Tag Archives: rich

How to Get Rich Long

Good luck on getting rich quick. I gave up on that dream long ago. But getting rich (not super duper rich, but relatively compared to the rest of the U.S. population rich) is within reach for everyone. It really comes down to making more than you spend, spending less than you earn, earnings as much as possible when you’re as young as possible and investing that as quickly as possible into index funds.

Yes, it’s that simple.

If I could do it all over again, I’d get a job at the youngest age I legally could and start contributing as much as I could to a ROTH IRA each year. The best time to contribute to a ROTH IRA is when you’re making next to nothing. Why? ROTH IRAs are taxed up front, meaning if you’re making $10k a year you are not paying a whole lot in taxes but you’re still eligible to max out the ROTH IRA. Even the NY Times agrees with me.

Unfortunately, when I was 14 I had no idea what a ROTH IRA was, nor did I understand the magic of compound interest in terms of how it applies to personal finance over the years.

Let’s say a 14 year old contributes the maximum to her ROTH IRA (just $5500 a year) from age 14 through retirement. This smart gal wants to retire at 75. If she begins investing $5500 a year at 14 for 50 years, she will have $1,272,055 in retirement. That’s a lot, and should be enough to inspire kids to start saving young. But that’s with 5% ROI compounding annually. What if the stock market performs even better? Say, over 50 years the stock market is up 10% YoY on average? That same investment will be worth $7,687,296 at retirement.

Forget about inheritances, there is nothing more helpful for your children then to support them in maxing out their Roth IRA from the youngest possible legal age.

While it’s not possible for every family, offering your teenager a match on their earnings as long as they commit to putting what they actually earned into a Roth IRA, up to $5500, is a good way to start. If not possible to do a full match, think about what you can afford to match (50%?) to encourage them to save. Also, create charts which show them how much their dollar today will be worth in 50 years. While teens want to spend now more than later and aren’t thinking about their golden years yet, letting them know that your help could turn them into a millionaire in retirement by saving just $5500 a year will go a long way.

I wish the government would offer this program for youth — you earn $5500 and we’ll match it by putting $5500 into your retirement account. I guess that’s social security, but it’s not a 1 for 1 match. This should be a program for people under the age of 21 to teach them about the value of savings and give everyone a head start for retirement. I don’t know how that would work, but it would certainly help out families that cannot afford to match their children’s contributions.

Even if your kids can put away just $1000 per year in a Vanguard STAR fund, this will go a long way in retirement (though I recommend maxing out the Roth IRA every year from age 14 on.)

So you didn’t start a Roth IRA at 14?

Investing ASAP, whenever that is, will help you get to wealth. For better or worse our economy is set up where riches only come with some risk. If you don’t take risks, you may very well lead a comfortable life, but it’s unlikely you’ll be rich (unless you have a trust fund.)

If you give yourself 40 years until retirement at a 5% YoY return rate, you’ll have $736k when you retire at 65 (and start investing at 25.) A 10% YoY return rate will give you a nice $2.9M in retirement. Given that today people should try to reach $2M before retiring, starting investing at 25 at the latest is an ideal move.

Ultimately, if you wait longer to invest, you have to invest more per year in order to catch up. That can be very hard when you’re not earning a lot in your 20s and then if/when you have kids and find it harder to save in your 30s. Starting early when you are supported by your parents but can still earn and invest the best way to prepare for retirement, so you don’t even have to think about it beyond the $5.5k annual contribution throughout your life. You can also start to max out your 401k if you have access to one ($17.5k) at some point, but there will be less pressure on doing this and you can enjoy your money when you’re still young enough to travel and have a very active life.

Rich, IMO, is not about the $ amount you have in the bank, but about the financial security you have so you feel comfortable spending money NOW to enjoy life. This is not the same as wasting money on frivolous luxury items (though if this makes you happy and you have saved for retirement and your other basic needs, then go for it) but this means being able to afford a house, a car, family vacations, dining out every once in a while, and the lifestyle YOU want. That’s what “rich” is. Working towards reasonably hitting $2M in retirement (which again, is very possible if you start at age 14 – 20), will make you rich.

