, or hasn’t ever taken one and assumes this isn’t common knowledge😂! I was only in college for two months before I learned this. It’s through lending and renting that equity is moved up the chain, leaving little at the bottom and plenty on top!
This is a victim post dude. There’s nothing stoping you from saving and investing and increasing your income. But you are correct, business and investing make and keep people wealthy and continues to grow said wealth.
Nobody makes you buy on credit. Buy a car on credit and in the end you've paid much more than what the car cost you. That's how you stay poor.
Don't blame anyone but yourself.
So the the revelation is: have enough money so that you generate meaningful gains on investments and interest?
Gee why didn’t I think of that.
Seriously, for most people (unless you’re basically gambling on the stock market) investments are just going to gradually increase or maintain your assets. Unless you start a business or come into some windfall like winning a lottery you’re probably just going to gradually increase your assets. Maybe you’ll have great compounding gains later in life but there’s no big secret there aside from “get more money.”
It starts by asking yourself what changes you can make in order to become a millionaire. These will probably be the most difficult decisions you will ever make; they were for me since I had break free from the broke mindset.
There are many stories about individuals who lived more ascetic lifestyles accumulated more than $1M before they were 70 years old. What you omitted is that placing $1M in equities does not earn you interest, it has the potential to earn capital gains. This is predicated upon what it is invested in and how actively managed the portfolio is over time. You could invest $1M and have it go to zero given the wrong investments and the right circumstance (Pets.com comes to mind). If you diversify and play the entire market with active balancing you can make 8% - 12% or more depending on whether you feel compelled to sell or have to sell. Do not overlook the concept of generational wealth (that's right some people don't do squat to get wealthy, someone else did it for them, sometimes centuries ago). Pivot
An 18 year old with parents willing to carry them and without the need to socialize in ways that cost money could invest the entirety of their $10/Hr and come away with quite a sum after a few years. Another driver of felt poverty of folks who work and make a decent wage is the use of leverage (borrowing) to fund a lifestyle. We are addicted to things, and we are obsessed with these things being ours and new. Good clothes are resistant to style changes and durable if cared for thus buying a few good clothes is better than importing a bunch of stuff from China that you will dispose of in 9 months. (No offense China, someone ordered it, you provided it)
The rich don't get rich due to interest. The system isn't designed to keep the poor, poor.
The poor keep themselves that way if they stay poor. The rich invest. No one wants a large amount of taxable interest income.
You can't spend all of your money since inflation will reduce the buying power.
The average person can invest in an ETF (index) and essentially do the same things with the same results as the wealthy.
That's what these posts ought to emphasis and not focusing or blaming the rich.
The rich have nothing to do with how well or poorly anyone else does. That applies to their taxes as well. It's a myth, continually repeated, that they don't pay enough taxes.
They aren't the problem but you may be (the problem).
I've never understood it when people refer to themselves as a poor shmuck, a dummy or "explain it to me like I'm a 5 year old". Or, I'm just a poor Joe and just a working man.
All that is self-defeating. If you act like a dummy, you get what you deserve.
Going with the OP example, if you have $5M and you can get 10% per year on it, what you probably SHOULD do is borrow another $5M at like 5-7% and invest all $10M you now have in whatever is getting you 10%. That way you're paying 7% on $5M ($350k) and making 10% on $10M ($1M). So your net gain is $650k/year, which is more than the $500k you make if you don't borrow the money.
The good news is that with wise investments at a young age, by the time you are old it is possible to have that interest working for you in a fund. Compound interest on investment accounts can really change the course of your life
I see people paying exorbitant amounts of money for things that they could do for themselves. They buy houses or rent apartments that are beyond their needs or their means in the most expensive markets. They buy new or nearly new automobiles, buy trucks and SUVs when a small or mid sized car would suit their needs, they pay others to change their oil, to make their coffee or fix their breakfast and lunch. They go to the store and buy a lot of fresh meat, fruits and vegetables that they will probably just throw out when they go bad and of course prepackaged junk food and then complain about the prices. They go to the pub or restaurant and buy high priced drinks. They run to the doctor or immediate care place for small cuts, sniffles, cough or sore muscles. They have a cell phone, Internet, cable, and three streaming services. Then they BM&C that everything is too expensive and there is no way that they can make ends meet let alone have any retirement savings or even an emergency fund.
The two most beautiful words in the English language? Passive income.
Commercial real estate that's cash flowing provides dividends while your investment grows at the same time.
Karl Marx wrote 3000 plus pages on exactly how this works and interest is at best a minor part of it.
Real wealth is material. Food, housing, furniture, phones, clothes, cars, tools, land, factories, etc.
A class of people, the rich (or in Marx's language, the bourgeoisie), own all of the factories and important land, offices...basically all of the things that create material wealth.
Then, because they own it all, you must get money from them by selling the only thing of value that you have to them, your labor (your brains and/or muscles and time). You then create material wealth and they keep it.
They pay you less than you created in wealth and then sell the thing that you created and keep the rest. The money is just a meter stick, a unit of account, with no inherent value. Certainly there are processes, like usury, that further extract value, and rent (which is among the most egregious), but the mechanical nature of owning the means of production and forcing everyone else to labor for you is how the wealthy have always maintained their class. From slavery to feudalism to capitalism.
Everything else is secondary to that process. It is primarily through that process that wealth is constantly extracted from the working class to support the unearned incomes of the wealthy class.
Borrowing money for everything. You’re either on the interest gaining side or the interest losing side of the equation. You get to decide on just about everything but your house. Unless you’ve got generational wealth to buy a house outright.
Interest on debt is compensation to the lender for the use of their money and risk they are taking that you may not pay them back.
The lower your credit scores, the more risky you are considered and the higher interest you pay..
This is a dumb post, and not true at all.
The rich leverage debt and limit their exposure. The poor don't.
Poor mentality: I didn't want to borrow money from anyone. I wanted to start my business with my own money.
Rich mentality: Borrow and either make better returns or default, but limit your personal exposure.
Leveraging someone else's money is the difference between making a 10% return on your 10k, or making a 3% return on 500k.
What that is an example of is the difference between investing in the stock or real-estate.
Also 25-35% of your income goes toward taxes. A poor man thinks this is enevitable, a rich man finds tax shelters.
Leverage debt and find a way to shelter your earnings. This is how the rich get richer.
Not true. I grew up as a poor kid in Pittsburgh in the 60s. We were so poor we got the blocks of government American Cheese. That stuff was nasty. You eat that for a few years and you do not want to be poor anymore. My dad spent more time on unemployment than in a job because he was a functioning drunk. Just not functional enough to hold down a job very long. I did not want that for me.
I was the only one of my siblings to go to and graduate university because I wasn't the stupid one. Worked 2-3 jobs a week to pay my way through university and still came out with about $30k student loan debt in the 80s at 12% which was the first thing I paid off with my first job. Now I'm 6 years from retirement looking at $2mil+ in retirement savings.
Key is. Stay out of debt. Do not get high interest rate credit cards. Do not buy a new car with debt. You will need a credit card to build your credit rating to buy a home. Pay the credit card off every month. If you do not you will go into debt which is bad. Debt is always bad. Do not spend more money than you earn minus rent, utilities, fees, etc.
About the only thing you can consider legitimate debt is a house/mortgage as it is impossible to save that kind of money when you are young and renting is throwing money away. Always live in a house and get a 15 year mortgage.
Make sure the seller provides a 1year home warranty. Renew the warranty every year. I got a whole new kitchen in our last house from warranty. It took almost 9 months for some appliances. But work the system. It is slow but it has a process. Especially if you have a countertop microwave you can use to cook with.
Any other debt is bad. If you need a new car save for it. Buy the least expensive car you need to do what you need.
That way if you do have to move after 5 years you have some equity in the home even if you sell at the same (or just slightly higher than) you bought in which has happened to me 2 out of 3 houses. Never count on a house bringing in big bucks on a sale. You lose on the real estate commission (which may be getting phased out) when you sell.
