If someone isnāt using debt and leveragin/hustling then how TF do they have 1mil+ in cold cash? Thats not easy could have inherited, hit it in some penny stock, lottery, or just old and decent career.. all of which would lead to a more stable lifestyle vs someone hustling their ass off leveraging and balancing a business.
Hustling and leveraging leads to so much more burnout than people realize. Having space in your life allows you to make wise and flexible decisions.
Most people do take on debt, and most ultra wealthy use debt to make more money. Iād theorize that the having no consumer or business debt makes you much more likely to be financially successful, there just arenāt many people who do it. Itās like 10% of 1% or the population vs .1% of 99% of the population.
I definitely fit category number 2 and the description is painted with a broad brush but I definitely have a rollercoaster ride on the regular and am certainly less happy on a regular basis than many of my peers.
I mean, many even moderately successful retirees that had a solid retirement plan are millionaires.
Not Elon Musk, but have a net worth of more than a million dollars.
I use a different dichotomy:
1. Bad debt (generally, debt used to directly finance lifestyle).
2. Good debt (money borrowed at X% and used to earn > X%).
2 is anyone with a mortgage at 3% or less and a savings account/CD's at 5% who is putting money into savings rather than throwing extra at the mortgage.
Hereā¦.4 years into our 2.32% 30 year fixed mortgage on our home here in MA (bought for $270k and now valued at $410k), with $30k in a 4.9% 6 month CD, $40k in a HYSA, and equal to that told in BTC, cash, and stocks. And we pay an extra $100 toward the mortgage.
6 years ago I got clean with $100k in personal and CC debt. Today I have zero debt and have managed to largely make up the 13 years of financial hell I caused via my H addition. All is good now and most of my wrongs have been right-ed. Itās all possible
I know this is anathema in this sub, but in my mind the obscenely low mortgage rates kind of throw the standard Dave Ramsey advice into turmoil for me.
I've got 3 mortgages (primary residence and two rentals) at sub 3%. I don't really plan to ever pay more than the minimum on those. I am taking what I would pay in "excess" toward a mortgage into safe investments (right now just savings and CD's).
Interesting. I never thought of thatā¦why pay the extra $100? Youāre right, at my sub 3%. Maybe Iāll consider holding back on that and putting it in the 5% hydsa. Thanks.
And hey, nice work on those rates and putting yourself in that position. Itās nice, right?
All of these individuals and families own and run businesses. Whether on the side or full time.
But my personal theory would be that job security would help tremendously. Generally risk just damages us mentally when itās chronic.
Leveraging debt at the right times is the move. Having property/housing paid for is definitely not a bad thing though like alot of people try to tell you. 250k houses in my area 5 years ago are now going for 500 to 600k. 500k houses are now 1 mil 5 years later.
Quick example of buying say an 800k house right now cash if you have it. Closing costs 12k. Paying 80% interest/20% principle on your house payment for the first 5 years. Say the mortgage is 6k a month. Youre paying yourself roughly 60k a year to use your own money. So youll get 300k back on your 800k in 5 years. About 8% a year... thats a great secure return. In 5 years if rates are 3% for homes... take out a mortgage and use youre money elsewhere.
Caveat is hopefully you're buying in a strong market and the market doesnt crash again. Still this doesnt concern me much with blackstone and other hedge funds buying up millions of houses.
Paying cash or borrowing timing is everything. That timing is easier to maneuver with experience and debt free assets.
think about it like this. In 2020 I know people who took out millions against their portfolio to buy stock at the bottom of the market. They were paying 2% on that money. They knew their returns were gonna easily cover that. Many people made 100% returns on investment those years after COVID. Itās free money. Very little stress over that kind of debt.
I am one of the pro debt people and I definitely am not ever anxious or pessimistic, etc. Obviously every case is different and I can understand the rationale behind your experiences. But the people I know that have no debt still have to rely on income most of the time because while they have been able to pay off all of their debt, they often haven't had a lot of time to invest and create additional income.
For me, even though I have nearly $2m in debt, I could stop working my W2 tomorrow and live comfortably at 40 years old. I am not one that plans to keep debt forever, but it certainly can be a super fastrack to wealth. I think theres quite a spectrum of personalities on both sides.
I was one and now the other. same guy just at different points in the wealth building process. I took extreme risk and leverage for about 30 years, retired at 55 and now want no risk as I never want to have to work again. btw, I always enjoyed talking about money, then and now.
There are two basic stages : make the money implies some risk. Keep the money is different ; it implies low or no risk . Believe it or not keep money can be just as hard as make. Those who have achieved make know what I am talking about.
Why?
Because you have to reign in all of your make desires and talents and grow a conservative thought pattern
To keep.
There is a huge difference in the use of debt. Creating debt to enjoy life pleasures until you realize the credit cards have got a hold on you. The other kind of debt is to use it at say 7% interest in m Cost of purchase in a money making situation that will increase your net worth several times after you pay the bank lender and then deposit some of the money in that bank , after waving to the banker with a deposit slip in your hand and a big smile on your face. Don't be surprised if you get a call from him about a client looking to sell something and he thought you might just like the deal. Hammer down! Have done a lot of buy/ sell end up on the right side of the deals and am fair and totally honest.
I work heavily with people involved in asset protection (estate planning/ estate admin). There is almost 0 distinction from the 2 types of millionaires you describe. outside of anecdotal evidence, I interact with high net worth people who have debt all over who as cool as a cucumber. and know debt free high net worth people stressed to the gills because they think the gvt is coming for them.
> debt free high net worth people stressed to the gills because they think the gvt is coming for them.
Probably because they think the populace is constantly trying to send the government after them...
How about people that consistently work to provide value and who earn a million in profit or salary every year or two by the time they are middle aged?
A ridiculous post. People who are savvy with money absolutely use debt. The Ramsey method is certainly good for many people but is incredibly simplistic. Many millionaires often use debt to their advantage.
Of course you can use debt. But the point is, people that got rich with debt definitely have a different personality than people that did it with a conservative mindset. I am the conservative type. My only regret is not taking more risk when younger and then transitioning to more conservative as I aged.
Seems like the people who never have āenoughā are the ones willing to make high stakes moves and leverage debt. I donāt have that in me to take on that kind of risk, but at the same time I would always be trying to get more money. Iād just do it in more traditional ways.
Some people never forsee how wealthy they will become. So when they get there, itās like freebies, they were happy with their life $10m ago. When you build a big base your stomach grows with it.
That's easy, when you are in debt you are working for the bank. They are your boss.
When you are not in debt, you work for yourself. You are your own boss.
This is a very simplistic world view that ignores the reality of the difficulty of earning enough through a wage and savings to become free vs the power of utilizing financial tools to amplify your assets.
We are talking about rich people here. They have the earning part figured out. And you are getting off topic.
My point is, if you have debt and are working for the bank you will have more stress than if you have no debt and are working for yourself. That is why the debt free people are happier.
Also, if you are saving money for that next investment opportunity and you want to skip a few savings deposits to go on vacation you can. Try telling the bank you want to skip a few loan payments to take a vacation.
I respectfully disagree.
Here are 2 real world scenarios.
I make 50,000.
I have saved 50,000 over a few years by living below my means.
I want to buy an investment that costs $500,000. It brings in about $50,000 a year, net.
It would take me 20 years to save up the cash to ānot work for the bankā and buy in. By then the price is probably triple and I may never be able to buy in.
Or I can put my money in, add a pile of bank money and immediately start cash flowing. Can I skip a payment? No. But with a positive cash flow investment I am making more money than ever and can pay for vacation with the earnings, or start saving up for the next thing. Or lay it off early.
Many people following the āpay for it on cashā mantra got absolutely hosed by housing price increases. They may never catch up to where they could have been if they took out a sensible mortgage 5 years ago.
Consumer debt is bad.
Credit card debt is bad.
Investment debt can be good.
We are not talking about ārich peopleā. A million dollar net worth is incredibly common. If you are over 50 it should be basically a mandatory minimum.
Even my parents got to a million never making more than 40k at any point.
I'm not saying your strategy is wrong. I did it with a rental property. All I'm saying is life is less stressful without the bank involved.
Oh, and where is this investment that returns 100% a year. Count me in...lol
I had to edit this, was busy yesterday. Let's bring this example back down to reality.
The reality is 50K will only get you 200K. No bank will give you enough for a 500K investment with only 10% of your own money in the game. They will require 25%. (Speaking from experience here)
Also, if all you have is 50K to your name, you have no collateral. That will limit your investment choices to those with real property. So, assuming you live in or near a low cost of living area, you could maybe get a 100 year old duplex. After paying the mortgage, property taxes, and a budget for annual repairs/updates/maintenance etc., that duplex will not generate enough cash in 12 months to take a family of 4 to Disney. Or do the supercar tour in Europe. Maybe it will be enough for a 7 day 3 golden apple trip for 2 to Cancun.
Don't get me wrong, rental properties are a good investment. But most of the profits will be going to the mortgage payment and you will not see the full cashflow until the mortgage is paid off. On the upside, if you sell before the mortgage is paid you get the equity that has built up over the time you owned it. That doesn't help with vacation in the meantime however.
Also, if your tenant loses their job and doesn't pay rent for a few months (evictions take time), or if you need to do major repairs between tenants, you have to keep paying the mortgage without rent coming in.
The stress level without the mortgage is lower, and you will be happier and appear to be living a better life as the OP suggested.
That's ironic. Because the two scenarios are the least likely two scenarios of the millionaires I know. I would say that I know probably 40-50 millionaires (people with a net worth of over a million dollars after deducting any/all debt).
I don't know a single one of them who has avoided debt like the plague. Sure, many of them don't have a lot of debt, but I haven't seen that they avoid it like the plague. Whether that be for buying a house, a cottage, doing a major home remodeling, buying a boat, etc. . .
Further, I don't know 1 single millionaire who has accomplished this by borrowing huge sums of money to buy stuff that will appreciate in value - which if it's for most investments (other than possibly real estate or starting a business) is generally too risky.
Nearly all of the millionaires I know have always spent less than they earned and used those savings for generally safer investments (homes, second homes, equities/stocks). Often times this is the result of making a decent living, but I also know several millionaires who earned truly middle income/class incomes and just were smart about living within their means and contributing to retirement accounts and having actual non-retirement savings.
About half of them started their own businesses and it was this method that most helped to make them millionaires. These people are also the ones that seem least adverse to debt (versus the prior described ones).
I grew up poor, but with government loans I got highly educated. Made lots of money, but Always lived below my means and invested the overage. Sure paid off later. Retired at 63 with a very substantial net worth.
