Income Mobility: Rich or Middle Class?

[The Rabbi]

None of that contradicted anything I have said on this thread. I'm not wrong, or if I am you certainly haven't shown it here.

I've already shown you. Wealthy people get that way largely by owning their own businesses, not by investing in stocks and bonds.

Don't leave out that many, if not most, simply inherit it.

I'll leave it out because that is simply untrue.

 

[Skull Pilot]

Over a lifetime even one with a modest income can live off his investments eventually

Lets say a horribly average guy makes a horribly average income of 45K for his entire life. We'll assume no raises and that he works from age 22 to age 67

If he saves 20% of his gross income every year and makes an average return of 8% ( not outrageous over a 45 year span) he would have saved 4.375 million dollars

If he then earns 5% after age 67 and lives on 3% he will have an income of nearly 11K a month and his nest egg will still grow every year by 87,500 dollars.

And he did it all on 45K a year.

So you see wealth and multi-generational wealth is not out of the reach of the so called middle class.

And there are endless possibilities here. Let's say he retired when his nest egg was 2 million. If he withdrew only the 45K a year and still earned our assumed 8% not only would he be living off his investments which would make him rich by your definition but his nest egg would still be growing by about 6% a year.

You're dwelling in dreamland. The only way a person could save 20% gross of $45k is by living at the YMCA, never get married and never have a family.

And that is the can't do attitude so prevalent in America today.

For one if he gets married won't the wife be contributing to the household income?

They only have to save 20% of the gross of one income to end up with the nest egg in my example.

 

[Soggy in NOLA]

Over a lifetime even one with a modest income can live off his investments eventually

Lets say a horribly average guy makes a horribly average income of 45K for his entire life. We'll assume no raises and that he works from age 22 to age 67

If he saves 20% of his gross income every year and makes an average return of 8% ( not outrageous over a 45 year span) he would have saved 4.375 million dollars

If he then earns 5% after age 67 and lives on 3% he will have an income of nearly 11K a month and his nest egg will still grow every year by 87,500 dollars.

And he did it all on 45K a year.

So you see wealth and multi-generational wealth is not out of the reach of the so called middle class.

And there are endless possibilities here. Let's say he retired when his nest egg was 2 million. If he withdrew only the 45K a year and still earned our assumed 8% not only would he be living off his investments which would make him rich by your definition but his nest egg would still be growing by about 6% a year.

You're dwelling in dreamland. The only way a person could save 20% gross of $45k is by living at the YMCA, never get married and never have a family.

Sure it is....

 

[Polk]

Income mobility for any 'class' can be accomplished via excercising a degree of impulse control and actually saving money. It may initially suck to spend years limiting your spending to things you need and cut out things you simply want but if it were easy everyone would do it.

Not really. In everyone shifted to saving, interest rates would decline and output would be reduced.

 

[Polk]

Over a lifetime even one with a modest income can live off his investments eventually

Lets say a horribly average guy makes a horribly average income of 45K for his entire life. We'll assume no raises and that he works from age 22 to age 67

If he saves 20% of his gross income every year and makes an average return of 8% ( not outrageous over a 45 year span) he would have saved 4.375 million dollars

If he then earns 5% after age 67 and lives on 3% he will have an income of nearly 11K a month and his nest egg will still grow every year by 87,500 dollars.

And he did it all on 45K a year.

So you see wealth and multi-generational wealth is not out of the reach of the so called middle class.

And there are endless possibilities here. Let's say he retired when his nest egg was 2 million. If he withdrew only the 45K a year and still earned our assumed 8% not only would he be living off his investments which would make him rich by your definition but his nest egg would still be growing by about 6% a year.

Your statements do show that wealth is very much out of the reach of the middle class. Even accepting 8% returns as realistic (which is highly doubtful), it would take a pre-tax income of about 60k to have 45k in post-tax income (this was a back of a napkin sort of estimate, assuming no state taxes would roughly equal the amount of deductions created by savings vehicles). An income of 60k a year would place someone in the 80th percentile of the U.S. income distribution. And even then, you're talking about saving $750 out of a total paycheck of $3,750.