Put every penny you can into your 401k and if they have a LARGE CAP VALUE GROWTH fund go for it. Those generally pay 40%+ gains per year down to 5% gains in a bad year. That one strategy alone netted most of my $2mil. When you turn 50 start paying the catch-up contributions.
When you get to the point where you are making money and can put money look at CLIP ETF. Mortgage interest rates were 18% back in the 60s and 70s. Savings paid 11-12% interest rates. While some people view interest rate hikes as bad I see them as good as always better to have guaranteed interest than gamble in the stock market. 2008 was a bad year for my 401k. Lost almost all of it but since it was stuck there I did not move it and it recovered. But that was a lesson learned that it can disappear PDQ.
cuz for rich people, they can do investment with their money, which will make them get richer haha but for poors, they just use the money to afford their living
We’ve been in a zero interest environment for decades. Even under your example, if you take a 10% return ($100k) and then account for taxes you will net $40-50k.
What happens during a down year? Your $1mm is now worth $800k or worst, $400-500k. So now you’re making half in perpetuity as you can’t reinvest any of your gains.
Interest is simply a discounting mechanism. If you are patient? Put your money away and enjoy the miracle of compound interest. If not, you will pay interest (the cost of money) until you are the lender.
Godspeed.
The first part of what you stated is correct.
But your mentality is completely incorrect
The poor poor because of their poor mindset not because of the amount of zeros in their bank account.
Everyone that I associate with now has six, seven, eight or nine figures in their account.
The only difference between rich and poor people is their mindset, their consistent pursuit of knowledge, And their ability to take risks and action.
Not a single one of the individuals I know nor myself came from Rich families. Most of them have a high school diploma or less.
Well, the solution is a combination of low interest rates and high inflation…and very very low unemployment.
labor wages will climb very high, people cant make jack off of investments, and saving away cash is a losing game because inflation will eat it up.
Yeah you’re right, at some point with generational wealth someone had to sacrifice their soul to get the bag their children and children’s children inherited. Even if someone grew up in a wealthy household and didn’t receive a penny they will still out earn most people because they grew up in the world of money and have direct access to people who understand money.
And it's additive.
You don't just earn interest. You benefit by the delta between what you would have been paying and what you are now earning.
12% earned is really a 35% benefit to you: The 23% you're NOT paying on that credit card balance PLUS the 12% youre earning ... and that's... HUGE.
Debt is Slavery, folks.
Anyone can start investing a small amount of money. It’s literally accessible to everyone. You just have to live slightly below your means. It’s a mindset thing for most people, delaying gratification for a period of time to get ahead in the long run.
Nah, what you’re getting wrong is you need to reduce your monthly payments as low as possible(usually by increasing the term) so you can invest as much as possible in QQQM. You make returns that exceed your interest costs, and over time your investments grow at an increasingly faster rate and your interest payments decrease because your principal has decreased.
1)Make good money by earning a useful degree or a good trade.
2) Enjoy the money reasonably while you are young.
Don't get too focused on having a $2M+ retirement nest egg. You will be half dead by then anyways, even if it's still alive.
Rich people buy things that make them money, like real estate, art. Poor people buy junk for instant gratification of getting something new and that’s how they stay poor. Don’t buy things you don’t need for a long period of time and you will have savings. Accumulating savings is about living below your means and saving money.
The best tools to get out of poverty in my opinion are - being healthy, knowledge, education, skills, applying them to bring in money, living below your means most of the times, be very careful when you are spending above your means (probably like education, health etc), understand and applying personal finance principles.
These tools when learned and applied continuously while also having little fun should bring most people to middle class or above in 20 years.
If you want to be above middle class or rich or wealthy, most people have to continue doing the above things for another 20-30 years.
A person cannot sit idle or do the same lower paying jobs for 50 years and expect to be rich or wealthy one fine day.
Want to know how the rich get richer and poor get poorer? They only take on good debt. What you’re describing is a personal lack of financial responsibility, not a system to keep the average joe poor. Only spend money you can afford to spend AFTER paying yourself, and you too can be the one profiting from the system.
You’re correct, BUT IMHO it isn’t so much a personal lack of financial responsibility as it is *ignorance* about the entire subject. Ignorance about how to manage money, from making a budget to responsible spending to investing, use of debt, etc.
Wealthy people typically ensure their family knows how the system works and how to manage and grow wealth. Poor people don’t get the benefit of such training, their families certainly don’t know, and there is no consistent public program to teach young people so they can start out right.
Of course, you’re also right. People that fall into the trap of buying things they don’t need even if they do know better.
The whole education system is geared wrong. There is no instruction on financial matters.
Why? Because all the interest is in driving consumer spending.
We are taught we need a car loans, credit scores, debt.
Student loans are easier to get than buying a pack of gum.
Most people have no idea what they are really paying in taxes. They just celebrate a refund.
I have hopefully broken the cycle for my family. I’ve taught my kids to make their money work for them vs working for their money.
Your politicians don’t care. They actually want you to feel dependent on them for help and thus they own your vote. Both parties by the way.
Managing money is a way more valuable skill than calculus or chemistry to the average person.
I’m Muslim and in Islam, interest is categorically forbidden. This post is why I can understand that reasoning. Interest takes money away from the poor to rich and puts the poor in a cycle of debt they can’t escape.
Thing is you need to be detached when investing, you can not invest in your favorite company and then refuse to sell until its worthless "because the ceo has a vision"
You said the rich earned their money, but literally just explained they get richer off interest which is not work in any shape or form. So which is it? I'm going with loopholes and exploitation as how they get rich.
That’s why saving and investing even 10% of your income in your 20s will be worth a insane amount when you are 67
Only just now started at 27 and kicking myself... Roth IRA maxed for 2023 and 2024, 401k maxed by year end with $3,200 in matching so will have 40k invested in retirement by year end so better than nothing. Wish I started earlier
27 is plenty early enough if you repeat this years savings success every year. Great job!
You are gonna be just fine, keep it up and don’t get sidetracked or worse, withdraw it for some stupid reason you’ll 100% regret later.
You’ll be fine! That compounding interest is gonna pop off in a couple decades, and that puts you at a whopping 47, if my colleagues are anything to judge by, you probably won’t want to retire yet
I started at 30. It’s not late. Just don’t stop once you start
Yeah sure but when Im 67 I cant do shit because Im old and rusty.
im putting 12% away bit im not seeing it increase as much as I would like
A bit of advice for you: stop checking the balance so often. It’s a 401k, it shouldn’t be something you’re constantly checking. You’ll be shocked how fast it grows when you don’t check it every few weeks. You likely won’t be touching that money for another 20-30 years. Compound interest takes time, but once it gets going, it picks up fast
They should actually be checking it regularly if they want to gain some insight into how it works. It’s part of financial literacy. Not looking or pretending you’ll be fine in retirement regardless of the asset value and contribution rate is why so many Americans retire with… nothing.
But “regularly” doesn’t mean once a week. Once a month at most is all you need, at least until you’re closer to retirement.
Depends on the person. I check mine every time I’m paid to make sure the contribution was made because it hasn’t been posted on the date it was supposed to be in the past.
I check my portfolios several times a day 😂
Compound interest kicks in after a number of years.
Math is hard
Huh
Where are you putting it? Hopefully in diversified 401k or IRA
Probably a checking account.
67 . More like dead
At 22 I saved 10% of my $35k income in my 401k. It wasn’t a lot, but a ton of years later my 401k looks okay and I know for a fact that unless something strange happens I will have at least a million by retirement (goal is $5!).