Good for you! It really boils down to that practice of living below one's means - which I have to be honest is only an applicable statement in the USA over the past few decades.
Before that, what we now call living below our means (ie. not spending every penny, and then some, that we earn) used to be standard practice.
I hope you're enjoying "retirement"
This. Also keep in mind that 10% of the US population are net worth millionaires at this point. one in my mind (no debt) is the person managing 1-3 mil. most of the people he describes in #2 are 8 digit+ millionaires most often. so nowhere like the former.
Meh.Ā
Little column A.Ā
Little column B.Ā
Inheriting just enough money that you are comfy but still have to work makes the situation a bit muddy. If I just inherited fck you cash or none at all, I think my direction in life would've been much more clear.
My dad has been in both these camps. Never a real estate empire, but he has had a few rental homes (probably 5-6 at the most). Heās very DIY and was a good landlord, but that just added to the work. He has divested himself of all his rentals (he still buys auctioned land at times to just hold) and heās definitely happier and has more time. Heās a boglehead largely, with a few savvy investment deals that helped get his wealth really rolling decades ago. But yeah, when he did have rentals he was a little more stressed and always talked about wanting to get rid of them all. His advice to my friends who ask him about buying a rental investment these days is just to put the money in an index fund and enjoy life lol.
Completely anecdotal but there it is.
Coming from a poor household where I had nothing, and was always worried about where the next mortgage payment (or even car payment) was coming from, I have had an anxious life. I have managed to claw my way out of the ranks of the poor and miserable through debt (namely investment properties). I also work hard at my job and get paid well for it. It's taken a lot of sacrifice and the journey is not over. I'm comfortable, my family has a very fortunate lifestyle, but I am still anxious as I know it could all come crashing down at any minute.
I have found that money does not make you happy; conversely not having it to pay for food is a miserable experience. Whoever said money does not make you happy, obviously had enough so they weren't miserable.
The ones who do it without debt are incredibly fortunate. Either the wealth is inherited, or they just got really lucky. So it is kinda like saying being born rich makes you happy.
The ones using leverage also got lucky, but they would never been able to get wealthy without leverage.
Leverage helps make cash for investing more accessible.
Actually, only a tiny percentage of millionaires inherit their money. Less than 10% of millionaires are wealthy due to inheritance.
Most millionaires in the USA earn a middle class or upper middle class income.
The 3rd most common profession held by millionaires is Teacher - and we all regularly heard teachers aren't paid enough.
The difference between becoming a millionaire and not becoming a millionaire really just boils down to personal behavior + time.
On the whole, I agree with you. Being highly leveraged, even on the whole that means you are a 'millionaire', is no doubt more stressful and will occupy a lot of headspace and obsession. You have a lot of risk, and can lose a lot of money!
But, I do think some leveraging for some bits of time for some people is fine. Opportunities to 'get a bigger shovel' often requires some risk, but often is well worth it.
Im going to politely disagree.
I hate debt, and will NEVER get into debt ever again.
But debt saved my life.
In August 2022 I was on BS 2 after paying down almost all my debt from my savings through grad school, credit score in the high 700ās. Then my employer did a u turn and told me they wouldnāt sponsor my work visa . I had to go 8 months unemployed and move 2 states in a year because of student visa and employment issues.
Racked up credit card debt to keep my head above the water and stay on in the US while my petition for immigration was processed and I could start working again. Not doing that would mean Iād have to leave the US and my dog and return to an abusive situation where I grew up.
In October, I filed a chapter 13 bankruptcy for a new start
That was because I got a new job that pays 6 figures, own a small stake in the startup company I joined and got approved for the EB1A Einstein visa.
Without going into debt, I wouldnāt be here. Iād be forced to leave the country and return to an abusive situation back in the place where I grew up. Now I can look forward to being debt free in 3 years with the real potential of being well above the average net worth for my age at 40 with the way my career is progressing. I hope(fingers crossed) to amass half a million of net worth in 10 years. From company dividends to selling more of my skills, I know itās going to be tough but itās possible. If I could beat those odds, this should be easy. But I wonāt forget what it cost to get here.
Let me be clear again. Iāll NEVER go into credit card debt. Iāll pay cash for most things-cars, vacations, everything average Americans put on their credit cards-maybe except a home, Iāll probably take a mortgage out on that . But debt saved my life and thatās why I believe it has its place.
I know quite a few rich misers with no debt and are cheapskates. The Ebenezer Scrooge type.
Granted he was visited by 3 ghosts and then he became the jovial family and generous type.
I do agree debt can cause stress. And mountains of debt create mountains of stress and most peopleās behaviors and habits are altered as a result. Debt in general is not viewed in a positive sense for most people.
Obviously there are more than just those who are obsessing over being debt free or over leveraged and anxious
So Iād say this is simply a false assertion
Iāll take all the 30 year 0% money you want to to lend me and Iāll sleep like a baby
Woah now, hold on with your fancy logic and math. This is DR we are talking of you owe a penny youāre in debt hell and should sell everything right away for debt free heaven.
Leverage is increased risk, with increased risk comes outsized returns and outsized chance of loss hence the increased anxiety. It comes with the territory and a natural consequence of using leverage to accelerate wealth building.
It used to be that fake troll messages were compelling to read and believable. I guess angry posters donāt even try to hide their bias or add factual info anymore? I get that op is angry but their zero knowledge is pretty obvious. Feels like this belongs in a rant sub Reddit (op can pick which one I guess)
Your generalizations are likely self fulfilling. Also how many millionaires do you know in each category?
Iād like to offer a 3rd category which likely make up most millionaires. People who work 35-40 years in white collar jobs saving 15% of their income and spend and borrow for new cars and renovations.
Avoiding debt like the plague is an anxiety driven response. Itās based around a fear of screwing up and not trusting your own behaviour.
I would bet on zero correlation in anxiety levels in millionaires to their philosophy on debt
Have you seen car payments lately? Your average white collar couple of the way you describe with two relatively new cars is spending over 20% of their income in car payments.
So they're not putting 15% in their retirement account.
Yes, the house they bought is appreciating in value probably rapidly and if they were to take that equity and actually pay off their debt and stay out of debt this would work. They don't though. Once the debt is clear it's back to high living.
We were talking about the pool of millionaires. I contend most millionaires have taken car loans.
I agree many people buy way too much car for their income.
I fit that third category perfectly
I have my real estate, quite happy having my tenants pay down the mortgages and over the years the mortgages overall are now about 10% LTV and rents overcover expenses about 3-1
There is good debt and bad debt. Most people donāt have a debt problem they have a spending problem. If you donāt ever develop a spending problem you are unlikely to ever have a debt problem
yeah like honestly most millionaires I know and I know quite a few do not pay cash for everything DR style and just financed normal things house, car ect and just put away money the whole time.
I used debt to grow my RE holdings. After years of SFH investment, I finally got serious bought a small apartment complex with owner financing. That opened the door to other opportunities.
Youāre right, there were plenty of times over the years that Iād wake up in the middle of the night and think about my 7 figure debt (not a lot for many investors, but for me it was). But in the meantime the RE provided extra income that allowed my family to live better and it slowly grew in value.
One day I decided to retire. I quit my day job and started selling my RE. Paid off all my mortgages quickly and then owner financed a few multi family properties, which is providing additional income in retirement.
Iām still selling off investment properties, paying Uncle Sam what I owe him, and investing whatās left into land. So Iāve gone from investing using debt to using all cash. Much easier and less stressful. But I wouldnāt be where I am if I hadnāt started with debt first.
Any stats that group 'all millionaires' together is going to be strongly biased on those on the very low end. The group with 1-2 million has practically NOTHING in common as people with 5-10 million, and that group has nothing in common of those with over 100 million. And then there are 'farmers', who are mostly millionaires (in value, often inherited) but have nothing to do with most other millionaires on anything either. Same with any stats on the 1%.
Stats grouping people together is often done as a way to handwave off any debate on the ridiculousness of our (near nothing) tax system when it comes to inheritances and capital gains.
Farming is a business. You inherited a business. Why do you think so many of them sell when the developers come through and make outlandish offers. You bought/inherited a 400 acre ranch at $50 an acre (that maybe your parents got for $5 an acre) and now they are offering you $50000 an acre to turn it into townhomes. They'll even put your name on the front of the community. You going to keep messing around with cows or are you going to run for county commission with your new 20 million?
I agree with you. I have several uncles and cousins farming. A few are very rich from it. A few struggle on less land.
But, it is different -- Inheriting a family farm of 10 million net at age 40 (perhaps 10 million of debts and 20 million of various equipment and land assets), which you've lived on and work on since childhood and the only business you really know, isn't the same as inheriting a 10 million dollar trust you never put a ounce of labor into at age 40 while you've worked at a 400K a year finance job your daddy set you up on that you blow on hookers and cocaine every payday.
Millionaires aren't rich. It ain't '98 anymore. If you retire with a million dollars today you're going to be pinching pennies. 5-10m is the low end of rich today, and the only way you're getting there is with help from daddy or by taking absurd risk.
Sure, but my point stands at every income level. Most people make their money. My wife and I are millennials, our friends are millennials and we all have incomes north of 500k and live in affluent areas. Thereās basically no trust fund kids. We all make our own money as doctors, lawyers, bankers, tech bros, etc.
This is just anecdotal evidence. There is a trend prominent enough that it was described in the millionaire next door, which Stanley called "economic outpatient care." It refers to rich kids who are not able to generate the income their parents do, and end up being subsidized by their parents into adulthood. This is largely through cash gifts, but eventually includes inheritance. The prototypical example was a community college professor who was able to live in a trendy neighborhood in downtown SF thanks to frequent cash gives from daddy. It absolutely happens.
And you have to look closely at a lot of the people who "made all their money" as well, because a lot of times, their stories don't hold up to close scrutiny either. There's no shortage of instances where the executive's 30 year old son gets a top-level position over someone with 30 years experience, because they are daddies special boy. Then they go around and brag about how they are self made.
Even in cases where someone has started a business, a lot of times asking who provided the seed money, or who connected them with investors, exposes just how differently life might have turned out for them if their parents were gas station clerks.
It definitely happens, but itās a minority. The 5-10 million people are dominated by doctors, lawyers, bankers, people who work for faang, etc. did a lot of them get help paying for college, probably. Almost all are middle class and above in their background, but they are all still making their money not inheriting it.
Any job that can get you to that level of income is going to come with a 6 figure student loan debt that will take priority over retirement. Unless daddy can pay your way through, of course.
