this video is made possible by squarespace check out the link in the video description to save 10 off your own professional website it's a new year so i want to start this video off on a positive note you will never be rich i know i have said this before but it's not something that people hear enough statistically based on the demographics of people who watch my videos most of you are from advanced countries so you will be doing well by global standards but you still won't be rich the one percent is exactly that one percent
of the population even if you do everything right even if you save regularly even if you invest wisely even if you binge watch finance channels and even if you were lucky enough to be born in a country with some degree of social mobility you probably have a 1 in 10 chance of making it at best so why aren't we taught this more often well because people don't like to hear it it's much more fun to binge watch channels or read books that promise that if you do this you will be rich if you learn to
manage real estate you will be rich if you turn credit cards you will be rich if you live below your means you will be rich it's easy to see the appeal but how many works is where dreams come to die so to kick off the new year i want to look at a few reasons why you will never be truly wealthy so it's time to learn how money works which was made possible today by squarespace the most powerful website building tool for both professionals and amateurs alike squarespace allows anybody to create and host beautiful looking
websites but you probably already knew that what you might not know is the utilities available out of the box with squarespace's development tools if you are building a website for your brand squarespace offers incredibly powerful inbuilt analytics tools which can let you track everything from how long they are spending on your site to what menu item people are most interested in these insights can make all the difference to a business trying to figure out what works and what doesn't detailed analytics is just one of many tools at your disposal when building a website with squarespace
so make sure to check out squarespace.com for a free trial and see for yourself what kind of website you can put together when you're ready to launch you can use my link to save 10 off your first website or domain the first thing i should probably do after crushing your dreams is to define what rich actually means the millionaire next door by thomas stanley and william denko is considered by many to be one of the best books on personal finance ever written the authors surveyed american millionaires and found that most successful people fall into two
broad categories under accumulators of wealth and prodigious accumulators of wealth they made this distinction based on a simple formula which multiplied their annual earnings by their age by 10 percent and compared that number to their net worth if a 50 year old was earning a hundred thousand dollars a year then that income could be run through this formula to give us an expected net worth of five hundred thousand dollars if the individual in question had a net worth greater than this amount then they were said to be a prodigious accumulator of wealth if they had
a net worth below this amount then the author labeled them under accumulators of wealth it's a simple premise but there were a few obvious problems a 22 year old graduate going into fifty thousand dollars per year shouldn't expect to have a net worth of a hundred and ten thousand dollars the authors did point this shortcoming out themselves and they said this distinction was more a tool to be used to measure the wealth accumulation success of people in their late careers or early retirements but that's not the biggest issue the biggest issue is that this system
doesn't truly reflect what financial success looks like the message of the millionaire next door is that most millionaires look like regular people who might be living next door to you in this book a millionaire was defined as a person that has a million dollars worth of assets outside of their primary residence the authors argue that most millionaires got there by being good at saving money rather than being good at earning money the majority of millionaires lived in blue collar suburbs drove regular cars and avoided spending money on vanity items like designer clothes and fast cars
it's easy to see why this book is popular the idea that a regular person with a regular job can be a millionaire is by its nature broadly appealing to most people and before i go any further i want to stress that i love this book it can teach you some really important lessons about financial traps that too many people fall into but i'm sorry to say it again but you will still never be rich naseem talib a finance phd and former hedge fund manager pointed out that the book had major issues with selection bias if
you survey a group of people then most people are going to live in blue collar suburbs because most people live in blue collar suburbs if you survey a group of people then the most popular car is going to be the ford f-150 because the ford f-150 is the most popular car in talib's opinion the way that stanley and danko conducted their survey on american millionaires was backwards what would have been more insightful would be a survey of the suburbs that have the most millionaires the cars that have the highest portion of millionaire ownership and the
careers that produce the most millionaires there are more millionaire plumbers than millionaire surgeons but that's simply because there are more plumbers if you want to be a millionaire you are much better off pursuing a career as a surgeon the book's message that anybody can get rich if they are financially disciplined just simply isn't true and that has a lot to do with the way that you define rich a one million dollar net worth outside of your primary residence is certainly respectable it was even more respectable back in 1996 when this book was first released but
