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What is the point of your examples? These aren't the sort of people typically think of when they think of "millionaires". The issue here is that "millionaire" is used in our language to refer to someone that is wealthy, it goes back to a time when a million dollars was a large sum of money and before 401(K)s even existed. Someone with a net worth of $1 million in 1970 had a lot more money than someone with a net worth of $1 million today. Today its fairly common for older middle-class folks to have a million in assets, but its largely geared towards retirement. These people aren't "rich" by any means.
If we are trying to determine who is rich than I think it would be far more instructive to exclude retirement accounts and even personal residences, both of these operate very differently than having say $1 million in the bank.
Anyhow, today having a net worth of around $1 million doesn't mean you're rich. The people in your examples are technically "millionaires", but they aren't rich.
Ok, we're going around in circles here. You want lifestyles of the rich and famous. As already mentioned, that is not attainable for most of us. But if you want it, good luck with that
Increasing your income is not that difficult, it just requires some thought. From a purely technical point of view, its easier to save, but once you consider human psychology I don't think that is true. If saving was so easy, more people would do it. This issue involves far more than purely financial matters...!
Maybe increasing income isn't difficult for you, but it is for the rest of us. If it wasn't more poeple would just magically go out an increase their incomes.
This is actually false, small business owners have lower than average incomes. You have to remember that a business is an asset, extracting a lot out of your business in terms of income is the worst thing you can do tax wise. When you sell equity in your business it is a capital gain and you'll be taxed a lot less than if you realized it in income.
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Originally Posted by user_id
If you started a business with $10,000 and built it into a business worth $1 million in 5 years and sold it, that would be a gain of $990,000 and you'd pay 15% in taxes on it. FICA taxes alone are 15%, ideally you'd extract an annual income of zero from the business for the 5 years...or better yet have a paper loss!
RE: small business--you're probably right since most of them fail. I suspect the ones that are profitable over the long run do quite well for the owners, though.
By the way, I think you only actually pay around 12.5 of the FICA taxes if you're a small business, don't you?
Look, if you prefer to play a game all day rather than go on vacation, live in a nice area, have decent furniture, eat good foods, etc then that's your choice. Personally, I just can't imagine someone willingly making that choice unless they had a major addiction though.
Vacations don't cost too much if you find good deals on air tickets and make reasonable choices in accommodation (i.e. staying at Hostels instead of expensive hotels in Europe.) Besides overseas travel, I live in California so many places I go to as a "staycation" within a day's drive may be considered vacation spots for others.
Good food isn't gonna wreck anyone's budget unless you're buying gourmet food every single day. It may be the difference between spending $150/mo on food and $400/mo.
It's none of my business whether you need 1000/mo or 10,000/mo to stay "happy". Accept the fact that different people have different needs and these needs do not all require the same amount of money to be satisfied!
But most middle incomes and higher have fat that can be cut. It is hard to find until they actually do a budget and see what they are spending on.
Not from my observation, but we may be using the term "fat" differently. To me "fat" is an expense that can be easily cut. A large home, even if a luxury, is not "fat". It costs a lot to sale the home and downgrade.
For most families switching to saving 0% to saving 10% or more of their income is going to require a lot of sacrifices. They may have to downgrade houses, they may have to sale cars, they may have to move their kids to public schools, etc.
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Originally Posted by maschuette
Everyone wants to be rich, but it takes real sacrifice to accomplish it one way or another.
Becoming rich does not necessarily involve sacrifices, that is only true if you are part of the pain and suffering caucus. Becoming rich is more about cleverness and a good understanding of the world than restricting yourself.
Ok, we're going around in circles here. You want lifestyles of the rich and famous. As already mentioned, that is not attainable for most of us. But if you want it, good luck with that
There are no circles, rather pointing out that you're playing a little game. You are trying to equate "rich" and "millionaire", yet today you can't do that. Having a million today doesn't mean you're rich. The title of the thread is "Is This True That Rich Folks Are Frugal".
I'm not talking about the "lifestyles of the rich and famous", but rather people that are rich. Again, the topic of the thread.
Maybe increasing income isn't difficult for you, but it is for the rest of us. If it wasn't more poeple would just magically go out an increase their incomes.
No its not, the majority of people see their incomes increase over time. Now, it may be difficult for a 50 something worker to increase his income, but for someone younger its going to be the natural course of matters if they work hard and refine their skill-set.
Quote:
Originally Posted by maschuette
RE: small business--you're probably right since most of them fail. I suspect the ones that are profitable over the long run do quite well for the owners, though.
The failure rate of small business is somewhat of an urban myth, the statistics actually track the "business closure rate". So the example I just gave would be considered a "failure" because the business was closed within 5 years, but a gain of $990,000 hardly seems like a failure to me.
When you mention a "business failure" to someone they are going to think of an actual monetary loss, but the statistics that get cited don't look at losses at all, instead closures.
I'm not sure why this is such a popular myth, I hear it all the time. Perhaps it helps people justify their inaction, I don't know.
Quote:
Originally Posted by maschuette
By the way, I think you only actually pay around 12.5 of the FICA taxes if you're a small business, don't you?
No, its around 15%. Social security alone is around 12% though, medicare adds another 3%.
...You are trying to equate "rich" and "millionaire", yet today you can't do that. Having a million today doesn't mean you're rich.
Ah, the definition game. Fun! I'll play. From dictionary.com: [SIZE=4]rich[/SIZE]
/[SIZE=3]rɪtʃ[/SIZE]/ Show Spelled [rich] Show IPAadjective, -er, -est, noun –adjective 1. having wealth or great possessions; abundantly supplied with resources, means, or funds; wealthy: a rich man; a rich nation.
Seems to me that someone that has more than 90% of the rest of the nation meets this definition. I'd qualify millionaires as rich. Maybe entry-level rich, but rich nonetheless.
Seems to me that someone that has more than 90% of the rest of the nation meets this definition. I'd qualify millionaires as rich. Maybe entry-level rich, but rich nonetheless.
You're ignoring the key issues, since the 80's companies have slowly switched to 401(k)s and the retirement account is what is pushing money people into the "millionaire" status. But a retirement account is not fluid flows and its purpose is to fund ones retirement.
As I said previously, if you exclude retirement accounts the millionaire status can be roughly equated with being rich.
Also, the definition of rich says nothing about how your wealth compares to others in your country. It refers instead to having great wealth and possessions.
And wealth can only be considered great if it is compared to some standard.
Thus my broadening to include a comparison to the rest of the nation in my working definition.
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