According to a recent article, Warren Buffet believes doubling someone’s net worth won’t make them happier. We of course disagree. That said there are two sides of the spectrum, doubling someone from $10 for example to $20, doesn’t do much. Similarly, doubling someone who has $1 billion dollars or more (like Buffet) is not going to change their day to day life either. Somewhere there is a line in the sand and we’ll go ahead and outline our own mathematical way to come up with optimal amounts of money. Remember, the vast majority of rich people are extreme risk averse and boring. They don’t believe in touching principal so our numbers are likely on the aggressive side if you were to poll a large number of well off people.
Age Matters: While everyone learns the “discounted cash flow” analysis in college, we’d say the value of money declines at a *faster* rate as you get older. This means a dollar at 80 years old is probably worth 1 cent compared to a thirty year old. This is less about compound interest and more about visiting a hospital and seeing what life is like when we’re old. If you’re in amazing shape we’d say the “good years” are from age 20 to about 75. Very big range. And. The point remains. Would you rather be 20 years old and have $500K or 80 years old and have $5 billion? The answer is clear, $500K since your time is limited. (yes we’ll keep it simple and assume an expected life span of 85 years old).
Since this is a net-worth post we’ll put the numbers up: Age 30: $2million, Age 35: $4-5M Age 40: $10+ million. If you’re able to hit any of these numbers the incremental net-worth isn’t really going to change much. Maybe some of you already own private jets and think these numbers are small (great!) that said, the life style is very difficult to change if you get into double digit territory at age 40.
With the numbers out of the way, the question is “why is it much lower”… the answer is you’re going to work. It is not fun waking up every single day with nothing to do. Take a trip back in the time chamber and remember “summer vacations”. Unless you were born rich, summer vacations were pretty boring since you had nothing to do. While you can solve some of this boredom with classic hedonism, the challenge of producing is exciting in a different way. Some people actually love working all day (bless their souls) and end up ultra-rich.
Mathematical Explanation of the Numbers: The reason why money is one of the rigged games in life is due to momentum. When people see $2 million or $4-5 million, they assume there is no cash flow. This is practically impossible! Unless someone stops entirely, they are going to generate multiple six figures while maintaining their net worth. Why? Well the only way to get to a few million that quickly is by generating a large amount of money. When you think about it that way, you’ll see the snowball effect take place. We’ll use basic numbers of 5% on investment returns and unless you develop a terrible addiction to drugs/alcohol/materialism… it’s difficult to fail.
At age 30, if you made it to $2 million, it means that you’ve saved an average of $160K per year (roughly). For fun if you want to check this math, plug in $160K in savings per year multiplied by 5% investment return. You get to about $2 million if we assume you start at age 21. This is not easy and is a fantastic achievement.
Here is where the math gets out of control. If you were able to get to $2 million, it means you were investing $160K per year (see above). This *includes* all of your expenses. The only way to invest $160K a year is if you have covered all of your expenses first. Getting to $4-5 million does not seem unreasonable at all anymore. If your income does *not* go up for the next decade (unlikely) you’re going to sit on $3.45 million on the same numbers. If you continue to save $160K with 5 percent returns… that’s what you get. Despite age 30-40 being years where income typically goes up.
Money and Fun: Let the controversy begin! What exactly will you do with your extra money? If you’ve already gone through a partying phase and bought a few nice things for yourself… there isn’t much left to do. Sure you can go ahead and buy the super car or a net jets account… that said… is there a lot of incremental gain here? The marginal benefit isn’t that high and many of these higher end purchases have recurring costs (the worst type of cost and best type of business to run!). We’d take the reverse approach (no surprise) and spend on things that free up time. This would be services as we have mentioned in the past: 1) clothing, 2) cleaning, 3) massage/physical help, 4) blood work/private doctor and 5) food. If you can have someone else do the tasks you would be forced to do, what you have done is freed up more time. With this free time you can make up the cost of the services (if you still enjoy working) or you can use the free time for fun.
What is fun for *you*? We phrased this very carefully. The implied message in the question is *fun* without the approval of others. Fun means something that you enjoy doing that doesn’t require some sort of ego stroke. If it’s fun for you regardless of what other people think, then you’ve moved into the right direction. If you can strip down the items to things you actually enjoy (attention shouldn’t be on the list) then you’ll find a normal spend rate. We’ll be shocked if someone actually enjoys flying around all the time on a jet (note to younger readers: people who glorify frequent travelling are usually poor because traveling is awful after a period of time). Similarly, people who have to travel all the time generally have high incomes, people don’t travel on business to lose money!