critics argue that this doesn't make someone rich if you need to survive off the passive income from that money then you would need to apply the four percent rule the four percent rule is based off the trinity study which back-tested an investment portfolio to see how much you could draw from it every year without the value of that portfolio going to zero the study concluded that if your portfolio was well invested then four percent was the upper limit of what you could take out without slowly digging into the principle my good friend richard over at
the plain bagel did a much more detailed video on this last month so if you're interested in the math behind this four percent rule then go and check that video out anyway would you consider an income of forty thousand dollars a year rich i know i wouldn't assuming you had fully paid off your house you could probably make yourself comfortable outside a very high cost of living areas but you are going to have to make certain sacrifices almost anywhere you live here in the states yes most people can move to low cost of living areas
and then scrimp and save to put a million dollars away for retirement but calling the millionaires next door is a bit misleading even calling them financially secure might be a bit of a push nasim talib again pointed out that this book was written in 1996 and was based on a survey done throughout the 1990s the millionaires that got there through thrift as opposed to high incomes were heavily assisted by markets that had been favorable to them for two decades prior had the survey been conducted at the end of prolonged downturns like 1935 or 1982 it
is unlikely that the thrifty millionaires would be as well represented prolonged downturns push the balance of earning versus savings in favor of the high earners average workers are more likely to be laid off during these periods and high income earners will be able to take advantage of cheap asset prices the inconvenient truth is that if you want to get rich you need a high income why don't you hear this more often because it doesn't sell well a personal finance channel here on youtube would immediately lose 90 of their audience if they said that this only
works if you are making six figures the millionaire in palo alto is not as intriguing as the millionaire next door and nobody wants to buy an online course on building wealth through a 40-year career in medicine the dream that anybody can become rich through thrift is just that a dream the millionaire next door is still a great book because it can teach you a lot about some very common financial traps that people fall into but you are best to think of it as the financially comfortable couple next door although i get i am a youtuber
now so i understand the importance of a catchy title alright what if you are lucky enough to be in a high income career or run a successful business surely you will have your personal finances in check then right wrong most high income earners are unfortunately just as financially unstable as their blue-collar peers there are a few reasons for this the first is lifestyle inflation as you age and progress throughout your career you should hopefully make more money as you gain more experience and take on more senior roles it doesn't always work out like that but
for most people this is the career game plan a shared house and a piece of car is great when you are a broke college student but once you have a family and a job you are going to want a house all on your own with a car that can reliably get you to work and your kids to school if you are lucky enough to get promoted you are going to need nice suits a bigger house and an imported car to park in your reserve spot at work your partner might choose to stay home with the
kids so you can focus on your careers demanding schedule they do it because they know that they will go on an overseas vacation with you every year to catch up on lost quality time many personal finance personalities make it sound like succumbing to lifestyle inflation is a personal shortcoming but many of a lot of these expenses are far from optional it's getting better these days but if you want to take your career seriously as an investment banker you are going to need a very nice wardrobe you are going to need to live in a very
high cost of living city and you are going to need a stay-at-home partner or hired help to take care of domestic duties while you are working 100 hour weeks investment banking is where i have personal experience but the same financial sacrifices need to be made for a career in big tech medicine law or to start your own business there is also the personal sacrifice to consider with these careers nobody goes into investment banking or big tech because they love corporate consolidation or stealing people's data people go into these competitive and demanding careers because they pay
well these people want a well-paying job so that they can enjoy the finer things in life so are we all just destined to be on the precipice of financial ruin for our entire lives well yeah sorta the dream you have been sold of reaching financial independence and then never having to worry about money again for the rest of your life is never going to come through the richest among us spend more time worrying about money than the poorest so this begs the question does making more money actually make you happier fortunately you can find out
in my video where i look into two major studies which have actually applied the scientific method to the old adage that money can buy you happiness so if for some reason you actually enjoy these videos dedicated to shooting on your dreams make sure you go and check that one out thanks again to squarespace for making it possible for everybody to keep on learning how money works
