Author Topic: $100,000/yr is horribly inadequate  (Read 11735 times)

skunkfunk

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$100,000/yr is horribly inadequate
« on: April 22, 2014, 02:30:30 PM »
I guess this goes here. From a deadspin article, of all places.

Quote
Derreck:

    Ok, so you can get $100,000 a year for the rest of your life. Sounds good? Here's the catch. You can ONLY have $100,000 for the year. You cannot work for money, you can't get handouts, loans, or any sort of income of any kind. Once you've the $100,000 limit for the year, you have to wait until the new year to get your next check. Would you take it?

I probably would have to take it. After all, $100,000 is a shitload of money, especially if you live somewhere with a relatively low cost of living. And the idea of having an income that is truly guaranteed appeal to my WASP-y need for absolute stability and lifelong blandness. People take out 30-year loans with the idea that their income is sustainable, which is a remarkable feat of self-delusion. $100,000 a year, guaranteed, is pretty solid.

HOWEVAH, in the grand scheme of American life, $100,000 a year doesn't add up to much. After taxes (and who knows what kind of capital gains are assessed on genie-type gifts), you're left with roughly $65,000 a year. Then you gotta factor in health-care expenses, your cell-phone bill, all the fines levied upon you for indecent exposure over the course of a single year, inflation, your rent, and all that other horrible shit. Last year, I personally spent $2,400 on phone and web-service-related expenses. GOOD FUCKING GOD. The CEO of Verizon must eat caviar off of five-star hooker bellies for breakfast every day. I will harm him.

And that's not counting family expenses. If you have kids, money just vanishes. Where'd it go? What happened to all my money? Why did we need this $80 Graco swing? I used to have money, you know. Any money that now comes into my possession exists strictly as a temporary object. I see the money, and I sniff it, and I say hello to it, and then it's out the fucking door. If you live in the boondocks, and you wish to spend your remaining days as a man of leisure, the deal makes sense. Otherwise, that remarkable salary (and I must stress that I would never ever ever take that much money for granted) will leave you feeling poor as shit as you go forward.

I've said this before, but the Great American Lie is that a seemingly normal existence in this country (two kids, college, a house) is available to everyone, when really, it's an undertaking that only the richest assholes can afford. The rest of us have to go into debt to keep up with those people, and so everyone borrows a shitload of money to pay for school, and then the tuition rates skyrocket, and then the next group of suckers go even deeper into debt to catch up. Twenty years from now, that $100,000 will be the fucking poverty line.

There's also the matter of boredom. So you have your money, and you don't have to do anything for it. You're like a lottery winner, which means your inevitable next stop is meth addiction. Every guy fantasizes about making a shitload of money and being free to do whatever the fuck he wants (I know I do), but then, when they have the chance for that kind of existence, they end up hating it. Apart from Albert Haynesworth, no one likes feeling unproductive or useless. It's always nice to have some goal or ambition to drive toward. Maybe with your $100,000 a year, you'd become some great mini-philanthropist who donates his time and intellect to worthy causes, but I doubt it. You'd probably just get shitfaced every day and try to scheme a way to make more money, even though you can't.

Because everyone wants more money. You get one house, you want a bigger house. You get a bigger house, you want a vacation house. You get a vacation house, you want a fucking yacht. There's always some next level of rich asshole above you to make you feel like your life isn't awesome enough. That's just how America works. This is why Barefoot Contessa cookbooks make me angry.

So there you have it. It's a great deal on the surface, but it would probably leave you bored and unsatisfied, because we're all ungrateful little shits.

.22guy

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Re: $100,000/yr is horribly inadequate
« Reply #1 on: April 22, 2014, 03:07:56 PM »
That was some crybaby crap.

I didn't know that the CEO of Verizon went around with a gun, sticking it to people's heads and making them spend 2400 bucks a year on cellular service.

dragoncar

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Re: $100,000/yr is horribly inadequate
« Reply #2 on: April 22, 2014, 03:13:33 PM »
I dunno, it's like stealth mustachianism -- plant the ideas without riling the locals.

dandarc

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Re: $100,000/yr is horribly inadequate
« Reply #3 on: April 22, 2014, 03:23:31 PM »
I dunno, it's like stealth mustachianism -- plant the ideas without riling the locals.

Lets hope this is what he was going for. 

This scenario would be a great opportunity to learn to not be an "ungrateful little shit".

fantabulous

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Re: $100,000/yr is horribly inadequate
« Reply #4 on: April 22, 2014, 03:24:27 PM »
That was some crybaby crap.