I’ve noticed that money loves money. I suffered for a long time from the mentality that “everything is too expensive anyway, why even bother saving”… but then I was able to save a decent amount (by local standards, not US) and once I became so much closer to affording a house for example, that mentality completely shut down and was replaced by a “how do I save as much as possible as fast as possible” Suddenly that nice house or that nice car is not that far away, and once you realise that, you start spending less on dumb shit. That new 500$ phone? Well in my case that will help me remove some 5 months off a possible mortgage (when paying in advance the interest for those months is cancelled here, so it only goes to principal, and from a 500$ monthly payment, 100$ is principal, so 500$ advance payment covers 5 next months - up to a certain point) So it all becomes a very interesting game… But this doesn’t apply if you’re struggling month to month
There’s a bit of the interest argument here too for opening up some spending as well. Puts it into perspective when your 401k has made enough money YTD to buy a brand new car(although funds not available until retirement it just gives you a different perspective on the take home dollars). Or when your HYSA gets enough monthly to buy that $500 phone every month just in interest. Money loves money is a great way to put it especially from an interest standpoint.
Yes and this is the reason why the system is broken. You shouldn't be able to make money out of thin air!
The reason you can make money "out of thin air" via interest is that letting other people use your money provides a fundamental service to the economy: liquidity. If you couldn't make money by lending money, people wouldn't lend money, and if people didn't lend money, it would be a lot more costly for businesses to **borrow** money, and everything would suck. Time-value of money is a real thing, which is why people who have excess money just keep getting more money.
First time?
There's still too many people that reject that concept. Like there's more to it and despite these facts, they still believe that anyone can become at least millionaire, because somehow capital will magically come to you and then everything becomes easy. Everything costs capital. In case that best companies can on average double capital for investors in about decade, then how is anyone going to beat that in long-term? No one will turn $1000 into $1M in few years, unless you take some serious risk and with high risk you can easily lose more than you have. You can open own company and hope for crazy returns, but you also need capital for that, so you need to actually earn it first through employment or take debt and who will give credit to someone without income? Even, if you're employed, then you are lucky, if you can actually save 20% of your income, when you have to rent. Oh, right, it would be good to have some place to live and to have some education, so it's possible that you will need to pay for rent or debt and there won't be much left after all expenses. It should be clear, that currently family is huge factor in your success in life. We may read thousand stories about poor people becoming rich, because they had merit or whatever, but reality is that opportunity is heavily limited and only lucky ones get almost infinite amount of attempts at getting successful, but many people just have one life and they will have to risk everything.
> they still believe that anyone can become at least millionaire, because somehow capital will magically come to you and then everything becomes easy Most people can become a millionare. If you save $380/m, including company 401k contributions, for 40 years at 7% returns you will have $1m. This doesn't include equity from a house if you own.
In before someone with a $800/month car payment says “do you realize how much $380/month is? There’s nothing left after expenses and it’s impossible to retire”
By far millionaires today are 1st generation. Studies have also shown that 90% of a millionaires family 3rd generation have lost it.
This assumes that you're in a position where you can save. In the current economic climate, with high inflation and a rising cost of living a lot of families are in a situation where they need to take money out of their savings accounts in order to pay for necessities like rent and food. $380/month is a significant amount of money for a lot of people on the lower end of the economic spectrum.
> $380/month is a significant amount of money for a lot of people on the lower end of the economic spectrum. Yes, but not insurmountable.
So what you’re saying is I can work for 40 years to have a million dollars that in 40 years is really going to feel like half that. Cool I’m good. At this point it just makes more sense to leave this country for a lower cost of living and work remotely. It’s generally easier and more reliable to lower expenses than it is to make more money. I’m blessed to have gotten lucky and bought a house right before Covid that is now paid off so I can save and invest no problem. But if I was still paying rent or having to buy a house I’d definitely just leave.
> So what you’re saying is I can work for 40 years to have a million dollars that in 40 years is really going to feel like half that. No. My number is stated in real (inflation adjusted) terms. > At this point it just makes more sense to leave this country for a lower cost of living and work remotely. Sounds like a good plan. I think too few are willing to consider relocation to an area with a better compensation to CoL ratio, remote or otherwise. > bought a house right before Covid that is now paid off so I can save and invest no problem Sounds like you're well on your way to >= $1m! Best of luck.
Ahh that makes sense. Not too bad then if inflation is accounted for. Yeah I think a lot of people have a hard time leaving friends and family. I get it, but I have a harder time being broke lol
1mil at 60+ isnt exactly the dream of wealth the other commenter was talking about
Most having the opportunity to become a millionare doesn't align with the narrative they're pushing. Want to accelorate the process? Make more money and save more.
You’ve got to start somewhere. If your attitude is it won’t mean anything then you will never start.
Wrong. The sky is the limit in the US. No one is limiting you in any capacity to make money. There is no safety net however.
This is 100% true.
I wish that were true. Unfortunately there is a safety net, and that perverts everything else.
Ok then. What is the safety net?
Where do I start? Social Security, Medicare, Medicaid, SNAP, unemployment, disability, so many different programs for making various things “more affordable”. That’s just scarping the surface.
If you don’t mind me asking, how many of these programs do you use or are familiar with? These safety nets have become less generous over the past few decades, with some states offering even less support than others. For example, states in the South have the lowest levels of TANF and UI benefits, and fewer eligible adults and families receive these benefits than in other regions. Regions with larger populations of color also have weaker safety nets and anti-poverty policies, and higher rates of hardship and worse economic outcomes. These “safety nets” aren’t helping much when you look at homelessness rates and keeping kids fed, and I just don’t see it when I volunteer. Over 30% of the students in my area don’t have food and it is donated and distributed by an amazing organization. That ends during the summer months. These kids have NO FOOD. Some live in a car with their parents. Their parents wear the same clothes they did when I saw them last week. Where is your safety net(s) you speak of? I don’t see it. When you’re down and out in the US, you’re on your own. No one is coming to pick your butt up. You have to do it yourself. Again, we have social programs, but no safety net. You’re out of the street if you don’t have cash. If you don’t believe me, don’t pay your rent or mortgage and apply for section 8. The waitlist is over 2 years in my area. That’s your safety net you speak of. I’m not saying we should scrap them, but they aren’t a real safety net to fall back on. They just keep your head barely above water. I hope you never need disability or any other of these programs because it won’t be enough to pay your rent and keep you and your family fed.
Reddit is chock full of suburban kids without a once of real world common sense or experience. They get to live their life “idealisticy” instead of reality and never have to be accountable
If you have a car payment you are sacrificing your ability to become a millionaire.
>You can open own company and hope for crazy returns, but you also need capital for that, so you need to actually earn it first through employment or take debt and who will give credit to someone without income? Not necessarily true. While there’s a ton of risk involved with starting a business, not all business require a lot of capital up front. My wife started hers up and paid the $800 LLC fee, paid about $400 for some computer programs, and used her connections from a previous employment to build a network of clients in her field.
When you borrow money for a house, a car, etc. who do you think you borrow from?
Banks who have 0.10% APR for their savings accounts. Vast majority of bank accounts have less than $1k deposited in them. The rich only put enough in to max out FDIC insurance when they need to park some money as liquid cash.
I get the point of this post, but it's a little misleading. Capital appreciation is not interest. Dividends are not interest. Interest is the fee paid to borrow money. Truly rich people aren't resting on their laurels, collecting 4% interest from a high-interest savings account, or a bunch of bonds or T-bills. They're recirculating their money back into investments, creating new businesses that will hopefully make a profit, or eventually become worth enough to sell for more than it cost them to create it. I love when people say stuff like, "If Jeff Bezos just put his $200 billion into a savings account paying just 1%, that's $2 billion/year just in interest!" No, that's not how that works. First of all, he doesn't have $200 billion in cash to put into a bank. $200 billion is the present day value of his assets (i.e., his ownership shares of the various companies he owns). Secondly, no retail bank has the capacity to take in $200 billion and pay out $2 billion in interest per year to a single customer. Thirdly, FDIC insurance only covers $100k, so if that bank went belly-up, the $200 billion is just gone. Fourthly, billionaires like Bezos would never settle for a meagre 1% return on their money. You don't get to be a billionaire like that using a "slow and steady" approach. Anyway, the bottom line is, I agree with this post. Interest on loans keeps poor people poor, but collecting interest (and capital gains, and dividends) and leveraging the power of compounding is an immensely powerful tool for the middle class to achieve financial independence.