Update: Tax Benefits only the Rich Enjoy

One of my readers, Jake, posted a thoughtful response to my post 10 Tax Breaks Only the Rich Enjoy noting that my explanations were factually inaccurate. I thought he had some really good points, so I wanted to address each below. I also want to clarify that I do not necessarily have anything against rich individuals who worked their way up to obtain wealth. The problem is that once a family has money they can maintain that money within their family for generations, with many “trust-fund babies” not having to earn their wealth. Also, I have a problem with tax loopholes that are designed to only benefit the wealthy yet that are useless to the middle class.

(Side note: I think that federal and state income tax should be adjusted for cost of living per county. It is obscene that a San Francisco household should have to pay the same effective tax rate to someone in Fresno where cost of living is much lower. $300k in AGI for a married couple is a lot in many regions of the country and in others it is squarely in the middle class. Thus, income tax brackets should be adjusted for cost of living. I’m not sure if this could work, but it would make a lot more sense then the current tax system.)

===========================================

Jake wrote: “Sorry, but most of this applies to the 0.01% of income earners, not the 1%. Additionally, a lot of what you outline is misleading. I’ll address each section.”

While many of these tax breaks are most beneficial for the .01%, the .05% and yes even the 1% get more out of many of these tax breaks than people with middle class incomes. The super, super rich get the best tax breaks of all.

RE: The Rich paying 0% on Capital Gains Tax

Jake: I don’t know how you got 0% capital gains tax. Not only do the rich have to pay capital gains tax, but they pay it at a higher rate because of their income.

The really rich do not pay capital gains tax at a higher rate. How can this be? Most people who aren’t extremely wealthy have to work and work for pay. When we work, we generate income. This income is what defines our capital gains tax rate. The top capital gains rate for the wealthy is 20%. So how are some getting away with not paying any capital gains tax?

The super rich do not need to generate income. If an investor is in the 10% and 15% tax bracket for income, then s/he pays 0% in capital gains tax. This means that if someone has enough money to sustain them via investment growth and dividends, s/he never has to earn income and can stay in the lowest income tax bracket, thus withdrawing any dividends and gains on investments at a 0% capital gains tax rate.

Thus, my point is that capital gains tax rate should be the same for everyone, not based on income levels, so that way no one can cheat the system.

RE: Mitt Romney paid just 15% federal income taxes despite making way more money than someone in the top brackets

Jake: Yes, Mitt Romney paid 15% in federal income taxes, but most Americans making 50-75k paid 7.8%. Someone that makes 100-200 paid 12.1%. The kicker? The bottom 50% of income earners paid 0% in income taxes. It puts Romney’s 15% in context. These are facts.

This isn’t about the bottom 50%. Yes, in our society people who make money pay tax to support services for people who are unable to make enough money to live, true. But the actual problem here is not about the bottom 50%. It’s the fact that the middle class is disappearing due to loopholes like this only available to the super rich. If you make $100,000 a year (single filer) you will pay 21.18% of all of your income to federal tax. If you make $200k, you’ll pay 24.93% of your income to federal tax. At $300k a year, that’s 27.62% to federal taxes. But if you’re super rich and in one of these jobs where the loopholes are available, you can pay much less while earning much more.

RE: Home deduction tax benefit is much better for the rich than the middle class

Jake: “Yes, the rich enjoy the home interest deduction along with 67% of America. The rest of Americans can also deduct the full amount, while the PEASE limitation reduces the amount that the rich can deduct.”

True. However, the way taxes work, the wealthy are getting a much bigger benefit to purchase property over the middle class. If the wealthy haven’t taken advantage of the former loopholes, basic math tells us that the deduction for the rich is going to be greater than that for the middle class. “One of the unfortunate and largely unintended effects of structuring tax benefits as deductions or exclusions is that they tend to provide much bigger tax benefits to those in the highest tax brackets. For a wealthy taxpayer in the highest tax bracket—now 39.6 percent—a $10,000 itemized deduction, such as one for mortgage interest, results in $3,960 in tax savings. For a taxpayer in the 15 percent bracket, however, that same deduction is worth only $1,500.” (source) Yes, the PEASE limitation is helping this a bit, but the mortgage interest deduction still percentage-wise much greater benefits the wealthy over the average middle class person.