I didn't know that the CEO of Verizon went around with a gun, sticking it to people's heads and making them spend 2400 bucks a year on cellular service.

If I was eating caviar off of attractive escorts, I wouldn't have much time for thuggery.

dcheesi

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Re: $100,000/yr is horribly inadequate
« Reply #5 on: April 22, 2014, 03:28:47 PM »
Considering that I make less than that now, I seriously hope the author is not serious.

brewer12345

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Re: $100,000/yr is horribly inadequate
« Reply #6 on: April 22, 2014, 03:45:36 PM »
Shhhh... Don't wake up the plebes.  We need them on the treadmill so that someone actually does all the work around here.

ch12

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Re: $100,000/yr is horribly inadequate
« Reply #7 on: April 22, 2014, 06:30:31 PM »
Shhhh... Don't wake up the plebes.  We need them on the treadmill so that someone actually does all the work around here.

:)

Quote
Derreck:
Maybe with your $100,000 a year, you'd become some great mini-philanthropist who donates his time and intellect to worthy causes, but I doubt it. You'd probably just get shitfaced every day and try to scheme a way to make more money, even though you can't.

Because everyone wants more money.

So there you have it. It's a great deal on the surface, but it would probably leave you bored and unsatisfied, because we're all ungrateful little shits.
I'm actually a world-renowned philanthropist, and that's the only thing of actual note that I've ever done. So if someone really gave me $100,000 inflation adjusted per year and I was allowed to save some of it, I'd probably go off and found a charity or bolster the one that I've worked with since I was 7 (I initially put the name here, but I'm very identifiable if I include the name of the charity).

I can't deny that I like money a lot. I also value freedom pretty highly. When I throw in the towel on the 9 to 5 existence which comes standard in middle-class America, I'm still going to make income. It just won't be necessary.

http://paulocoelhoblog.com/2011/12/26/id-rather-be-in-hell/

kaizen

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Re: $100,000/yr is horribly inadequate
« Reply #8 on: April 22, 2014, 07:01:45 PM »
If you were guaranteed $100K for EVER, even if your taxes made it $65K, you wouldn't have to build up any savings. You wouldn't have to spend money to have other people clean your shit or watch your kids or cook your food because you wouldn't have to work so much you had no time for that. Instead you'd have time to get really good at cleaning, cooking, or home brewing, or just visiting the park with your kids all day. I would absolutely take that deal.

I just posted a case study, so I have my current monthly (face-punch-worthy) expenses close at hand, so I can confidently say that my expenses would go down by over $1K a month if I had that genie money. That's plenty of cushion for independent health insurance and/or indecent exposure fines.

Jamesqf

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Re: $100,000/yr is horribly inadequate
« Reply #9 on: April 22, 2014, 07:14:35 PM »
Depends on a lot of things, especially on whether that $100K is indexed for inflation.  After all, I could easily live another 40 years.  40 years ago the SS average wage was $8,030.76, today it's $44,321.67.  Assuming that inflation goes at the same average rate over the next 40 years, that $100K declines to $18,192 in current dollars.  I could live on that (probably do now, if you discount a few luxuries like supporting a horse), but it's hardly going to be wealth by then.

I'm also assuming from the description that I can't invest any part of the $100K: the most I could do, if I didn't want to spend a whole year's allotment, would be to stuff $100 bills under the mattress.

dragoncar

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Re: $100,000/yr is horribly inadequate
« Reply #10 on: April 22, 2014, 07:47:59 PM »
Depends on a lot of things, especially on whether that $100K is indexed for inflation.  After all, I could easily live another 40 years.  40 years ago the SS average wage was $8,030.76, today it's $44,321.67.  Assuming that inflation goes at the same average rate over the next 40 years, that $100K declines to $18,192 in current dollars.  I could live on that (probably do now, if you discount a few luxuries like supporting a horse), but it's hardly going to be wealth by then.

I'm also assuming from the description that I can't invest any part of the $100K: the most I could do, if I didn't want to spend a whole year's allotment, would be to stuff $100 bills under the mattress.

The NPV of $100k over 40 years at 3% inflation is still $2,311,477.20 (if I used Excel right).  That's $57786.93 / year in todays dollars.  If you are allowed to invest, it's better of course.

Jamesqf

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Re: $100,000/yr is horribly inadequate
« Reply #11 on: April 22, 2014, 11:37:34 PM »
The NPV of $100k over 40 years at 3% inflation is still $2,311,477.20 (if I used Excel right).  That's $57786.93 / year in todays dollars.

