Another way the rich get richer

[KB]

Does anyone here use coupon sites like the article mentions? I haven't but who wouldn't mind saving money.

 

[Train]

...

The reality is that if you have someone who is able to be disciplined and smart with their money like you described, they would not be in the $10/hr job for very long. They would quickly get promoted or work their way into a better job.

 

[Macamus Prime]

You don't get rich by spending money you don't have to.

You also don't get rich by placing someone's money into shitty investments you knew where doomed to fai,... oh, wait - people DID get rich like that.

Never mind!

Well, at least we know that when they DO fail, they won't be given a free pas,..

Son of a bitch!

 

[digiram]

That's b/c those that make 25,000 and under are on food stamps. Have you ever seen someone with EBT cards shop at a grocery store. They eat way better than my family does... sort of.

 

[highland145]

That's b/c those that make 25,000 and under are on food stamps. Have you ever seen someone with EBT cards shop at a grocery store. They eat way better than my family does... sort of.

Maybe that's because they also won the $850K lottery.:sneaky:

 

[dmcowen674]

didn't realize that a household income of over $75k is considered "rich" now a days...

Try and keep up

 

[zerocool84]

You don't get rich by spending money you don't have to.

Exactly which is funny when we have a certain poster here that calls everyone poor because they don't want to buy something.

 

[JackBurton]

I thought this was going to be about a guy worth $50 million making another $50 million. $75K? Seriously? Was this article written by a homeless guy?

 

[JimW1949]

All I can say is, if you guys honestly believe someone making $10 per hour is going to end up wealthy by saving and investing their money, I have a bridge I want to sell you in Brooklyn.

 

[Cogman]

All I can say is, if you guys honestly believe someone making $10 per hour is going to end up wealthy by saving and investing their money, I have a bridge I want to sell you in Brooklyn.

If you earn $10 per hour and even if you could somehow manage to save half of your income and put it into an interest bearing account, you would never live long enough to have enough money to be considered wealthy.

That is the premise you gave us, earning $10 an hour, saving half of it, you can't live long enough to be considered wealthy. We did the math on it, and, yes, you can.

We never said "It is likely" or even that your premises are possible. We just said "operating under the premises that YOU gave us, yes, it is possible."

I personally don't think that it is possible to save half of $10 an hour and live off of $5 an hour. But if you could, you would end up having enough money to spend to live comfortably in retirement.

When you give very specific parameters to a bunch of math nerds, you can't expect that someone wouldn't run the numbers.

 

[JimW1949]

You are absolutely right, I said save $5 per hour. But if you read the post carefully I also said "if someone could somehow manage to save that much". But regardless, you are right, I did say that.

In post number 17 you said at 5 percent interest it would amount to $587 thousand dollars. I hardly think that amount qualifies someone as being wealthy. Besides that, how can you possibly predict that someone will earn an average of 5 percent in the future?

Several of my friends had quite a large retirement going before the recession. Now I doubt they will be able to retire with half the money they once had.

As far as interest rates go, according to this website http://www.westendbank.com/banking_services/current_rates.html
the current rate of a Roth IRA is 2.8 percent. Obviously the rates are different at different banks, but the rates won't be THAT much different. Now I realize there are different Roth IRA's and different ones pay different rates. There are also different Money Market Funds and of course they also pay at different rates. But judging by this website they aren't doing real well at the moment either. Who knows when, or even if, they will get better?

Anyway, the whole point I was making is that saving money is a good idea, but unless you make quite a bit of money and can save a lot of it and invest it wisely, you will not end up wealthy. So if you plan on being wealthy in this fashion, you would probably do much better if a rich relative dies and leaves you a fortune.

 

[halik]

Lets take an example.
Husband, wife and 1 kid. Husband works the $10/hour job, 40 hours a week, every week and lives in Illinois, wife stays at home with the kid. In Illinois he would receive $233 (more or less, this number from a quick and dirty online calculator from the state) for food a month, he would also qualify for Medicaid. I'm not sure exactly if he would qualify for reimbursement for AC/Heat.