With that backdrop take a look at the items you can do with money that would be fun: 1) partying, 2) sports/athletics, 3) arts/crafts, 4) music, 5) outdoor activities ranging from hiking to gardening, 6) extreme sports – skydiving etc. and 7) learning a new trade such as pilots license. We are sure we have missed a few (writing – a hobby you see here) but most of these do not require large amounts of money! The big cash outflows go to the same standard items: housing, taxes and food. Since the last one is limited and the first one should be minimal (paid off home/apartment), it is quite difficult to spend up from here.
As you can see we’ve gone full circle now. If you’re able to get to a few million dollars (excluding value of primary residence) there are practically no costs. Keeping it simple, with $10K net profit a month with zero rental/mortgage expenses… it is quite difficult to burn the money even if you quit working entirely (you won’t).
Breaking Down a Month: This number sounds small if you’re living in NYC, that said you can always move. For fun, we’ll run the numbers assuming a $10K spend and it is still quite difficult to call this a “bad life”. In order to go through $10,000 you can do the math as follows: 1) $1,000 tax/HOA cost, 2) $1,500 on health/fitness/services, 3) $3,000 a month on food ($100 a day assuming you’re not going to eat out constantly – terribly unhealthy), 4) $500 on utilities and 5) Fun/other up to $4,000 a month! It is quite difficult to call $10,000 a month in spending with no real mortgage/rent payment a “tough life”. Remember, this is a level of spending that assumes you don’t even work because 5% on $2.4 million is… $10K a month.
Spending to Zero: Another fun part of this game is considering “going negative”. While it is certainly smarter to never touch the principal (just keep a basic income stream going), if you’re forced to go negative you’ll see an even longer “tail”. As a basic example, if it is impossible for you to work past age 35 for an unforeseen reason… $4-5M is still going to push you through age 80 or so. You could spend between $89K and $111K a year… for forty five years assuming zero percent returns!
This is an interesting set up because we know that it is highly unlikely for anyone to stop working prior to age 50 or so (you’ll be bored stiff). This gives you 15 years of active income + a guaranteed 45 years of income if you really decided to call it quits. We know about the simulations that suggest the 4% rule breaks down (yes there is a chance of 50% correction) that said it assumes you are actually forced to sell which is just not likely if you’ve made your money early.
The last important item in terms of spending to zero is the time frame. Going back to the top, since we know that you can go to zero percent return and live for 45 years… it means there is no reason to save after age 45. That is right, saving money makes less and less sense from a utility maximization framework. Even if you decided to have kids, you don’t want them to grow up without a work ethic. Handing over a boatload of money to someone who never worked for it rarely ends up working out.
Figuring Out Your Own Number: While we’ve given a framework you can go ahead and come up with your own estimates as well. Some of you want to become billionaires (fantastic!) and some of you want more/less (the classic $10M number seems to be constant amongst the ambitious). Here is how you can figure out your number.
You’ll need two figures: 1) the amount of money you want to spend per year in terms of dollars today and 2) the year in which you’ll actually stop working. We’ll go ahead and guess and say you’ll call it quits at age 45 but you can plug in any number you like. We’ll assume a life expectancy of 90 years of age.
Basic Formula: (Life Expectancy – Age You Quit) * (Money Needed Per Year)
That is all there is to it. Going beyond this number is quite literally off the curve. If you ever reach a point where you can live off principal to death (money would be in TIPS – items that track inflation and other risk free assets), then you’re done. As you can see from the beginning this happens a lot sooner since we heavily doubt anyone gets to a few million dollars without having a high income (doesn’t make sense!)
Now for the fun part, we’ll open the comments below to questions and answers related to how much money is needed to call it quits. We’re interested in hearing your formulas and ways you think about life. Many of you will unlikely quit working making this post moot as well.
In my case, I’d add a few variables to these calculations. to get to my own number that is enough.
1) Wife and kid(s). While I don’t have either of those at the moment, it’s something that in my mind is worth having and would drastically change the calculations.
2) Life expectancy. While this is something that’s easy to argue about, I’d bet that for people born in the 80s, life expectancy can easily reach 150 years or more.
3) Inflation.
Thanks for the post. I enjoy reading these posts because they are down to earth and realistic, cutting through the bullshit and false preconceptions.