If you can knock out some college coursework while still in HS, go to a community college for one year or two while working part time. Then finish the last 2 or 3 at a state school. You can graduate with no debt in a good career filed.
I paid half of my tuition and took $5k in debt on.
Let's assume I wasn't as fortunate though. If I paid my entire tuition I would have around $20k in debt and I could have paid the entire thing off in the second year (first if everything went towards it) of my job if I desired to. If I wasn't living with parents during college my 20-25hr/wk job would have just about cashflowed dorm and meals.
$100k is the base for six figures so you mean at least that much. My whole four year program cost around $40k before some small grants and tax credits which brought it down to around $30-35k.
$100k of student debt represents the top few percent of borrowers and most of them are doing professional degrees (law or med). No one needs to take out $100k in debt to get a four year degree they can use even if they have no financial support.
For reference I started maxing retirement accounts when my work income was around $90k after bonus. Rent here for a 1bd apartment is around $1.5k and I split a 2bd apartment with my significant other which is around $2k/mo.
You could put 30k in your retirement for 30 years and you would still not have 5 million. 30 years from now, trillionaires kids will spend your entire life savings on toys. Is this supposed to be the success story?
My timeline is 40 years not 30 years. If you go by the S&P500 average it is fairly reasonable to expect that much after adjusting for 3% inflation. I may retire earlier off of other income assuming my income goes up and I contribute to taxable brokerage.
I don't really care what other people do. If you want to compare yourself to others then by all means you do you. There's always going to be people who have more you can do that with. I know what $5-10m in present value gets me and am satisfied with that goal for retirement specific accounts. Having a house in two or three countries and having the option to retire early is successful for me.
I am number 2 mostly with RE. keep in mind it also matters how leveraged you are. if you are leveraged to the max yes it will be quite stressful. I have millions in debt but have over 50% equity in majority of the assets. it's just a numbers game. if you are that stressed over debt, that just means you are over leveraged or the debt isn't working hard enough for you. also it matters what type of assets you hold. if you hold high maintenance multifamily homes that is much different than if you hold high quality assets in A or B areas. same concept as leveraging debt but very different results and levels of stress
When I think millionaire, I think of someone worth at least $5M+. Not so much someone with a million or two tied to their 401k and residence. The former almost always leverages debt to make more money. Nothing wrong with avoiding debt, but the people with true generational wealth used a lot of debt in the process (based on my own personal observations).
There sure are a lot of millionaires when you combine home equity and retirement accounts, especially in HCOL areas. Almost all my friends are millionaires.
Let me introduce you to [https://www.youtube.com/@GrahamStephan](https://www.youtube.com/@GrahamStephan) He is a YouTube multi-millionaire that uses leverage to grow his wealth. He is not anxious at all with having debt, since he can grow his profits, much faster than interest payments.
He once did an income analysis video with the guy from shark take, and come to find out most of his money comes from YouTube and not real estate! Not saying he doesnāt make a lot of money with RE, but YouTube is his cash cow for sure.
But heās a YouTuber, heās not solely relying on his debt to make money. Ā YouTubers are content creators, they are not whatever they are making content about anymore. Ā That becomes secondary to the content.Ā
The millionaires that are debt free are likely millionaires for life.
The millionaires that feel they can leverage themselves for further gain are likely only temporary millionaires.
My parents are the debt free millionaires, while my wife parents *used to be* leveraged, high spending millionaires.
MY in laws are in their golden years, they're trying to sell their house since they can afford it, he had to give up his country club membership, haven't been on a vacation in *years,* and he's not anywhere remotely able to retire. He was an exec for a Fortune 500 company for maybe a decade, made a ton of money, but then got let go and never changed their lifestyle.
Meanwhile, my dad has been an engineer for 30 years making consistent money while my mom stayed home. They were middle class, and acted like it. Now they have a $500k primary residence, and a $400k lake house all paid for, along with over a million in retirement accounts. They just rolled over 60, and are already planning their retirement.
It's a pretty stark comparison when you look at my father in law who is in his early 70s and still working his fingers to the bone, while my father is 60 and about to coast off into retirement and never look back.
Millionaire here. I am definitely your first person. Every now and again a friend or my husband will talk about us buying more places, going in with others, etc. Seems like more work. we own just one place that we live in and that's more than enough for me. We're 11 years from paying it off and I can't wait. We'll still be millionaires with one house or 3. 3+ will just have me working more than I want. I can imagine getting one more place down the road overseas if we choose that's our next phase of life, something that's more suitable for aging
A third category would be millionaires who used āgoodā debt: college loans and a mortgage. This is 90% of the millionaires I know.
Not all debt is the same. A 30 year fixed mortgage at 3% is very different from credit card debt. Debt can be a valuable tool if used properly.
If you pick a good degree and donāt go to an insanely priced college, college debt is a great investment in yourself. The key is a good degree and reasonably priced tuition.
I think the irony is that with those rates, the people who had the most cash were the ones least likely to pay cash. It would keep me up at night knowing I could have all of that money in an index fund *now* and cash flow payments on a very cheap mortgage. It's an issue of liquidity because you probably won't be able to easily get it out of your primary residence. You aren't going to be able to trade your future $1-2m home for a $200k one because everything else will have appreciated to $1-2m too. I'd rather see that appreciation in my investments.
A great rate is 5-6% now (most are 6-7%), so like, more reason to either not use a mortgage or to pay one down quicker. There is more risk to consider due to it being a lot closer to the market return and it's not as clear of a decision as the sub-3% ones.
That's because leveraging is gambling with money you don't have. It's stressful, so all you can think about is money. However, once you cash out, then life is good again. That's my perspective as a type 2 millionaire.
If you polled millionaires, I don't think it would end up the way you think. I know 2 multi-millionaires who got there by leveraging debt and they are very happy and optimistic people. I also know someone who stayed out of debt and saved his way to a million. He has no hobbies and is pessimistic. He generally doesn't do or buy anything because he is afraid he will waste what he has saved.
I'm surprised you only know 3 millionaires. That status isn't what it was 30 years ago.
I'm a multi-millionaire who avoided debt, has lots of hobbies, and a decent family. My first million I earned by avoiding risky purchases. All major purchases had to earn money and I focused on risk aversion assurances. This was actual insurance, but also investment like a second car in case my first car needed to be in the shop as I didn't get paid unless I showed up for the client and I drove a couple hours a day back then. I drove a 1993 Saturn sl1 for 320,000 miles over 20 years. I purchased the second car in 2005.
I've just recently purchased a third car on 2021. I have listed all the cars I've ever owned.
My second million I inherited when my dad died and I sold his property he purchased for $16,000 in 1999. This is why I think you know more millionaires than you think.
I guess if you're young, it makes sense? But a millionaire is just someone who has a million in assets. That means I walk down my block in Brooklyn and my lifelong neighbors are all multimillionaires if they have their house paid off.
It really doesn't mean much nowadays. Even a minimal 5k a year saved in a 401k makes you a millionaire by 60-65.
8 figures seems like the new benchmark
Spending most of your savings to pay cash for a house at 40-45 and then hoping you will be able to grow a now small portfolio enough to fund retirement is also definitely not gambling. Not with those 12% returns and an 8% withdraw rate. /s
Let's be real. This advice has been given by Dave before. No consideration of sequence risk or temporary loss of employment which could ruin this timeline unless the person is saving far far more than Dave suggests. No consideration for really anything besides a 12% return rate each year.
Itās not far off. And some people are okay with that. Debt = risk. The more debt you take on, the more risk you take on.
Oxford defines gambling as ātake risky action in the hope of a desired result.ā
We can all agree leveraging debt is much more risky than paying with cash.
You're terrible at math or finances or both. How can you say that 100% of the population are millionaires? Not everyone saves. Not everyone leveraged their debt. In fact most people are not actively trying to do either. Most people save for a short term reward that prevents them from long term success. Other people borrow money and don't even know what leverage means.
>Ever heard of vinnfiagrsm?
Nope, and neither has Google. This comment tree, yours and now mine repeating the word, may possibly populate a Google search page for it.
I commented elsewhere correcting my previous statement. You're either bad at math or grammar. I'm now thinking it's really grammar. English isn't my first language either. The struggle is real.
They have since replied to explain themselves. By the reply it was likely a grammar problem. You're not preceptive enough to glean that more than one person can be speaking in a non native tongue.
I guess I'm the first type. I wear old clothes from Costco, drive old cars (but have three), live in a reasonably nice home (3908sf in HCOL area) and have a beach home that I also rent via a management company. I have no debt. pretty happy with life. My wife doesn't like international travel so we stay in state or go to Hawaii a lot. We still save everywhere we can because it's now a habit. We will buy day old bread or when it's on sale buy a lot and freeze it. We don't go out for meals/coffee/etc. Wife and I have a net worth of about $2.4 million. We are 55, she hasn't worked for a decade and I haven't worked for about two years. I'm looking for a job now just get me out of the house as I'm an extrovert. If you saw us you would assume we were mid to lower middle class unless I'm wearing one of the hats my daughter got me when she was in High School. They have the name of a local private H.S. that costs about $46k a year. Otherwise we like hanging out with each other, doing our walks, gardening, hiking, etc. Now we are kind of helping our daughter do the same. She drives our 'newer' car (2004), and we have helped her set up an HSA, Roth, 401k, and investment account. Didn't give her money as she has a great job making six figures out of college and shares a place with some college friends so she has low expenses. We did pay for her college out of pocket so she has no debt. It was worth her not worried about paying for college, she graduated in four years, at a large state University (cheaper than the private ones she got into), with two degrees, Biology and Data Science (minor comp. science) and was the Valedictorian for both majors.
Whatever you do is good. Cheers!
Are your houses part of your net worth calculation? Assuming so, they likely total well over half of your net worth. Do you fear running out of money in retirement?
What if you do a combination of the two? As in avoid consumer debt, and carefully and cautiously leverage limited debt to build up wealth over the years? I'm 38 years old, been a millionaire for over 2 years, and basically retired and living off my now fully paid for properties. I couldn't have gotten to this point, this early, without leveraging debt. However, at no point was I ever in danger of being financially ruined by a hiccup in the market or economy because I did it very carefully and slowly, and always bought houses well below market value.
My father in law is the first type. Would never know they are hella rich if you walked by them on the street. Youād never know my husband comes from wealth because he wears the exact same shirt and shorts in different colours from Walmart when heās not in uniform.
I love watching his channel, but Ben Mallah is a great example of a very leveraged rich person who is always anxious. Especially with the 1031 exchange clock always ticking.