 

[Polk]

Something that people don't really understand (because it's not intuitive) is that moving from a working-class to a middle-class income is a very different process than moving from a middle-class income to a rich one.

As a working-class person, you work at a lowish-income job. As a middle-class person, you work at a higher-paying job. In both cases, your income is derived from pay for your work.

As a rich person, in almost every case (pop stars, movie stars, TV stars, and sports stars aside), your income isn't just higher but derived from a different source. Rich people derive most of their income from investments, not from pay for their work. It's either from profits of businesses which they own (outright or, more often, partly own in the form of stock), or from interest and capital gains on financial instruments.

What this means is that there are two types of income mobility: moving up in job pay, which can turn a working class person into a middle-class person, and moving from paid work to profit income, which can turn a middle-class person into a rich person. These are completely different processes.

What's more, these two types of income mobility are antithetical. In order to make it easier for people to move up from the working class into the middle class, we need high-paying jobs in abundance, and easily-affordable education so people can prepare themselves to do those jobs. But in order to make it easier for people to move from the middle class to true riches, we need high profits on business and high returns on investments, together with low taxes on upper income levels, all of which are hurt by the exact things that make moving into the middle class easier.

So in the end, we have to choose which kind of income mobility we want. Do we want to make it so as many people as possible can live a middle-class lifestyle? Or do we want to make it so as many people as possible can become truly rich?

We can't do both.

How about government getting the fuck outta the way?

We've had that for the past 30 years and it's created more and more problems.

 

[Polk]

This is why millions of immigants are flocking to Sweden, right?

Immigrants are, in fact, flocking to Sweden. On a per capita basis, Sweden has three times as many legal immigrants per year as the United States.

 

[OohPooPahDoo]

\Rich people derive most of their income from investments, not from pay for their work..

Depends on how you define "rich". My father isn't uber-rich but he pays in the top bracket on most of his income - and he works his ass off for nearly all of it.

Meanwhile - some uber-rich person is making 100 x what my father makes just off of investments they don't even have to touch - and they're getting taxed as low as 15% - less than half the rate my father pays.

The financial inequity in this nation is like a fractal. The top 1% have it so much better than the bottom 99% - but even within the top 1% - the top 1% of 1% have it so much better than the bottom 99% of the top 1%!

 

[Dragon]

You are clearly wrong.
The Guide to Get Rich: The Millionaire Mind...

None of that contradicted anything I have said on this thread. I'm not wrong, or if I am you certainly haven't shown it here.

I've already shown you. Wealthy people get that way largely by owning their own businesses, not by investing in stocks and bonds.

You have not presented any evidence that this is true. The opinion-piece you linked certainly didn't do so.

 

[OohPooPahDoo]

You are clearly wrong.
The Guide to Get Rich: The Millionaire Mind...

None of that contradicted anything I have said on this thread. I'm not wrong, or if I am you certainly haven't shown it here.

I've already shown you. Wealthy people get that way largely by owning their own businesses, not by investing in stocks and bonds.

Owning and running your own business involves elements of both working for money and profiting from market forces, and its not easy to make a distinction.

If your business is large enough to make you rich, you've likely incorporated it as a separate entity (unless you are stupid) - in which case you will draw income as an executive of the business, which is earned income derived from your sweat- but you will also have the right to the profits of the business - which is unearned market income.

 

[The Rabbi]

None of that contradicted anything I have said on this thread. I'm not wrong, or if I am you certainly haven't shown it here.

I've already shown you. Wealthy people get that way largely by owning their own businesses, not by investing in stocks and bonds.

Owning and running your own business involves elements of both working for money and profiting from market forces, and its not easy to make a distinction.

If your business is large enough to make you rich, you've likely incorporated it as a separate entity (unless you are stupid) - in which case you will draw income as an executive of the business, which is earned income derived from your sweat- but you will also have the right to the profits of the business - which is unearned market income.