RE: Giving to charity to preserve family wealth

Jake: “This just doesn’t make sense. How can you knock giving to charity?”

Answer: Because “giving to charity” is not always actually giving to charity. For example, the Walton family, heirs and heiresses to the Walmart fortune, are using this loophole very smartly to preserve their wealth over generations. With a fortune worth $115.7B, the family is set for at least a few generations, and tax laws help them ensure this.

How is this possible? The Waltons and many other super rich families use a charitable trust that allows the donor to pass money on to heirs after an extended period of time without having to pay estate tax! If a donor locks up assets in charity  trusts (CLATs) for a long period of time an amount set by the donor is giving away each year but whatever is left goes to a beneficiary TAX FREE. Just one of the charitable trusts would result in $2.2B for Walton heirs, without owing any tax on it. (source). While most people won’t have to pay estate tax anyway (your estate needs to be worth more than $1M before estate taxes begin to be levied), it is the super rich that the estate tax is designed for – to ensure that people aren’t just living off their family’s wealth and never paying a cent to support the government or working a day in their lives.

RE: Deduction for private jets

Jake: ‘Not many 1%’ers own private jets. That’s for corporate CEOs, professional atheletes and entertainers….many of the 0.01%”

True. This is probably relevant only to the top elite only. Nonetheless, it’s still a tax break the super rich enjoy.

RE: Fake-Out Agricultural Tax Credits

Jake: Anyone who owns a home can do this (67% of America), not just the 1%

Each state has its own rules on how individuals who own property can take tax credits for agricultural use. The point is not whether anyone who owns a home can take these credits, but how the credits are much more valuable for people who own expensive homes and properties. Another example of this – in NJ, fake farmers are costing the state millions of dollars. The Farmland Assessment Act of 1964, intended to preserve agriculture in NJ, is being used by millionaires, developers and anyone with at least five acres of land to slash their farmland tax bills by 98% — all they need to do is produce $500 in goods per year to qualify for tax breaks. For instance, one person used a cow to eat the home’s front lawn for a few months and then sold the animal, enabling the individual to take the tax break on their five acres.  Even Bruce Springsteen takes this tax credit. While he pays $138k a year in taxes on his own home, he owns an additional 200 acres which he has a farmer come and grow a few tomatoes so he doesn’t have to pay a lot of tax on this land (only $4639 per year.) (source)

Thus this tax loophole doesn’t benefit 67% of America who own property, but only the super wealthy who own more than five acres of property (rules vary per state but generally this is designed to help the super rich fake farmers only.)

RE: Rental Property Tax Benefits

Jake: Anyone with a rental property can do this type of exchange, not just 1 percenters.

Again, you’re spot on Jake. Anyone can take advantage of the tax loophole which enables them to purchase rental property and do a like kind exchange to trade it for property worth the same or more without paying taxes. Now, only the rich can afford to do this enough for it to make a big difference. For example, as someone with $300,000 networth, I invest in real estate via REITs. When I sell a REIT I must pay capital gains tax on this REIT, even if I want to purchase another REIT. I cannot just trade this without paying any tax. Also, I could own rental property and do a like kind exchange, but with $300,000 total in networth I’m not going to be able to purchase enough property for this to really help. Since wealthy real estate investors can do this over and over again (there is no limit for how many times they can trade property without paying tax and taking deductions for depreciation of their owned properties on sale) in the long run they will only pay capital gains rates on the property sold last.

But if you’re really rich, you never have to sell this property when you’re alive! You can pass this on to your children tax free. The basis which your children will pay tax on upon sale of the asset is determined not by how much you paid for the property in the first place, but instead how much it was worth on the day you die. Assuming you were a very smart investor and used like-kind trades throughout your life, you could have significantly grown your real estate value over time, enjoyed depreciation deductions, and then pass on the property tax free to heirs who can sell it for the amount it’s worth on the day of your passing. Most people cannot afford to keep so much of their networth locked up in investment property, but the super rich can.