That's assuming inflation is going to stay at the current 3% level, which if I'm not completely mistaken is pretty low.  I'm not willing to assume that it will remain this low for the next 40 years.  A safer bet is that it will vary much as it did over the prior 40 years.

Oh, and I think Excel is wrong.  Start with $100K, decrease it by 3%/year, and I get $29,571, per this:
Code: [Select]
#include <stdlib.h>
#include <stdio.h>

int main (int argc, char **argv)
{
  double v, pct;
  int i, n;

  v = 100000.0;
  pct = 0.03;
  n = 40;
   
  for (i = 0; i < n; i++)
  {
    v = v - (v * pct);
    printf ("%2d: %8.2f\n", i, v);
  }
  exit (0);
}

Travis

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Re: $100,000/yr is horribly inadequate
« Reply #12 on: April 23, 2014, 04:13:11 AM »
I can't tell how serious this guy is or even his point.  He starts out complaining about how much life costs by citing figures he pulled out of his ass or wildly anti-mustachian costs like his cell phone bill, but then goes on to remark that we're our own worst enemy with life expenses which is an accurate assessment.

Ozstache

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Re: $100,000/yr is horribly inadequate
« Reply #13 on: April 23, 2014, 04:15:49 AM »
The NPV of $100k over 40 years at 3% inflation is still $2,311,477.20 (if I used Excel right).  That's $57786.93 / year in todays dollars.

That's assuming inflation is going to stay at the current 3% level, which if I'm not completely mistaken is pretty low.  I'm not willing to assume that it will remain this low for the next 40 years.  A safer bet is that it will vary much as it did over the prior 40 years.

Oh, and I think Excel is wrong.  Start with $100K, decrease it by 3%/year, and I get $29,571, per this:
Code: [Select]
#include <stdlib.h>
#include <stdio.h>

int main (int argc, char **argv)
{
  double v, pct;
  int i, n;

  v = 100000.0;
  pct = 0.03;
  n = 40;
   
  for (i = 0; i < n; i++)
  {
    v = v - (v * pct);
    printf ("%2d: %8.2f\n", i, v);
  }
  exit (0);
}

You are both right. $100,000 is the amount in the first year, $29,571 is the amount in year 40, and $57,786 is the average annual amount ($2,311,477 divided by 40).

warfreak2

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Re: $100,000/yr is horribly inadequate
« Reply #14 on: April 23, 2014, 05:33:21 AM »
Oh, and I think Excel is wrong.  Start with $100K, decrease it by 3%/year, and I get $29,571, per this:
Inflation of 3% doesn't decrease the value of the money by 3%, but it increases the cost of the things you can buy with your money by 3%. Mathematically, an amount v is worth v(1+i)-n after n years of an inflation rate i; your program calculates v(1-i)n which isn't quite the same, especially over long timespans.

The real value of $100k in 40 years time would be $30,656, about 3.7% higher than $29,571. Also, as Ozstache points out, that's not the same as the average real value of the non-inflation-adjusted income stream.
« Last Edit: April 23, 2014, 05:35:00 AM by warfreak2 »

MrsPete

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Re: $100,000/yr is horribly inadequate
« Reply #15 on: April 23, 2014, 08:13:11 AM »
The majority of American families are somehow managing to make it on less than $100,000/year . . . and they're working for it! 

dragoncar

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Re: $100,000/yr is horribly inadequate
« Reply #16 on: April 23, 2014, 10:19:00 AM »
The NPV of $100k over 40 years at 3% inflation is still $2,311,477.20 (if I used Excel right).  That's $57786.93 / year in todays dollars.

That's assuming inflation is going to stay at the current 3% level, which if I'm not completely mistaken is pretty low.  I'm not willing to assume that it will remain this low for the next 40 years.  A safer bet is that it will vary much as it did over the prior 40 years.

Oh, and I think Excel is wrong.  Start with $100K, decrease it by 3%/year, and I get $29,571, per this:

You are both right. $100,000 is the amount in the first year, $29,571 is the amount in year 40, and $57,786 is the average annual amount ($2,311,477 divided by 40).

Also, average annual inflation over the past century has been a little over 3%.  Obviously it could be higher, but it's not an unreasonably low estimate.

thepokercab

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Re: $100,000/yr is horribly inadequate
« Reply #17 on: April 23, 2014, 10:47:37 AM »
I guess this goes here. From a deadspin article, of all places.