2) You kidding right? 150 years for people born in the 80s??!?! Even people born now cannot expect to live past 100. Where the hell did you get 150 from..
It’s a highly controversial topic, but bear with me for a minute:
1. just 200 years ago, life expectancy was around 35 years. 200 years ago it was around 40 years. Now it’s already over 80 in industrialized countries and expected to be over 100 for newborn babies. There’s people that lived over 120 already.
2. The medical field is advancing exponentially. How was it just 50 years ago? Doctors knew pretty much nothing compared to today, the tools were simple. Today, there’s people getting 3D-printed implants, we are starting to grow tissue, etc. How is the field going to look in 50 years? That means those babies born in the 80s I mentioned above will be 90 years old, probably with the opportunity to implant newly printed organs, with medicine to slow, halt or even rejuvenate the human brain from deteriorating.
3. Don’t forget that there are several different fields working on this at the same time. Genome, 3D-printing, nanorobots, etc. It’s easy to imagine how one field might look like in x years, but increasingly harder the more fields you mix together.
I believe we are getting close to reaching escape velocity in aging, meaning that for each year that we live, our life expectancy increases by more than a year. Might take a few more decades, but it’s inevitable and there’s people alive today that might get to experience it.
Great and fun post!
After a lot of contemplating mostly your formulas, I have come up with the following mod of one of your formulas:
A) 5 at least livable income streams (no job included)
B) Each one targetting different needs, sectors and industries (B2B, B2C, stocks, etc), so even during recessions, the yearly income should still be able to provide a living
C) Net worth is useless, no need to track it
The above should be possible at around 2M (I am not in the US).
Building 5 such streams take a lot of time and it’s fun. Having the weekend off, 15 days during summer etc, is more than enough.
Calling it quits and stop working is literally impossible, unless health problem occurs.
Good point, cash flow is significantly more valuable than locked up net worth that is illiquid (no cash flow)
Forgot to ask:
Am I the only one to whom 5% returns don’t look that easy, unless you venture with a business into a space you know (in which case they should be higher anyway)?
5% is damn near a regular mortgage, if you can’t get that… prob never got rich ha!
Not yet working on it!
5% is easy money. Nominally the stock market averages around 10% a year (7% inflation adjusted assuming you reinvest dividends) and REITs average 11% a year (7-8% inflation adjusted as well). So if you did absolutely nothing with your money, you should at the very least be making 7% inflation adjusted returns from the stock and real estate market. Obviously if you cash out your dividends or REIT payouts your returns will be lower but nonetheless 5% is a pretty low target in the long run.
I really enjoyed this post! Plugged in some numbers into your formula and got about 6.5 mil.. (I’m young, my preferences could change later on).
That being said, the way I see financial freedom:
Imagine everyone on the planet is dropped in the ocean. In the distance, there’s a lighthouse. As soon as you hit the water you realize a few things: some people were given boats, some jet skis… many of them…NOTHING but a set of tools. The goal being to get to lighthouse ASAP!!
A few realize that they’ll eventually need to learn how to build some sort of transportation vessel before their body wears out. The rest, well..they just swim.. and swim… and swim..often comparing themselves to each other..showboating (pun intended) in nonsensical bravado (who has the better breast stroke).. Not realizing what will hit them once they’re half way there (fatigue..and a rusty set of tools).
For the ones that sacrificed earlier; they get the option to sail to the light house on cruise control.. or even say “Fuk it” and jump in the water for a swim whenever they they feel like it.
As the sunsets, and the boats finally get to the light house, many of them realize that the success wasn’t necessarily in getting to the light house.. what they enjoyed the most was the process of building a boat. Something tangible that eventually got them to the promised land.
(.& Ofcourse ..the variety of mermaids they met on the way).
Hypotheticallly you do everything by the books (career) and retire with 2 million in a 401k. What bond make-up could ensure you don’t run out of money?
Not sure we don’t include 401K in net worth becuase the tax rate is unknown.
Shoot for 3-4% would be reasonable though at today’s rates with blended mix of A-B range bonds.
Running out of money is more dependent on spending than returns since bonds don’t offer a large return, bigger variable is annual spend
Retired at 35 with around $2 million. A couple suggestions for people who are planning to spend out of principal and are worried about the 4% rule simulations:
(1) Keep a small chunk of your money in bonds. Enough to last a few years of living expenses. If the stock market is making record highs (which realistically happens a significant chunk of the time), then sell stocks to live off of in addition to your dividends. If the stock market crashes, sell bonds for living expenses instead, because they don’t crash or even go up when stocks go down.