So, Jake, as you see, much of my points have to do with how these tax benefits mostly help the super rich. This may not be the 1% but at 1% you start to experience some of these benefits. Once you have a certain amount of money in your family, though, you can maintain it for many, many generations through these loopholes.

 

10 Tax Breaks That Only The Rich Enjoy

Ahh, what’s that smell? American Greed?

We 99%ers love to call out the 1%. Some get to the 1% with hard work and luck, but many are placed there due to being born into privilege and likely a sizable inheritance. Others weasel their way into wealth. Few can get there in a way that wouldn’t make some “kooobaya-type god”scream mercy. Regardless of how the 1% made it to the top of the fiscal food chain, they can enjoy a whole host of benefits staying there — private jets, beautiful women, more beautiful women, houses, yachts, and — last but not least — some really tricky tax breaks so they can just keep accumulating more and more wealth!

Here are 10 tax breaks that only the super rich enjoy. Read ’em and weep.

  1. Income Tax, Smincome Tax
    The rich don’t need your stinkin’ income. CEOs can come out and say they’re going to take a $1 salary and the masses think that they’re being just so damn humble and giving. Not so. While us lowly folk have to work and get paid salary to do things like eat and have a roof over our heads and pay for our kids piano lessons, the rich can take their heaping savings and put it into investments that compound over time. Good thing these folks are not actually earning any income because that means they can enjoy 0% tax rates on all of their capital gains. The best us lowly folk can do is attempt to put together an investment plan that eventually provides us with enough dividends and capital gains to also take out our money tax free, even if we never have an army of beautiful girls/men and/or private jets (source)
  2. Taxes Are for Losers (AKA Poor People)
    Some rich folk work in fields like investment banking, private equity management, or real estate partnerships. Not only do they get paid a lot off the bat for these roles in terms of total compensation, their pay is not in the form of that same lowly income you and I see deposited into our bank accounts every few weeks. These modern-day royals get to be paid in a “carried interest” which is – somehow – usually taxed as a capital gain instead of ordinary income. That means these richies are paying 20% taxes to the federal government on all of their earnings. Even Mitt Romney managed to pay 15% taxes for his great service to our country as head of Bain Capital (yea, aren’t you glad he didn’t become our president?) (source)
  3. Home is Where the Cash Is
    The government wants to encourage home ownership because this means the country is more stable, generally speaking. Thus, big brother provides tax incentives for home owners of all wealth levels (as long as you can afford a house.) However, the best writeoffs go to the super rich. The mortgage interest deduction lets taxpayers who itemize deduct the interest they pay on their home mortgages. The way the program is set up, the more expensive the home and the higher the homeowner’s tax bracket, the bigger that subsidy is. (source)”Less than one-third of taxpayers are able to take advantage of the deduction—it is restricted to those who itemize their deductions, a group that skews toward the upper end of the income distribution. Also, the benefit is tied to the marginal tax rate of the taxpayer and so has higher value to those with higher income. For households making above $200,000 a year, the average benefit is $1,784 a year in tax savings. For households earning $65,000 a year, the deduction generally yields less than $200 in tax savings.”  (source)
  4. That Foggy Definition of Charity the Rich Love
    Oh, what wonder, a 1%-er is donating something to charity. That’s great, if genuinely done to help an organization, but often the reason for donation is not exactly out of good will. It’s horrible to say but many charities are corporate scams. Seriously. Let’s take a look at Walmart. The Waltons, owners of Walmart, are using “Jackie O” trusts to both give money to charity AND pass on money to future generations without paying estate taxes. Oh, and did I mention they’re doing this all through their own charity, The Walton Family Foundation? This is perhaps more disturbing than the other tax loopholes because wealth dynasties are why inequality is cemented into American culture. (source)What’s more, “generally, you can deduct the fair market value of property you donate to charity if you’ve owned it for more than one year and the property is used to further the charity’s tax-exempt function. Thus, the appreciation in value is untaxed forever. The tax law limits the annual deduction for gifts of appreciated property to 30 percent of AGI, but that still provides a gaping tax loophole.” (source)
  5. Beam Me Up and Around and Around Scotty
    Geez, private jets are just so damn expensive. But how else are the rich supposed to get from point A to point B? Not with the underlings, by god. There is a special subsidy for corporate jets which cost taxpayers $3 billion a year. Yes, a common tax trick and CEO perk is to pay for private jets under the guise of security (because what if a poor average flight attendant accidentally spilled coffee on their Prada suit during a turbulent flight???) If a benefit is classified as for security purposes the CEO will pay a reduced tax bill or no tax at all on the bene. (source)
  6. Mooooooooooooooooooooooooooooo. Mooo. Mooooney
    I feel like we should just let this tax write off slide for the sheer fact of it being so ridiculous. JK. This will make you want to go tip some cows. In states like New Jersey, Florida, Texas, Iowa, Colorado, Alabama and more, farmers can take a tax deduction for their service feeding our great nation. That is, even farmers that aren’t farmers at all. According to an article in The Nation, that’s what Michael Dell did with his second home—a suburban ranch in Austin. Because he hunted there periodically and maintained a “well-managed deer herd,” he was able to reduce the property’s 2005 market value from $71.4 million to an agricultural value of $290,000. That saved Dell—but cost Texas—$1.2 million. Florida has a well-known “rent a cow” program (I kid you not.) What is this cow business? To qualify for the tax writeoff, Florida requires a couple of cows or a herd of goats, which don’t have to be on the property all the time. So you have wealthy people paying next to nothing on property tax because they own lots of acres and can afford to rent a few cows.  (source)
  7. John Edwards and Newt Gingrich Walked into a Bar (and didn’t pay any tax)
    This one is a doosey and surprise surprise it involves politicians again. Slime of the earth. Payroll taxes are supposed to be paid on income from work, with social security payroll tax paid on the first $113k in earnings (as of 2013) and medicare payroll tax paid on all earnings. Except S corporations, which are made up of a partnership of self-employed type folks, don’t need to qualify all their earnings as payroll, and thus it doesn’t need to be taxed. This one gets a bit complicated to explain, so just check out this writeup to get the full picture of how dishonest richies can get away with legal tax loopholes that only benefit the 1% (source)