Income is:
$1600/month from job
$233/month for food from state
$4850/year = $404/month from federal government as a tax credit for having kids and basically no money
Total:
$2237/month

Bare essentials:
$500/month rent
$120/month for utilities on average (got that number from my personal average of gas, electricity, sewer, water, and garbage)
$233/month on food (won't be eating great, but certainly can be done)
$30/month in clothing (bought from Goodwill/Salvation army. Though they would be so poor I'm sure getting donations would be possible. So could be $0/month, but lets just stick with $30/month)
$100/month for misc. child costs

Total: $983/month
Remaining: 2237-853=$1254/month

Pretty much essentials:
$2000 paid for beater car that lasts, for the sake of argument, 3 years before a new beater is needed.
$2000/36 months = $55/month

$100/month in gas
$40/month in insurance
$40/month for maintenance

$10/month for cell phone service (or likely $0/month with something like SafeLink Wireless)
$20/month for DSL internet
Total: $265/month
Remaining: 1254-265=$989


That invest half his income comes to $800/month, that leaves $189 to save each month to build an emergency fund.

Investing that $800/month into good mutual funds long term, will get about that 7% inflation adjusted amount
Check out some dates with
http://www.moneychimp.com/features/market_cagr.htm
If you invest long term (15+ years) there isn't a 15 year period in which you would lose money, with returns in the 5%-15% range usually.

So in short, its doable. Difficult (you would barely have any life at all), and you would be getting government assistance. But you could do it.

Edit: Forgot about the ROTH IRA tax credit which they would qualify for at that income level, which would give another $1000/year as a credit (so $83/month)
Double Edit: $2000/year as they are married on that income, so $166/month extra. That would pay for some fun on the side.

No real health insurance and a kid... ya I'm sure he's saving half of his disposable income. Also if you think 1 kid costs you $100/mo, you're out of your mind.


http://www.babycenter.com/baby-cost-calculator

 

[blinblue]

No real health insurance and a kid... ya I'm sure he's saving half of his disposable income. Also if you think 1 kid costs you $100/mo, you're out of your mind.


http://www.babycenter.com/baby-cost-calculator

Health insurance would be through Medicaid. And baby costs are pretty low if you breast feed, and if the mother stays at home with the child (which she does in my scenario). Using that website, diapers at $72/month, clothing is already accounted for (and is dirt cheap at salvation army, goodwill, or other stores like that. We ain't buying new stuff for the baby, that's for sure). Toys and whatnot can be picked up for free/cheap on craigslist, from family, goodwill/salvation army. So we got medicine and toiletries as the last category, they give $23 and $21/month respectively. So we can bump up the misc. baby stuff to 72+23+21=$116/month. I guess I was $16 off.

Of course, you'd be leaving a very unglamorous life, and to survive like that would take lots of dedication and hard work. But the point is, its doable if you really go crazy.

But of course, as someone already mentioned. If you can work hard enough to make it work on such a tiny budget, you probably will end up making more than $10/hr at a job. But in the land of hypothetical, I think it saving half your income at $10/hr is possible.

In post number 17 you said at 5 percent interest it would amount to $587 thousand dollars. I hardly think that amount qualifies someone as being wealthy. Besides that, how can you possibly predict that someone will earn an average of 5 percent in the future?

Several of my friends had quite a large retirement going before the recession. Now I doubt they will be able to retire with half the money they once had.

As far as interest rates go, according to this website http://www.westendbank.com/banking_services/current_rates.html
the current rate of a Roth IRA is 2.8 percent. Obviously the rates are different at different banks, but the rates won't be THAT much different. Now I realize there are different Roth IRA's and different ones pay different rates. There are also different Money Market Funds and of course they also pay at different rates. But judging by this website they aren't doing real well at the moment either. Who knows when, or even if, they will get better?

A Roth IRA is just a vehicle for investments, so you can get some crappy guaranteed rate from some bank, or you can invest the money in the stock market. Of course the stock market isn't guaranteed, but long term it pretty much is. I'm sure your buddies did lose a lot when the market crashed, however its mostly recovered, and if they had some decently spread out mutual funds, they'll be just fine.

I have linked to this before, it really is worth checking out
http://www.moneychimp.com/features/market_cagr.htm
Say you began investing in 1995 and you decided to cash out when the market hit bottom in 2008, your adjusted rate of return (factoring in inflation) is still 4.27%, if you waited for the market to recover somewhat in 2009 your return (adjusted for inflation) 5.47%

Do the same thing but starting in 1985, your adjusted return would be 6.85% in 2008, and 7.48% in 2009


2008 really did a number of people's portfolios, but if they stick it through, history states that they'll get their money back and make >7% (adjusted for inflation) doing it. Not that bad at all

 

[spidey07]

You are absolutely right, I said save $5 per hour. But if you read the post carefully I also said "if someone could somehow manage to save that much". But regardless, you are right, I did say that.