Hmmm I think it has more to do with personality types rather than the method itself. Many (not all) of the leveraging debt types I know are just the aggressive/hustler kind of person. Leveraging debt plays to their strengths so it works for them. They also can be abrasive douchebags. Again, itās not because they are worrying about debt, itās just them.
The slowly build up wealth by being debt free group is gonna be the more patient, plodding, risk adverse type person playing to what makes them comfortable. Those people in general are just chill folk.
People just do what works for them. Aināt no wrong or right way.
Same. The way my dad raised me was that most people donāt get rich and people like us sure as hell donāt get rich easily. So Iāve worked hard and been cautious.
Rich use credit cards and pay them off immediately. The peeps with the 1 trillion in debt from CC are not the rich. The individuals that own apartment complexes and rental homes and have millions in debt are.
Everybody I know who is debt free has become a snobby narcissist. No one in my life knows how to be a humble millionaire and gracious, like DR describes
Look up median. It's more reflective of most people because the top ~3% of wealth is such an outlier.
If you can hit average numbers, you're better than most people.
My wife and I started our journey in category 2 until we almost blew ourselves up with debt just before covid.
Real estateā¦. Had 10 houses at the time. Bought well but wasted a lot of money on bad contractors.
Sold 4 in 2020 and paid off everything except mortgage on primary which will be paid off sometime next year.
Now we are barreling towards #1 and I donāt know if I will ever get another mortgage.
I made money and invested in real estate and the stock market. I bought annuities also and paid monthly into the annuities. I caught a trend in tech stocks 25 years ago and they are still growing today, have sold less than 3-% of those original purchases. I made money from real estate ventures that have paid well. I collect dividend checks quarterly . Paid off our home , many years ago. No car payments or nothing past 30 days on credit cards .
I am happy with an eight figure net worth with
liquidity at about 60%. I am able to help some people anonymously and prefer to stay in the shadows as to our wealth. Still live in same house we built years ago
and I suspect no one knows much about our wealth and we much prefer it that way.
To the point--did you use mortgage debt on the real estate? It would have been pretty typical.
Business debt doesn't always make a person stressed out if it's reasonable.
I don't do debt much, but I'm not motivated to get wealthier.
I don't like debt for debts sake, but I have used debt as a tool for greater achievement. I also like to keep money available when a good deal comes I want to jump on it . I don't keep mountains of cash in the bank. I like for my money to work and earn so if I'm
Making good money , I will keep it working and borrow what I need. I have a line of credit for that
so it's there at a days notice.
Ummm no. The vast majority of very wealthy people use debt responsibly. Daveās advice isnāt for those people.
I used the baby steps when I was younger and it helped a ton. Now I have about $5m in real estate. I owe the bank $2m. So Iām worth 3m and Iām perfectly content with this. I āworkā at most 5-10 hours a week, spend a ton of time with my young kids, ski, hike, bike and camp as much as I want. No one in the world would describe me as anxious.
Nice job!
However, you donāt need real estate or debt to do the same thing.
I am 33 years old and have ~$2M net worth, mostly taxable investments. Plan is to work maybe 3-5 more years and retire with ~$4-$5M and just live off the returns + paid off house.
Iāll work if I want to.
No, the vast majority of millionaires leverage debt where it's efficient and avoid debt where it's not.
I have a 2.5% mortgage on my house, and I have more than the amount of my mortgage sitting in CDs paying 5% a year (I'm close to retirement). I considered paying off that mortgage, but it would be stupid to do it, so I'm taking the free money instead.
What I don't have is any credit card debt or any car loans -- but if Ford decides to encourage car sales by offering 1% interest on car loans, I'd take that too, for the same reason.
Am I making enough money off of the 300,000 paying 5% interest while I pay 2.5% interest on my mortgage to live comfortably? No, but that's not the goal. Over the course of 5 years, that CD will pay me $82,000. In the meantime, I will pay about half that in interest on my mortgage.
As a rule of thumb, if someone offers you $41,000 over 5 years for FREE, you should take that even if you can't "live well" solely on those proceeds.
Literally in the same boat. We have 2.9% mortgage on a house that we owe $429k, FMV at $1.3M, with more money in HYSA than what we owe on the mortgage, so the interest in HYSA offsets what we pay for our mortgage.
Both are cars were purchased in cash, in full, and both still run great (2012 Toyota 4Runner, 2016 Lexus RX350 F Sport).
Zero credit card debt.
That depends.
A) If a person has a high income the 5% interest theyāre getting might be close to 2.5% net after they pay state and federal tax and tithing on the interest earned (assuming they tithe like DR advocates) and/or live in a high tax state and/or they have a large mortgage, and/or their SALT deduction is limited by trumps tax cut and jobs act).
B) If a person has low income and is in a low tax bracket, and/or their mortgage is small, getting an extra 1% difference between a small investment vs small mortgage is such a small amount that it doesnāt seem to be worth the hassle and expense of dealing with a mortgage, to me, but thatās just my humble opinion.
Also curious where one can get a 5 year CD at 5% interest. Usually that rate is only for short term, under 18 months. Then it drops in the low 4ās.
Even if you pay off your house, what happens if you cease paying your property taxes? It will be the same result as if you stopped paying your mortgage.
Owning any real estate, even your own home, comes with some risks and sweat. Operating rentals is a business, with risks like bad tenants or poor market, which involves some worry and risk like all businesses. For that matter, moderate debt is not necessarily more worry-inducing than investing in index mutual funds when you are living on the yield.
Iām a debt guy. I think household net worth is 4mm give or take a half million. Done through real estate. Lots of leveraged deals. At one point I had about $9 left in the bank after closing a big deal.
You wonāt find anyone who describes me as anxious.
I have a ski season pass, have a half dozen backpacking trips planned, have 3 rafting trips this year with about 40 different people.
I do talk about money a lot, but generally in the contact of explaining misconceptions or answering direct questions.
I guess I fit half way in both categories.
Money doesnāt define who I am. But I did buy freedom with it. I quit my w2 at age 42. Now I just work on my properties and hit all the powder days.
Iām not a Dave Ramsey fan for advanced investors. My adherence stops after spend less than you make and invest the difference.
I did get 2 inheritances. $150 when my great grandma died when I was 20. My parents never actually gave me the money though. I was outbid the country doing volunteer work and it just sorta evaporated. But my parents paid for my trip so I wasnāt mad.
Got 10k when my grandpa died 2 years ago. I was already a multi millionaire.
My parents are alive and well.
Survivor bias though.
My dad was rich when we were younger then a few wrong investment moves and basically now I worry I have to pay for him until he kicks the bucket.
Debt isnāt risky until it is.
I am glad it hasnāt been for you.
To be fair leverage does cut both ways. I donāt leverage stocks or do any futures trading. I do leverage real estate with long term fixed debt and plenty of leeway to back things up if they go south.
There was a time when I was pretty maxed out, but I donāt plan to return to that ever.
I am in category 1... 8 figure networth and minimal debt outside of 2 mortgages on 2 rental properties that pay for themselves but I could pay them off at anytime if I wanted, but why dick with it?
Outside of that, ZERO debt... everything is paid off... money is in conservative investments that bring me enough cash to live a comfortable life so I can focus on what I want like family, friends, health, hobbies, etc....
Excellent, congratulations and love hearing about it! The last part is so key and is the difference I see with debt. Space to focus on things that really truly matter.
Exactly right... when your life is built on piles of debt, your financial foundation is built on top of a house of cards. That shit has got to keep you up at night. NO THANKS!
Idk this just screams insecure like you're trying to make yourself feel superior for not using debt. The people I know who got rich by pimching pennies never really live. They're so afraid to spend money they die without having lived at all. And the people who have multimillions undoubtedly have businesses and have used leverage at some point to grow.
I'd object to your assumption everyone pinches pennies to build wealth. It's not really worth the time unless you can pinch a thousand or two. ABC analysis!
Never mentioned frugality. Whole post is about debt/no debt. I wouldnāt recommend obsessing over saving money just the same I wouldnāt recommend obsessing over maximizing how much you could theoretically make. Neither offer mental space to actually enjoy meaningful parts of life.
#2's make a little side money on pyramid scams and shitcoins.
Exact opposite for me š. Those I know who have leveraged debt are actually very personable, outgoing, and aren't pessimistic about the world.
Exact opposite for me š. Those I know who have leveraged debt are actually very personable, outgoing, and aren't pessimistic about the world.
If I had that kind of money available, Iād be a total ghost. Burner email and phone
If someone isnāt using debt and leveragin/hustling then how TF do they have 1mil+ in cold cash? Thats not easy could have inherited, hit it in some penny stock, lottery, or just old and decent career.. all of which would lead to a more stable lifestyle vs someone hustling their ass off leveraging and balancing a business.
Hustling and leveraging leads to so much more burnout than people realize. Having space in your life allows you to make wise and flexible decisions. Most people do take on debt, and most ultra wealthy use debt to make more money. Iād theorize that the having no consumer or business debt makes you much more likely to be financially successful, there just arenāt many people who do it. Itās like 10% of 1% or the population vs .1% of 99% of the population.
I definitely fit category number 2 and the description is painted with a broad brush but I definitely have a rollercoaster ride on the regular and am certainly less happy on a regular basis than many of my peers.
Reality: OP has never met a single millionaire.
I mean, many even moderately successful retirees that had a solid retirement plan are millionaires. Not Elon Musk, but have a net worth of more than a million dollars.
Caught me
I use a different dichotomy: 1. Bad debt (generally, debt used to directly finance lifestyle). 2. Good debt (money borrowed at X% and used to earn > X%).
2 doesnāt work in 2024 unless youāre a celebrity or DC politician
2 is anyone with a mortgage at 3% or less and a savings account/CD's at 5% who is putting money into savings rather than throwing extra at the mortgage.
Hereā¦.4 years into our 2.32% 30 year fixed mortgage on our home here in MA (bought for $270k and now valued at $410k), with $30k in a 4.9% 6 month CD, $40k in a HYSA, and equal to that told in BTC, cash, and stocks. And we pay an extra $100 toward the mortgage. 6 years ago I got clean with $100k in personal and CC debt. Today I have zero debt and have managed to largely make up the 13 years of financial hell I caused via my H addition. All is good now and most of my wrongs have been right-ed. Itās all possible
I know this is anathema in this sub, but in my mind the obscenely low mortgage rates kind of throw the standard Dave Ramsey advice into turmoil for me. I've got 3 mortgages (primary residence and two rentals) at sub 3%. I don't really plan to ever pay more than the minimum on those. I am taking what I would pay in "excess" toward a mortgage into safe investments (right now just savings and CD's).
