Author Topic: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?  (Read 4146 times)

mr_orange

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This article was posted on BP today:

https://www.biggerpockets.com/renewsblog/2015/12/06/higher-earner-versus-smart-investor/

I thought some folks may benefit by reading it.  I'm sure there will be some debate about the principles in it and would enjoy seeing what others think about what Brandon Hall had to say. 

JLee

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #1 on: December 06, 2015, 03:38:14 PM »
I really wish I could figure out the "just start a successful business" deal. That'd be really convenient.

deborah

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #2 on: December 06, 2015, 07:46:32 PM »
This was an interesting take on the job holder versus small business owner dichotomy.

There appear to be two different stories here - frugality is good up to a point, and you should be a small business owner.

I think we all agree that frugality is good up to a point, but I wish the latte example wasn't so overused. Personally, I think that a latte is low hanging fruit - it is just as easy to make a coffee (especially instant) as to get it from a shop and an office coffee machine (though more expensive than instant) encourages networking. Getting rid of the expenses you don't really need, without any extra cost, is definitely low hanging fruit. There are always bigger money improvements you can have, but his low hanging fruit example is not really low hanging fruit, because it takes a lot more time and money to implement than kicking the latte thing.

Most small business owners I know do not have much money, even with the tax breaks they get. On several occasions, people I worked with left work to start or expand a business, and all of them came back after a time because it wasn't working out for them. I do have three relatives who started highly successful small businesses, but they are swamped by the hoards I know who have not succeeded in getting a living this way.

Not only that, but it can be a concern about how to retire from a small business. Unfortunately, a huge number of small businesses are currently owned by baby boomers - after all, they are the largest generation ever, so it is reasonable for them to own more of the small businesses. Many of these people are nearing retirement age, and are having to walk away from their business, as no-one wants to take it over. Any person wanting to ER relatively soon needs to take this demographic trend into account if they are trying to start a small business and sell it for their retirement nest egg.

However, I am not happy with two premises of the article. One is the premise of the article that tax is bad. Sure, you shouldn't pay more tax than is reasonable, but tax gives us all services that we as a community have decided to pay jointly for, so it is part of our responsibility as good citizens to pay tax. Each nation/state/community decides differently what the tax dollar will pay for - my tax dollar might pay for roads, garbage, health, unemployment, police and gun control laws while yours might pay for a different set of things.

The second is that everyone should end up with as much money to spend as they can. The MMM philosophy appears to me to be based upon the premise that we can all have enough, and that enough is enough - we don't need more. I guess that is when we retire.


thedayisbrave

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #3 on: December 06, 2015, 08:27:35 PM »
Yeah... I think it has to be a blend of both, and one person's blend is not going to be the same as another person's blend.

I'm in the "It's not how much you make, but how much you keep" camp.  How much you keep comes from both minimizing expenses (within reason) and maximizing income.  Obviously, you want to keep as much as possible without sacrificing quality of life too much.  I like my homemade $0.20 per cup coffee better than a $5 Starbucks.  It's just about spending in line with your values and then saving the rest.

He does sound a little flippant about building income streams.. it takes a lot of hard work and dedication.  It's not easy.  I'm not a huge fan of his tone, but he does make an interesting case.

okits

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #4 on: December 06, 2015, 09:56:12 PM »
The author admits they are not apples-to-apples scenarios, and there are even more differences than he takes the time to mention.  Like leverage.  (What if Sarah borrowed a similar amount of money and invested it in financial assets?  Is she then ahead?)  And risk.  (The mortgage does not shrink if property values take a hit or expensive repairs arise.  If the local economy hits the skids Sarah can give notice and pack a moving van.  Tom may find it hard to secure steady tenants with jobs that can pay the rent, and he can't just up and move his building.)

The investor approach has its strengths but it certainly isn't free money vs. just being an employee.  I have a lot of respect for landlords and small business owners because I think they put in a lot of hard work and take on uncertainty that would keep me up at night.

arebelspy

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The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #5 on: December 07, 2015, 02:34:17 AM »
I got to the end and somehow missed the author's point, if he had one.

Someone explain to me what I was supposed to learn from this?

And was it just me? Or did that happen to anyone else, the "huh?" or "uhhh..okay." moment. :P
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Left

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #6 on: December 07, 2015, 03:02:45 AM »
sounded like he just wanted to push real estate...

his sarah example did nothing to reduce her taxes, his other guy did everything he could to...

plus real estate would be an investment of sorts, why didnt sarah have any? it was tilted against her from the start, at most all she had was 401k that she didnt even max, which he had as well
« Last Edit: December 07, 2015, 03:08:08 AM by eyem »

marty998

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #7 on: December 07, 2015, 03:15:45 AM »
If I respond to the heading, and not having read the actual article....

My 2.05c* would say the higher earner wins in the short term, the smart investor wins in the long term**.

*Inflation adjusted from 2c last year
** Unless you're a Keynesian, in which case you are dead.

arebelspy

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #8 on: December 07, 2015, 03:54:11 AM »

If I respond to the heading, and not having read the actual article....

My 2.05c* would say the higher earner wins in the short term, the smart investor wins in the long term**.

Tentatively agree, caveats and particulars aside.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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albireo13

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #9 on: December 07, 2015, 06:33:33 AM »
My subjective argument would be that the investor wins in the end.

My thought is that he would have "trained" himself to be more frugal and make smart spending/investing decisions.
This would carry well through into retirement.

  The higher earner, IMO, is more at risk for developing bad money management habits.

Rubic

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #10 on: December 07, 2015, 07:36:41 AM »
My take-away from the article:

At $2300 per month in rent + utilities, Sarah needs to find a roommate to lower her monthly expenses.


Bearded Man

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #11 on: December 07, 2015, 08:16:30 AM »
Lol, pay taxes for gun control laws.

okits

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Re: The Higher Earner vs. The Smart Investor: Who’s Better Off Financially?
« Reply #12 on: December 07, 2015, 10:39:21 AM »
My take-away from the article:

At $2300 per month in rent + utilities, Sarah needs to find a roommate to lower her monthly expenses.

I did have the thought that Sarah should hook up with another high earner, who could move in with her.  Save one (or 1.25) income, live on the rest, grow the joint stash at an impressive rate.  Not too shabby!