increasing savings rate vs using your income as an asset?

[lillo9546]

Hi there!
Increasing My savings rate up to 70% it's easy for me, but, since my income is low, and COL would be too low to live comfortably, what if I would lower the savings rate to 10%, and then use 90% of my income as an asset, to get mortgage/ good debt, to get the money flowing to invest in some businesses that could make cash flow, and use the money for events, education, and boost social connections?

I'm still 27, salary it's 15k a year for an employed person like me, and my actual "70% SWR COL", seems to low to make a comfortable living.

Should I istead use "my income as asset"?
If yes, since an employeed person income it's really low, it's fine to SWR 10% or which would be ideal minimum SWR?

[Salathor]

All savings means the person should be investing. No one recommends saving 70% of your income as cash and not investing it.

That said, the fact that you think you should "lower your savings rate" to "use your income as an asset" makes me think that perhaps you're just getting started on the frugality journey. I'd strongly recommend reading The Intelligent Investor, Millionaire Next Door, and the Bogleheads forum for passive investing.

I don't mean to be demeaning; I'm seriously trying to help. If your go-to alternatives are buying businesses or just generically taking on "good debt", then I think you should really take time to learn some more before doing anything. Buying a business MIGHT be a good investment, but I really get a bad vibe from the question and would advise serious caution.

Also, "SWR" means your "safe withdrawal rate." It doesn't change--it's probably somewhere between 3 and 4%. It's the amount of money that you think you can safely withdraw from your nest egg to live forever without depleting it. That means if you want to spend 10k a year, you would need somewhere between $333,000 and $250,000 saved. It doesn't have anything to do with your current income.

Again, just a point from your post that makes me think you should spend a little more time looking into portfolio and retirement education resources. Good luck and have fun saving!

[PhoneticNachos]

Gamifying your savings and investments is a really fun way to earn new "high scores", and seek out alternative strategies.

One thing I like to do after my weekly grocery trip, is to see how much time can elapse before I have to go back.

Longest streak was this summer, when I had a previous stretch of 11 days, then a trip, then a streak of 17 days.

[grundomatic]

Should you leverage up in your youth? Depends on whether you are trying to "get rich" or "be safe".

[delay]

Should you leverage up in your youth? Depends on whether you are trying to "get rich" or "be safe".

When I was young I didn't know much about investing. I remember I invested in an insurer's investment plan and specified bonds as the fund, because that sounded safe. It turned out the bonds did great because interest rates went down. But the insurer had such high cost that I lost 75% of what I put in despite the bonds gaining 50% in value. Because I was young it wasn't a lot of money. And I learned a useful lesson.

Leverage will amplify your results, for good or bad. Why amplify results when you are young and clueless?

[grundomatic]

@delay You are obviously on the "be safe" side. The "get rich" crowd will encourage taking risks when one is young and can recover if it doesn't work out. @Salathor gave the answer I'd expect around here, which is to stop being so clueless. I was hinting that we can't give the OP a good answer if they don't tell us what it is they are trying to accomplish. We probably need to be more explicit with them.

@lillo How will you feel if you borrow money for a mortgage, education, and connections, and then the economy tanks? You lose your job, and then because of that you lose your house and/or have to declare bankruptcy? All your connections can't do much for you other than empathize, because they are in the same position. Ditto for your education, it's not worth much because there are more people with that piece of paper than there are jobs available. Would it matter if I said something similar happened to me? If the upside of appreciating real estate and fancy jobs during the good times is worth it to you, then go ahead, load up on "good debt". It might be good to consider who is encouraging this, how it benefits them, and whether the winners of doing such things are more vocal than the losers.

[frugaldoc]

Turning wage income into income producing assets is the right course to take but it would seem that the best asset to invest in currently would be yourself. I am making the assumption that you are working in a non-emerging market economy. Doubling a $15k income should be quite easy. Multiplying it x10 (if you desire to) is also possible in a handful of years if you assemble the right skills and work in the right industry.

Also with a $15k annual income I believe it would be difficult to find a lender who is willing to lend you money on terms that would allow you to use borrowed funds to turn a profit. Place yourself in the lenders shoes. Why would you suppose a person who only produces $15k of annual personal income is going to have the abilities needed to run a consistently profitable business? Would you lend yourself money?

[Henry]

If you are 27, in thirty years you will look back and see that if you had only invested $500 in something ie a particular stock, asset, or a CBD coated dildo start-up that came to your dirtbag high school buddy in a wet dream, you'd be a multi millionaire. So deal with that now. My advice, don't be greedy. Steady Eddy doesn't win "the" race, but if you are on this forum, it will win your race.

