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RE: How Much Money Is Enough?

in #life4 years ago

The more stuff you have, the more it costs to maintain it. If you buy a "dream house" and a "dream car" all of a sudden you are trapped into paying property taxes.

At todays interest rates and risk profiles there is no amount of money that is easily attainable by the middle class that can earn passive income sufficient to maintain their standard of living indefinitely.

At 1% interest it requires 7.5 million dollars to earn $75,000 per year. That would require the typical middle class individual to save 100% of their income for more than their working life span. Once you factor in minimal cost of living and inflation and taxes, game over. It isn't even remotely possible without taking extreme risks in the market.

Someone who earns $7.5 million dollars after taking extreme risks in the market will still fall behind unless they continue to take extreme risks. Negative real interest rates are a bitch.

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Yeah I agree with you that once you get to a high level like that, you need more money to maintain. I do disagree that there is no amount of money easily attainable by the middle class that would earn passive income sufficiently however. If we look at average annual returns on the stock market over long periods of time, if you are saving the right amount from when you are 24 or 25 you can live off your dividends by the time you get to around 55-60. High dividend yielding mutual funds/etfs can get you around 2-3% dividends a year, but the key is to live below your means.

Like you mentioned in the first part, the mansion and the large properties becomes a trap. Why do we need a 12 bedroom house for a family of 4? If people live frugally they could easily live their lives and pursue their passions without having to work, or at least not having to work a 9-5 job. Billions of dollars is a different story, you have to get much more creative there, but if your net worth is under 50 million you can still use the stock market without pushing prices much. There are relatively low risk options like VDC, a consumer staples etf which has a dividend yield of 2.16% and almost always goes up because consumer prices are always increasing. There are many lower risk options out there that can help you maintain your lifestyle without having to work a 9-5.

I do agree however that now in the current way things are looking, everything could change. Negative interest rates are essentially a money tax and taxes in general do greatly affect how well you can live off your salary.

"The more stuff you have, the more it costs to maintain it."

This very much reminds me of what one of my college friends used to say a lot...."If a man owns a couch, he must stay home and sit on it."

He claimed it was based off of some old Chinese proverb, but I've never found it anywhere. It makes sense, though. The more things you have, the more time and money you have to spend maintaining them, and the more obligated you feel to stay at home and use them, because you spent all that money on them.

There's a great sense of freedom when you get rid of things. I'm in the middle of moving, and am currently dividing my things into "keep," "donate," "sell," and "throw away." I used to be really sentimental about keeping things, just because someone important to me touched them once. But, now, I realize things aren't people, and I'm being pretty brutal about what I'm donating, selling, and throwing away. Having fewer things is actually a very freeing feeling.

Yes, current interest rate environment is distorting markets and makes even earning a nominal rate of return on a portfolio difficult (and risky). Definitely takes a large amount of capital to generate a secure $75k per year now. Hopefully a diversified portfolio could return a bit above 1%, but like you said I wouldn't get too optimistic. Now is not the time to get greedy.

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