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tony

How To Be Richer Than A Millionaire

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Luckily, you don't have to win on a game show or hit the lottery to join the ranks of millionaires. The vast majority of them simply work and invest their money to achieve a net worth that has two commas.

P.S. Incidentally  The Thomas J Stanley mentioned in this article who co authored the Millionaire Next Door was killed by a drunk driver. Very unfortunate.

https://www.washingtonpost.com/business/2018/11/13/how-be-richer-than-millionaire/?noredirect=on&utm_term=.42c7623ec450

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Thanks Tony,

I am going to download this new book to my new Kindle Oasis.

One of my favorite authors, Dr. Stanley, co-author of one of my favorite books, the Millionaire Next Door. Several years ago, before he died, I had the pleasure of meeting Dr. Stanley at a conference and heard his famous pitch about his descriptions of American Millionaires. 

It is a positive, forward-looking, and accurate but hidden account of how regular and ordinary people achieve millionaire status. Some inherited but the vast majority earned it. The book and the population studied reflects my values of rejecting the consumer culture to attain wealth. I am very lucky and fortunate that I understood the powerful implications of living below your means since my 20s and being married to the right person for 40 years, until his shocking death 3 years ago. Despite flunking the 2nd grade, having an older brother was paranoid schizophrenic, getting wounded in Nam and surviving stage 2 colon cancer during my long life, I am a millionaire next door 100%. Just about every case the authors interviews involves spending below your means. 

The Millionaire Next Door was discussed at length in these books: Millionaire Teacher and White Coat Investor. Each author devoted a chapter in their books to MND because it is so important to realize the despite all of the negativity (and there will be plenty of naysayers), just about anybody who stays healthy in body and mind, has a job that pays adequate wages, has incredible discipline and foresight can become a millionaire. 

BTW, my nephew and his wife are also clearer examples of Millionaire next door. Many of the MND cases were people with their own businesses. They owned their own farming business for 40 years, including the farm I grew up, and turned it into an empire, with about 20 employees. He told me years ago that they were worth $8-10 million (probably more like $15 Million now), and all they have is a high school degree. However, my nephew IS one of the shrewdest people I know. He KNOWS the business, milking 900 cows, and in his spare time, he and his wife have a trucking business and they raised five children, all great people who I love very much (all millennials who think I am "hip"). Way back in a totally different era, my parents milked 20 cows at the height of their career back in the 1940s when I was born. 

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This comment from the comments section below the article caught my attention

 

"Here’s what it takes to be a millionaire: Work hard, be frugal, save, avoid excessive debt and be a consistent investor. By the way, you don’t have to be an entrepreneur, a physician or an attorney."

Oh, f*** off with this. Most Americans have had that line of bull crap shoveled into their faces all through their lives, and many have concluded that it is a fantasy promoted by the affluent. The hardest-working people I have ever known are among the poorest. And they don't squander their money needlessly, either. They just work low-paying jobs and don't have money left over to invest after they have taken care of daily needs and the periodic financial shake-ups that life throws at them in the form of medical costs, car repairs, and so on.

I understand that the article is not saying that everyone who works hard will become a millionaire, but it is still insulting in its apparent disregard for class disparities as a barrier/facilitator of wealth acquisition.

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On 11/15/2018 at 3:24 PM, tony said:

Oh, f*** off with this. Most Americans have had that line of bull crap shoveled into their faces all through their lives, and many have concluded that it is a fantasy promoted by the affluent. The hardest-working people I have ever known are among the poorest. And they don't squander their money needlessly, either. They just work low-paying jobs and don't have money left over to invest after they have taken care of daily needs and the periodic financial shake-ups that life throws at them in the form of medical costs, car repairs, and so on.

I’m not kidding...

You tell me where the rally is and I’ll bring my pitchfork

Later today I am going to roughly quantify what it takes to become a millionaire so we are no longer speaking in the abstract.

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14 minutes ago, EdLaFave said:

I’m not kidding...

You tell me where the rally is and I’ll bring my pitchfork

Later today I am going to roughly quantify what it takes to become a millionaire so we are no longer speaking in the abstract.