[chenda]

or a CBD coated dildo start-up

This product actually exists. A stocking filler for the ladies...

[Henry]

This product actually exists. A stocking filler for the ladies...

I know. It was my friend.

[chenda]

I know. It was my friend.

Do pass on my regards...and any discount codes...

[7Wannabe5]

@Henry:

57 to 87 offers the same possibilities as 27 to 57.

Also with a $15k annual income I believe it would be difficult to find a lender who is willing to lend you money on terms that would allow you to use borrowed funds to turn a profit. Place yourself in the lenders shoes. Why would you suppose a person who only produces $15k of annual personal income is going to have the abilities needed to run a consistently profitable business? Would you lend yourself money?

It's not the 1940s. You don't have to type up a 10 page business plan, put on a suit, and meet with Mr. Potter sitting behind his desk at the Bank & Trust. It's entirely possible that an AI might offer somebody with $15k annual income a loan simply on the basis of detecting that he regularly posts on this forum

Seriously, I have been offered small business loans on the basis of my rare book inventory on Amazon and simply the fact that I have a degree in mathematics, although my income has been slacker self/semi-employed level for decades. I think there is a tendency to think of starting a business as a committment akin to marriage, with huge pessimistic focus on 50% failure rate and huge amount of money borrowed or saved needed to get started. If you intend to get your overall spending down to 1-eco Jacob/year anyways, starting a business (or 3) to cover that is really not all that difficult or expensive. For example:

1) Dog Walking Business (start-up expense < $1000): Do it 5 hours/week for $400 month income.
2) Green Garden Care Business (start-up expense < $10,000): Do it 5 hours/week. Pay 2 helpers 10 hrs/week for $800 month income
3) Math is Fun! Workbook Publishing Business (start-up expense < $2000): Do it 2 hours/week. Average $200 month income.

Total = $1400 month/working 12 hours week (earning $20/30/hr give or take for leverage and any applicable S-Curve) at interesting mix of stuff you find enjoyable. 1 eco-Jacob = $1200 month PPP, so you have an extra $2400 each year to start another business when 1 of the original 3 fails or becomes less than enjoyable. And, you only need to plug away full-time at some crappy full-time job flipping corporate burgers for $15/hr. for around 1 year to get started. ($30,000 - $12,000 = $18,000 = more than enough to start 3 micro-niche businesses. I started mine with less than $8000.)

Wash/Rinse/Repeat.

[Henry]

@Henry:

57 to 87 offers the same possibilities as 27 to 57.

If Warren/Charlie passed away at my age they would have been financial industry famous. It was their lifespan that propelled them into the stratosphere. BRKB did not invest in AAPL until 2016 but they could do so with huge sums. So on one hand yes. On the other hand, the issue of liability with elderly investors is becoming a real issue for financial institutions. Best to take maximize 27-57.

[theanimal]

I think there is a tendency to think of starting a business as a committment akin to marriage, with huge pessimistic focus on 50% failure rate and huge amount of money borrowed or saved needed to get started. If you intend to get your overall spending down to 1-eco Jacob/year anyways, starting a business (or 3) to cover that is really not all that difficult or expensive. For example:

Yes! There are so many micro business options available once you are able to achieve ERE level spending. It is always surprising to me that there are not more examples here. Part of it is that I think there’s the cultural notion of “starting a business” like you say, meaning that it’s something grand and you should have grand ambitions like its some type of tech startup and requires all the hours that go with it. But if you’re the owner you can do whatever you want. Only want to work a few hours a week? Go right ahead! There is a lady who sells tamales near me in an 8x8 hut. She is open for only 4 days a week, four hours each time or until she sells out. She sells out every time. You could do this with any type of food in a stand, a truck, at a farmers market, at parks etc. @mF made the point to me once that you could just take any street business from the third world, spruce it up a bit and likely do very well.

Another thing that I think limits people here is that many possibilities are outside our collective Overton window. The average ERE person is so removed from the mainstream and so unlikely to depend on others that many services and opportunities that exist aren’t known. For example,I discovered a business called"poopie patrol" that goes around and picks up people's dog poop from their yard. They have multiple options but for one dog at 3x a week it's $143 a month! Find 4-5 lawns in your neighborhood and boom. Startup costs? Use a shovel, some rescued plastic bags and your bike.