But neither one of those is "investing in stocks and bonds"

 

[OohPooPahDoo]

I've already shown you. Wealthy people get that way largely by owning their own businesses, not by investing in stocks and bonds.

Owning and running your own business involves elements of both working for money and profiting from market forces, and its not easy to make a distinction.

If your business is large enough to make you rich, you've likely incorporated it as a separate entity (unless you are stupid) - in which case you will draw income as an executive of the business, which is earned income derived from your sweat- but you will also have the right to the profits of the business - which is unearned market income.

But neither one of those is "investing in stocks and bonds"

Equity in an incorporated business is functionally the same as owning stock in a business. the only real difference is there is no mechanism for selling your equity on the open market.

 

[The Rabbi]

Owning and running your own business involves elements of both working for money and profiting from market forces, and its not easy to make a distinction.

If your business is large enough to make you rich, you've likely incorporated it as a separate entity (unless you are stupid) - in which case you will draw income as an executive of the business, which is earned income derived from your sweat- but you will also have the right to the profits of the business - which is unearned market income.

But neither one of those is "investing in stocks and bonds"

Equity in an incorporated business is functionally the same as owning stock in a business. the only real difference is there is no mechanism for selling your equity on the open market.

Owning your own business is no different from owning your own business, whether it is a Schedule C or a separate entity.
Owning your own business is not the same as buying stock in a publicly traded company.
Glad to clear that up.

 

[WatertheTree]

Income mobility for any 'class' can be accomplished via excercising a degree of impulse control and actually saving money. It may initially suck to spend years limiting your spending to things you need and cut out things you simply want but if it were easy everyone would do it.

Sounds good in theory, where do you expect the poor to come up with any money for savings?

Your talking about people that make 800 a month, and all of it goes to bills. Even if they deny themselves all simple pleasures of life what will they save? 50 a month? Great in ten years they have enough to open a business that will be destroyed because of not enough capital. They will never have credit for good interest rates, as credit is determined as much by how much you spend as how well you pay your bills.

No, your posit stems from ignorance and shortsightedness.

 

[CrusaderFrank]

Which means that wealth and success and investing should be taught starting in grade school.

Is Dragon finally learning? Does he realize how close he is to a model that works?

 

[OohPooPahDoo]

But neither one of those is "investing in stocks and bonds"

Equity in an incorporated business is functionally the same as owning stock in a business. the only real difference is there is no mechanism for selling your equity on the open market.

Owning your own business is no different from owning your own business, whether it is a Schedule C or a separate entity.
Owning your own business is not the same as buying stock in a publicly traded company.
Glad to clear that up.

Deriving profit off of ownership is deriving profit off of ownership - its fundamentally different than making money by working. That many business owners get income through both means does not eliminate the distinction between the two.


Not all private owners of business actually put work into the business - and conversely, there are many owners of stock in corporations that also receive earned income from those corporations (CEO's for instance).

 

[WatertheTree]

But neither one of those is "investing in stocks and bonds"

Equity in an incorporated business is functionally the same as owning stock in a business. the only real difference is there is no mechanism for selling your equity on the open market.

Owning your own business is no different from owning your own business, whether it is a Schedule C or a separate entity.
Owning your own business is not the same as buying stock in a publicly traded company.
Glad to clear that up.

Thanks for clearing that up dummy.

 

[OohPooPahDoo]

Which means that wealth and success and investing should be taught starting in grade school.

Is Dragon finally learning? Does he realize how close he is to a model that works?

Because we can all strike it rich and never have to work again if we just make the right stock picks.

 

[The Rabbi]

Which means that wealth and success and investing should be taught starting in grade school.

Is Dragon finally learning? Does he realize how close he is to a model that works?

Because we can all strike it rich and never have to work again if we just make the right stock picks.

Ask Warren Buffet.

 

[Dragon]

Buffet would be the first to say that the way he got rich cannot be emulated by everyone, or even by a significant portion of the population.