Quote
Derreck:

    Ok, so you can get $100,000 a year for the rest of your life. Sounds good? Here's the catch. You can ONLY have $100,000 for the year. You cannot work for money, you can't get handouts, loans, or any sort of income of any kind. Once you've the $100,000 limit for the year, you have to wait until the new year to get your next check. Would you take it?

I probably would have to take it. After all, $100,000 is a shitload of money, especially if you live somewhere with a relatively low cost of living. And the idea of having an income that is truly guaranteed appeal to my WASP-y need for absolute stability and lifelong blandness. People take out 30-year loans with the idea that their income is sustainable, which is a remarkable feat of self-delusion. $100,000 a year, guaranteed, is pretty solid.

HOWEVAH, in the grand scheme of American life, $100,000 a year doesn't add up to much. After taxes (and who knows what kind of capital gains are assessed on genie-type gifts), you're left with roughly $65,000 a year. Then you gotta factor in health-care expenses, your cell-phone bill, all the fines levied upon you for indecent exposure over the course of a single year, inflation, your rent, and all that other horrible shit. Last year, I personally spent $2,400 on phone and web-service-related expenses. GOOD FUCKING GOD. The CEO of Verizon must eat caviar off of five-star hooker bellies for breakfast every day. I will harm him.

And that's not counting family expenses. If you have kids, money just vanishes. Where'd it go? What happened to all my money? Why did we need this $80 Graco swing? I used to have money, you know. Any money that now comes into my possession exists strictly as a temporary object. I see the money, and I sniff it, and I say hello to it, and then it's out the fucking door. If you live in the boondocks, and you wish to spend your remaining days as a man of leisure, the deal makes sense. Otherwise, that remarkable salary (and I must stress that I would never ever ever take that much money for granted) will leave you feeling poor as shit as you go forward.

I've said this before, but the Great American Lie is that a seemingly normal existence in this country (two kids, college, a house) is available to everyone, when really, it's an undertaking that only the richest assholes can afford. The rest of us have to go into debt to keep up with those people, and so everyone borrows a shitload of money to pay for school, and then the tuition rates skyrocket, and then the next group of suckers go even deeper into debt to catch up. Twenty years from now, that $100,000 will be the fucking poverty line.

There's also the matter of boredom. So you have your money, and you don't have to do anything for it. You're like a lottery winner, which means your inevitable next stop is meth addiction. Every guy fantasizes about making a shitload of money and being free to do whatever the fuck he wants (I know I do), but then, when they have the chance for that kind of existence, they end up hating it. Apart from Albert Haynesworth, no one likes feeling unproductive or useless. It's always nice to have some goal or ambition to drive toward. Maybe with your $100,000 a year, you'd become some great mini-philanthropist who donates his time and intellect to worthy causes, but I doubt it. You'd probably just get shitfaced every day and try to scheme a way to make more money, even though you can't.

Because everyone wants more money. You get one house, you want a bigger house. You get a bigger house, you want a vacation house. You get a vacation house, you want a fucking yacht. There's always some next level of rich asshole above you to make you feel like your life isn't awesome enough. That's just how America works. This is why Barefoot Contessa cookbooks make me angry.

So there you have it. It's a great deal on the surface, but it would probably leave you bored and unsatisfied, because we're all ungrateful little shits.

Yeah- i tend to read Drew Magary's stuff a lot especially his commentaries on the NFL which I find amusing.  Some of his other stuff is meh and more for shock value than anything else. 

I don't find his opinion here particularly surprising.  Its not all that different from other intelligent people I know and work with on a daily basis.  I've known some really smart people, but when the topic turns to money management or personal finance, their IQs seem to take a nose dive.  It's why i'm not worried about everyone suddenly becoming mustachian and the world economy collapsing or something.  Because there are tons of otherwise smart, intelligent, hard working people out there that have been conditioned to think that they need to work their entire lives to buy a ton of things they don't need.     

Albert

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Re: $100,000/yr is horribly inadequate
« Reply #18 on: April 23, 2014, 11:19:27 AM »
I wouldn't take 100k fixed. With 4% average inflation prices would quadruple in just 36 years. 100k indexed for inflation would be a sweet deal, though. :)

 

dude

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Re: $100,000/yr is horribly inadequate
« Reply #19 on: April 23, 2014, 11:28:33 AM »
Oh man, I read this guy as being totally tongue-in-cheek.  I think the article is pretty humorous, and does contain some kernels of truth.  I mean, who among us would argue that this ISN'T the norm for most of America:

"Because everyone wants more money. You get one house, you want a bigger house. You get a bigger house, you want a vacation house. You get a vacation house, you want a fucking yacht. There's always some next level of rich asshole above you to make you feel like your life isn't awesome enough. That's just how America works. This is why Barefoot Contessa cookbooks make me angry."