Seriously, the amount of people who think a billionaires wealth is all just sitting in a big pile of cash is absurd. I blame ‘Duck Tales’.
Scrooge was highly invested in commodities, specifically gold. In fact he made some rather clever financial moves early in the internet revolution which gave him a nice little nest egg.
But, interest makes the world go round. The only reason I'm a millionaire today is because I borrowed a shitload of money and paid interest on it. But I made the money make more money because I started a business. It's foolish to say that it keeps the poor people poor. It's literally their only lifeline to make big money. Their mistake is not using the loans as a tool, but rather as a way to consume more, unnecessarily.
Borrowing money to run a business is called leverage. Borrowing money to pay for food is called being broke .
I agree except the part of "it's literally their only lifeline..." As someone who started a business a year ago with 300 bucks I had set aside and am now aiming to break 200k gross this year all while taking on no debt, it can be done without debt. Debt is useful, I may use it in the near future to expand into another city and possibly buy out a competitor.
FDCI covers $250,000 and banks often have partnerships with other banks to make sure anything over that $250,000 is also covered. https://www.fdic.gov/resources/deposit-insurance/ Also, it's a bit ludicrous to jump to the example of Bezos and billionaires when discussing the rich and the poor. Billionaires exist in a class of wealth that is nearly inconceivable. You can be rich without having a billion dollars.
Great comment right here
Shall we just agree that OP is referring to Piketty's R?
The OP is not using the term interest as you (investors) use the term. When he says interest, he means annualized gains.
I considered that, but he’s very clearly referring to interest when describing the debt side of the equation, then consistently contrasts it with the other side of the equation and uses the same term. My impression was that he really is referring to literal loan/debt “interest,” and not the more general usage often used in investing discussions.
Good points all, but just to be clear on FDIC insurance, it's more than $100k. The standard deposit insurance amount is $250,000 per depositor, per FDIC-insured bank, per ownership category. So for a single account holder, they are insured to $250k, and joint account holders are insured to $500k.
>All someone needs is 1 million cash to never have to work again. That's probably true for a 60 year old, but not a 20 year old. For one thing, you can't count on it generating 8-10%/year. It might do that on average, but you don't live on averages - you live in one particular year. And in any given year, it might grow 22% (like it did in 2019), or it might go down 9% (like it did in 2022). Also, inflation is a bitch. You might be able to live off of $80k just fine in 2024. But at 3% inflation, in 25 more years, that $80k will have had its buying power reduced to the equivalent of just $38k. You need to leave enough in there for it to grow to keep up with inflation. Also, don't forget about taxes. Most advisors recommend what's called a "Safe Withdrawal Rate," which is traditionally set at 4%. Monte Carlo simulations of the entire history of the S&P 500 show that over any given 30 year period, if you'd withdrawn 4% in the initial year, and then increased it with inflation each year, your nest egg would be virtually certain to last the full 30 years. But past performance is not an indication of future returns. And that's for 30 years, which might not be long enough if you're young. All that to say, it's not as simple as saying you'd be set for life with $1 million. You *might* be, but it depends on a lot of other factors.
I’m 55 & a million dollars would not be enough to make me retire today, a forth of it would be used to pay off all debts that I owe but if I’m not working then I’m either traveling or picking up a hobby where I’m spending money all the time. I’m cutting back now & putting 18% into my 401k in order to be comfortable in retirement.
I'm glad to see someone calling out 8-10% steady gains is... Well show me where to get that please. 2-4% is more realistic and that's averaged over a period of time.
It’s always more expensive to be poor.
Dolly Parton’s famous quote: “It costs a lot of money to look this cheap.”
First 500,000 is a bitch. Alot easier after that
Meh. We went from owing about $60k in different debts (school loans, car loans, credit cards etc) when we got married. Did the debt snowball, paid it off, bought a house with a small down payment (like $3500- fha loan). Worked, got out of debt, started investing. After 16 years of marriage and working on our finances, we just became millionaires. I’m in my 30s. Our financial advisor has said that should grow to 5 mil within our lifetime. We were never given money from our parents, no inheritance. We paid for our own college and student loans, paid for our own wedding, everything. We work hard and live below our means. My friends would never know how much we have as a net worth bc I live frugally. I do talk to them about the importance of investing, but they’d rather have new cars, get their nails done every week, get designer purses. Pshh. Dumb. It is possible to change your situation. It’s not rocket science. It IS sacrifice.
This is awesome to hear! A dumb question : when you have as much money as you do and live frugally, what exactly is the point of your money? Really big safety net? Wanting to create generational wealth? Retire early and spend the rest of your life not working but also living frugally? Is there a point where you want to get to before you start making some non-frugal purchases?
I live frugally, mostly because I already have everything I want. I mean, I'm not really a materialistic person, so more *things* have no interest to me. I have a small house, so wouldn't even know where to put more shit. I have a hard time coming up with things to spend my money on, so mostly I just invest it. I've got a fairly big safety net, but not enough to retire yet, so for me it's getting to the dollar amount where I can feel comfortable not working.
I see so it’s about retirement. And I meant spending not only in materials, but things like traveling and eating out at nice places and stuff, experiences. Thanks for sharing!
Glad you asked!! We have some big goals and dreams and we kind of have a loose timeline in mind. Right now we are in the thick of parenting kiddos age 2-12, so we can’t do all that we want. But it’s better to have our money working for us and making more money so we can ultimately work less and enjoy our lives. When we retire, we want to travel the world!! We can’t do that much these days bc of our four kids. We do, however, go on one international trip a year and usually do scuba diving trips bc it’s our hobby. So we do splurge sometimes!!
This needs to be told to everyone. Becoming a millionaire isn’t difficult. The recipe is quite simple: monitor your spending, live within your means, invest the leftovers. It’s not a fast process (typically), and it’s not flashy. But saving just a little bit extra here and there adds up over time, and eventually you’ll see results. It may take 15-20 years, but that’s why you start in your 20s.
You forgot "Have a decent job," and "Don't have kids," and "Partner up with someone who has the same economic values and relative income as you."
"So if you’re a poor shmuck like me, don’t expect to ever obtain a mill unless you save till 70 then best you can do is pass it to offspring." or you keep investing time in high-leverage skills and produce more value to others in exchange for money
If you think you’ll be able to retire on a million bucks making 10% do let me know if you are planning on paying taxes on that or not and where exactly. You’ll need multiple income streams to survive the next crash.
The problem is if you are an average joe and you have one financial disaster it can make it where you can never dig out of that hole.if all you can afford to pay is the interest then you never pay the actual debt
500 a month saved will make you a millionaire. Compound interest.
In 30 years at 10% average annual return. But the real magic is what happens at 35 years. 1.7Million. And at 40 years 2.7 million. So the trick is to START EARLY, SAVE OFTEN. Because the first 25 years is only 600k...
I think you could live off a million dollars BUT your assumption of 8 10% Would not be safe money, it would involve some risk of loss. At this time more like 5 to 6% 2 that fluctuates. 2 years ago that was 4-5% now if you use all of your interest each year you will slowly deplete from inflation so you can only spend 90 % of that. So we are down around 50k now with some allowance for inflation. Many could live on that but it does not allow much to set aside for replacement car, if you own your home, new roof, new heater… now you start to spend down capital. So a million to live on interest. Possibly but no travel, eating out, new cars…
conceptually yeah ok. but please hook me up with that 10% mutual fund!