This one modification to the 4% rule redoes the math in your favor big time. All the 4% rule simulations assume a dumb spender: somebody who never modifies or changes anything in response to market conditions. This way you are spending out of the asset class that is currently at the highest (buy low, sell high) and you get the long term benefits of higher stock growth.
(2) Have a bug-out plan for a market crash. Mine is to move from a high-cost, more fun state to a nearby dirt-cheap state and ride out the crash. If you’re in NYC for example spending $10,000 a month, there is nothing stopping you from hauling ass to West Virginia or Ohio or someplace and living on $3,000 a month for a couple of years. Sucks but you’ll live and won’t risk your retirement. Vietnam or Thailand or someplace works just as well.
Again, the 4% rule assumes dumb money that constantly spends the same amount even in the hypothetical market crash that you as an investor know would ruin you. No reason not to spend your principle if you do it smart.
100%!
You guys are ex-bankers who I’m seeing (mainly in tweets) are pretty bearish on banking today. If you had to do it over, would you have even gone to Wall Street, or done something totally different, maybe been a CS major and tried to form tech startups? You guys don’t seem like the type to be coders your whole lives of course, but it looks like you appreciate the importance of understanding the tech in the crypto space, and you also talk a lot about having side businesses, and the advantage of starting something yourself over a career. If the answer is no to CS degree+startups, why, and what would you do?
Already covered in efficiency but yes, tech way more valuable, finance is in secular decline. Except m&a
Easy answer, since you don’t want to join a declining space
I bought Efficiency but am now confused.
Would you still choose to work in tech (software engineer, data scientist) over Wall Street (everything but M&A) if your skills aren’t good enough to land you a job at a FAANG company?
Or would you just do enterprise sales.
I’d really appreciate a reply. Thank you again for all the advice.
I bought Efficiency but am now confused.
As you’ve stated, making the big bucks (software engineer/data scientist, acquiring equity in a startup ) in the tech space requires a near genius level of math.
If you only have an above average grasp of math and are better suited toward finance, would you still pursue tech over Wall Street (not M&A) today?
I’d really appreciate a response. Thanks for all the advice.
Same answer as efficiency. Tech is first, m&a then sales.
If you can’t get m&a don’t go to Wall Street
If you want to be a software engineer, a great one at that, you must code! Build things for fun, build things for money, and just continue to build. I am a top software engineer and never took a single advanced math class in college. Nonetheless, probably coded for more than 3-4 hours a day for 4 years straight. Additionally, make sure you get your sales straight as well, not good being a genius coder if you can’t negotiate equity or if you are exchanging time for money a decent hourly rate (could be $75-100 straight out of college in the consulting/independent field).
Being in “tech” doesn’t mean you need to be good at math
The big bucks are not made by people doing the actual coding/technical bs for the most part
You just want to be an entrepreneur that has some tech based business
You don’t need any special nerd IQ or anything so don’t even worry about it
Have thought about the formula in your way but also modified very slightly to this:
[(Life Expectancy – Age You Quit) * (Money Needed Per Year)]+[(# of planned extraordinary one time expenditures * (avg cost of planned expenditures)]
Use avg cost of planned expenses to keep the formula simple for the comment.
These planned expenditures could vary widely from a $200K sports car, to buying mom a $500K house cash. You get the idea.
Great post!
Hey! What do you guys think of Dan Pena? I’m thinking of attending his castle seminar.
Never heard of him
I know one castle graduate that is doing very well and has made a few acquisitions. It took him a little over a year to buy his first company but all seems to be doing very well for him. As long as everything goes smoothly, he’ll easily make a hundred mil before 30.
The success rate is extremely low. Most of the castle graduates give up before their first acquisition and some will realize very quickly that it really isn’t for them. Expect to work 100 hours a week and give up even a thought of a balanced life for 3 to 8 years in order to do this.
That said, I’d say that if you are really interested, you might as well go to the castle. In the grand scheme of things it’s only $20k and the upside, as you know, is enormous. You don’t have to shoot for a $200 million dollar exit (go for it if you want though) — you could easily buy a handful of small businesses and sell the whole thing for 10 million in just a couple years. In fact, you could execute a small-scale roll up with just the online materials alone.