This is the social convention we Mustachians scoff at.  But it is absolutely the norm.

And there is an element of inescapable truth here as well:

"The rest of us have to go into debt to keep up with those people, and so everyone borrows a shitload of money to pay for school, and then the tuition rates skyrocket, and then the next group of suckers go even deeper into debt to catch up. Twenty years from now, that $100,000 will be the fucking poverty line."

But most of all, it's just a veiled rant about income inequality, which is an inescapable fact in this country.  Yes, you can argue about whether or not it should matter, but there is a very real dynamic at work in this country whereby the very rich are in the process of consolidating their wealth and power at the expense of the rest of us.  Many of the things we take for granted and that allow for us to even consider the concept of FIRE, like reasonable working conditions, decent wages and legal protections, were once gained through blood, sweat and tears from resistant oligarchic industrialists.  There is a sliver of society that would love to return us to those conditions (think Koch brothers).  So complainey-pants isn't exactly the right term to use for anyone with any sense of history.

At any rate, I took it for a fun rant.




Jamesqf

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Re: $100,000/yr is horribly inadequate
« Reply #20 on: April 23, 2014, 11:37:19 AM »
Inflation of 3% doesn't decrease the value of the money by 3%, but it increases the cost of the things you can buy with your money by 3%.

I have to vehemently disagree here.  Inflation IS a decrease in the value of money.  Of course, if all else is equal, that's going to increase prices by the same factor. but all else is usually not equal.  Here's a link to an interesting article about the difference between inflation & price changes between 1900 and 2000: http://www.economist.com/node/457272 (And note how some things have dated even since 2000: who buys CD players nowadays?)

Quote
The obvious answer is that everything has risen hugely. The obvious answer would be wrong. Since 1900 average consumer prices in America have indeed risen 20-fold, an average of about 3% a year. But the variations are large. Our colleague's hotel room in New York cost him $8 a night in 1900; the same hotel would charge $600 today, a 75-fold leap. At the other extreme, he made a three-minute telephone call to Chicago (to a lady, we suspect, from other evidence, and plainly not his wife; for the latter, he evidently brought back—and charged to this paper—a 49-cent souvenir from Niagara Falls). His call cost $5.45; today's cost is about five cents, a 99% fall.

warfreak2

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Re: $100,000/yr is horribly inadequate
« Reply #21 on: April 23, 2014, 12:23:01 PM »
Inflation of 3% doesn't decrease the value of the money by 3%, but it increases the cost of the things you can buy with your money by 3%.

I have to vehemently disagree here.  Inflation IS a decrease in the value of money.
But 3% inflation does not decrease the value of money by 3%. That's what I wrote. 3% inflation means something costs $103 instead of $100 - not that you earn $97 instead of $100. You have to divide by 103%, not multiply by 97%. An increase of 3% and a decrease of 3% are not opposites.

If everything cost twice as much as it did last year, that would be inflation of 100% - money would be worth half what it used to be worth. The value of money is reduced by 50%, not by 100% (the amount of inflation). By your mathematics, inflation over 100% would mean money had negative worth.
« Last Edit: April 23, 2014, 12:32:58 PM by warfreak2 »

Jamesqf

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Re: $100,000/yr is horribly inadequate
« Reply #22 on: April 23, 2014, 01:21:54 PM »
But 3% inflation does not decrease the value of money by 3%. That's what I wrote. 3% inflation means something costs $103 instead of $100 - not that you earn $97 instead of $100. You have to divide by 103%, not multiply by 97%. An increase of 3% and a decrease of 3% are not opposites.

True as far as the math goes, though at 3% the difference is lost in round numbers.  But that's something different from the important point.

Quote
If everything cost twice as much as it did last year, that would be inflation of 100% - money would be worth half what it used to be worth.