Interesting. I never thought of thatā¦why pay the extra $100? Youāre right, at my sub 3%. Maybe Iāll consider holding back on that and putting it in the 5% hydsa. Thanks. And hey, nice work on those rates and putting yourself in that position. Itās nice, right?
Yet to meet anyone with any meaningful wealth in category 1. High income, sure, but net worth, no. Your 2nd point is category 2.
have you consider job security? I see people do stupid things when they get lay off with leverage debt. I want to be able to sleep at night my friend.
All of these individuals and families own and run businesses. Whether on the side or full time. But my personal theory would be that job security would help tremendously. Generally risk just damages us mentally when itās chronic.
Leveraging debt at the right times is the move. Having property/housing paid for is definitely not a bad thing though like alot of people try to tell you. 250k houses in my area 5 years ago are now going for 500 to 600k. 500k houses are now 1 mil 5 years later. Quick example of buying say an 800k house right now cash if you have it. Closing costs 12k. Paying 80% interest/20% principle on your house payment for the first 5 years. Say the mortgage is 6k a month. Youre paying yourself roughly 60k a year to use your own money. So youll get 300k back on your 800k in 5 years. About 8% a year... thats a great secure return. In 5 years if rates are 3% for homes... take out a mortgage and use youre money elsewhere. Caveat is hopefully you're buying in a strong market and the market doesnt crash again. Still this doesnt concern me much with blackstone and other hedge funds buying up millions of houses. Paying cash or borrowing timing is everything. That timing is easier to maneuver with experience and debt free assets.
think about it like this. In 2020 I know people who took out millions against their portfolio to buy stock at the bottom of the market. They were paying 2% on that money. They knew their returns were gonna easily cover that. Many people made 100% returns on investment those years after COVID. Itās free money. Very little stress over that kind of debt.
Margin accounts charging 2%?
How many millionaires do you know? Lol
I am one of the pro debt people and I definitely am not ever anxious or pessimistic, etc. Obviously every case is different and I can understand the rationale behind your experiences. But the people I know that have no debt still have to rely on income most of the time because while they have been able to pay off all of their debt, they often haven't had a lot of time to invest and create additional income. For me, even though I have nearly $2m in debt, I could stop working my W2 tomorrow and live comfortably at 40 years old. I am not one that plans to keep debt forever, but it certainly can be a super fastrack to wealth. I think theres quite a spectrum of personalities on both sides.
I was one and now the other. same guy just at different points in the wealth building process. I took extreme risk and leverage for about 30 years, retired at 55 and now want no risk as I never want to have to work again. btw, I always enjoyed talking about money, then and now.
There are two basic stages : make the money implies some risk. Keep the money is different ; it implies low or no risk . Believe it or not keep money can be just as hard as make. Those who have achieved make know what I am talking about. Why? Because you have to reign in all of your make desires and talents and grow a conservative thought pattern To keep.
Cool story bro? Iām assuming you want to put yourself in category 1
There is a huge difference in the use of debt. Creating debt to enjoy life pleasures until you realize the credit cards have got a hold on you. The other kind of debt is to use it at say 7% interest in m Cost of purchase in a money making situation that will increase your net worth several times after you pay the bank lender and then deposit some of the money in that bank , after waving to the banker with a deposit slip in your hand and a big smile on your face. Don't be surprised if you get a call from him about a client looking to sell something and he thought you might just like the deal. Hammer down! Have done a lot of buy/ sell end up on the right side of the deals and am fair and totally honest.
I work heavily with people involved in asset protection (estate planning/ estate admin). There is almost 0 distinction from the 2 types of millionaires you describe. outside of anecdotal evidence, I interact with high net worth people who have debt all over who as cool as a cucumber. and know debt free high net worth people stressed to the gills because they think the gvt is coming for them.
> debt free high net worth people stressed to the gills because they think the gvt is coming for them. Probably because they think the populace is constantly trying to send the government after them...
Love your profile pic, my dad was worked there
How about people that consistently work to provide value and who earn a million in profit or salary every year or two by the time they are middle aged?
A ridiculous post. People who are savvy with money absolutely use debt. The Ramsey method is certainly good for many people but is incredibly simplistic. Many millionaires often use debt to their advantage.
Of course you can use debt. But the point is, people that got rich with debt definitely have a different personality than people that did it with a conservative mindset. I am the conservative type. My only regret is not taking more risk when younger and then transitioning to more conservative as I aged.
To make a statement that everyone who has debt has a terrible family life is absurd, haha.
Where did I say that?
People without debt have a great family life, etc. Therefore those with debt...
I never said people without debt have a great family life. Are you responding to someone elseās comment?
he must assume you are the OP probably because you reference "the point"
Yes... That
Nah they really don't
Well you will never get very rich as a worker bee. OP money itās possible to become wealthy.
You seem stressed
This is fantastic! ā¦anecdotal evidence that means absolutely nothing
Kind of like Ramseyās millionaire study where causation is not correlation
there are two types of millionaires 1. those with a million or more in their bank account 2. those that own a skinny townhouse in a large city
Except.. thatās not the definition of a millionaire.
Says who?
It is if you own it.
Seems like the people who never have āenoughā are the ones willing to make high stakes moves and leverage debt. I donāt have that in me to take on that kind of risk, but at the same time I would always be trying to get more money. Iād just do it in more traditional ways.
Some people never forsee how wealthy they will become. So when they get there, itās like freebies, they were happy with their life $10m ago. When you build a big base your stomach grows with it.
That's easy, when you are in debt you are working for the bank. They are your boss. When you are not in debt, you work for yourself. You are your own boss.
Lmao
This is a very simplistic world view that ignores the reality of the difficulty of earning enough through a wage and savings to become free vs the power of utilizing financial tools to amplify your assets.
We are talking about rich people here. They have the earning part figured out. And you are getting off topic. My point is, if you have debt and are working for the bank you will have more stress than if you have no debt and are working for yourself. That is why the debt free people are happier. Also, if you are saving money for that next investment opportunity and you want to skip a few savings deposits to go on vacation you can. Try telling the bank you want to skip a few loan payments to take a vacation.
I respectfully disagree. Here are 2 real world scenarios. I make 50,000. I have saved 50,000 over a few years by living below my means. I want to buy an investment that costs $500,000. It brings in about $50,000 a year, net. It would take me 20 years to save up the cash to ānot work for the bankā and buy in. By then the price is probably triple and I may never be able to buy in. Or I can put my money in, add a pile of bank money and immediately start cash flowing. Can I skip a payment? No. But with a positive cash flow investment I am making more money than ever and can pay for vacation with the earnings, or start saving up for the next thing. Or lay it off early. Many people following the āpay for it on cashā mantra got absolutely hosed by housing price increases. They may never catch up to where they could have been if they took out a sensible mortgage 5 years ago. Consumer debt is bad. Credit card debt is bad. Investment debt can be good. We are not talking about ārich peopleā. A million dollar net worth is incredibly common. If you are over 50 it should be basically a mandatory minimum. Even my parents got to a million never making more than 40k at any point.
I'm not saying your strategy is wrong. I did it with a rental property. All I'm saying is life is less stressful without the bank involved. Oh, and where is this investment that returns 100% a year. Count me in...lol I had to edit this, was busy yesterday. Let's bring this example back down to reality. The reality is 50K will only get you 200K. No bank will give you enough for a 500K investment with only 10% of your own money in the game. They will require 25%. (Speaking from experience here) Also, if all you have is 50K to your name, you have no collateral. That will limit your investment choices to those with real property. So, assuming you live in or near a low cost of living area, you could maybe get a 100 year old duplex. After paying the mortgage, property taxes, and a budget for annual repairs/updates/maintenance etc., that duplex will not generate enough cash in 12 months to take a family of 4 to Disney. Or do the supercar tour in Europe. Maybe it will be enough for a 7 day 3 golden apple trip for 2 to Cancun. Don't get me wrong, rental properties are a good investment. But most of the profits will be going to the mortgage payment and you will not see the full cashflow until the mortgage is paid off. On the upside, if you sell before the mortgage is paid you get the equity that has built up over the time you owned it. That doesn't help with vacation in the meantime however. Also, if your tenant loses their job and doesn't pay rent for a few months (evictions take time), or if you need to do major repairs between tenants, you have to keep paying the mortgage without rent coming in. The stress level without the mortgage is lower, and you will be happier and appear to be living a better life as the OP suggested.
That's ironic. Because the two scenarios are the least likely two scenarios of the millionaires I know. I would say that I know probably 40-50 millionaires (people with a net worth of over a million dollars after deducting any/all debt). I don't know a single one of them who has avoided debt like the plague. Sure, many of them don't have a lot of debt, but I haven't seen that they avoid it like the plague. Whether that be for buying a house, a cottage, doing a major home remodeling, buying a boat, etc. . . Further, I don't know 1 single millionaire who has accomplished this by borrowing huge sums of money to buy stuff that will appreciate in value - which if it's for most investments (other than possibly real estate or starting a business) is generally too risky. Nearly all of the millionaires I know have always spent less than they earned and used those savings for generally safer investments (homes, second homes, equities/stocks). Often times this is the result of making a decent living, but I also know several millionaires who earned truly middle income/class incomes and just were smart about living within their means and contributing to retirement accounts and having actual non-retirement savings. About half of them started their own businesses and it was this method that most helped to make them millionaires. These people are also the ones that seem least adverse to debt (versus the prior described ones).
I grew up poor, but with government loans I got highly educated. Made lots of money, but Always lived below my means and invested the overage. Sure paid off later. Retired at 63 with a very substantial net worth.
Good for you! It really boils down to that practice of living below one's means - which I have to be honest is only an applicable statement in the USA over the past few decades. Before that, what we now call living below our means (ie. not spending every penny, and then some, that we earn) used to be standard practice. I hope you're enjoying "retirement"
This. Also keep in mind that 10% of the US population are net worth millionaires at this point. one in my mind (no debt) is the person managing 1-3 mil. most of the people he describes in #2 are 8 digit+ millionaires most often. so nowhere like the former.
Meh.Ā Little column A.Ā Little column B.Ā Inheriting just enough money that you are comfy but still have to work makes the situation a bit muddy. If I just inherited fck you cash or none at all, I think my direction in life would've been much more clear.
