J.D.’s equation is correct, but it’s only part of the story. cash flow is in fact income minus expenses like the article states. However, cash flow does not correlate directly to wealth. You would naively think that wealth is the integral of cash flow with respect to time. It isn’t.
Suppose you earn $50,000. You immediately spend this money on building supplies and build a house with it. Your net cash flow is $0, but you now have a house that’s worth more than what you paid for it. You’ve got a property with a value of, say, $60,000. This is investment. Certainly you needed some cash flow to start the investing process, but cash flow itself is not wealth. Also, you now have the ability to generate $60,000 new dollars in positive cash flow by selling the house you built, in which case you can invest in something new.
The average American household income is about $3,000/month, after taxes. If you spend *all* of that on living expenses, you will never save your $50,000 to build your house. If you manage to cut your living expenses by half, you can now save your $50k in about three years. However, if instead you were able to double your income, you could save your $50k in half that time. If you take this even further and double your income again (to $12k/month) you could save you $50k in only 6 months. However, if instead you cut your living expenses by half a second time (to $750/month) it would still take you 22 months to save $50k.
You quickly hit a point of diminishing returns with cutting expenses, where each additional percent cut from your budget buys you less and less. The opposite is true for increasing your income. There is absolutely no way to save $50k in less than 16 months on $3,000/month. However, if you’re making enough money, there’s no limit to how fast you can do it.
Here’s one more example that’s not so extreme:
Set a goal to save $250,000. Pretend you want to buy a house in cash.
Start off with the same $3,000/month salary.
Start with the same $3,000/month living expenses.
Scenario 1: Your living expenses never change, but each year, you manage to increase your income 7% over the previous year. This seems feasible, it’s not a “get rich quick” scheme, you can probably find some way to improve your performance in whatever business you’re in by about this much.
You save your $250,000 in a bit over 12 years. At the end of the 12 years, you make about $120k/year. This is definitely a good salary, but it’s not ridiculously, infeasibly high.
Scenario 2:
You keep the same salary every year, but cut your expenses by 7%.
You save your $250k in 17 years, which is significantly longer. You’re also living on $920/month at the end of this, which is probably infeasible in real life. You just can’t keep cutting and cutting and cutting to this degree.
Scenario 3:
You combine both 1 and 2, both increasing your income by 7% every year, and cutting expenses the same amount. You’d think this would make a huge difference, right?
You’ll save your $250k in 10 years. This is definitely an improvement over either one of the other scenarios, but it’s not nearly the same sort of improvement you see if you solely increase income instead of solely decreasing spending. It also requires you to live on $1500/month at the end, which is certainly a lot more feasible that $920, but you still may think that’s a bit low.
This whole calculation ignores inflation (meaning, your 7% raise per year is probably more like 10% in absolute terms). It also means that at the end, when I say you’re living on $920/month, that’s $920 dollars at 2010 value, not 2027 value.
This is essentially the same concept that J.D. likes to call ‘the power of compound interest’, except applied in a slightly different way.
One other note on this example: selling your ’stuff’ makes almost no difference here. Even assuming you had $10k worth of stuff to get rid of at the beginning of this, it only buys you a few extra months in any of these scenarios. This is because a single, one-time influx of $10k is small in a scenario that takes 10-17 years to play out. At the end of these scenarios, you’re saving in the ballpark of $2000-$5000 every month. The extra $10k just isn’t that big of a deal any more. Selling ’stuff’ can help you reduce debts and stop paying interest to other parties if you can do it all at once, but it really doesn’t help you build long-term savings very well.
I know the site is called “get rich slowly”, but I like to think that is meant to convey an idea of perseverance and the fact that “get rick quick” schemes don’t work. It’s not meant to imply you should go artificially slower than you have to, just because.
In short: ask for a raise every year, even if you don’t always get it. Don’t be afraid to take a job at a competing company if they’ll offer you a better salary (assuming the job is otherwise similar). You don’t need to start your own company to make a few more percent every year. Just be valuable in your industry, show that to your employers, and don’t be afraid to ask for raises.
Why is Mint.com Citing a Racist Website in an Immigration Blog Post?
Mint.com, the free personal finance site, put up a weirdly strident anti-immigration post on its Mintlife blog on Wednesday. Turns out, it's not just tacky, it's poorly-sourced—down to a citation for the openly racist anti-immigration site VDare.com.
Timothy Lee, writing on Megan McArdle's blog at the Atlantic website, flagged the bizarre Mintlife post, which is credited to Ross Crooks. Why bizarre? Well, as Lee points out, it's odd that a service site like Mint would take such a stridently anti-immigration stance. But worse, the chart is flat-out wrong—and peculiarly sourced:
The most jarring name on this list is the openly racist vdare.com. The rest of the list is a mix of official government sources, non-profits, and blogs. The sources skew heavily in an anti-immigrant direction, although at least one is a pro-immigrant source (fiscalpolicy.org). While none of the other anti-immigrant sources is as offensive as vdare, few (if any) of them could be considered credible sources for statistics about immigration.
Lee goes on to run down the problems with the infographic's statistics—which are many. You can check out the post here.
Mint was bought by software makers Intuit—the company behind the Quicken finance software—last fall. It seems pretty unlikely that a big company like Intuit is looking to piss off costumers who (having paid attention in economics class) believe that immigration improves, rather than harms, a country's economy. So what happened here? Is Crooks an anti-immigrant true believer who got carried away, or just a guy who didn't know much about the issue and doesn't have a great eye for credible sources? Or is "immigration is bad" official Mint.com policy now? Any way you slice it, Mint doesn't look good.
