Comments on: Investing vs Working plus a Simple Path to Wealth

By: mlgreen8753

mlgreen8753 — Mon, 21 Sep 2009 11:45:22 +0000

I don't see why you can't do both. Working allows people to funnel earned income into an investment that generates passive income. Eventually you want to do away with a job, but in the beginning it's ideal. My job has allowed me to acquire numerious assets. I am now self-employed and that allows me to fund investments as well. My latest interest is a stock investment in Mentor Capital (MNTR). Some of my previous assets were a rental property and various Internet businesses.

By: Dean Morel

Dean Morel — Thu, 10 Sep 2009 06:57:33 +0000

Hi James,
Thanks for you comment. Great job accumulating $80k by 24. At 24 I had no money and was just starting University, three years after that I was in debt, so you’re way ahead of where I was.
You’re spot on that working will dominate in your early years. So it is more important to concentrate on maximising your income and controlling your expenses. Saving $80k by 24 means you’re a good saver and should have no problem accumulating wealth over your life. If you haven’t got a five year plan then do one now, concentrating on how you’re going to maximise your income.

Keep in mind the spreadsheet is very rough. For example the 3% growth you put in only applies to the $15k saved. So if you actually earn $45k a year and save $15k, then you may want to increase the wage growth amount. One of the keys to wealth is to find a level of spending you’re comfortable with and staying at that despite income increases, thus all future wage increases are saved. Of course enjoying life along the way is also important and focusing on money is not a good path to happiness.

Think of yourself like a business. How can you increase your income, reduce your costs and thus improve your margins while keeping employees happy, that’s you. Write down your strategy and your five year plan. Track your net wealth on a monthly basis, it only takes a couple minutes and I find rather than making your money obsessed actually liberates you from the world wide obsession with money, soon it just becomes numbers. It’s like running or the gym (I imagine as I’ve never really done either of those) you’re setting targets and trying to better them.

No matter what your profession or trade, there is a way to maximise your income and leverage your skills. You may have to move overseas, start a business, become a contractor or change jobs. Remember practice makes perfect. The best way to get ahead is to practice more than anyone else is. If you enjoy doing what you’re doing then that should be easy. If you don’t like what you’re doing then you need to figure out what you would enjoy.

Buy appreciating assets when they’re cheap and limit the depreciating assets you buy. Cars are a huge waste of money, try to avoid owning one, you’ll be healthier and the planet will love you. Australian property will be cheap at some point in the future, that’s when I’ll be adding property to our portfolio. Shares are now fairly priced, I’ll increase our exposure when they are cheap again.

James, $80k at 24 makes you a legend in my book, good luck. Don’t trust anyone with your money, but do seek advice.

By: James Cox

James Cox — Thu, 10 Sep 2009 03:59:45 +0000

I ask this because (as im sure you know), Working will dominate investing until you have enough capital for the investing returns to be big enough to cover the costs of your life.

See attached graph i made from your spreadsheet.. (thanks for making it)

http://img193.imageshack.us/i/24yearold.jpg/

By: James Cox

James Cox — Thu, 10 Sep 2009 03:52:08 +0000

Great post Dean, Really enjoyed it. As a 24 year old with ~80k saved, I’d be interested in hearing how you went from zero to $1 million.

Keep it up

By: Dean Morel

Dean Morel — Sat, 05 Sep 2009 00:37:17 +0000

Hi Max, thanks for your comment. What I said is “available to be saved after accounting for tax and other expenses associated with work, like childcare, clothes, incidental expenses”. So I didn’t take all those costs you indicate out of either working or investing. You could easily modify the spreadsheet if that’s appropriate for you, it’s not for me.
I did account for wages going up, I assumed 3% a year, but I left that as a variable for people to change as they see fit.
The larger point is that by looking at the bigger longer picture a different picture emerges than by concentrating on the here and now. Investing is all about giving something up now for a future return. You must look at the long term, big picture.

By: max

max — Fri, 04 Sep 2009 21:06:42 +0000

but you don’t take any living expenses out of your investor option for food and other stuff. in your work scenario you assume 60k net after paying for shelter, food, healthcare, etc…. your wage would probably go up with inflation too.

By: Dean Morel

Dean Morel — Wed, 02 Sep 2009 04:43:11 +0000

Here’s an excerpt from a great post on debt and consumption and a book recommendation.
“These beliefs have worked very well for me, and I would advise others to consider them. For an individual, as for an economy, it boils down to the fact that debt and/or capital should only be used for buying appreciating assets (investments) and never for depreciating assets (consumption). If you follow this rule, your consumption level will fall behind your neighbors early in your life, but they will be greeting you at Nordstrom’s and driving you around when you get older. Additionally, you will enjoy the financial advantages of a paid-for house and investments accumulating in your accounts plus the happy knowledge that you can support your family through any emergency, as well as the flexibility and freedom that go with financial independence.” http://boards.fool.com/Message.asp?mid=27918679
and a book that someone recommended on this topic
http://www.amazon.com/Your-Money-Life-Transforming-Relationship/dp/0140286780