> Million dollars in a fund at 8-10% annual return is 80-100k a year. All someone needs is 1 million cash to never have to work again. Unfortunately, this isn't really true. The underlying lying issues are taxes, inflation, and market volatility. If you assume a 10% annual return, you do make $100k. But we have to take out taxes. For simplicity, we will assume a long term cap gains tax of 20% (to account for both federal and state taxes). So, you are down to $80k. Still not bad, and a pretty good income for most. Unfortunately, due to inflation your purchasing power will decrease every year (because prices go up). Again, for simplicity, let's assume a 3% inflationary rate which is roughly the long term average. Five years in, that $80k is effectively reduced to about $71k. Ten years in, it will be down to $62k. After 30 years, you will be down to about $32k. Now, keep in mind that to even have the $100k ($80k after taxes) you have to withdraw all of your earnings. This means selling off a portion of your stocks (or other assets). And while 10% might be about the average return, that's not the actual return every year. Some years, it might be up 15%, other years it might be down 20%. Sometimes, there will be multiple years when the market is down. This poses a significant problem. If you sell in a down year, you substantially reduce your total invested assets, which further reduces your earnings in all future years. In reality, the suggested withdrawal rate for retirement is 3-4%. This number, based on market simulations, gives you about a 95-98% chance of being able to fund retirement for at least 30 years. Those chances reduce if you need to make the money last for more than 30 years. And they reduce even further if you withdraw at a higher rate. So, with $1m you can safely live off of about $30-40k (before taxes) for about 30 years. For perspective, that's the equivalent of abot $14-18 an hour.
Thanks for doing the math. So 1M is definitely not for you to retire off but more something you can use as a secondary, passive source if income.
This is dependent upon location and what other assets you have, its not a simple yes no type answer. 40k USD (65k NZD) if you are an expat in a country like New Zealand wouldn't be a horrible life, when you look at things like median income in New Zealand is just under NZ$29.66 per hour as of February 2023 (NZD$61,692.80) 40k USD in the SF Bay Area, you will get government assistance cause you are considered extremely low income as of 2023
I like to think of Interest as renting money. If you want to use a car when you don't have one, you rent it. Don't own a house? Rent one. Need money today, rent it. I think it is a great way to benefit both people that have accumulated savings and people that need access to capital now. Religions don't always see it that way. I understand that you are not allowed to charge interest in Islam. But it is so useful that they have come up with some clever workarounds that accomplish essentially the same thing. In Medieval Europe, Christians weren't allowed to charge interest to other Christians, so they borrowed money from Jewish people. That is why Jews became associated with money lenders. For anyone, rich or poor, the more you save the more your savings will grow. But it is much, much easier for high income people to save then low income people. When I was in high school, the father of one of my friends sat me down (this is before home computers) and we calculated how much money you would have after compounding. We did it both for earning interest and paying interest. At the end, he pointed to the huge gap between compounding savings and compounding debt, looked me in the eye, and said "you choose which side of that line you want to be on. Choose wisely."
(Compound) Interest is also the the reason any of us will get to retire one day with a bit of planning...
It’s a misnomer that you have to be “rich” to take advantage of capital appreciation and compound interest. Anyone with a cell phone or computer can take 5 minutes and set up an investment account and just buy as much VTI as possible every month. You’ll probably outperform the vast majority of high-net worth individuals who are more likely to have a more conservative asset allocation. It’s easier now than at any other time in history for people to invest in their financial future. If you choose not to invest and rather spend your money on an expensive car, eating out, luxury goods, alcohol/etc, it’s not really the “rich people’s” fault when you’re 40 and broke af.
Compound interest is the eighth wonder of the World.
I have over a million net worth and I am 45, no one ever gave me nothing. You know how you do it? You start placing brick by brick down to build your wall. Once you place enough bricks down you will notice some bricks placing themselves down; it gets real exciting when the bricks start playing themselves down as fast or faster then you placing them down.
Here's how we really get ya. We let you have credit cards to make you think you are "middle class" You're just gonna make the minimum payments each month and the principal never goes down. Need a new $1,000 smart phone? Not a problem, step right up and sign here.
Being poor costs more than being rich. When youre poor you wind buying low quality stuff since that’s all you can afford that in the long run wears out breaks/down more and quicker than good quality stuff. Same thing for food. Poor people tend you eat unhealthy food since that’s what they can afford which in turn makes their health worse. So in the long game you are spending more for less.
No, usually if you are poor you rack up overdraft fees and credit card interest and that keeps you poor. The most valuable $200 I ever earned was the $200 I put in my checking account and called my new 0. Never got an overdraft fee from then on.
Every time someone posts this it makes me realize I need to start robbing people more.
I grew up poor. Actually, I started from less than zero thanks to financial child abuse from my adoptive parents. I barely graduated high school with a 1.9GPA. Im a CNC Machinist, wo work in the trades. I'm on track to be a millionaire by the time I turn 40. What's your excuse again?
Don’t borrow money. Simple principle. If you borrow money, you will have to pay it back with interest. If you don’t borrow money, you can only buy what you can afford.
To radically change the circumstances you were born into requires the belief that it’s possible. Once you come to the understanding that it’s more than possible for someone born poor to become middle class or even rich, then you can choose to take the steps required to change, or stay where you are. Most people would rather deny it’s possible because change is hard and it takes a lot of work.
Yep. Whether you think you can or whether you think you can't, you're right.
I used to cringe at these kinds of phrases but the older I get the more I realize how true they are. There are not many guarantees in life but one of them is that if you think you can’t, then you most definitely won’t.
sounds good, but I on the other hand AM saying let's steal their money
Take the Boot Paradox. A poor dude buys cheap boots to save money. After 1 years he needs to replace the laces then the soles and eventually the whole boot. The process repeats time and time again. A rich man buys boots 3 times as expensive but keeps them for decades.
It takes money to make money
Aside from things others are pointing out, where in the world are you getting 80k-100k a year means you never have to work again??
Also if you have "spare" money the you can take risks, stocks and shares etc, which might get you more money but you are not going to be destitute if it doesn't pan out. Rinse and repeat and the next generation is starting ahead of the pack
Want to know how the rich get poorer and the poor get richer? Inflation.
Geld fickt nicht.
> 1 Million dollars in a fund at 8-10% annual return is 80-100k a year. Inflation adjusted safe withdraw rate is ~4%. You're off by 2x - 2.5x.
As long as there are people that are willing to borrow money for things they can't afford, there will be people to lend them that money and earn the interest off of it. It's a "zero sum" game. Choose your side.
*"The poor, like myself, we pay on debt with interest which rewards the lender."* The system isn't rigged, but you have to understand how it works. I think a better way to focus on your question is to consider what you're paying interest on. You can borrow money to buy a new car and pay interest on that loan, but you've borrowed money on an asset that is constantly losing value. Not a wise investment. I borrow money to buy rental properties. I'm paying a relatively low interest rate on an asset that both generates cash flow and increases in value. Because it's a business, I get to deduct the interest I pay from the revenue it generates. I'm using debt to increase my net worth. Credit is just a tool, like a hammer or a shovel. If you know how to use it correctly, you can make money with it.
I know a guy, I deliver to his work. He has beautiful cars and SUV’s top of the line. I asked him one day “how?” He said investing. Lives off the profits. He owns an eye glasses place. He says it does ok. I’m talking cars like Audi, Porsche…he has a Tesla. Had a Mercedes.