Remember, it’s also not how much money you make, but how you make your money. You could work like WSPs and avoid employees while making low 7 figures a year online, or you can shoot for a big exit with the possibility of living a .000001% life.
It really just comes down to lifestyle preference and what you want long term. Hope this helps.
Accurate!
In efficiency you talk about min start up cost for online business to be 50k. I understand why but whats wrong with starting a biz with under 50k if you plan to scale according to the amount of cash you’ve got.
I.e. you got few thousand and don’t wanna waste your time with affiliate marketing, so you create a product and spend a few hundred on advertising and work on organically growing (SEO, social media, some targeted ads, landing pages, and many other ways). *given that you can afford the product you are creating already, i.e. already made it to your satisfaction*. As your income grows w/ career you scale efforts.Waiting to save that 50k from career is to damn slow lol. Any thoughts?
Sure if you can do it under $50K no reason not to
“If you can actually count your money, you are not really a rich man.” – John Paul Getty
$300-500M. Houses, cars, boats, planes etc are all nice and I’m not going to lie and say I wouldn’t buy them if I get to that point, but I’d prefer to spend the majority of my time preserving history. I get extraordinarily strong feelings of disgust and contempt when I see corrupt governments in Central/South America, the Middle East, and Asia bulldozing ancient historical sites so they can building housing developments, strip malls, and other BS. And fundamentalist rebel groups like ISIS are intentionally attempting to destroy the past for their own perverse reasons as well. If no one is going to step up to the plate to stop the erosion of our collective history, I’ll do it myself. I just wanted to be an archaeologist, but an archaeology degree would be useless. It’d pay garbage and I’d be beholden to an inefficient university bureaucracy for grants and funding. I’ll need dozens if not hundreds of people from wildly varying disciplines, and only cold hard cash can make that happen. I’ll find a way to buy each and every damn site and put them in a perpetual trust if that’s what it takes to save them. So here I am, learning to sharpen a razor of ice in my heart and take someone else’s pie because my mind makes the excuse that I can do something worthwhile with it while my ego just wants the thrill of leveling the competition. All so I can save some ordered piles of rocks that are meaningless to the universe but everything to me. I’ve found the game that I want to play.
I incorporated and dropped out of university a week ago to go all in. WSP doesn’t recommend it, but I’m no longer basing my life decisions on what others think. I was sick of “wantrepreneuring” and “all talk but no action”. I will never be a wage slave. I will die filthy rich or a homeless heroin addict chasing that sliver of bliss, no middle ground. Best of luck to everyone, there’s plenty of pie for all of us, but if you step in my territory and try to play my games, no mercy.
Thanks a lot for another interesting post. As opposed to net worth, would be interested to get your thoughts on passive/semi-passive income by age range. Depending on the approach one adopts (for instance, cash-flowing real estate, absentee business onwrship, etc.), as you’re aware, the total net worth number (if comparatively lower) might be misleading in terms of financial independence. Would also be curious about your thoughts on how much additional passive income each year is a realistic, yet ambitious, target for a relatively high-earning professional in his 30’s to add.
Right now I am a high school senior getting ready to go to college. In efficiency you mentioned that tech>finance with the exception of m&a. I have already gotten into a top 30 school thats also a top 10 business school and I have wanted to go into banking for a while now. My question is, is it simply too risky in this age to major in finance and possibly not get a top m&a job? Should I switch to computer science and cut my losses now? Or is there some other option that I am just not seeing right now?
Thank you for your books+articles
Already covered in efficiency.
In Efficiency, you guys mentioned that as you get older, your business should be doing well and you’ll be spending less time on it. Specifically, if I want to stay a one person company some outsourcing will be needed to create more time for myself.
If we’re talking online product sales, doesn’t that mean you’re dropshipping? If not dropshipping, that would mean you have inventory stored somewhere, who is taking care of that?
Appreciate the response.
To answer the question, I’m still young so flying and traveling still seem cool, but will take note of what you said. I’ve never been too materialistic, and don’t know if getting rich will change that but as of now, having enough money to not think about what I’m buying seems to be enough. Not checking prices for traveling, hotels, clothes, etc but also not living extravagantly.
I agree a lot with pursuing artistic endeavors, it’s the thrill of experiencing new challenges and feeling like a kid learning to ride a bike again.
Not dropshipping. That is all we will give you
Many people who read the book already know what we are doing
I don’t know what WSP are doing, but there are other ways to store your products without keeping them in your basement. Fullfillment companies like Amazon FBA could be one solution.