    • Newt Gingrich: In 2010, Gingrich Holdings, Inc and Gingrich Productions paid Newt Gingrich$444,327 in wage income while declaring $2.4 million as profits of the S corp. This allowed Speaker Gingrich to avoid $69,000 in Medicare payroll taxes. [Wall Street Journal Market Watch, 1/23/2012]
    • John Edwards: Senator Edwards earned $26.9 million from his work as a trial lawyer in 1995. He paid himself a salary of $360,000 each year for four years and took the rest as distributions from his S corp. This saved Senator Edwards an estimated $600,000 in payroll taxes. [New York Times, 7/10/2004]
  8. Selling a House and Paying Taxes?  Yea, Right.
    Even average American homeowners can take $250,000 of their home price increase tax free ($500,000 for married homeowners) which is a pretty good deal after years of fixing broken air conditioning systems and having termite genocide parties. But the real tax benefit for housing is only available to the super rich (surprise!) A 1031 Exchange, also called a like-kind exchange, enables real estate investors to trade the equity in one property to another property of equal or more value without having to pay taxes (yes, you heard me right.) The taxes will need to be paid eventually, but the investor, in the meantime, gets to reallocate their portfolio and you can still take a depreciation tax write-off on your properties that are being exchanged. There’s no limit to how many times you can do a 1031 exchange. Since the rich are doing this with their real estate investment property (you can’t do this with personal property, sorry 99%), when they do sell it eventually they’ll sell at the capital gains rate. (source)
  9. Tax Breaks (i.e. Itemization) Seriously Favors the Rich
    There are many different tax deductions available to take. But, of course, in order to take a deduction, you must itemize your taxes. While itemizing makes financial sense for high-income Americans, it does not for low ones. This means that deductions are mostly utilized by the rich. Only about one-third of Americans itemize their deductions, and they are mostly the well off. In 2010, only 29.3% of those making between $30,000 and $50,000 itemized, but 96.8% of those making $250,000-plus did. (source)
  10. One Home is Just Not Enough
    Speaking of itemized deductions, owners of two homes get to write the mortgage of their second one off as well, as long as they itemize. It turns out this tax benefit isn’t for folks who own tiny little vacation bungalows by the shore or middle-class lakeside cabins. Nope, the main benefactors are the super wealthy. Just to rub salt in the wound of us reg’ies, rich folk can DEDUCT THE INTEREST PAID ON THEIR LUXURY YACHTS (fyi that clink-clanking you hear is the sound of me kicking all the buckets in the world.) As long as these boats are equipped with sleeping quarters, a kitchen and a toliet they can deduct the mortgage debt on these “homes.” (source)