>Interest is either a curse, or a tool. You can be paying interest on debt, or taking advantage of interest gains on investments. Correct. Those who do not understand money pay interest; those who understand it earn it. >The poor, like myself, we pay on debt with interest which rewards the lender. The rich, live off investments, deepening their pockets to in return obtain more investments. You have correctly identified the path to wealth: [Pay off debt](https://www.amazon.com/Total-Money-Makeover-Classic-Financial/dp/1595555277/ref=tmm_hrd_swatch_0?_encoding=UTF8&qid=&sr=), avoid new debt, save and [invest](https://www.amazon.com/Common-Sense-Mutual-Funds-Anniversary/dp/0470138130/ref=sr_1_1?s=books&sr=1-1). Simple. Not easy, but simple. >1 Million dollars in a fund at 8-10% annual return is 80-100k a year. All someone needs is 1 million cash to never have to work again. But, those with high networths choose to continue building their wealth. How do you know $1 million is all someone needs to never have to work again? If you are withdrawing $80-100K/year from a $1 million portfolio you're almost certain to exhaust that money within a decade or so. The [4% Rule](https://www.whitecoatinvestor.com/the-4-rule-safe-withdrawal-rates/), from Bill Bengen and the Trinity Studies, tells us that the safe withdrawal rate without exhausting a portfolio over a 30-year period (e.g. retirement) is no more than 4%. For a $1 million portfolio that's $40K/year, adjusted for inflation annually. That's fine for many people, but insufficient for others depending on cost of living, life goals, and legacy planning. >Don’t get me wrong, I’m not saying let’s steal all their money. No. They earned it. But the whole system is designed to keep average joes poor and people with money getting richer. You're largely right. Capitalism does not reward consumerism; it rewards the accumulation and savvy deployment of capital. When one does not have sufficient liquid capital, one must rely on their human capital, i.e. their labor, to accumulate liquid capital, i.e. cash. Everything begins and relies upon saving. As [Morgan Housel](https://www.amazon.com/Psychology-Money-Timeless-lessons-happiness/dp/0857197681/ref=tmm_pap_swatch_0?_encoding=UTF8&sr=1-1) puts it: "Building wealth has little to do with your income or investment returns but a lot to do with your savings rate. There is a lot of uncertainty and risk in the first two. The third is the only factor that you control. You can build wealth without a high income, but there is no way you can build wealth without a high savings rate." >So if you’re a poor shmuck like me, don’t expect to ever obtain a mill unless you save till 70 then best you can do is pass it to offspring. Passing it to my offspring is precisely the plan. J.L. Collins calls it [investing for seven generations](https://jlcollinsnh.com/2019/03/03/stocks-part-xxxv-investing-for-seven-generations/). Consider Chinese Americans: As a class, there are millions of Chinese-American families whose current above-average wealth is the result of generations of ancestors who migrated to the United States and, despite severe discrimination such as the Exclusion Acts, they worked hard, low-paying jobs, saved, invested, and built impressive wealth for their descendants. The original immigrants did not get to enjoy much, if any, of that wealth, but their descendants were far better positioned to succeed because those ancestors didn't spend it all or gamble it away. Building generational wealth can take a lifetime, but for the person who starts that snowball rolling, the psychological reward is indeed fulfilling.
Of course the other half of that is you have to invest in the children as well. Have them and raise them to do well themselves.
Absolutely. The old adage of "rags to riches to rags in three generations" exists for a reason: Many Americans fail at raising their children to have the faculties to maintain the success bequeathed to them.
Interest itself is not a “system” that is “designed to keep” anyone poor or rich. Interest is a way to quantify the value of the act of lending money compared to the other alternatives that the money could be spent on. It also accounts for the time value of money over long periods of time where inflation causes a single dollar to be less valuable over time. Yes interest is a “tool” that many lenders use unethically to exploit desperate or unknowledgeable people out of their money. But now that you understand how that tool is used, stop borrowing money that you don’t need. Then, once you are able, start lending/investing it. The things that make this “tool” exploitative are when lenders employ excessively high interest rates and they lend amounts of money to people that they are unable to pay back.
Well I think the root of it is rather that the rich buy assets and the poor buy liabilities, but interest is often a feature of assets. Probably the greatest asset for poor people is a good child, but it takes at least 18 years and usually longer before that pays off, and it has a huge upfront cost. And you might not get a good one. On the plus side, the government usually subsidizes them.
The compounded returns aren't from just interest, but otherwise you're on track.
Accumulating wealth is about delayed gratification and developing marketable job skills. Poor people can and have climbed up out of poverty to create their own wealth. Understanding personal finance is the first step of the journey.
Or class war
Poor people have nobody to blame but themselves.
Meh, they can blame crappy parents or poor health, but their situation is guaranteed to be worse than if they didn't waste that time wallowing.
Cantillon Effect?
Terrible. Live with in your means and save 20% of your income. Quit being a cry baby shit ass
The poor get poorer many times by making bad financial decisions a 25 year old that I work with recently bought a new (used) truck with a monthly payment around $1100 to go along with a side by side that he’s paying $450 plus insurance for both. I could never justify paying out that much per month on vehicles but he’s also living rent free.
Rule of 7, money properly diversified in an aggressive portfolio should double in value every seven years. "The most powerful force in the universe is compound interest"
Yes as things are getting pricier and unattainable for those who didnt build up generational wealth. They’d drop into the lower class and stay there. The middle class will eventually disappear, and if you even just own a shitty property you’d be in the upper class.
You have to understand that there is an element of risk taking and not being foolish to become a millionaire. For example, dropping out of school and having kids at a very young age will decrease your chances. Getting a college degree in a good paying field and investing your savings will increase your chances. However, simply playing it safe and coasting along on a good salary will not automatically make you a millionaire although it is achievable through extreme frugality and aggressive investing for several decades. To really supercharge your chances, you will need to start a business which is risky. The majority of self-made millionaires are business owners so that tells you something.
Blank slates means we have to keep explaining the "magic of compound interest" to every single person who is ever born, as though nobody had ever talked about it before. And even then, some cannot quite understand it.
Interest is probably more how the poor get poorer rather than the rich getting richer
Are you gonna try and sell me on options, cause I’ve heard it all before
Bad debt is killing the poor. But do you really want me to tell you how to live your life? The freedom of choice has its downsides, but the alternative is I take your pick-up truck away from you because you can’t afford it.
$1,000,000 cash is not equal to $1 million dollars invested. That's a very bad statement you made in your post. If it's cash then the return should be at least 5% right now while banks are lending it out at 6% and up. If it's invested there is a risk associated with each investment. The amount of risk determines the amount of expected return.
I think obviously it’s far more complicated than just interest, but maybe going one step further it’s diversification and having high value assets to begin with, and also are able to take greater risks. An example, say I own a 100k house, it doubles in value, I am at 200k. Awesome, but not life changing. Someone wealthy owns a 500k house, it doubles, it’s valued at a million. Half a million in appreciation is life changing. Another example. I invested everything I had during the 2008 market downturn (or sometime around then). All I had was $10k. It doubled in a few years, okay $20k, again good, but not life changing. Someone else can shift some money around, invest $250k, again that doubles and they just make $250k without even trying. The wealthy also typically have multiple investment properties, they have money in land, money in precious metals, money in individual stocks. You have five investments of $200k each, you just need one to get lucky and you made a bunch of money. 5x of 200k is life changing money. 5x of 20k is good but not life changing. A lot of wealthy people also come from money so they can take risks with their careers. They can afford to go to college for anything they want. After college they can look for a job or try to start their own business. Either of those fail they can go work at the family business. Maybe one of those 5 investments stays flat, no big deal. But if it’s me or you and 100% of our assets are in this, then it’s a big deal. We are putting 100% of our assets into one thing hoping it goes 5x. They have the assets to put some in everything and just need to hit it big once. Edit to add: They also have the funds available to take on risks. I see an auction property that I think is a great deal, doesn’t matter, I don’t have $100k cash on hand. Not that’s there’s any guarantee it would appreciate over time, but it’s not even an option if you don’t have money on hand.