Background: 25, 200k net worth, went to a top 20 School, and work in real estate.
I’m deeply conflicted about the subject. I’m a simply guy. My ideal day is involves 2 hours of work, reading, exercising, and socializing– all of which are very cheap. I don’t plan on having a wife/kids.
Thus, house + 1M should be enough. However, I’m capable of 4M by 40 so part of me believes stopping at 30 instead of 35-40 is dumb. Who knows maybe for 500k you will be able to stop aging in the future. On the other hand, baring crazy expensive technological advances, I suspect my NW will continue to grow from 1M even if I completely stopped working at 30.
How common is it to meet someone who is self made rich by around 30-35 and then ‘jumped ship’ so as to speak and went full throttle into a completely unrelated almost contradictory direction like art or writing movie scripts or standup comedy (with similar intensity)?
Good question, no idea though. Most people push through working till at least 40s, then the band wagon starts to look more empty
I very well may subscribe to that or at least that’s what I envision in the next decade. Work as a professional now, transition into athletic coaching or something totally non related.
Traveling blows .. posted from the tarmac with a crying baby onboard.
Really enjoyed the article. As I have posted before, I am in my early 30’s, have saved essentially 2Mish (300K is in 401K). Unfortunately, don’t work for myself and have a boss, albeit do have equity in the practice…think law firm, cpa, or wealth management business etc. I have managed to save that amount despite making under $400K annually. I have just saved a good chunk of my net income and invested. Living in NYC, I feel like just another marginally successful young Schmuck running around and grinding. I realize I do not make a ton,but I do think I should be able to comfortably get to the $4-4.5M range in the next 10 years by 40. My wife is going to continue to work and make a modest income and feel like 4M plus her $60K of annual income will be enough to support us and a family particularly if we relocate out of the NYC area. All I can think about is an early retirement and restart, don’t enjoy my rat race nor living in NYC, but def feel like it will be possible earlier than later.
We’re in the same boat, but I’m a bit older (41) and live in SF.
We (me and wife) have made about $500k/year for the last 10 years, net $350k.
We have about $1.5m in property equity that we’ll liquidate in the next 2-4 years.
$1m in cash/investments (increasing to $2.2ish once we sell property)
$1m in retirement.
Right now our expenses are $120k/year all in.
We cannot take the rat race anymore. Next Spring we’re done.
We’re moving to medium COL state (homestate) in one year where expenses will be $55k/year.
We’ll also save a shit ton on taxes. LY we paid more in taxes than my wife’s gross income (which is 6-figures).
Good luck Kyle and I hope you are able to relocate sooner than later. Nice job on the savings!
I think it’s a good idea to have a few splurges in your 20’s to do a “sample platter” of what life offers. One example is that I spent about 7k after college traveling for 4 months. I learned that long-term travel, as you’ve noted, is not the end all be all. Did a trip to a Ibiza to see what the party life could offer, etc.
Comes down to knowing yourself (through introspection, meditation) and then laying down what you want out of life. Not what others, even the top notch WSPs community, think you should want.
If you can:
-Date plenty and stay single until your 30’s.
-Have great health
-Have quality friends/family
-See the world, taste its pleasures
-Pursue hobbies and non-monetary goals
-Have enough for a house/family in later life
-End up working a job you enjoy (end up*, in 20’s you might need to grind and hop careers until you find it)
I see that as a successful life. Grinding to an arbitrary 10 million will only eat up more time/health you’ll never get back.
I’d think it’s good to hit 100k+ saved asap as a capital cushion. Then re-evaluate and pivot intelligently into real estate, full throttle online, etc.
Once you hit 500k, that’s 25k a year, which you could live off easily. Then you find your life’s task and go for it.
I’ve learned a lot from reading your blog over the years. Thank you. There’s a few areas where I don’t agree with your philosophy and I thought I would play devils advocate.
First, your focus doesn’t seem to be on working past 45. There’s a lot of benefit to working for the rest of your life. Having an influence on the world, interesting opportunities, meeting top people, and it’s ridiculous how easy it is to become rich, through the power of compounding and getting access to opportunites. Earning money gets easier as power accrues, it’s not such a grind. Sitting on a beach is boring, skiing with bums at Aspen is boring. I’d rather have the careers of Mitt Romney and Larry Summers, talking to heads of state, being in charge of policy, etc.
