Is it just me or does Business Insider seem to be sliding into a paparazzi version of the staid Forbes magazine? The articles being published these days seem more like a weird hybrid of Moneyish and Gawker, with more sensationalist titles than the Daily Mail and plastered with more inline Instagram posts than TMZ.
Still, despite the descent into frivolity, there are some nuggets of truth and wisdom to be gleaned from their latest series on wealthy millennials.
The first story from BI is that of Ebony Horton. To summarize, she was a newly minted graduate making $38,000 a year in DC. She then went back to get an MBA and racked up a total of $220,000 in loans from undergrad + MBA. She freaked out at the amount, and came up with a plan to pay it all off by moving back to rural Illinois, lowering her cost of living, saving like crazy alongside her husband, buying rental property, and getting some opportune gifts from her family. Now 31, she’s debt free and ready to share her story in a book and go on the speaker circuit to make boatloads of money.
What can we take away from this?
- It helps to have rich parents who can support you, either directly financially or indirectly by providing free/subsidized shelter
- Being dual income (however miserly), no kids dramatically accelerates your savings trajectory
- If you set your mind to it, saving 75%-95% of after-tax income is possible
- Control lifestyle inflation (let your standard of living appreciate slowly) or it will ruin you
- Investing in the property market uses leverage to enhance the growth rate of your wealth
One of the topics in my book on finance is that in the modern age, there are a few viable paths to success. However, this book focused purely on wealth and its accumulation, the pursuit of which is unsustainable in the long term. One of my upcoming books will instead deep dive into the human mind and explore how we become happy. With that in mind, when thinking of work-life balance, there are two ways to go about it. One is to “finish” a high-paying career, accumulate boatloads of savings, and retire early. In short, this abbreviates the traditional working time and prolongs retirement. It can be very effective, as legions of FIRE (financial independence, retire early) adherents can attest. However, it requires significant discipline to accumulate that much savings so quickly.
The next BI story is that of two 30 year old teachers who managed to save $1 million after 8 years, and are now retired and travel the world. Isn’t that the dream of every young millennial these days? They did it by doing much of the same that Ebony did, only they had the advantage of minimal education debt. Their lucky break was to pick up houses in Las Vegas on the cheap in the depths of the real estate collapse, converting them to rentals. Gradually, the market bounced back and they were able to make more rental profit from the houses, which they used to buy yet more houses. Now they make $10000 per month on average from rent, balanced out against only $2000 per month in mortgage, letting them retire to pursue their passions.
The take away bullet points?
- Paying down debt is good, but it’s a lot better to not have debt and to divert savings into investment vehicles
- Being lucky (getting into real estate at the bottom, even before hedge funds) is better than being good
- Sometimes living in a lower cost of living area beats moving to a high cost area (Bay Area, London) to earn a high salary
- Buy a property and rent it out to others, letting them cover the cost of the mortgage (see my analysis of yield on equity here)
The other reasonable approach is to maintain the frugality but to intermix one’s working years with “fun” activities traditionally associated with retirement. This can come from working on cruise lines, at vacation resorts, as an English teacher abroad, etc (more examples of ways to do this are in my book). These jobs may not be high paying, but the cost of living is either low or completely subsidized such that significant savings are possible. Experiencing fun stuff as a tourist is expensive, because you duplicate costs such as housing by having to pay for a hotel and the mortgage back home, and other costs are more expensive (such as having to eat out every day). It’s a lot easier to see the same sights and go to events as a local, relying on cheaper longer term housing, cheaper grocery options, and public transportation.
On this point, BI ran not one but two (oh my how they like to recycle stories) articles about the same girl – Nina Ragusa. She took the fun road, working hard initially in multiple jobs to save up enough money to launch her career as a travel blogger. She gets to roam the world, doing the typical things on the well-trod road of teaching English in Thailand and working in the tourism sector in Australia (the working holiday visa for young people is a great boon). In essence, instead of slaving away at a desk job, she gets to live in vacation paradises, work freelance in a bunch of industries that aren’t that intense, and save a bit to boot. There are two possibilities for how she will end up. If she does well with her travel blog, she can spin that into a brand and partner with tour agencies as a promoter. The worst case scenario is that she returns to the US at some point having had a decade of amazing experiences and a small amount of savings.
You may wonder how young people can spend so much time and money on travel and not exhaust all their income or savings. For one, cost of living is so much lower for most places outside of the US, and low end wages (especially for the service sector in Australia, NZ) can be higher. Finally, many fun activities aren’t that costly. By working at a resort, you’re afforded the privilege of taking the kayak or surfboard out when you aren’t leading a tour, and sometimes can even use the company’s van for personal excursions. In a tropical paradise, many of the most fun activities are free. It’s so easy to get sucked into complacency living in these places.
Take home points for this case:
- For young people who want to have fun now and mix in a bit of the retired life with their youth, it’s hard to beat adventure travel and freelance work
- Geographic arbitrage wins again
- There’s an outside shot that you can create a sustainable brand/blog based around travel and never have to work again