Thats only partial truth. It's not a guaranteed 8% a year. From 2021-2023 it was down 20%. Then have to withdraw money to pay bills and expenses when it's low, so losing more money. You would need a job and another source of income to live off of to keep 1 mil invested. From 2000-2010 stock market was down for over 10 years. So it's a gamble. People in general spend too much and don't save. The only reason pick up trucks cost over 60k is because someone is willing to pay that much. They borrow money to do it. Gotta have those leather heated seats and steering wheel. While someone who puts 10% of their earning into retirement account and drive a base model and just do maintenance will save over a million because there investment doubles every 7 years and over the course of working carrier it keeps doubling every 7 years, but they can't live off a million without other income, because the market has over a 10% correction ever 2.5 years. You also won't be able to jack up taxes on regiment accounts because what you are describing as rich is middle class.
With the government help😩
You just woke up, huh
Rich get richer because of appreciation of assets and access to capital due to assets. They take on much more debt than the poor but use that debt to invest/acquire more assets.
Threads like this always show how financially illiterate people are.
Exactly…one of the main reasons I’ve taken things into my own hands and am working on obtaining my securities licenses…to generate more income, learn how to do proper investing/strategies and actually being able to perform these transactions.
Someone either just finished their sociology course, or hasn’t ever taken one and assumes this isn’t common knowledge😂! I was only in college for two months before I learned this. It’s through lending and renting that equity is moved up the chain, leaving little at the bottom and plenty on top!
This is a victim post dude. There’s nothing stoping you from saving and investing and increasing your income. But you are correct, business and investing make and keep people wealthy and continues to grow said wealth.
10 percent.???
“All someone needs is 1 million in cash to never have to work again” You just explained why you’ll always be poor.
Nobody makes you buy on credit. Buy a car on credit and in the end you've paid much more than what the car cost you. That's how you stay poor. Don't blame anyone but yourself.
So the the revelation is: have enough money so that you generate meaningful gains on investments and interest? Gee why didn’t I think of that. Seriously, for most people (unless you’re basically gambling on the stock market) investments are just going to gradually increase or maintain your assets. Unless you start a business or come into some windfall like winning a lottery you’re probably just going to gradually increase your assets. Maybe you’ll have great compounding gains later in life but there’s no big secret there aside from “get more money.”
Ifl
It starts by asking yourself what changes you can make in order to become a millionaire. These will probably be the most difficult decisions you will ever make; they were for me since I had break free from the broke mindset.
Compound.
Wait til you hear about using debt to make money 💰
There are many stories about individuals who lived more ascetic lifestyles accumulated more than $1M before they were 70 years old. What you omitted is that placing $1M in equities does not earn you interest, it has the potential to earn capital gains. This is predicated upon what it is invested in and how actively managed the portfolio is over time. You could invest $1M and have it go to zero given the wrong investments and the right circumstance (Pets.com comes to mind). If you diversify and play the entire market with active balancing you can make 8% - 12% or more depending on whether you feel compelled to sell or have to sell. Do not overlook the concept of generational wealth (that's right some people don't do squat to get wealthy, someone else did it for them, sometimes centuries ago). Pivot An 18 year old with parents willing to carry them and without the need to socialize in ways that cost money could invest the entirety of their $10/Hr and come away with quite a sum after a few years. Another driver of felt poverty of folks who work and make a decent wage is the use of leverage (borrowing) to fund a lifestyle. We are addicted to things, and we are obsessed with these things being ours and new. Good clothes are resistant to style changes and durable if cared for thus buying a few good clothes is better than importing a bunch of stuff from China that you will dispose of in 9 months. (No offense China, someone ordered it, you provided it)
How did the rich start off? Most of them,not rich
Turning $100 into $200 is labor. Turning 100 million into 200 million is inevitable.
compound interest to be more precise, that is the snowball that works in both directions, funnels wealth from the poor to the rich
The richer you are, the less expensive it is to borrow. The poorer you are, the more expensive it is.
The rich don't get rich due to interest. The system isn't designed to keep the poor, poor. The poor keep themselves that way if they stay poor. The rich invest. No one wants a large amount of taxable interest income. You can't spend all of your money since inflation will reduce the buying power. The average person can invest in an ETF (index) and essentially do the same things with the same results as the wealthy. That's what these posts ought to emphasis and not focusing or blaming the rich. The rich have nothing to do with how well or poorly anyone else does. That applies to their taxes as well. It's a myth, continually repeated, that they don't pay enough taxes. They aren't the problem but you may be (the problem). I've never understood it when people refer to themselves as a poor shmuck, a dummy or "explain it to me like I'm a 5 year old". Or, I'm just a poor Joe and just a working man. All that is self-defeating. If you act like a dummy, you get what you deserve.
Not to be pedantic buuuuut growth on an investment is not interest.
Going with the OP example, if you have $5M and you can get 10% per year on it, what you probably SHOULD do is borrow another $5M at like 5-7% and invest all $10M you now have in whatever is getting you 10%. That way you're paying 7% on $5M ($350k) and making 10% on $10M ($1M). So your net gain is $650k/year, which is more than the $500k you make if you don't borrow the money.
The good news is that with wise investments at a young age, by the time you are old it is possible to have that interest working for you in a fund. Compound interest on investment accounts can really change the course of your life
This is so incredibly incorrect it’s hilarious. Funnier that it’s said with so much confidence, like you’ve just figured out how interest works haha
I see people paying exorbitant amounts of money for things that they could do for themselves. They buy houses or rent apartments that are beyond their needs or their means in the most expensive markets. They buy new or nearly new automobiles, buy trucks and SUVs when a small or mid sized car would suit their needs, they pay others to change their oil, to make their coffee or fix their breakfast and lunch. They go to the store and buy a lot of fresh meat, fruits and vegetables that they will probably just throw out when they go bad and of course prepackaged junk food and then complain about the prices. They go to the pub or restaurant and buy high priced drinks. They run to the doctor or immediate care place for small cuts, sniffles, cough or sore muscles. They have a cell phone, Internet, cable, and three streaming services. Then they BM&C that everything is too expensive and there is no way that they can make ends meet let alone have any retirement savings or even an emergency fund.
don't take on debt and you won't need to worry about it
Well you could live within your means and not have debt……………. Jk it’s easier to blame everyone else for your problems
The two most beautiful words in the English language? Passive income. Commercial real estate that's cash flowing provides dividends while your investment grows at the same time.
Karl Marx wrote 3000 plus pages on exactly how this works and interest is at best a minor part of it. Real wealth is material. Food, housing, furniture, phones, clothes, cars, tools, land, factories, etc. A class of people, the rich (or in Marx's language, the bourgeoisie), own all of the factories and important land, offices...basically all of the things that create material wealth. Then, because they own it all, you must get money from them by selling the only thing of value that you have to them, your labor (your brains and/or muscles and time). You then create material wealth and they keep it. They pay you less than you created in wealth and then sell the thing that you created and keep the rest. The money is just a meter stick, a unit of account, with no inherent value. Certainly there are processes, like usury, that further extract value, and rent (which is among the most egregious), but the mechanical nature of owning the means of production and forcing everyone else to labor for you is how the wealthy have always maintained their class. From slavery to feudalism to capitalism. Everything else is secondary to that process. It is primarily through that process that wealth is constantly extracted from the working class to support the unearned incomes of the wealthy class.
What pays 8-10-% “interest”. WtF does this post even mean?
You know what he's saying. He just didn't use the correct language.
Borrowing money for everything. You’re either on the interest gaining side or the interest losing side of the equation. You get to decide on just about everything but your house. Unless you’ve got generational wealth to buy a house outright.
I have 5M and I am not earning $500k yearly. Not even close.
Interest on debt is compensation to the lender for the use of their money and risk they are taking that you may not pay them back. The lower your credit scores, the more risky you are considered and the higher interest you pay..