No, not necessarily.  Prices change for many reasons other than inflation, as for instance the New York-Chicago phone call that's so much cheaper now than in 1900.  Of course if you see absolutely everything doubling in price, inflation would be the primary suspect.  You have your implied causation backwards, though: instead of increased prices causing inflation, inflation (created e.g. by the FRB messing with the money supply) causes increased prices.

warfreak2

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Re: $100,000/yr is horribly inadequate
« Reply #23 on: April 23, 2014, 01:34:08 PM »
True as far as the math goes, though at 3% the difference is lost in round numbers.  But that's something different from the important point.
But it's what I said, that you vehemently disagreed with. Also, the difference is not insignificant over 40 years. Your program didn't do the correct calculation, that's what I was telling you.

Quote
Quote
If everything cost twice as much as it did last year, that would be inflation of 100% - money would be worth half what it used to be worth.

No, not necessarily.  Prices change for many reasons other than inflation, as for instance the New York-Chicago phone call that's so much cheaper now than in 1900.  Of course if you see absolutely everything doubling in price, inflation would be the primary suspect.  You have your implied causation backwards, though: instead of increased prices causing inflation, inflation (created e.g. by the FRB messing with the money supply) causes increased prices.
No shit, prices change for lots of reasons. Inflation is not a reason that prices change, though, inflation is the change in prices, in aggregate.

I'm not talking about causation, I'm talking about maths. Your maths was wrong. You want to think of inflation as some abstract thing that causes prices to rise, fine. But numerically it is defined as the rise in prices: CPI at 3% means prices went up on average 3%, and if every price precisely doubled, then CPI would be up precisely 100%. That's why it's called the Consumer Price Index.
« Last Edit: April 23, 2014, 01:40:05 PM by warfreak2 »

Cheddar Stacker

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Re: $100,000/yr is horribly inadequate
« Reply #24 on: April 23, 2014, 02:29:49 PM »
Yeah- i tend to read Drew Magary's stuff a lot especially his commentaries on the NFL which I find amusing.  Some of his other stuff is meh and more for shock value than anything else. 

I don't find his opinion here particularly surprising.  Its not all that different from other intelligent people I know and work with on a daily basis.  I've known some really smart people, but when the topic turns to money management or personal finance, their IQs seem to take a nose dive.  It's why i'm not worried about everyone suddenly becoming mustachian and the world economy collapsing or something.  Because there are tons of otherwise smart, intelligent, hard working people out there that have been conditioned to think that they need to work their entire lives to buy a ton of things they don't need.   

+1. I used to read deadspin a lot before I really got into the personal finance websites. This is exactly how Drew Magary writes a response to just about everything. He makes some smart points on one side, then gives the most sarcastic, ridiculous argument on the other side that trumps the good points he just made.

He's a smart guy, and a good writer, but most of what he says is over the top for effect. I wasn't surprised it was him as soon as I heard deadspin. Thanks for posting OP, it was fun to read Drew again to remind me why I prefer this website.

thepokercab

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Re: $100,000/yr is horribly inadequate
« Reply #25 on: April 23, 2014, 03:14:19 PM »
True as far as the math goes, though at 3% the difference is lost in round numbers.  But that's something different from the important point.
But it's what I said, that you vehemently disagreed with. Also, the difference is not insignificant over 40 years. Your program didn't do the correct calculation, that's what I was telling you.

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If everything cost twice as much as it did last year, that would be inflation of 100% - money would be worth half what it used to be worth.

No, not necessarily.  Prices change for many reasons other than inflation, as for instance the New York-Chicago phone call that's so much cheaper now than in 1900.  Of course if you see absolutely everything doubling in price, inflation would be the primary suspect.  You have your implied causation backwards, though: instead of increased prices causing inflation, inflation (created e.g. by the FRB messing with the money supply) causes increased prices.
No shit, prices change for lots of reasons. Inflation is not a reason that prices change, though, inflation is the change in prices, in aggregate.

I'm not talking about causation, I'm talking about maths. Your maths was wrong. You want to think of inflation as some abstract thing that causes prices to rise, fine. But numerically it is defined as the rise in prices: CPI at 3% means prices went up on average 3%, and if every price precisely doubled, then CPI would be up precisely 100%. That's why it's called the Consumer Price Index.


Warfreak2, I feel compelled to give you the same advice you gave to yourself not so long ago: 


Yet according to the US census, the population continues to grow at a rate (currently) of 0.75% per year.
Yes, due to net immigration.

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Which would seem to imply that there is no risk of complete depopulation, even if the US fertility rate was zero.
What? No, I give up, I'm not talking with you about maths any more.

:)

warfreak2

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Re: $100,000/yr is horribly inadequate
« Reply #26 on: April 23, 2014, 03:20:17 PM »
Too right. Thanks for reminding me!