 

One Reason the Rich Get Richer: Accredited Investors

There’s been a lot of focus on the 1% over the past few years, with the unemployment rates still high and wealth growth only stable across the richest individuals in the world. One of the most cited reasons why the rich get richer are all the tax loopholes, and these, indeed, help millionaires and billionaires get richer. But one thing that isn’t talked about a lot is “accredited investor” status.

To be an accredited investor, according to the SEC,  must be either a corporation or:

  1. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person
  2. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year

In other words, accredited investors are the 1%. If you’re not already in the 1%, this rule makes it harder to get there. For people who took risks early in life, built companies from the ground up, and became millionaires from their own hard work, this is all fine and dandy – they clearly deserve the privileges availed to accredited investors. However, many with this status have $1M+ bank accounts thanks to mom, dad, grandpa and grandma. And as long as accredited investor status exists, the wealth chasm between the rich and the poor will continue to grow.

I recently worked for a startup that was sold to a large company that has since went public. While I did not own a large number of stock options (2000), I was not eligible to transfer my shares to shares of the acquiring company because I was not an accredited investor. Instead, I had to sell my shares for $3 a share, netting a profit of $5k. This was a nice bonus, for sure, but had I been able to convert my handful of shares into the now-public companies shares, I would have netted approximately $52k.

The idea being accredited investors is that you should have a large cushion of money to take on high risk investment opportunities. In this case, it was very clear that the risk in converting my 2000 shares to 2000 shares of the acquiring company’s stock would have not been high risk, but it kept me from making this conversion.

In the case of my prior company, I am not upset about this since the company was ultimately acquired for its technical resources, and I was not one of these resources, but it is still a little disconcerting that in a company of 10 full time employees, where more than half are millionaires, the rest of employees do not have access to the same wealth. This is more concerning in my current situation where I traded in a somewhat cushy six figure salary for a job with many more stock options. Should a similar situation happen again upon an acquisition, there would be greater cause for upset.

Beyond this specific instance, there are many other reasons why accredited investor status helps the wealthy get richer. Accredited investors gain access to a variety of investments that, while risky, are often not that much riskier than the investments that one can make in the traditional stock market, and, more importantly, they have a much higher growth potential.

As with any investment, diversification is key to success, so if you’re not a millionaire it might be difficult to properly diversify. This is the only reason I understand the rule and find it remotely fair, but again, there are many high-risk investments that aren’t limited to the wealthy… it’s just the high-risk investments that have high-return potential that are limited.

  • If you fit into this category you may be eligible for many investment opportunities such as hedge funds, commodity funds and special public funds that other investors are not allowed to participate in.
  • The key is that many higher risk, and thus higher reward, investments are only available to qualified “accredited investors.”
  • The main benefit to qualifying is that you gain access to investments, and greater returns, that “average” investors can not access.
  • Quite simply, it comes down to convenience and privacy for the investment managers. By marketing securities only to accredited investors, a fund or company can avoid many of the filing requirements to which most public companies are subjected.
One benefit of being an accredited investor is being able to be an “Angel” investor in a very early stage company. This is indeed one of the riskier investments, thus not something I’d recommend to a person who has a networth under $1M. Some famous investors such as Ron Conway and Paul Graham are well diversified, having made 190 and 129 angel investments, respectively.

