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Can saving money make you rich?
Miserly Bastard has written an interesting post titled Get rich by increasing revenue, not controlling spending. In it he (I'm pretty sure he's a he) lays out the argument that the way to be rich is to make more money. His Wealth Equation captures his feelings pretty well
Let's say you make $40,000 per year gross (one of the comments in his post states that someone making $40K a year will never be rich). I'll use figures from my part of the country (the Great Plains).
A typical mortgage payment around here is about $316.00/month; taxes $1000/year; and insurance about $800/year. Say monthly utilities average $150 (including gas, electricity, water, and phone). Total housing costs are then $7,392.
Figuring 15,000 miles per year, 38 mpg (of course you have an economy car), and $2.80/gallon for gas, fuel costs are $1,105. 5 oil changes and miscellaneous repair costs might run another couple hundred, let's say $300 to be safe. Insurance would be $304/year (according to progressive). Total vehicle costs - $1,713.
Household expenses for two (using us as an example) are about $100/week, or $5,200 per year.
Total expenses for housing, transportation, and food - $14,305.
Total take home income (I'll use mine as an example)- $31,304.
Difference - $16,999 (let's say $17,000).
Say we saved 80% of that - $13,600 (that gives you $3,400 for just spending). Not too bad. If you started at age 30 you'd end up with $1.8 million at age 65 (assuming a 7% return).
Simplistic? Yes. Is that doable? That depends on the person/family. We certainly aren't doing that right now. But we could have been doing close to that if we would have had a plan and followed through on it.
If you live in a low cost area (not on either coast for instance), even making a modest income you could be wealthy. The key? Controlling spending and investing the savings.
Wealth = [After Tax Income] - [Spending] + [Appreciation on Assets]Is he right? Research seems to show that making money is not the whole story. In The Millionaire Next Door we are introduced to many people who don't have high incomes, yet have a net worth that by most standards is pretty high (I mean, they're millionaires and all).
Let's say you make $40,000 per year gross (one of the comments in his post states that someone making $40K a year will never be rich). I'll use figures from my part of the country (the Great Plains).
A typical mortgage payment around here is about $316.00/month; taxes $1000/year; and insurance about $800/year. Say monthly utilities average $150 (including gas, electricity, water, and phone). Total housing costs are then $7,392.
Figuring 15,000 miles per year, 38 mpg (of course you have an economy car), and $2.80/gallon for gas, fuel costs are $1,105. 5 oil changes and miscellaneous repair costs might run another couple hundred, let's say $300 to be safe. Insurance would be $304/year (according to progressive). Total vehicle costs - $1,713.
Household expenses for two (using us as an example) are about $100/week, or $5,200 per year.
Total expenses for housing, transportation, and food - $14,305.
Total take home income (I'll use mine as an example)- $31,304.
Difference - $16,999 (let's say $17,000).
Say we saved 80% of that - $13,600 (that gives you $3,400 for just spending). Not too bad. If you started at age 30 you'd end up with $1.8 million at age 65 (assuming a 7% return).
Simplistic? Yes. Is that doable? That depends on the person/family. We certainly aren't doing that right now. But we could have been doing close to that if we would have had a plan and followed through on it.
If you live in a low cost area (not on either coast for instance), even making a modest income you could be wealthy. The key? Controlling spending and investing the savings.
posted by walt | 8:35 AM
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