Home » Personal Finance

How Much is Enough?

13 October 2006 838 views 9 Comments

After reading Erin’s great post a few days ago and talking about it with one of my good friends, and after a conversation I had with my fiancee, the question came up, “When is enough, enough?”

Erin and Ken both quoted Trump and Rich Dad, Full of Shit Dad as saying you need to invest to win, how much do you really need? Do you need billions? Not really. Do you need Buffett or Gates money? No. If you got rich through frugality, like most people do I think, you aren’t really interested in those shiny new cars or mansions because you realize they are just a huge waste of money for show and aren’t really necessary.

(I’d just like to drop in a note that Rich Dad, Full of Shit Dad’s point that he and Trump have ‘good debt’ is a bunch of bullshit. No debt is good debt. I don’t care if it’s a student loan, a mortgage, a lease, a car payment or owing your Uncle Ned the $20 that you borrowed to get a haircut. We need to stop categorizing debt as good or bad, it all sucks and the sooner you get out of debt, the sooner all of this money making stuff becomes a hell of a lot easier. Now, back to our story.)

The thing most people don’t understand is that being rich isn’t the goal for most people with money. Buying things isn’t the goal. I think most people with money realize that money gives you the most important thing in life, which to me is opportunity. When you have enough money that you can do anything you could dream of and be okay, you are ‘rich.’ For some people, that could be $100,000, for some it’s $2,000,000.

I have had some great opportunities this year. I’ve gone on three, month-long trips to Canada, a trip to Yosemite, a trip to Catalina Island, two trips to Disneyland, a handful of NHL hockey games and I took an 8 day bicycle ride from San Francisco to Los Angeles. Having money allowed me the opportunity to do these things because I didn’t have to worry about paying bills or losing my job while I did them.

That’s all great for now, but long-term, thinking of retirement, how much should you have banked before you can retire and not worry? $1,000,000 debt free would pull you in about $100,000 a year at 10% ($70k after taxes or so.) Will that be enough 20-30 years from now? 30 years ago you could get a house for about $40,000 that is now worth $750,000 in my area. Cars were about $4,000 vs the $20,000 they are now. Will these huge increases continue? How far could you go with $70,000 a year in 20-30 years? Probably not too far. It seems to me that the lowest goal you could really bank on might be $2,000,000 in the bank before you are completely secure.

Which brings us all the way back to the original point, which is, how much is enough? Is there a point where you stop ‘investing to win’ because you just don’t need anymore money? Or, is there a place where you start investing to give to charities like Bill Gates does? Or, do you just keep going for more and more and more because that’s the ‘game’ and the person with the most money wins?

Personally, I’d rather risk while I’m young, get enough to where I never have to worry again and then put a majority of it in no-risk CD’s and go play golf all day and not worry about my money, not worry about renters or repairs, and not worry about stocks going crazy. What’s your long-term plan?

- Invest in peace….

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...

9 Comments »

  • Ken said:

    Some people do not like debt at all. Others use it to their advantage. I used to be very against debt, pay cash for cars, pay down the mortgage. But I’ve found that that is a slow way of getting wealthy. Borrowing money enables you to expand and grow alot faster than saving it first. You lose the time value of money while saving it. As an example, suppose you found an investment that was paying 11% return but didn’t have the money for invest in it. Then you go borrow $100,000 at 8% return from other people. You’ve just made yourself 3%, or $3,000 in a year without investing your own money. How can that debt be bad.

    # 13 October 2006 at 1:16 pm
  • Steve (author) said:

    It can be bad if say they want their $100,000 back now. Or the item you invested in gets destroyed in a flood, or a hurricane, or Interest rates in CDs jump to 12% returns, or you incur other debt on top of your $100,000 in debt such as a medical emergency, or you use the debt to buy a house but then are unable to sell it.

    Yes, debt speeds up your ability to do things. I used debt to buy my house and my first car. I guess you could seperate debt into ‘stuff I don’t care if it’s taken from me’ debt and ‘oh my gosh, I lost my house!’ debt.

    The thing is, you never know what’s coming in the future. You could come out great or you could get reamed. You never know. I know a ton of people who borrowed a ton of money and got absolutely wiped out. They were smart people, had good investments and shit just happened. My dad met a man in Boise, ID who lost $25,000,000 when investments he thought were great, and had been for a long time, went in the shitter faster than he could say cheese and lost all of it. He even had to sell the dishes in his house to pay people back.

    While we’re young, sure debt sounds sexy and many times it pays off, but as I get older, and as I realize I don’t need $10,000,000 to be happy, I don’t see the point in debt other than to buy a house and I don’t see the point in sitting on a mortgage when I don’t have to. Why have the added stress?

    If debt was so great, why doesn’t everyone in the US mortgage their house at 5.5% and put the cash straight into an Index fund and get the average 11% return? Because it’s not a smart thing to do.

    While I see your point, and many, many poor Americans follow your strategy of going in debt to get rich NOW, I still think over the long-term, the tortoise beats the hare and has a lot less stress and risk.