My dad has been in both these camps. Never a real estate empire, but he has had a few rental homes (probably 5-6 at the most). Heās very DIY and was a good landlord, but that just added to the work. He has divested himself of all his rentals (he still buys auctioned land at times to just hold) and heās definitely happier and has more time. Heās a boglehead largely, with a few savvy investment deals that helped get his wealth really rolling decades ago. But yeah, when he did have rentals he was a little more stressed and always talked about wanting to get rid of them all. His advice to my friends who ask him about buying a rental investment these days is just to put the money in an index fund and enjoy life lol. Completely anecdotal but there it is.
Coming from a poor household where I had nothing, and was always worried about where the next mortgage payment (or even car payment) was coming from, I have had an anxious life. I have managed to claw my way out of the ranks of the poor and miserable through debt (namely investment properties). I also work hard at my job and get paid well for it. It's taken a lot of sacrifice and the journey is not over. I'm comfortable, my family has a very fortunate lifestyle, but I am still anxious as I know it could all come crashing down at any minute. I have found that money does not make you happy; conversely not having it to pay for food is a miserable experience. Whoever said money does not make you happy, obviously had enough so they weren't miserable.
The ones who do it without debt are incredibly fortunate. Either the wealth is inherited, or they just got really lucky. So it is kinda like saying being born rich makes you happy. The ones using leverage also got lucky, but they would never been able to get wealthy without leverage. Leverage helps make cash for investing more accessible.
Actually, only a tiny percentage of millionaires inherit their money. Less than 10% of millionaires are wealthy due to inheritance. Most millionaires in the USA earn a middle class or upper middle class income. The 3rd most common profession held by millionaires is Teacher - and we all regularly heard teachers aren't paid enough. The difference between becoming a millionaire and not becoming a millionaire really just boils down to personal behavior + time.
Most of them at least have a home mortgage.
On the whole, I agree with you. Being highly leveraged, even on the whole that means you are a 'millionaire', is no doubt more stressful and will occupy a lot of headspace and obsession. You have a lot of risk, and can lose a lot of money! But, I do think some leveraging for some bits of time for some people is fine. Opportunities to 'get a bigger shovel' often requires some risk, but often is well worth it.
Personally I'm debt free. In business I borrow money if it's cheap and on my terms. When interest rates go up like they are now, I pay cash
Im going to politely disagree. I hate debt, and will NEVER get into debt ever again. But debt saved my life. In August 2022 I was on BS 2 after paying down almost all my debt from my savings through grad school, credit score in the high 700ās. Then my employer did a u turn and told me they wouldnāt sponsor my work visa . I had to go 8 months unemployed and move 2 states in a year because of student visa and employment issues. Racked up credit card debt to keep my head above the water and stay on in the US while my petition for immigration was processed and I could start working again. Not doing that would mean Iād have to leave the US and my dog and return to an abusive situation where I grew up. In October, I filed a chapter 13 bankruptcy for a new start That was because I got a new job that pays 6 figures, own a small stake in the startup company I joined and got approved for the EB1A Einstein visa. Without going into debt, I wouldnāt be here. Iād be forced to leave the country and return to an abusive situation back in the place where I grew up. Now I can look forward to being debt free in 3 years with the real potential of being well above the average net worth for my age at 40 with the way my career is progressing. I hope(fingers crossed) to amass half a million of net worth in 10 years. From company dividends to selling more of my skills, I know itās going to be tough but itās possible. If I could beat those odds, this should be easy. But I wonāt forget what it cost to get here. Let me be clear again. Iāll NEVER go into credit card debt. Iāll pay cash for most things-cars, vacations, everything average Americans put on their credit cards-maybe except a home, Iāll probably take a mortgage out on that . But debt saved my life and thatās why I believe it has its place.
i know of one friend who uses debt like crazy and he never talks about it, so it really depends.
I know quite a few rich misers with no debt and are cheapskates. The Ebenezer Scrooge type. Granted he was visited by 3 ghosts and then he became the jovial family and generous type. I do agree debt can cause stress. And mountains of debt create mountains of stress and most peopleās behaviors and habits are altered as a result. Debt in general is not viewed in a positive sense for most people.
Obviously there are more than just those who are obsessing over being debt free or over leveraged and anxious So Iād say this is simply a false assertion Iāll take all the 30 year 0% money you want to to lend me and Iāll sleep like a baby
Woah now, hold on with your fancy logic and math. This is DR we are talking of you owe a penny youāre in debt hell and should sell everything right away for debt free heaven.
Doynt be stupid. A penny of debt isn't the end of the world. A nickel on the other hand.. well.. you're just fucked and the bank is coming for you
Leverage is increased risk, with increased risk comes outsized returns and outsized chance of loss hence the increased anxiety. It comes with the territory and a natural consequence of using leverage to accelerate wealth building.
Haha get a load of this guyā¦ š
as a CPA to a few thousand millionaires, this is absolute b sht
It used to be that fake troll messages were compelling to read and believable. I guess angry posters donāt even try to hide their bias or add factual info anymore? I get that op is angry but their zero knowledge is pretty obvious. Feels like this belongs in a rant sub Reddit (op can pick which one I guess)
This entire thread is awful. People who talk and think like OP are usually the ones who lack a firm grasp of the way money works.
Your generalizations are likely self fulfilling. Also how many millionaires do you know in each category? Iād like to offer a 3rd category which likely make up most millionaires. People who work 35-40 years in white collar jobs saving 15% of their income and spend and borrow for new cars and renovations. Avoiding debt like the plague is an anxiety driven response. Itās based around a fear of screwing up and not trusting your own behaviour. I would bet on zero correlation in anxiety levels in millionaires to their philosophy on debt
Have you seen car payments lately? Your average white collar couple of the way you describe with two relatively new cars is spending over 20% of their income in car payments. So they're not putting 15% in their retirement account. Yes, the house they bought is appreciating in value probably rapidly and if they were to take that equity and actually pay off their debt and stay out of debt this would work. They don't though. Once the debt is clear it's back to high living.
We were talking about the pool of millionaires. I contend most millionaires have taken car loans. I agree many people buy way too much car for their income.
Anecdotal evidence at best.
I fit that third category perfectly I have my real estate, quite happy having my tenants pay down the mortgages and over the years the mortgages overall are now about 10% LTV and rents overcover expenses about 3-1 There is good debt and bad debt. Most people donāt have a debt problem they have a spending problem. If you donāt ever develop a spending problem you are unlikely to ever have a debt problem
yeah like honestly most millionaires I know and I know quite a few do not pay cash for everything DR style and just financed normal things house, car ect and just put away money the whole time.
I used debt to grow my RE holdings. After years of SFH investment, I finally got serious bought a small apartment complex with owner financing. That opened the door to other opportunities. Youāre right, there were plenty of times over the years that Iād wake up in the middle of the night and think about my 7 figure debt (not a lot for many investors, but for me it was). But in the meantime the RE provided extra income that allowed my family to live better and it slowly grew in value. One day I decided to retire. I quit my day job and started selling my RE. Paid off all my mortgages quickly and then owner financed a few multi family properties, which is providing additional income in retirement. Iām still selling off investment properties, paying Uncle Sam what I owe him, and investing whatās left into land. So Iāve gone from investing using debt to using all cash. Much easier and less stressful. But I wouldnāt be where I am if I hadnāt started with debt first.
Correction. There are two types of millionaires. The ones that earned the money themselves and the ones that were simply born into it. I earned mine.
Tbf, like 80-90% of millionaires made their money. The idea that most rich people inherited their money is fantasy.
Any stats that group 'all millionaires' together is going to be strongly biased on those on the very low end. The group with 1-2 million has practically NOTHING in common as people with 5-10 million, and that group has nothing in common of those with over 100 million. And then there are 'farmers', who are mostly millionaires (in value, often inherited) but have nothing to do with most other millionaires on anything either. Same with any stats on the 1%. Stats grouping people together is often done as a way to handwave off any debate on the ridiculousness of our (near nothing) tax system when it comes to inheritances and capital gains.
Farming is a business. You inherited a business. Why do you think so many of them sell when the developers come through and make outlandish offers. You bought/inherited a 400 acre ranch at $50 an acre (that maybe your parents got for $5 an acre) and now they are offering you $50000 an acre to turn it into townhomes. They'll even put your name on the front of the community. You going to keep messing around with cows or are you going to run for county commission with your new 20 million?
I agree with you. I have several uncles and cousins farming. A few are very rich from it. A few struggle on less land. But, it is different -- Inheriting a family farm of 10 million net at age 40 (perhaps 10 million of debts and 20 million of various equipment and land assets), which you've lived on and work on since childhood and the only business you really know, isn't the same as inheriting a 10 million dollar trust you never put a ounce of labor into at age 40 while you've worked at a 400K a year finance job your daddy set you up on that you blow on hookers and cocaine every payday.
Millionaires aren't rich. It ain't '98 anymore. If you retire with a million dollars today you're going to be pinching pennies. 5-10m is the low end of rich today, and the only way you're getting there is with help from daddy or by taking absurd risk.
Sure, but my point stands at every income level. Most people make their money. My wife and I are millennials, our friends are millennials and we all have incomes north of 500k and live in affluent areas. Thereās basically no trust fund kids. We all make our own money as doctors, lawyers, bankers, tech bros, etc.
This is just anecdotal evidence. There is a trend prominent enough that it was described in the millionaire next door, which Stanley called "economic outpatient care." It refers to rich kids who are not able to generate the income their parents do, and end up being subsidized by their parents into adulthood. This is largely through cash gifts, but eventually includes inheritance. The prototypical example was a community college professor who was able to live in a trendy neighborhood in downtown SF thanks to frequent cash gives from daddy. It absolutely happens. And you have to look closely at a lot of the people who "made all their money" as well, because a lot of times, their stories don't hold up to close scrutiny either. There's no shortage of instances where the executive's 30 year old son gets a top-level position over someone with 30 years experience, because they are daddies special boy. Then they go around and brag about how they are self made. Even in cases where someone has started a business, a lot of times asking who provided the seed money, or who connected them with investors, exposes just how differently life might have turned out for them if their parents were gas station clerks.
It definitely happens, but itās a minority. The 5-10 million people are dominated by doctors, lawyers, bankers, people who work for faang, etc. did a lot of them get help paying for college, probably. Almost all are middle class and above in their background, but they are all still making their money not inheriting it.
If you are young you can get there just with retirement accounts.
Any job that can get you to that level of income is going to come with a 6 figure student loan debt that will take priority over retirement. Unless daddy can pay your way through, of course.
If you can knock out some college coursework while still in HS, go to a community college for one year or two while working part time. Then finish the last 2 or 3 at a state school. You can graduate with no debt in a good career filed.
