What are the most useful money investment and saving tricks? originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world.
I don't know why more people don't do this. But I can tell you how to save millions of dollars. Just two simple decisions:
A) Don't buy a house.
Lets say you buy a $500,000 house.
You put $150,000 down (30%). You pay another $30,000 real estate commissions.
You put another $50,000 into maintenance (I'm making it up but that seems very conservative).
That's $230,000 GONE.
Do you get it back? Maybe. If you bought at the right time, if you are a good real estate investor, if you don't need the money back at the same time the market crashes, and several other factors. If you don't just put that money into the next house you buy.
Do you spend less on rent? Mortgage plus real estate taxes on the above are about $3000 / month.
Maybe you would spend $3000-4000 a month. Maybe more. Maybe less. Depends on the market.
So in the owning situation you are out $230,000 for a LONG time.
In the second situation, you keep your $230,000. You can use that to start a business, to invest, to do whatever.
In both cases you spend around the same amount of money per month.
In the ownership case, you might gain money if the house gains. But from 1890 - 2004, housing prices gained 0.4% a year over inflation. There are much better investments. And your investment is tied up in an asset that is 100% illiquid (i.e. you can't get your money out).
Is it a "home" if you rent? That is 100% up to you and nobody else. Find the situation that works for you. It's not your home anyway if the bank or state can easily take it away (and they will) when times are hard for you.
What if you wait 20 years and pay off your mortgage? Then good for you. But average house turnover in the United States is four years.
$230,000 means you have to make about $450,000 pre-taxes.
B) Don't send kids to college.
This is an emotional issue for many people. I've lost friends over this.
If a kid wants to go to college, there are many ways to do it and I understand (believe me) that it is hard for a parent to say "no".
But first let's look at some facts:
- 94% of all jobs created in the past 10 years were freelance or part-time that did not require a degree. This is not political. It's during both Bush and Obama. But this is the reality of a society that is outsourcing and automating.
This trend will ONLY continue.
- 40% of all jobs held by recent college graduates don't require a college degree.
- Average income for people ages 18-35 have gone from $36,000 to $33,000 adjusted for inflation since 1992 according to the Bureau of Labor Statistics.
Again, this is not political, but reality. More mobility in jobs leads to more choice, more outsourcing leads to cheaper labor, and more automation leads to downsizing.
- Tuition has gone up faster than Inflation EVERY YEAR since 1977. Not on average. EVERY year.
- Student loan debt is at its highest level ever. $1.2 trillion in debt held by 40,000,000 Americans. You can't have kids starting companies if a gun is to their head to pay down debt. And it's the one debt our children can't restructure in bankruptcy.
- This last one is not a fact but an opinion: these industries will change in the next ten years due to more automation and innovation: automotive, real estate, insurance, Wall Street, publishing, retail.
Degrees vary in price. And I don't like looking at "average degree price". There's ways to go to college super cheap (go to community college for two years for almost nothing and then go to a state school to get bachelor's degree.
But average private school degree seems to be about $60,000 a year when everything is counted (books, food, housing, degree). And average stay at a "4 year school" is 5 years.
That's $300,000 to many families. Again, not all. There are many ways to do college cheaper but obviously many American families do not do those ways.
But will kids learn? Yes, as opposed to when I was college-age there are infinite on-line resources for learning. And even great schools like MIT have their entire courses (videos, tests, homework, etc) on-line so the only thing extra they provide are certificates and social life.
To help figure out how kids can learn, make a living, and come to grips with this change in reality I called up the CEO of the largest job website in the world and asked him where a kid can learn FAST to learn the skills to make up to $2,000 in a weekend.
This is the result. Zoom orin if you want to see the text further:
But do kids need to network at school? No, because networking is now moving across interests on-line rather than geographical locations. Interests first, then meet ups.
But do kids need the certificate? No, see statistics above?
But what if a kid is not motivated to learn other than college? Even a better reason not to spend $300,000 (or even $1) on their education until they try things and become more motivated. I feel I started to really LEARN when I was about 23 years old and had to learn for both work (computers) and for skills that I loved (writing).
So just these two things can save $530,000. Assuming you have two children and that's $830,000.
Compound that $530,000 just 5% for 30 years and you have an extra $2,300,000 to retire on.
Compound $830,000 and that's an extra $3,500,000 to retire with.
It's relaxing to retire with that much. And you can help your kids, give to charity, give to your grand-kids, take relaxing vacations, reduce stress in your life to live a long and happy life.
I know I made assumptions (price of house, price of college) so put in your own. But I'm mostly just going by what I see are the real averages based on what people write to me as opposed to what the newspapers say.
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