In post number 17 you said at 5 percent interest it would amount to $587 thousand dollars. I hardly think that amount qualifies someone as being wealthy. Besides that, how can you possibly predict that someone will earn an average of 5 percent in the future?

Several of my friends had quite a large retirement going before the recession. Now I doubt they will be able to retire with half the money they once had.

As far as interest rates go, according to this website http://www.westendbank.com/banking_services/current_rates.html
the current rate of a Roth IRA is 2.8 percent. Obviously the rates are different at different banks, but the rates won't be THAT much different. Now I realize there are different Roth IRA's and different ones pay different rates. There are also different Money Market Funds and of course they also pay at different rates. But judging by this website they aren't doing real well at the moment either. Who knows when, or even if, they will get better?

Anyway, the whole point I was making is that saving money is a good idea, but unless you make quite a bit of money and can save a lot of it and invest it wisely, you will not end up wealthy. So if you plan on being wealthy in this fashion, you would probably do much better if a rich relative dies and leaves you a fortune.

This is the mindset that will prevent you from becoming wealthy. Why even try is your attitude. Your "friends" that were ready to retire and had all their shit in stocks were stupid, nobody approaching retirement would do that unless they were utterly stupid. Risk vs. return.

You don't even have to invest it wisely, that's the whole point of Dullard's post. If you choose to differ from a time proven path don't be surprised if you lose your shit.

 

[halik]

Health insurance would be through Medicaid. And baby costs are pretty low if you breast feed, and if the mother stays at home with the child (which she does in my scenario). Using that website, diapers at $72/month, clothing is already accounted for (and is dirt cheap at salvation army, goodwill, or other stores like that. We ain't buying new stuff for the baby, that's for sure). Toys and whatnot can be picked up for free/cheap on craigslist, from family, goodwill/salvation army. So we got medicine and toiletries as the last category, they give $23 and $21/month respectively. So we can bump up the misc. baby stuff to 72+23+21=$116/month. I guess I was $16 off.

Of course, you'd be leaving a very unglamorous life, and to survive like that would take lots of dedication and hard work. But the point is, its doable if you really go crazy.

But of course, as someone already mentioned. If you can work hard enough to make it work on such a tiny budget, you probably will end up making more than $10/hr at a job. But in the land of hypothetical, I think it saving half your income at $10/hr is possible.

1) Even caid has copays
http://www.colorado.gov/cs/Satellite/HCPF/HCPF/1212398230851

2) $2K beater car will run you way more than 2k to keep operational


3) No rainy day fund, unless you want to pay penalties on your IRA.
The point being that this is the super best case hypothetical scenario that essentially doesn't play out in the real life. This is why empirically it's not possible to save half of your income in poverty.

 

[StrangerGuy]

Stupid people get poor, because they overspend their means to impress more stupid people.

 

[blinblue]

1) Even caid has copays
http://www.colorado.gov/cs/Satellite/HCPF/HCPF/1212398230851

2) $2K beater car will run you way more than 2k to keep operational


3) No rainy day fund, unless you want to pay penalties on your IRA.
The point being that this is the super best case hypothetical scenario that essentially doesn't play out in the real life. This is why empirically it's not possible to save half of your income in poverty.

Those co-pays are crazy low, my budget had $358 unspent. That will build up an emergency fund fairly quickly, and easily cover those copays.

I allotted an average of $40/month specifically for car maintenance. That's $480 a year on repairs and whatnot. That's probably a bit low, but then again, we aren't really worried if the AC doesn't work properly (for example), this is just a means of transport.

But anyway, the point really isn't that everyone who makes $10/hr should be able to save half of that (my scenario only works because of government assistance largely due to the child). I'm sure there are a lot of scenarios where $10/hour just can't cut it even with government assistance.
The point is that it doesn't take much money ($5/hr), wisely invested long term, to turn into a lot of money.


As an aside, the Roth IRA tax credit is awesome if you don't make much money. 50% of your contribution up to a $2000 credit (married filed jointly. $1000 is single). Max out your roth IRA to $5000 and get $2000 back, and its tax free when you take it out, not a bad deal. So if you have a low income (the percent back drops quickly as your income goes up) and low expenses, Roth IRA is a fantastic thing to do.