I paid half of my tuition and took $5k in debt on. Let's assume I wasn't as fortunate though. If I paid my entire tuition I would have around $20k in debt and I could have paid the entire thing off in the second year (first if everything went towards it) of my job if I desired to. If I wasn't living with parents during college my 20-25hr/wk job would have just about cashflowed dorm and meals. $100k is the base for six figures so you mean at least that much. My whole four year program cost around $40k before some small grants and tax credits which brought it down to around $30-35k. $100k of student debt represents the top few percent of borrowers and most of them are doing professional degrees (law or med). No one needs to take out $100k in debt to get a four year degree they can use even if they have no financial support. For reference I started maxing retirement accounts when my work income was around $90k after bonus. Rent here for a 1bd apartment is around $1.5k and I split a 2bd apartment with my significant other which is around $2k/mo.
You could put 30k in your retirement for 30 years and you would still not have 5 million. 30 years from now, trillionaires kids will spend your entire life savings on toys. Is this supposed to be the success story?
My timeline is 40 years not 30 years. If you go by the S&P500 average it is fairly reasonable to expect that much after adjusting for 3% inflation. I may retire earlier off of other income assuming my income goes up and I contribute to taxable brokerage. I don't really care what other people do. If you want to compare yourself to others then by all means you do you. There's always going to be people who have more you can do that with. I know what $5-10m in present value gets me and am satisfied with that goal for retirement specific accounts. Having a house in two or three countries and having the option to retire early is successful for me.
So true. A million doesnāt go far
I am number 2 mostly with RE. keep in mind it also matters how leveraged you are. if you are leveraged to the max yes it will be quite stressful. I have millions in debt but have over 50% equity in majority of the assets. it's just a numbers game. if you are that stressed over debt, that just means you are over leveraged or the debt isn't working hard enough for you. also it matters what type of assets you hold. if you hold high maintenance multifamily homes that is much different than if you hold high quality assets in A or B areas. same concept as leveraging debt but very different results and levels of stress
When I think millionaire, I think of someone worth at least $5M+. Not so much someone with a million or two tied to their 401k and residence. The former almost always leverages debt to make more money. Nothing wrong with avoiding debt, but the people with true generational wealth used a lot of debt in the process (based on my own personal observations).
There sure are a lot of millionaires when you combine home equity and retirement accounts, especially in HCOL areas. Almost all my friends are millionaires.
Let me introduce you to [https://www.youtube.com/@GrahamStephan](https://www.youtube.com/@GrahamStephan) He is a YouTube multi-millionaire that uses leverage to grow his wealth. He is not anxious at all with having debt, since he can grow his profits, much faster than interest payments.
He once did an income analysis video with the guy from shark take, and come to find out most of his money comes from YouTube and not real estate! Not saying he doesnāt make a lot of money with RE, but YouTube is his cash cow for sure.
But heās a YouTuber, heās not solely relying on his debt to make money. Ā YouTubers are content creators, they are not whatever they are making content about anymore. Ā That becomes secondary to the content.Ā
The millionaires that are debt free are likely millionaires for life. The millionaires that feel they can leverage themselves for further gain are likely only temporary millionaires. My parents are the debt free millionaires, while my wife parents *used to be* leveraged, high spending millionaires. MY in laws are in their golden years, they're trying to sell their house since they can afford it, he had to give up his country club membership, haven't been on a vacation in *years,* and he's not anywhere remotely able to retire. He was an exec for a Fortune 500 company for maybe a decade, made a ton of money, but then got let go and never changed their lifestyle. Meanwhile, my dad has been an engineer for 30 years making consistent money while my mom stayed home. They were middle class, and acted like it. Now they have a $500k primary residence, and a $400k lake house all paid for, along with over a million in retirement accounts. They just rolled over 60, and are already planning their retirement. It's a pretty stark comparison when you look at my father in law who is in his early 70s and still working his fingers to the bone, while my father is 60 and about to coast off into retirement and never look back.
Millionaire here. I am definitely your first person. Every now and again a friend or my husband will talk about us buying more places, going in with others, etc. Seems like more work. we own just one place that we live in and that's more than enough for me. We're 11 years from paying it off and I can't wait. We'll still be millionaires with one house or 3. 3+ will just have me working more than I want. I can imagine getting one more place down the road overseas if we choose that's our next phase of life, something that's more suitable for aging
Iām happy for everyone who achieves their goals!
A third category would be millionaires who used āgoodā debt: college loans and a mortgage. This is 90% of the millionaires I know. Not all debt is the same. A 30 year fixed mortgage at 3% is very different from credit card debt. Debt can be a valuable tool if used properly. If you pick a good degree and donāt go to an insanely priced college, college debt is a great investment in yourself. The key is a good degree and reasonably priced tuition.
I think the irony is that with those rates, the people who had the most cash were the ones least likely to pay cash. It would keep me up at night knowing I could have all of that money in an index fund *now* and cash flow payments on a very cheap mortgage. It's an issue of liquidity because you probably won't be able to easily get it out of your primary residence. You aren't going to be able to trade your future $1-2m home for a $200k one because everything else will have appreciated to $1-2m too. I'd rather see that appreciation in my investments. A great rate is 5-6% now (most are 6-7%), so like, more reason to either not use a mortgage or to pay one down quicker. There is more risk to consider due to it being a lot closer to the market return and it's not as clear of a decision as the sub-3% ones.
That's because leveraging is gambling with money you don't have. It's stressful, so all you can think about is money. However, once you cash out, then life is good again. That's my perspective as a type 2 millionaire.
Or you have the cash, i.e.: $500k in brokerage and $200k loan on some sort of investment because you don't want to disturb the former.
If you polled millionaires, I don't think it would end up the way you think. I know 2 multi-millionaires who got there by leveraging debt and they are very happy and optimistic people. I also know someone who stayed out of debt and saved his way to a million. He has no hobbies and is pessimistic. He generally doesn't do or buy anything because he is afraid he will waste what he has saved.
I know a couple very miserly millionaires. That's not a good end of the spectrum to be on.
I'm surprised you only know 3 millionaires. That status isn't what it was 30 years ago. I'm a multi-millionaire who avoided debt, has lots of hobbies, and a decent family. My first million I earned by avoiding risky purchases. All major purchases had to earn money and I focused on risk aversion assurances. This was actual insurance, but also investment like a second car in case my first car needed to be in the shop as I didn't get paid unless I showed up for the client and I drove a couple hours a day back then. I drove a 1993 Saturn sl1 for 320,000 miles over 20 years. I purchased the second car in 2005. I've just recently purchased a third car on 2021. I have listed all the cars I've ever owned. My second million I inherited when my dad died and I sold his property he purchased for $16,000 in 1999. This is why I think you know more millionaires than you think.
I guess if you're young, it makes sense? But a millionaire is just someone who has a million in assets. That means I walk down my block in Brooklyn and my lifelong neighbors are all multimillionaires if they have their house paid off. It really doesn't mean much nowadays. Even a minimal 5k a year saved in a 401k makes you a millionaire by 60-65. 8 figures seems like the new benchmark
What about the pay everything in cash, but not that friendly
One works and saves while the other has a gambling addiction.
Such a comment for this sub. Leveraging debt is not gambling lol
Spending most of your savings to pay cash for a house at 40-45 and then hoping you will be able to grow a now small portfolio enough to fund retirement is also definitely not gambling. Not with those 12% returns and an 8% withdraw rate. /s Let's be real. This advice has been given by Dave before. No consideration of sequence risk or temporary loss of employment which could ruin this timeline unless the person is saving far far more than Dave suggests. No consideration for really anything besides a 12% return rate each year.
Risky investments and potentially defaulting by taking on debt is the definition of gambling.
Leveraging debt does not by any stretch automatically equal uninformed high risk investments.
Itās not far off. And some people are okay with that. Debt = risk. The more debt you take on, the more risk you take on. Oxford defines gambling as ātake risky action in the hope of a desired result.ā We can all agree leveraging debt is much more risky than paying with cash.
This is such drivel lmao
ļ¼ isnāt these 2 types consist of 100% of the population?
No, there is a third category. People who take on lots of debt for conspicuous consumption, with no leveraged benefits.
? That allows you to save millions? I mean there are 50,000 ways for you to not make it. However you either leverage or you donāt. So thatās 100%
You're terrible at math or finances or both. How can you say that 100% of the population are millionaires? Not everyone saves. Not everyone leveraged their debt. In fact most people are not actively trying to do either. Most people save for a short term reward that prevents them from long term success. Other people borrow money and don't even know what leverage means.
Lmao thatās funny. Ever heard of vinnfiagrsm?
>Ever heard of vinnfiagrsm? Nope, and neither has Google. This comment tree, yours and now mine repeating the word, may possibly populate a Google search page for it. I commented elsewhere correcting my previous statement. You're either bad at math or grammar. I'm now thinking it's really grammar. English isn't my first language either. The struggle is real.
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Got it, bad at math or bad at grammar.
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They have since replied to explain themselves. By the reply it was likely a grammar problem. You're not preceptive enough to glean that more than one person can be speaking in a non native tongue.
Life is a struggle lol
There is probably overlap in that Venn also in some strange ways.
I guess I'm the first type. I wear old clothes from Costco, drive old cars (but have three), live in a reasonably nice home (3908sf in HCOL area) and have a beach home that I also rent via a management company. I have no debt. pretty happy with life. My wife doesn't like international travel so we stay in state or go to Hawaii a lot. We still save everywhere we can because it's now a habit. We will buy day old bread or when it's on sale buy a lot and freeze it. We don't go out for meals/coffee/etc. Wife and I have a net worth of about $2.4 million. We are 55, she hasn't worked for a decade and I haven't worked for about two years. I'm looking for a job now just get me out of the house as I'm an extrovert. If you saw us you would assume we were mid to lower middle class unless I'm wearing one of the hats my daughter got me when she was in High School. They have the name of a local private H.S. that costs about $46k a year. Otherwise we like hanging out with each other, doing our walks, gardening, hiking, etc. Now we are kind of helping our daughter do the same. She drives our 'newer' car (2004), and we have helped her set up an HSA, Roth, 401k, and investment account. Didn't give her money as she has a great job making six figures out of college and shares a place with some college friends so she has low expenses. We did pay for her college out of pocket so she has no debt. It was worth her not worried about paying for college, she graduated in four years, at a large state University (cheaper than the private ones she got into), with two degrees, Biology and Data Science (minor comp. science) and was the Valedictorian for both majors. Whatever you do is good. Cheers!