Update: MintLife Editor Lee Sherman responded to us with an apology:
At MintLife, our mission is to give users and visitors the financial information they need to save and do more with their money. Topics range from personal finance advice, to analysis of macroeconomic trends and the fiscal impacts of news of the day. We publish content from a variety of contributors and sources, and the opinions expressed don't necessarily reflect those ofMint.com or of Intuit.
It's true that the tone is often provocative, seeking to engage readers in dialogue around important topics, but the recent blog post "The Economic Impact of Immigration" went too far, cited polarized sources and did not receive the editorial judgment and oversight it deserved.
We regret it. It is completely unacceptable and won't happen again. Our intention was not to further the agenda of any of the sources from which data was pulled, and the post has been removed.
- Lee Sherman, Editor of MintLife
[Mint.com; The Atlantic]
Send an email to Max Read, the author of this post, at max@gawker.com.
internet marketing course In these tough economic times, many people are stepping up to be heroes of the Internet with financial advice ranging from "invest in gold!" to "don't invest in gold!" Whether you're looking to save more and living frugally or find a job during a recession, these are the best places to look for the most sound advice available on the Internet pertaining to personal finance.
The Simple Dollar
The Simple Dollar provides book reviews, lists, and commentary about handling finances, saving money, and all around spending in a more intelligent way. A great thing to look out for on this site is 31 Days to Fix Your Finances, which is a step-by-step (day-by-day) guide to getting organized in your spending in one month. A great resources for people in debt and those looking to become more frugal, The Simple Dollar is a well-rounded site with a lot of sound, down-to-Earth advice.
Get Rich Slowly
Another great blog, Get Rich Slowly covers savings, investment, and all around money management. Get Rich Slowly is a long-running blog with a lot of great advice about getting out of debt and transforming your life into a frugal, yet enjoyable, experience. Get Rich Slowly has some of the best advice I've read about investing, and the author is very wise in articles, which shows clearly in much of the writing.
Blogging Away Debt
Blogging Away Debt is a couple's journey towards paying off over $37,000 of credit card debt, accumulated after some poor choices and trying to failing in a venture to start a business. They decided something needed to change, and started this blog as a place to collect a lot of advice. With many loyal readers who've got some great input to add, the comments section of this site is not to be ignored. One of the best indebted blogs on the Internet.
Dual Income No Kids
Dual Income No Kids is a blog about personal finance for couples. It covers investing, savings, and making extra money if you should need it. Targeted specifically at couples without children, there are some great tips and insights to be found here. Pay attention specifically to their resources section, which is advice they've found valuable in their ventures and is unpaid.
The Financial Blogger
The Financial Blogger is a website dedicated mostly to financial planning. It includes some advice about choosing banks accounts, alternative income, and others, but the most advice to be found is on financial planning. Additionally, there are some attitude-preserving ramblings which are very entertaining, yet informative. It's a great site for browsing archives on a rainy day.
Living Off Dividends
A very inspiring blog. Living Off Dividends is a one-man blog devoted to talking about passive income. There is, again, some sound advice to be found, and I find that reading the personal stories of the author motivates me to increase my passive income and build a large empire online. If you can't find the motivation to do things, give this website a shot, for it's filled with inspiration.
Frugal for Life
Frugal for Life is a blog about being frugal. It's about living well on what you've got. It targets ordinary people (like you!) who want to live a good, healthy life, but who don't have a lot of money to do it with. A great, recent post on Frugal for Life is Why I Live Frugally (http://frugalforlife.blogspot.com/2009/02/what-i-live-frugally.html), which explains the choices made and the experiences leading up to said choices. It's also very inspirational and makes me want to spend less on things and put more away into savings.
My Dollar Plan
About investing, personal finance, and taxes, My Dollar Plan is an informative blog with some opinion and experience mixed in. A very well-written and inspiring post is 29 Steps I Took to Leave the Workforce at Age 29 (http://www.mydollarplan.com/29-steps-i-took-to-leave-the-workforce-at-age-29/), which I have been following for the last couple months.
Master Your Card
Master Your Card is, "The best credit card blog online," which focuses on, well, credit cards. It also talks about debt reduction, savings, and living frugally, along with some opinion polls for readers. A wealth of information and good tips to living a better life, Master Your Card is not a blog to be ignored.
Budgets Are Sexy
Last but not least is Budgets Are Sexy. A young, 20-something runs this blog with an attitude about sorting out personal finance. Check out the millionaire to-do list, the author's budget, and the best advice pages. They're where most of the great finds lie. Keep a look out for opinion-based posts, as they're highly entertaining, and actually pretty motivating at the same time.
That sums it up for the best 10 money blogs online. I encourage everybody to check them all out, as they each have a separate quality which makes them great. If I've missed any, or you have anything to add, leave a comment at the bottom of the page.
penis enlargementRead our Xbox 360 news of Microsoft confirms Kinect price.
Fwix, a news site that offers a stream of hyperlocal, realtime news by location, is launching a new portal today that aims to give anyone a real time view of what's happening in a location. You can access the new search portal here.
Ali Larter Baby News! ... Home � News � Videos � Movies � Photos � Celebrities � Obsessions � Games � Congratulations! July Newly Weds � Stars show off Celebrity Entertaining � NEW You Choose Lara's Look � Celebrities On Motorcycles ...
how to lose weight fast