Hi Ed,

You are funny. I love your take on life and that numbers reflect wisdom. Look forward to your quantitive analysis while I think of the qualitative/experiential response. 

have a great day,

Steve

 

 

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All right, I'm sure everybody was on pins and needles, you can view my spreadsheet here. The end result is that my hypothetical teacher has to work a full 48 years before achieving millionaire status. A few notes on those calculations:

  • It assumes every dollar is invested in a Roth account.
  • It assumes they remain single, healthy, roommate-less, and child-less.
  • It assumes yearly expenses of $26,058.50 (rent, utilities, transportation, food, clothes, cell phone, and a $250/monthly misc budget).
  • It assumes a real investment return of 3%.
  • It assumes the tax code is adjusted for inflation each year.
  • It assumes they begin at $35,000 and receive a 1% real raise per year.
  • It assumes there aren't any forced contributions to a pension and just routes that money to the Roth account.
  • All of the calculations are done in real dollars because a million nominal dollars in 50 years isn't meaningful.

I can modify any of the parameters in the spreadsheet if anybody is curious what affect that would have. I think this makes it clear that a huge percentage of Americans will never become millionaires because this hypothetical person didn't spend their money foolishly and a large percentage of people don't make as much as this hypothetical person.

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Very nice!

But both your salary assumptions and your 3% assumption in real returns are too low. We are talking about 2018 to 2068, 50 years from now.   

Most people who calculate their net worth is just on paper. If I were to sell everything I had in my investments I would get approximately 39% less just because of taxes. Of course, it will take longer in real terms, and right now in real terms I would not be a millionaire, but I call myself a millionaire because I have assets on paper, and those assets are not air, they will grow. 

Your 3% assumption in real returns is so low, teachers might as well invest in annuities. I wanted to try a 5% or 6% return and I bet those years are reduced to more like 25 years.  

Your hypothetical teacher will only make about $2,256,211.37 in 50 years, that salary estimate is also way too low (unless one works in Mississippi). It should be more like $4,000,000 in 50 years IN THE FUTURE!, my friend. My salary went from $19,000 in 1984 to $80,000 in 2008 in 24 years.

Here is how Paul Merriman who loves numbers like you calculates $3,000 into $50 million: https://paulmerriman.com/turn-3000-into-50-million/ 

This is a fundamental difference we have, I believe that it's not how much you make its what you do with what you make.

Steve

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I agree with Steve that the salary assumption seems low--is that consistent with k-12 teacher pay in Florida?  3% real return (i.e., after adjusting for inflation) seems reasonable to me, it could easily be lower than that for long periods.

So much depends on where you are.  You don't calculate state tax, which matters here in California. Living comfortably on 26k, if you don't own and don't have a spouse or roommate, would be very difficult to pull off here (in Los Angeles) given prevailing rents (you could find a modest apt for less that 2k/month, but maybe not that much less).

Ed, I am confused by your claim that your hypothetical teacher needs to work 48 years--doesn't your spreadsheet show a 1 mill investment portfolio as of year 35?

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Remember, I'm using real dollars so the number of years I'm projecting into the future doesn't affect the validity of my calculations.

If you say the salary is too low, I updated it to the 40k-74k range that OCPS uses and it still takes 40 years to reach millionaire status.

If you say the investment returns are too low, I changed it from 3% to 4.5%...and after having increased the salary, it still takes 35 years to reach millionaire status. Historically stocks have a real return of 7% and I'm not entirely sure what it is for bonds, probably around 2%. I'm not willing to go any higher than 4.5% real returns because I've talked to lots of folks (you and Tony for instance) and people seem to need conservative portfolios to stop themselves from "buying high and selling low".

The original post was about all workers, not just teachers. The US Bureau of the Census has the individual median income at $31,099...which is WAY less than starting at $40,000 with a 1% real raise every year. The numbers suggest that even with IDEAL spending habits, the millionaire label is impossible for a HUGE percentage of people.

39 minutes ago, sschullo said:

I call myself a millionaire because I have assets on paper, and those assets are not air, they will grow. 