 

[Cogman]

You are absolutely right, I said save $5 per hour. But if you read the post carefully I also said "if someone could somehow manage to save that much". But regardless, you are right, I did say that.

In post number 17 you said at 5 percent interest it would amount to $587 thousand dollars. I hardly think that amount qualifies someone as being wealthy. Besides that, how can you possibly predict that someone will earn an average of 5 percent in the future?

1. That was assuming they invested in a Roth IRA today which has a maximum yearly investment of $5,000. If they save $5 per hour they would have been saving ~$10,700 per year. I did that because Roth IRAs are tax free in every sense of the word (you can deduct it from your taxes and when you do withdraw you aren't taxed on it.) That is nearly $600,000 of tax free money, a large chunk by anyone's standard.

2. 5% is a VERY conservative number, one that I can all but guarantee (barring the complete death of the US economy...). My prediction of 5% is just about as solid as your prediction of "Oh, my bank is going to give me 2% for a bond. No, I can't see the future, but I can look to the past and say with some pretty good certainty that you can do it. (Someone before me posted about this further.)

Put those together, and given your parameters with further investing I think it is pretty safe to say that this individual can be a millionaire by retirement.

Several of my friends had quite a large retirement going before the recession. Now I doubt they will be able to retire with half the money they once had.

How long have they been investing? My parents retirement fund did suffer from the down turn (it set them back about 5 years) but it did not completely wipe them out. Given the money they earned from all the good years, they are still in good shape. They wouldn't be where they are at now had they not invested in the first place. Crap happens, it doesn't happen all the time.

As far as interest rates go, according to this website http://www.westendbank.com/banking_services/current_rates.html
the current rate of a Roth IRA is 2.8 percent.

Roth IRAs are based off of whatever you want to base them off of. They can be based off of mutial funds, straight stocks, bonds, whatever.

Obviously the rates are different at different banks, but the rates won't be THAT much different. Now I realize there are different Roth IRA's and different ones pay different rates. There are also different Money Market Funds and of course they also pay at different rates. But judging by this website they aren't doing real well at the moment either. Who knows when, or even if, they will get better?

Nobody knows. Be given the past we can be optimistic that it will get better.

Anyway, the whole point I was making is that saving money is a good idea, but unless you make quite a bit of money and can save a lot of it and invest it wisely, you will not end up wealthy. So if you plan on being wealthy in this fashion, you would probably do much better if a rich relative dies and leaves you a fortune.

Bullcrap. Anyone can benefit from investing. Rich people don't invest in the stock market because "They have tons of money, so why not." they invest in the stock market because it is the smartest thing they can do with their money.

Yes, it is more expensive to invest when you have less money, however, the benefits of doing so far outweigh the risks.

 

[Bignate603]

Go look up rich dad, poor dad. It explains some of the things that wealthier parents teach their kids about money.

 

[Cogman]

Go look up rich dad, poor dad. It explains some of the things that wealthier parents teach their kids about money.

eeeehhhh, not really. That's one of those "self help get rich quick" books.

The fastest way to get rich is to write a book about the fastest way to get rich.

 

[halik]

eeeehhhh, not really. That's one of those "self help get rich quick" books.

The fastest way to get rich is to write a book about the fastest way to get rich.

Second.

 

[ElFenix]

eeeehhhh, not really. That's one of those "self help get rich quick" books.

The fastest way to get rich is to write a book about the fastest way to get rich.

nah, it's start your own church

 

[zerocool84]

nah, it's start your own church

Ok well the book writing is the second.

 

[Zebo]

Wannabe rich maybe. Rodeo drive aint full of poor people.

PS how you get rich is market position not clipping coupons though it can help.

Do you have ability to get free fed money when you fail like bankers?
Do you have a career with high earnings?
Do you own a business with barriers to entry, capital, intelligence and so on.

 

[Zebo]

Go look up rich dad, poor dad. It explains some of the things that wealthier parents teach their kids about money.

Complete B.S. Artist. I can't believe anyone recommends this book. Full of dangerous and even illegal advice.. Much better off with "Millionaire next door" if one wants to build something out of humble beginnings.

http://online.wsj.com/article/SB116052181216688592.html?mod=money_page_left_hs

http://www.smartmoney.com/smartmoney-magazine/?story=magazine_feb03