Prior to hearing about this, the most ridiculous business I’d heard of is one that comes and folds people’s clothes in their house. They do not do their laundry, you still do that yourself. But once it’s done, they come by and fold everything that’s in your dryer. I’m still not sure whether that or poopie patrol is more ridiculous.

[jacob]

It is always surprising to me that there are not more examples here.

Another thing that I think limits people here is that many possibilities are outside our collective Overton window. The average ERE person is so removed from the mainstream and so unlikely to depend on others that many services and opportunities that exist aren’t known.

I think you answered your own question.

Ultimately, it comes down to a Venn diagram of "fools" and "money" with the overlap being "separating the latter from the former". Since people who aren't fools tend to have a lot of money, being in the overlap is a non-trivial skill(*), since one needs to go beyond "what would I do in this situation".

(*) AKA "sales".

[chenda]

On the other hand, the issue of liability with elderly investors is becoming a real issue for financial institutions. Best to take maximize 27-57.

I always wondered if Charlie and Warren ever gave power of attorney to a trusted person after a certain age so in the event they began to show signs of senility and began investing in the Bhutanese Dry Docks Company they would be gently made to retire.

[chenda]

Yes! There are so many micro business options available once you are able to achieve ERE level spending. It is always surprising to me that there are not more examples here.

I think it may reflect an INTJ/P forum weighting. Much as I like the idea of running a small business I utterly hate any form of sales and like to follow a structured plan with a high degree of certainty in outcomes. All of which tend to go against micro-entrepreneurship.

[Henry]

Whether BRKB went to POA I don't know, but I believe a succession plan is in place and probably operative. I think the idea for the AAPL investment came from within the organization.

My wife sat me down and demonstrated how to fold a shirt. Upon repeated attempts, I could not reach her standards, so although I assist with folding, it is limited to certain articles of clothing. From my perspective, hiring a professional folder is not an unreasonable use of resources. I could see it as a good business for ex-military and origami artists.

[7Wannabe5]

@theanimal:

Exactly. And this is even more true when it comes to opportunities for barter rather than cash. For instance, I lived for free one summer in a house owned by a working-60-hours/week tech manager (just a friend, not a partner), and he was extremely happy with the deal, because I did very minimal housework tasks for him like taking the garbage/recycling out and actually harvesting fruit from his ill-tended garden which maybe took up 2 hours of my time each week. So, I was effectively earning around $50/hr. , but that was cool with him, because so was he, and he simply didn't have the bandwidth for timely accomplishment of household chores. OTOH, I doubt he would have wanted to pay somebody even $20/hr. to be his part-time housekeeper. It's the flexibility of being available at the margin for niche opportunities that makes semi-self-employed ERE fly.

OTOH, in the interest of full-disclosure, based on my experience of multiple failures, the disadvantages of a slacker, low-capital self-employed plan vs. high capital 3%SWR plan would be:

1) The 3% SWR plan will continue to run on its own better even if you are in a coma or disabled with chronic illness that keeps you in pain and in need of quick access to a modern toilet much of the day. Although, one could plan ahead for some eventualities such as these.

2) You will have to overcome the tendency to focus all your current effort on whichever micro-business-barter-opportunity is currently providing best yield. It's important to stay diversified with several independent balls in the air and another in development. Do not slack on your other activities even if you are currently living with somebody who is willing to cover all your living expenses in exchange for being home to accept occasional deliveries and driving the spoiled dog to the specialty vet. Recognize that there is an S-Curve associated with each of your activities; some hustle is required. Be on the lookout for not so obvious inter-dependencies between your activities that could cause them all to crash simultaneously, such as location, technology, physical vigor, social connections.

3) Do not kid yourself that any/all of your attempts will eventually (or soon enough) be successful at creating a yield/profit. There can be a thin line between lifestyle business and fun hobby. Make a spreadsheet or some kind of plan for you to report back to you on the one day per month you put on your own Mr. Potter suit and get bottom-line serious.

[jacob]

Whether BRKB went to POA I don't know, but I believe a succession plan is in place and probably operative. I think the idea for the AAPL investment came from within the organization.

It is/did. Tedd and Tod. IIRC, they got the spot after winning one of those "dinner with Warran" actions. BRK hasn't made a big deal out of it, so I was surprised that the stock price didn't move when Munger died, although at 99, it might just have been already priced in. BRK investors tend to be somewhat diamond-handed. Also, while Buffett enjoys universal name recognition, Munger is only known to actual investors.