If you're suggesting you call yourself a millionaire based on the future growth that you hope arrives, then you aren't a millionaire. If you're saying you have a million in assets before taxation then it is reasonable enough to say you're a millionaire (at least hoping you do things in a tax efficient way).

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1 minute ago, whyme said:

doesn't your spreadsheet show a 1 mill investment portfolio as of year 35?

You probably looked at the spreadsheet after I increased growth to 4.5% and increased starting salary to 40k.

 

2 minutes ago, whyme said:

You don't calculate state tax, which matters here in California.

Yup. I generally tried to make optimistic assumptions for this hypothetical person. No state taxes. No health issues. No entertainment expenses. No vacations. No children. Although I did make one pessimistic assumption, no spouse or roommates to offset the biggest cost which is housing. Feel free to copy the google spreadsheet and play with your own assumptions if you want.

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8 minutes ago, EdLaFave said:

You probably looked at the spreadsheet after I increased growth to 4.5% and increased starting salary to 40k.

Yes, I originally saw the 30k starting salary, but by the time I looked at the portfolio column, the assumptions had changed and I didn't realize that.  I see your note about the all-workers basis for that salary figure: no doubt about it, there are large numbers of hardworking folks who make less (much less, if benefits and pension are figured in) than full-time teachers.

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47 minutes ago, sschullo said:

My salary went from $19,000 in 1984 to $80,000 in 2008 in 24 years.

Your $19,000 1984 salary was worth $38,882.95 in 2008 dollars. So in 24 years your real salary more than doubled...congrats! Even with an infinite number of years, that is impossible for teachers in Florida. I can't remember the exact figures, but I think Floridian teachers have gotten crazy low maybe even 0% nominal increases for years.

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Wandering off from the main topic, but one bit of optimistic behavior that one might include at these relative low salary levels: put the money in traditional IRA or (401k, 403b, etc if available) instead of a Roth.  If I understand correctly, this would reduce the adjusted gross such that it would not only lower taxes, but could trigger eligibility for the "saver credit," which can be as high as $1000 and is an additional tax credit, i.e., it can reduce federal taxes due by the amount of the credit.  In general, I think traditional IRAs are an encouraging way to go for those who are struggling to save, as they see an immediate tax benefit.

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It’s probably worth noting that teachers’ salary can increase with both time and further education, at least they do in my old district. I believe that is usually the case but don’t know for sure. My district has 15 yearly steps, and 9 education level steps. I started at $6000/yr in 1974 and ended up at $45,000 in 1992. I was a PhD program dropout so started (and stayed at)  BS + 155 credits + MS.

Here’s the current salary schedule. Teachers are “Certificated Non-Supervisory Employees 2015-2018”. Currently I would start at about $60k and currently with 15 years of experience I would top out at $109k.

https://www.seattleschools.org/departments/HR/current_employees/labor_and_employee_relations/cbas__salary_schedules__work_year_calendars

I believe it’s not uncommon for teachers in many states to currently earn over 100k after 10 or 15 years. A number of states have state-wide salary schedules which can be relatively high while the cost of living may vary within the state and be relatively low.

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1 hour ago, EdLaFave said:

If you're suggesting you call yourself a millionaire based on the future growth that you hope arrives, then you aren't a millionaire. If you're saying you have a million in assets before taxation then it is reasonable enough to say you're a millionaire (at least hoping you do things in a tax efficient way).

 

 I am not talking about future growth. I am talking about what I have right now. When you say REAL NET WORTH, its what I really have after paying taxes. As I said in my previous post, nobody calculates their net worth like you do. My assets are over a million right now. But my portfolio is not REAL money, because much of it will used to pay taxes (yes I used tax-efficient index funds). I am talking about what my real money portfolio would be worth, IF I TOOK IT ALL OUT RIGHT NOW.

So, if you take out the opportunity to save on taxes to put into a nest egg, of course, it will take many more years to get real money because your growth assumptions do not take into consideration the potential growth of tax-deferred money. That's the whole idea of IRAs, which whyme pointed out. Income taxes would be reduced and the growth assumptions would increase, that's how tax-deferred retirement plans work. 

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