:-D

Ozstache

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Re: $100,000/yr is horribly inadequate
« Reply #27 on: April 23, 2014, 05:27:34 PM »
Oh, and I think Excel is wrong.  Start with $100K, decrease it by 3%/year, and I get $29,571, per this:
Inflation of 3% doesn't decrease the value of the money by 3%, but it increases the cost of the things you can buy with your money by 3%. Mathematically, an amount v is worth v(1+i)-n after n years of an inflation rate i; your program calculates v(1-i)n which isn't quite the same, especially over long timespans.

The real value of $100k in 40 years time would be $30,656, about 3.7% higher than $29,571. Also, as Ozstache points out, that's not the same as the average real value of the non-inflation-adjusted income stream.

That explains why I've been having trouble getting my ER spreadsheet to come up with the same end result of when the stache theoretically runs out, depending on whether I've been using real or nominal as the income baseline. My real income calculation has been incorrect for the very reason that you state, but fortunately in a good way as it is actually higher than I've been calculating. Thanks for pointing this out warfreak2!

skunkfunk

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Re: $100,000/yr is horribly inadequate
« Reply #28 on: April 23, 2014, 08:46:07 PM »
That explains why I've been having trouble getting my ER spreadsheet to come up with the same end result of when the stache theoretically runs out, depending on whether I've been using real or nominal as the income baseline. My real income calculation has been incorrect for the very reason that you state, but fortunately in a good way as it is actually higher than I've been calculating. Thanks for pointing this out warfreak2!

Do what?

Ozstache

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Re: $100,000/yr is horribly inadequate
« Reply #29 on: April 23, 2014, 11:27:15 PM »
That explains why I've been having trouble getting my ER spreadsheet to come up with the same end result of when the stache theoretically runs out, depending on whether I've been using real or nominal as the income baseline. My real income calculation has been incorrect for the very reason that you state, but fortunately in a good way as it is actually higher than I've been calculating. Thanks for pointing this out warfreak2!

Do what?
I was using  v(1-i)n to calculate devaluation of income against inflation instead of v(1+i)-n which, as warfreak2 points out, is the correct formula to use. I proved it using year by year calculations in Excel and also found you can use the FV function to achieve the same result eg. for the scenario we have been talking about, FV(0.03,-40,0,-10000) = $30,656

I was trying to be tricky in my ER spreadsheet and have an option to baseline everything at inflation, so that I could see everything in today's, not future, dollars. Because I was using the wrong calculation method, my income deteriorated faster than it should have, resulting in me running out of money sooner. Using the correct formula improves my ER outlook by a couple of years for a given spend rate or, alternatively, increases what I can spend annually and achieve the same expiry date.

Jamesqf

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Re: $100,000/yr is horribly inadequate
« Reply #30 on: April 23, 2014, 11:55:15 PM »
No shit, prices change for lots of reasons. Inflation is not a reason that prices change, though, inflation is the change in prices, in aggregate.

That is just plain wrong.  Not math, but economics.  Inflation is a devaluation of money.  Maybe it's easier to understand if you think of cases like Weimar Germany, where the government tried to pay its bills by simply printing more money, or Rome, where from the time of Nero onwards the emperors kept decreasing the percentage of gold & silver in the coinage.

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I'm not talking about causation, I'm talking about maths. Your maths was wrong.

My math was an approximate, back of the envelope calculation which demonstrates that with inflation around 3%, that initial $100K declines to not very much in 40 years..  I've already said that your math is more accurate, but how much difference is there between the estimates?

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You want to think of inflation as some abstract thing that causes prices to rise, fine. But numerically it is defined as the rise in prices: CPI at 3% means prices went up on average 3%, and if every price precisely doubled, then CPI would be up precisely 100%. That's why it's called the Consumer Price Index.

No, that's just not so.  The CPI does not define inflation, it measures inflation, and not always all that accurately.  For instance, suppose that extreme weather causes severe crop failures.  That means the price of food will go up, leading to an increase in the CPI.  But the money supply hasn't changed, nor have the prices of non-food goods, so what we have is not inflation, it's a price increase driven by market pressures, so in this case the CPI isn't a good measure of inflation.

warfreak2

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Re: $100,000/yr is horribly inadequate
« Reply #31 on: April 24, 2014, 04:31:44 AM »
2. Economics
a general increase in prices and fall in the purchasing value of money.


In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Inflation is the percentage change in the value of the Wholesale Price Index (WPI) on a year-on year basis.

