Secrets of Wealthy Millennials

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?

  1. It helps to have rich parents who can support you, either directly financially or indirectly by providing free/subsidized shelter
  2. Being dual income (however miserly), no kids dramatically accelerates your savings trajectory
  3. If you set your mind to it, saving 75%-95% of after-tax income is possible
  4. Control lifestyle inflation (let your standard of living appreciate slowly) or it will ruin you
  5. 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?

  1. Paying down debt is good, but it’s a lot better to not have debt and to divert savings into investment vehicles
  2. Being lucky (getting into real estate at the bottom, even before hedge funds) is better than being good
  3. Sometimes living in a lower cost of living area beats moving to a high cost area (Bay Area, London) to earn a high salary
  4. 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:

  1. 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
  2. Geographic arbitrage wins again
  3. There’s an outside shot that you can create a sustainable brand/blog based around travel and never have to work again
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Data: Recession Led to Shift Towards Minimalism

In my book on wealth, I espouse minimalism as the correct way to live life. It seems that many people around the world are starting to come around to that view. Take this article from the Guardian as evidence. The gist is that in the current environment with low interest rates and pent up demand from years of belt tightening, consumers should be flinging their wallets wide open.

On the face of it, the economic superpower that is the American consumer should be having a party. Low interest rates and unemployment rates, low oil prices, a high stock market, healthy property prices – nothing it would seem, to put off doing what comes most naturally to them – shopping.

Yet they’re stubbornly refusing to do it – or at least refusing to do it in predictable ways – leaving consumer experts to wonder, as fashion bible Women’s Wear Daily recently did, if the consumer psyche, “bombarded by digital messages, stressed financially and overwrought emotionally”, has “finally exploded”.

That’s the party line. Consumers, it is thought, have abandoned existing brands and are infatuated with the new, which retailers are failing to provide.

“The recession was the first step toward the complete shift in shopping,” says Yarrow. “Consumers are more wary and self-protective about finances, and they’ve never dominated the market the way they do today. They’re informed and wary, and determined to be in control.”

The unpredictability has caused chaos for retailers, which have seen their power over consumers begin to slip away. “Technology means they can shop however and whenever they want, or they can shop all over the world, and that’s why we see retailers collapsing and relying completely on price reductions,” Yarrow said.

“It’s taking retailers forever to realise that when people go shopping they want to see new things all the time. This is what technology has done to our brains. We want a lot more excitement and product turnover in our lives. If we don’t see new product, we won’t go there any more.”

But really, what’s happening is that consumers are finally realizing that buying all that stuff, whether it was spurred by advertising, impulse, or keeping up with the Joneses, didn’t really make them happier. Instead, they’re choosing to spend less, make existing products (which work fine, mind you) last longer. After all, there are so many other aspects of life (rent, medical bills, tuition) that are rising faster than incomes. There has to be a give from somewhere and discretionary purchases have taken the hit.

At the same time, people are spending more time and money on experiences, whether that’s a vacation, continued learning opportunity, sporting events, or dining out with friends. These are things that add lasting happiness.

But there are other factors feeding into consumers’ shattered psyches. For many consumers buying “stuff” just isn’t what it used to be. People are looking toward more “experiential” spending – holidays, concerts, plays – experiences that they can then share on social media.

Laurent Vernhes, co-founder and CEO of Tablethotels, a consumer website that specialises in high-end travel, told the Guardian “the more jaded you are the more you will seek experiential travel and beyond what you know.” And it’s not just holidaymakers – business people, too, want experiences.

This trend doesn’t seem to be abating. Instead, the children of the Great Recession who grow up may continue to live the frugal lives that were instilled in them during a time of scarcity.

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The Korean Hell

I read this morning an interesting article on the state of life for young people in South Korea. Man, was it depressing. In short, if you think your life is bad, you don’t even compare with what these kids have to go through. Here are some quotes:

Hwang often goes to work on a Monday morning with her suitcase, not leaving again until Thursday night. She eats at her office, takes a shower at her office, sleeps in bunk beds at her office. “If I finish work at 9 p.m., that’s a short day,” she said.

Paychecks come irregularly — or not at all, if the show gets axed — and because she doesn’t have a contract, Hwang wonders when she goes to sleep each night whether she’ll still have a job in the morning. She can make this life work only by living at home with her parents — when she goes home, that is.

“If you have enough money, South Korea is a great place to live. But if you don’t . . .” she trails off.

My old professor in business school once told me, “No one works harder than Americans. People always think it’s the Japanese, but no, it’s Americans. Koreans come close though.” In many respects, Korea is similar to America with cultural expectations about work and a paucity of days off. Just listen to how tough parents are with their kids:

Most frustrating of all, many young people say, is that their parents, who worked long hours to build the “Korean dream,” think the answer is just to put in more effort.

“My parents think I don’t try hard enough,” said Yeo Jung-hoon, 31, who used to work for an environmental nongovernmental organization but now runs a Facebook group called the “Union of Unskilled Workers.”

My book on happiness is still being written, but this focus on work at the expense of sanity and family is not sustainable. People are miserable! And the work doesn’t even pay that much either. What’s the solution to all of this? Read my book on wealth, start your own business, acquire a a large nest egg, and get the hell out of Korea.

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