Second, you have no consideration for your family. The Bush family, the Romney family, Rockefeller, etc. It’s not satisfying spending down all your money to enjoy life a little more before you die. There’s a much deeper satisfaction in working with your spouse and kids in continuing the dynasty that has been passed to you or starting a new dynasty.
I know your readership skews young, but in projecting their life they should think about these things. It also might help some readers relax. If you have $1M by 30 you’re doing pretty good. You’ll hit $100M by 65 without breaking a sweat.
LOL, how do you get from $1M at 30 to $100M at 65 without breaking a sweat? I hit $1M at 30, then $10M at 40, currently at $15M late 40’s, and I definitely broke a sweat. Don’t think I’ll be anywhere near $100M by 65. The slow down in 40s was due to the Great Recession, and I’m pretty sure we will witness another meltdown in the next decade.
My own experience: I quit the game at 40 with a net worth of around $5M. I’m 46 now. My withdrawl rate has been quite small, around 1%. Between that and the boom in the stock market, tech stocks in particular, I’m around $20M today.
$5M would have been enough for me indefinitely, but with $20M I feel very safe.
The biggest worry on my mind is how overvalued virtually all markets are. Most stock and bond markets worldwide look quite a bit overvalued by traditional measures. I have a feeling that the bear is going to come out of hibernation soon and it’s going to be very hungry and pissed. Right now starting to shift my portfolio toward international stocks with more reasonable p/e ratios and value stocks.
How are you managing the capital gains taxes 23.8% and CA state taxes 13%? Those will lop off 37% from your net worth. You must be 100% in tech stocks to quadruple your portfolio value in 6 years.
Just curious, coz I’m in the same boat, and paying 500k+ in taxes every year.
I escaped CA taxes by leaving CA. I have no CA-based income, so I established tax domicile in Nevada. There are concrete steps you have to take, such as disposing of real estate in CA, registering motor vehicles in NV, getting an NV driver’s license, registering to vote, re-titling financial accounts, etc. If you have a W-2 income in CA or own CA real estate it’s hard to escape. I went through the necessary steps.
So, in my case, the top rate is theoretically 23.8%. I get below that by deferring capital gains and donating/selling stock through a charitable remainder unitrust. This may not be the right choice for you, but it was for me and it has saved me a lot of taxes.
I just filed for 2017. AGI $819K, taxes $113K. About 14% overall.
This is great. I know so many guys that are killing themselves to make 8 figures and multiple 8 figures.
But yet it’s basically pointless. If you have a certain business or ridiculously perfect opportunity where you’re in a good position to actually do it is one thing.
But for the average guy stuffing a few mill in the bank is all you need.
Hmmm I would say once you could buy the Dallas Cowboys football team I guess that would be enough.
“we heavily doubt anyone gets to a few million dollars without having a high income (doesn’t make sense!)”
Let me tell you about cryptos…
39, asset mgmt business owner, former banker.
I can only know how much I am worth on the mark-to-market portion of my portfolio. And that obviously swings up and down.
My focus is on the cash flow, and living within this CF. A solid CF that does not depend on your time is the goal. How that CF is priced is only really relevant if you want to sell the cash producing asset, leverage it, to your heirs, to people taxing it..
Time puts a limit on what you can do/experience, so it is really in the use of time that you need to be a good allocator. –> You can only eat one dish, wear one watch, drive one car, look at one piece of art etc etc.
I do not see myself stopping. In fact, the whole idea of ‘stopping’, ‘retiring’ doesn’t fit with the concept of ownership. Since you own a system producing cash (a business), the decision you have to make is whether you pay someone to do whatever task you are doing. -> Free up your time. I don’t see Warren or Charlie talking about retirement, Mr Ortega still owns Zara, Patrik Brummer (owner of Brummer hedge funds, the one that funded Karl Mikael Sydings Futuris fund) still owns a large part of the business, Jae Kim is still the largest owner of Nexon etc etc etc.
You should ideally scale until a point where you can hire people to operate without giving up ownership.
So, own your time, and the only way to do that is to own your business.
“We’ll be shocked if someone actually enjoys flying around all the time on a jet (note to younger readers: people who glorify frequent travelling are usually poor because traveling is awful after a period of time).”
This was a life changing realization for me.
My dream used to be: become a digital nomad.
Now I realize that even with an infinite amount of $$, living in a new country every 3 months would be…not so fun.