Reply to Making $500k and not feeling wealthy in NW

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[quote=Anonymous]There's an answer, but you might not like it. $500,000 or ordinary income after taxes leaves you with what, maybe, $300k? So, figure you could make some sacrifices and maybe get by spending about, let's say hypothetically, $240k a year to be comfortable in DC. Now, figure that you could enjoy a comparable lifestyle in a lower cost jurisdiction for half that amount - I'm thinking places like Panama City, perhaps Barcelona, Spain, or if you don't care to go that far afield, maybe Omaha, Nebraska. You'll have to search around for a jurisdiction you like, but that's cheaper than DC. Say you can cut your costs down to $120,000 a year, after tax, without sacrificing lifestyle, but yes sacrificing living in DC.

Your next step is to make it your absolute number one priority to build a portfolio that will deliver an after tax yield of $120,000 a year, and that will keep up with inflation. There are plenty of tax-advantaged investments that trade on the New York Stock Exchange and that will pay 6% a year in dividends, and that will grow dividends by over the rate of inflation over time. So, you're talking about a portfolio of maybe $2m - but the net worth of the portfolio is not the main point. The point is YIELD.

Your third step is to become a cheapskate and plow every single penny you can into your portfolio of income producing assets. I assume you own a nice home somewhere in NW. Rent it out, move to a cheaper place in a crummy but not too dangerous part of town, or find the smallest ugliest house you can in a nice part of town. Maybe claim depreciation deductions on your larger house. Pocket the difference between your rental income and whatever you end up paying to subsist like a cheapskate, and plow it into other income producing assets. Look into master limited partnerships, real estate investment trusts and dividend paying stocks. Or, if it works out to rent your house out, take out another mortgage and buy another house or apartment in DC to rent out to someone else. Or maybe diversify a bit - you can buy cheap apartments in Miami and rent them out for a bundle as vacation rentals. Pick up three or four of those, maybe. There are plenty of opportunities to get assets that will pay you cash money each month or quarter, and that will pay you more each year. Do the research, and get comfortable taking calculated risks.

Drop private school, and send the kids to a decent public school. Explain the reason why is to save money and become financially independent. They'll get it. If not, teach them.

Never vacation, or eat in a restaurants. Buy food in bulk, and get free clothes and supplies whenever you can - think freecycle, and thrift shops. Plow every last cent into your investment portfolio.

Earning law firm money is fabulous - if you are obsessed to the point of mental sickness with the idea of saving and investing, you'll hit the $2m mark in a few years - or I should say, you'll be able to build a portfolio that kicks off $120,000 a year after taxes.

Once you finally do have that portfolio in place, quit the rat race, and move somewhere cheap and pleasant. You can pursue other hobbies instead of law - open coffee shop, whatever.

I am not making this up. I slaved for years at two of the largest law firms in NYC, and lived in a room above a nightclub with one window facing the garbage can storage area. I ate all my meals at the firm cafeteria because food was subsidized there. If I found $20 on the street, I'd pick it up and walk up to my brokerage firm, deposit the cash, and invest it in whatever I could invest in that wouldn't cost me commissions and that had a steady and growing income stream associated with it. On average, I lived on roughly $1,525.00 a month, even though I was earning $700,000 a year.  I only wanted one thing - get out of working at an office. Especially law firms, which I hated from my second week as a first year associate. It was easy for me to save because I hated the rat race more than I loved eating in restaurants or buying new shoes.  I bought stocks and mutual funds virtually every few days - whenever I got my monthly draw, or a dividend check came in. I retired a few years ago at age 41 and have never been happier. I still save a lot, but now I'll eat in a restaurant from time to time (no appetizers or drinks or deserts), and we take vacations whenever our son's school schedule permits (but only to places where the dollar is strong and airfare reasonable).

Getting rich is no picnic, but if you guys are really earning $500k a year, you could be in my position easily if you're willing to live fantastically below your means, take some serious investment risk, and master the art of dividend growth investing.

Hope this helps. [/quote]

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