    # 13 October 2006 at 1:25 pm
  • Ken said:

    Any investment can go bad. Personally I look at the security of the investment. If that $100k was used as a 1st mortgage for a $200k house, I’d feel pretty good about it. If it was used as capital for a new restaurant, I wouldn’t, and I wouldn’t be asking for only 11% either (risk not equal to reward). This all comes down to how and what you invest in. Now all investments are good and safe. I pick and choose sparingly.

    I want to point out that I don’t think of this as a get rich quick thing. I don’t advocate overleveraging either. You won’t become rich overnight leveraging.

    Even using credit cards is using leverage. TMXs were going for $80-$100 on Ebay. I know someone who was able to buy 100 of them. He didn’t have $4000 cash and used his credit card to buy them all. 3 days later he sold them all for a nice $4,000 profit, paid back the credit card. It’s essentially a no money down deal for him. People do this in real estate all the time, just more zeros at the end.

    # 13 October 2006 at 1:49 pm
  • Ken said:

    I forgot to mention that the TMX investment had very good chances of success. Putting $4k on CC is very risky. But the risk to reward in my opinion was well worth it.

    Nobody wants to be stuck with 100 TMXs laughing at you! :)

    # 13 October 2006 at 1:51 pm
  • Steve (author) said:

    The intention to immediately flip lowers risk greatly, but what if he held on to them to get closer to Christmas and on December 15th we come to find out that they are all recalled? Or that there’s a fire hazard? Or that the eyes fall off and have killed 10 kids due to choking (heaven forbid.) Then the risk wasn’t worth it.

    However, I find $4,000 to be a very small amount of debt vs the $500,000 people are going in debt to buy houses in California.

    I also forgot to mention, what if people get laid off? We had an employee at a company I worked for years ago who signed on her new house and the very next day got laid off and couldn’t make her payments and lost her house. She had no way of knowing that was coming and bam! Lost everything.

    Another good example is Beanie Babies, awesome investment to start, cheap, didn’t take much space, went up like crazy, but if you held them too long, you had beanie babies coming out your ass and a lot of money down the toilet. At least if you had paid cash you wouldn’t have had a ton of bills coming at you that immediately had to be paid back with no income coming in.

    Believe me, when I was in my 20′s, leveraging debt was my belief and I did use it to my advantage, but at almost 36 and starting a family, I’d rather not have the stress.

    Good comments Ken, thanks.

    # 13 October 2006 at 1:58 pm
  • J Dawg said:

    Bitchen article glad someone said it. The only good debt is paid off debt. In all the examples noone, and let me say that again. N-O-O-N-E calculated in risk (stress), in higher econmics class there is an actual formula for calulating in risk. Also there was no devaluation of the money by either tax or inflation. On you $100,000 example if your making 3% then you are still losing, I am new to this but inflation is usually calculated at 6% usually (I thought) plus that most investments that would be capital gains so you are going to be taxed on it (unless of course you invested in tax free municple bonds) . Even if it was a house flip with the new laws they are starting to hit those harder now. But I am wondering .

    What also is being missed is what Steve said so well, You never know what is going to happen. I did worked at Country Wide Home Loans in their foreclosure department for 2 years. I delt with people that every day , day in and out that crap happened to. I bore my friends with horror stories all the time, from fire, to mold, to hospitalaztion, funeral expenses, lay offs, to something as minor as overtime being cut. They simpley lost the few hours of overtime they had come to rely on and it decrease their check enough they couldnt make the payment and still live.
    Debt is dumb, it is the anchor that holds you below the water period !! I like basic logic and here is how I look at it. You get a $1000 if you have no one to pay then you have $1000, if you owe $600 to different people then you only have $400 . I would rather have the full force of my money available to me to do what I want.

    J Dawg

    # 13 October 2006 at 2:31 pm
  • Kimber said:

    Leveraged investing is for higher level investors. I only started to play with it after having a history (ten years plus) of returns much higher than interest costs and when I had the investments to cover it if the whole deal went south. One of the perks of being a good little investor.

    As for enough… I consider the first threshold to be Your Money Or Your Life’s definition of financial independence. That is enough passive income to pay for current expenses.

    The hubby and I crossed that threshold last year and wow, did opportunities open up then. I quit my 9-5 job to work on independent ventures (doing contract work from time to time to stay current).

    # 13 October 2006 at 6:51 pm
  • Curly Tree said:

    Enough is when you’ve reached financial critical mass, when you can do whatever you want without worrying about money. So it’s a different number for everybody.

    Plus “enough” for a billionaire has a different meaning altogether. Money represents something else to such a person (power, challenge, plaything), so there is never enough in this case.

    # 13 October 2006 at 7:01 pm
  • prlinkbiz said:

    It’s not a matter of ‘enough’. For some of us it’s a game – we’re in it to win. Those who think it can’t be done need to get out the way of those of us doing it.

    # 17 October 2006 at 7:12 am