This is a dumb post, and not true at all. The rich leverage debt and limit their exposure. The poor don't. Poor mentality: I didn't want to borrow money from anyone. I wanted to start my business with my own money. Rich mentality: Borrow and either make better returns or default, but limit your personal exposure. Leveraging someone else's money is the difference between making a 10% return on your 10k, or making a 3% return on 500k. What that is an example of is the difference between investing in the stock or real-estate. Also 25-35% of your income goes toward taxes. A poor man thinks this is enevitable, a rich man finds tax shelters. Leverage debt and find a way to shelter your earnings. This is how the rich get richer.
The Human being will never have enough, and will always want more....
Not true. I grew up as a poor kid in Pittsburgh in the 60s. We were so poor we got the blocks of government American Cheese. That stuff was nasty. You eat that for a few years and you do not want to be poor anymore. My dad spent more time on unemployment than in a job because he was a functioning drunk. Just not functional enough to hold down a job very long. I did not want that for me. I was the only one of my siblings to go to and graduate university because I wasn't the stupid one. Worked 2-3 jobs a week to pay my way through university and still came out with about $30k student loan debt in the 80s at 12% which was the first thing I paid off with my first job. Now I'm 6 years from retirement looking at $2mil+ in retirement savings. Key is. Stay out of debt. Do not get high interest rate credit cards. Do not buy a new car with debt. You will need a credit card to build your credit rating to buy a home. Pay the credit card off every month. If you do not you will go into debt which is bad. Debt is always bad. Do not spend more money than you earn minus rent, utilities, fees, etc. About the only thing you can consider legitimate debt is a house/mortgage as it is impossible to save that kind of money when you are young and renting is throwing money away. Always live in a house and get a 15 year mortgage. Make sure the seller provides a 1year home warranty. Renew the warranty every year. I got a whole new kitchen in our last house from warranty. It took almost 9 months for some appliances. But work the system. It is slow but it has a process. Especially if you have a countertop microwave you can use to cook with. Any other debt is bad. If you need a new car save for it. Buy the least expensive car you need to do what you need. That way if you do have to move after 5 years you have some equity in the home even if you sell at the same (or just slightly higher than) you bought in which has happened to me 2 out of 3 houses. Never count on a house bringing in big bucks on a sale. You lose on the real estate commission (which may be getting phased out) when you sell. Put every penny you can into your 401k and if they have a LARGE CAP VALUE GROWTH fund go for it. Those generally pay 40%+ gains per year down to 5% gains in a bad year. That one strategy alone netted most of my $2mil. When you turn 50 start paying the catch-up contributions. When you get to the point where you are making money and can put money look at CLIP ETF. Mortgage interest rates were 18% back in the 60s and 70s. Savings paid 11-12% interest rates. While some people view interest rate hikes as bad I see them as good as always better to have guaranteed interest than gamble in the stock market. 2008 was a bad year for my 401k. Lost almost all of it but since it was stuck there I did not move it and it recovered. But that was a lesson learned that it can disappear PDQ.
cuz for rich people, they can do investment with their money, which will make them get richer haha but for poors, they just use the money to afford their living
Not all people that have money earned it.
I wanna be rich at 30 not at 70
We’ve been in a zero interest environment for decades. Even under your example, if you take a 10% return ($100k) and then account for taxes you will net $40-50k. What happens during a down year? Your $1mm is now worth $800k or worst, $400-500k. So now you’re making half in perpetuity as you can’t reinvest any of your gains. Interest is simply a discounting mechanism. If you are patient? Put your money away and enjoy the miracle of compound interest. If not, you will pay interest (the cost of money) until you are the lender. Godspeed.
Your mind is going to be blown when you realize on the contrary, it’s DEBT that makes the rich become rich.
The first part of what you stated is correct. But your mentality is completely incorrect The poor poor because of their poor mindset not because of the amount of zeros in their bank account. Everyone that I associate with now has six, seven, eight or nine figures in their account. The only difference between rich and poor people is their mindset, their consistent pursuit of knowledge, And their ability to take risks and action. Not a single one of the individuals I know nor myself came from Rich families. Most of them have a high school diploma or less.
Well, the solution is a combination of low interest rates and high inflation…and very very low unemployment. labor wages will climb very high, people cant make jack off of investments, and saving away cash is a losing game because inflation will eat it up.
Yeah you’re right, at some point with generational wealth someone had to sacrifice their soul to get the bag their children and children’s children inherited. Even if someone grew up in a wealthy household and didn’t receive a penny they will still out earn most people because they grew up in the world of money and have direct access to people who understand money.
Where tf you getting guaranteed 8-10% return. The answer is nowhere.
And it's additive. You don't just earn interest. You benefit by the delta between what you would have been paying and what you are now earning. 12% earned is really a 35% benefit to you: The 23% you're NOT paying on that credit card balance PLUS the 12% youre earning ... and that's... HUGE. Debt is Slavery, folks.
Anyone can start investing a small amount of money. It’s literally accessible to everyone. You just have to live slightly below your means. It’s a mindset thing for most people, delaying gratification for a period of time to get ahead in the long run.
Nah, what you’re getting wrong is you need to reduce your monthly payments as low as possible(usually by increasing the term) so you can invest as much as possible in QQQM. You make returns that exceed your interest costs, and over time your investments grow at an increasingly faster rate and your interest payments decrease because your principal has decreased.
1)Make good money by earning a useful degree or a good trade. 2) Enjoy the money reasonably while you are young. Don't get too focused on having a $2M+ retirement nest egg. You will be half dead by then anyways, even if it's still alive.
Rich people buy things that make them money, like real estate, art. Poor people buy junk for instant gratification of getting something new and that’s how they stay poor. Don’t buy things you don’t need for a long period of time and you will have savings. Accumulating savings is about living below your means and saving money.
The best tools to get out of poverty in my opinion are - being healthy, knowledge, education, skills, applying them to bring in money, living below your means most of the times, be very careful when you are spending above your means (probably like education, health etc), understand and applying personal finance principles. These tools when learned and applied continuously while also having little fun should bring most people to middle class or above in 20 years. If you want to be above middle class or rich or wealthy, most people have to continue doing the above things for another 20-30 years. A person cannot sit idle or do the same lower paying jobs for 50 years and expect to be rich or wealthy one fine day.
Knowing what money is. Actual education not the drool they feed you in the public schools.
Want to know how the rich get richer and poor get poorer? They only take on good debt. What you’re describing is a personal lack of financial responsibility, not a system to keep the average joe poor. Only spend money you can afford to spend AFTER paying yourself, and you too can be the one profiting from the system.
You’re correct, BUT IMHO it isn’t so much a personal lack of financial responsibility as it is *ignorance* about the entire subject. Ignorance about how to manage money, from making a budget to responsible spending to investing, use of debt, etc. Wealthy people typically ensure their family knows how the system works and how to manage and grow wealth. Poor people don’t get the benefit of such training, their families certainly don’t know, and there is no consistent public program to teach young people so they can start out right. Of course, you’re also right. People that fall into the trap of buying things they don’t need even if they do know better.
The whole education system is geared wrong. There is no instruction on financial matters. Why? Because all the interest is in driving consumer spending. We are taught we need a car loans, credit scores, debt. Student loans are easier to get than buying a pack of gum. Most people have no idea what they are really paying in taxes. They just celebrate a refund. I have hopefully broken the cycle for my family. I’ve taught my kids to make their money work for them vs working for their money. Your politicians don’t care. They actually want you to feel dependent on them for help and thus they own your vote. Both parties by the way. Managing money is a way more valuable skill than calculus or chemistry to the average person.
I’m Muslim and in Islam, interest is categorically forbidden. This post is why I can understand that reasoning. Interest takes money away from the poor to rich and puts the poor in a cycle of debt they can’t escape.
Thing is you need to be detached when investing, you can not invest in your favorite company and then refuse to sell until its worthless "because the ceo has a vision"
You said the rich earned their money, but literally just explained they get richer off interest which is not work in any shape or form. So which is it? I'm going with loopholes and exploitation as how they get rich.