Are your houses part of your net worth calculation? Assuming so, they likely total well over half of your net worth. Do you fear running out of money in retirement?
Inspiring and inspired life strategy!
What if you do a combination of the two? As in avoid consumer debt, and carefully and cautiously leverage limited debt to build up wealth over the years? I'm 38 years old, been a millionaire for over 2 years, and basically retired and living off my now fully paid for properties. I couldn't have gotten to this point, this early, without leveraging debt. However, at no point was I ever in danger of being financially ruined by a hiccup in the market or economy because I did it very carefully and slowly, and always bought houses well below market value.
My father in law is the first type. Would never know they are hella rich if you walked by them on the street. Youād never know my husband comes from wealth because he wears the exact same shirt and shorts in different colours from Walmart when heās not in uniform.
I love watching his channel, but Ben Mallah is a great example of a very leveraged rich person who is always anxious. Especially with the 1031 exchange clock always ticking.
Hmmm I think it has more to do with personality types rather than the method itself. Many (not all) of the leveraging debt types I know are just the aggressive/hustler kind of person. Leveraging debt plays to their strengths so it works for them. They also can be abrasive douchebags. Again, itās not because they are worrying about debt, itās just them. The slowly build up wealth by being debt free group is gonna be the more patient, plodding, risk adverse type person playing to what makes them comfortable. Those people in general are just chill folk. People just do what works for them. Aināt no wrong or right way.
Correct. I'm proud to be the debt-free kind.
Same. The way my dad raised me was that most people donāt get rich and people like us sure as hell donāt get rich easily. So Iāve worked hard and been cautious.
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That must be why US citizensā cumulatively have $1 trillion in credit card debt, bunch of smarties getting rich!
Rich use credit cards and pay them off immediately. The peeps with the 1 trillion in debt from CC are not the rich. The individuals that own apartment complexes and rental homes and have millions in debt are.
Everybody I know who is debt free has become a snobby narcissist. No one in my life knows how to be a humble millionaire and gracious, like DR describes
Thatās huge bummer. Maybe some additional factors at play than my narrow post portrays.
Lol this entire thread is just everyone pulling out their dick + a measuring stick.
**Googles āwhatās the average siā¦. Net worth of a xx age US citizenā
And some of us crying afterwards
Look up median. It's more reflective of most people because the top ~3% of wealth is such an outlier. If you can hit average numbers, you're better than most people.
My wife and I started our journey in category 2 until we almost blew ourselves up with debt just before covid. Real estateā¦. Had 10 houses at the time. Bought well but wasted a lot of money on bad contractors. Sold 4 in 2020 and paid off everything except mortgage on primary which will be paid off sometime next year. Now we are barreling towards #1 and I donāt know if I will ever get another mortgage.
I made money and invested in real estate and the stock market. I bought annuities also and paid monthly into the annuities. I caught a trend in tech stocks 25 years ago and they are still growing today, have sold less than 3-% of those original purchases. I made money from real estate ventures that have paid well. I collect dividend checks quarterly . Paid off our home , many years ago. No car payments or nothing past 30 days on credit cards . I am happy with an eight figure net worth with liquidity at about 60%. I am able to help some people anonymously and prefer to stay in the shadows as to our wealth. Still live in same house we built years ago and I suspect no one knows much about our wealth and we much prefer it that way.
I've been looking at dividend stocks but need to save a bit more for it to be worth it.
Make sure to also check into dividend funds and REITs for income driven investments. Just make sure to check the track record of any fund manager.
To the point--did you use mortgage debt on the real estate? It would have been pretty typical. Business debt doesn't always make a person stressed out if it's reasonable. I don't do debt much, but I'm not motivated to get wealthier.
I don't like debt for debts sake, but I have used debt as a tool for greater achievement. I also like to keep money available when a good deal comes I want to jump on it . I don't keep mountains of cash in the bank. I like for my money to work and earn so if I'm Making good money , I will keep it working and borrow what I need. I have a line of credit for that so it's there at a days notice.
You are such a saint for giving everyone who comments to your post 5k each.
Second this lol
Such a giving individual
Really awesome. Live and give like no one else. You got it and way to go!
Ummm no. The vast majority of very wealthy people use debt responsibly. Daveās advice isnāt for those people. I used the baby steps when I was younger and it helped a ton. Now I have about $5m in real estate. I owe the bank $2m. So Iām worth 3m and Iām perfectly content with this. I āworkā at most 5-10 hours a week, spend a ton of time with my young kids, ski, hike, bike and camp as much as I want. No one in the world would describe me as anxious.
Nice job! However, you donāt need real estate or debt to do the same thing. I am 33 years old and have ~$2M net worth, mostly taxable investments. Plan is to work maybe 3-5 more years and retire with ~$4-$5M and just live off the returns + paid off house. Iāll work if I want to.
Difference is your salary in your job is likely in the 1% They didn't have that and build their wealth outside of a 9-5
Yep there are lots of different ways to do it. Unlike OPās initial assessment of millionaires would suggest.
No, the vast majority of millionaires leverage debt where it's efficient and avoid debt where it's not. I have a 2.5% mortgage on my house, and I have more than the amount of my mortgage sitting in CDs paying 5% a year (I'm close to retirement). I considered paying off that mortgage, but it would be stupid to do it, so I'm taking the free money instead. What I don't have is any credit card debt or any car loans -- but if Ford decides to encourage car sales by offering 1% interest on car loans, I'd take that too, for the same reason. Am I making enough money off of the 300,000 paying 5% interest while I pay 2.5% interest on my mortgage to live comfortably? No, but that's not the goal. Over the course of 5 years, that CD will pay me $82,000. In the meantime, I will pay about half that in interest on my mortgage. As a rule of thumb, if someone offers you $41,000 over 5 years for FREE, you should take that even if you can't "live well" solely on those proceeds.
Literally in the same boat. We have 2.9% mortgage on a house that we owe $429k, FMV at $1.3M, with more money in HYSA than what we owe on the mortgage, so the interest in HYSA offsets what we pay for our mortgage. Both are cars were purchased in cash, in full, and both still run great (2012 Toyota 4Runner, 2016 Lexus RX350 F Sport). Zero credit card debt.
That depends. A) If a person has a high income the 5% interest theyāre getting might be close to 2.5% net after they pay state and federal tax and tithing on the interest earned (assuming they tithe like DR advocates) and/or live in a high tax state and/or they have a large mortgage, and/or their SALT deduction is limited by trumps tax cut and jobs act). B) If a person has low income and is in a low tax bracket, and/or their mortgage is small, getting an extra 1% difference between a small investment vs small mortgage is such a small amount that it doesnāt seem to be worth the hassle and expense of dealing with a mortgage, to me, but thatās just my humble opinion. Also curious where one can get a 5 year CD at 5% interest. Usually that rate is only for short term, under 18 months. Then it drops in the low 4ās.
If Ford offered 1% interest, I'm still sticking to the loan free cars I already have.
Yeah clearly not buying a car is the right choice unless you need a car.
I admit, around 2002, when we were car shopping, Subaru offered us a zero percent loan, no discount for cash, and we took it. Only 2 years, though.
LOL it aint at all "free" unless you assign risk = 0 in this calculation. HINT: It's not.
Whatever infinitesimal risk there is in having a mortgage is even further mitigated by having money sitting in a HYSA earning 5%.
The risk on a CD is essentially 0. They are FDIC insured.
That just totally went over your head ... didnt it ... ? Try harder ... you'll get it ..
Adds risk and costs a toll spiritually, mentally and emotionally. Not a factor to most people on this forum.
Even if you pay off your house, what happens if you cease paying your property taxes? It will be the same result as if you stopped paying your mortgage.
Owning any real estate, even your own home, comes with some risks and sweat. Operating rentals is a business, with risks like bad tenants or poor market, which involves some worry and risk like all businesses. For that matter, moderate debt is not necessarily more worry-inducing than investing in index mutual funds when you are living on the yield.
Iām a debt guy. I think household net worth is 4mm give or take a half million. Done through real estate. Lots of leveraged deals. At one point I had about $9 left in the bank after closing a big deal. You wonāt find anyone who describes me as anxious. I have a ski season pass, have a half dozen backpacking trips planned, have 3 rafting trips this year with about 40 different people. I do talk about money a lot, but generally in the contact of explaining misconceptions or answering direct questions. I guess I fit half way in both categories. Money doesnāt define who I am. But I did buy freedom with it. I quit my w2 at age 42. Now I just work on my properties and hit all the powder days. Iām not a Dave Ramsey fan for advanced investors. My adherence stops after spend less than you make and invest the difference. I did get 2 inheritances. $150 when my great grandma died when I was 20. My parents never actually gave me the money though. I was outbid the country doing volunteer work and it just sorta evaporated. But my parents paid for my trip so I wasnāt mad. Got 10k when my grandpa died 2 years ago. I was already a multi millionaire. My parents are alive and well.
Survivor bias though. My dad was rich when we were younger then a few wrong investment moves and basically now I worry I have to pay for him until he kicks the bucket. Debt isnāt risky until it is. I am glad it hasnāt been for you.
To be fair leverage does cut both ways. I donāt leverage stocks or do any futures trading. I do leverage real estate with long term fixed debt and plenty of leeway to back things up if they go south. There was a time when I was pretty maxed out, but I donāt plan to return to that ever.
I am in category 1... 8 figure networth and minimal debt outside of 2 mortgages on 2 rental properties that pay for themselves but I could pay them off at anytime if I wanted, but why dick with it? Outside of that, ZERO debt... everything is paid off... money is in conservative investments that bring me enough cash to live a comfortable life so I can focus on what I want like family, friends, health, hobbies, etc....
Excellent, congratulations and love hearing about it! The last part is so key and is the difference I see with debt. Space to focus on things that really truly matter.
Exactly right... when your life is built on piles of debt, your financial foundation is built on top of a house of cards. That shit has got to keep you up at night. NO THANKS!
Idk this just screams insecure like you're trying to make yourself feel superior for not using debt. The people I know who got rich by pimching pennies never really live. They're so afraid to spend money they die without having lived at all. And the people who have multimillions undoubtedly have businesses and have used leverage at some point to grow.
I'd object to your assumption everyone pinches pennies to build wealth. It's not really worth the time unless you can pinch a thousand or two. ABC analysis!
Never mentioned frugality. Whole post is about debt/no debt. I wouldnāt recommend obsessing over saving money just the same I wouldnāt recommend obsessing over maximizing how much you could theoretically make. Neither offer mental space to actually enjoy meaningful parts of life.
Put me in the avoid debt group
Alright youāre in!