Next time you have a dispute with the dictionary, don't take it out on me. As I said, if you want to define inflation as some abstract thing which causes (and is measured by) rising prices (i.e. causes what everyone else calls inflation), fine. You're welcome to use words to mean things that other people don't understand them to mean, so long as you're happy about not communicating with other people. But when you say inflation is 3% for the year, you mean CPI was up 3%, you mean prices went up by 3% on average, because that 3% is a measurement.
« Last Edit: April 24, 2014, 04:47:38 AM by warfreak2 »

skunkfunk

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Re: $100,000/yr is horribly inadequate
« Reply #32 on: April 24, 2014, 10:03:28 AM »
That explains why I've been having trouble getting my ER spreadsheet to come up with the same end result of when the stache theoretically runs out, depending on whether I've been using real or nominal as the income baseline. My real income calculation has been incorrect for the very reason that you state, but fortunately in a good way as it is actually higher than I've been calculating. Thanks for pointing this out warfreak2!

Do what?
I was using  v(1-i)n to calculate devaluation of income against inflation instead of v(1+i)-n which, as warfreak2 points out, is the correct formula to use. I proved it using year by year calculations in Excel and also found you can use the FV function to achieve the same result eg. for the scenario we have been talking about, FV(0.03,-40,0,-10000) = $30,656

I was trying to be tricky in my ER spreadsheet and have an option to baseline everything at inflation, so that I could see everything in today's, not future, dollars. Because I was using the wrong calculation method, my income deteriorated faster than it should have, resulting in me running out of money sooner. Using the correct formula improves my ER outlook by a couple of years for a given spend rate or, alternatively, increases what I can spend annually and achieve the same expiry date.


Oh. Well then. I've been doing it wrong as well. So much for all of those upper-level math courses.

Jamesqf

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Re: $100,000/yr is horribly inadequate
« Reply #33 on: April 24, 2014, 11:33:42 AM »
Next time you have a dispute with the dictionary, don't take it out on me.

Next time, read more than the first sentence of your Wikipedia article :-)
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Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.
(From the first paragraph.  There's much more detail if you bother to read the whole thing.)

Also, it would help to be a little less selective about the dictionaries you link to.  For instance

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Economics
a general increase in prices and fall in the purchasing value of money.

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1. Economics . a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation ).
http://dictionary.reference.com/browse/inflation

warfreak2

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Re: $100,000/yr is horribly inadequate
« Reply #34 on: April 24, 2014, 12:20:39 PM »
Next time you have a dispute with the dictionary, don't take it out on me.

Next time, read more than the first sentence of your Wikipedia article :-)
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Consequently, inflation reflects a reduction in the purchasing power per unit of money a loss of real value in the medium of exchange and unit of account within the economy.
(From the first paragraph.  There's much more detail if you bother to read the whole thing.)

Also, it would help to be a little less selective about the dictionaries you link to.  For instance

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Economics
a general increase in prices and fall in the purchasing value of money.

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1. Economics . a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation ).
http://dictionary.reference.com/browse/inflation

Wikipedia says "inflation is a sustained increase in the general price level" and then "Consequently, inflation reflects a reduction in the purchasing power per unit of money". Which one of these is inflation?

The next dictionary definition you quote, "a general increase in prices and fall in the purchasing value of money" is the first definition I quoted. Somehow, to you, that means I ignored it. And it says inflation is "a general increase in prices" so it supports what I said, which was that inflation is an increase in prices.

And then you quote another great definition (which I didn't find myself because I only looked on the first page of Google results) which says inflation is "a persistent, substantial rise in the general level of prices" and that it's "related to an increase in the volume of money and resulting in the loss of value of currency". You read this, quoted it, and still thought it supported your position?

And the statement of mine which you "vehemently disagreed" with, you already admitted was correct. I've come to the conclusion that you must enjoy being very obviously wrong.
« Last Edit: April 24, 2014, 12:26:16 PM by warfreak2 »

rocksinmyhead

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Re: $100,000/yr is horribly inadequate
« Reply #35 on: April 24, 2014, 12:25:31 PM »
I can't tell how serious this guy is or even his point.  He starts out complaining about how much life costs by citing figures he pulled out of his ass or wildly anti-mustachian costs like his cell phone bill, but then goes on to remark that we're our own worst enemy with life expenses which is an accurate assessment.

agreed! it's like he's RIGHT ON THE EDGE of understanding that it doesn't have to be that way...