Angel investments can range quite vastly — the typical investment of an angel investor ranges from $10,000 to $250,000; however, they are known for investing up to $1.5 million dollars in any given venture, according to Go4Funding. To invest in 100 companies for $10k each, that is $1M, thus making the $1M accredited investor rule make a little bit of sense. Still, I believe that the government should not be able to tell you if an investment is too high risk for your portfolio. If I want to invest $10k of my personal funds into a startup that I think has a lot of potential for growth, I should be allowed to do this. In reality, I had to pay $20,000 to “buy” my stock options of the private company that I work for, but I would not be allowed to invest in a company that I do not work for because I only have $150k in assets.

Meanwhile, there are other investment opportunities open to accredited investors that are less risky than angel investing. For example, let’s take a look at Second Market. Second Market is a company that helps owners of private stock sell their stock before the company goes public. So, for instance, an accredited investor could purchase shares of Facebook stock before it goes public for a price which she believes will be substantially lower than the price it will go public for. The investment is risky — a private company may never go public despite its success, and it is not clear on what the price will be when it hits the market even if it does — but ultimately most of these investments in big, fast-growth private companies net investors serious growth.

According to SecondMarket, “For regulatory reasons, in order to view listings and place indicative bids on securities through SecondMarket, you must be an Accredited Investor or Qualified Institutional Buyer (“QIB”). However, you do not have to be an Accredited Investor or QIB to list your assets for sale.”

In short, this is one major reason why the rich get richer, and the rest of us are unable to access the same investment opportunities available to the 1%.

I’m not alone in this outrage. There is a movement afoot to allow the 99% to invest in startups. A law is currently in Congress that would allow the rest of us to invest up to $1,000 in private companies. While I believe that the government should not be able to limit investments to $1,000, it is a start. Please do your part and sign this petition to support crowd funding. It is a small step in the right direction.

Happy Holidays from your Favorite Agnostic Jew!

It’s that time of the year again. Wasn’t it just Chanukah / Christmas 2010? I swear I was just writing my “2010 wrap-up” post yesterday. In any case, it’s somehow almost 2012. I’ve made it through another year. So has the world. Huzzah! 

The past year has been one of incredible growth professionally and personally, a few (ok… one) major mistakes, and new doors opening to great opportunities. I really feel like I’m getting older, not just in terms of how long my feet can handle mini stilettos, but also in how I’m relating to the world.

I went to my 10 year reunion in November — I can’t remember if I wrote about that here or not — and saw a bunch of old classmates who hadn’t changed. They were still living in the same town, for better or worse, and I had been away — for 10 years. It was just a little over 10 years ago when I left home and went to the midwest for college, and then packed my bags to move to San Francisco with a barely-paid internship and absolute terror over what the future might hold, and every possible morsel self doubt one could swallow.  Continue reading

Why I Want to Be Rich / What Rich Means to Me

There is a growing discontent in this country about the difference in wealth between the super rich, and the rest of us. Forget semi-rich, middle class, and the poor. It’s them against the rest of us. I want to be one of them.

Unlike other personal finance bloggers that write about debt, I write about my middle class life and my dreams of wealth. It’s not like I’d buy Gucci underwear if I was a millionaire… I’d just love to have life free of financial burden. What is the dollar figure on that? $1M isn’t enough. $5M might be enough. $10M in networth would probably be the point where I would feel rich.

I’d spend some of it on myself, sure, but if I were rich…

  • I’d love to buy my friends exciting, meaningful presents. Like the time I bought my friend a dishwasher for her kitchen that she couldn’t afford.
  • To help friends out of debt, especially the ones who are in educational debt because they weren’t as fortunate as me.
  • I’d take my friends on vacation to some beautiful resort, and make memories worth more than the cost of the trip.
  • I’d donate to charities I believe in.
  • I’d start an anti-bullying organization
  • I’d invest in my art, I’d go to school for painting, I wouldn’t waste away my years in art school worried about what is going to happen after I graduate.
  • I’d have a family — maybe three kids — and I’d raise them in an upper middle class community. I wouldn’t spoil them, but they’d be able to have the same middle class luxuries that I grew up with — classes and clubs, occasional vacations, the ability to explore their passions.
  • I’d pay my parents back for my undergraduate tuition
  • I’d buy my parents a special trip to Europe that my dad could take given his poor medical condition, and difficultly walking
  • I’d buy a large vacation home where I could have my family members come yearly to see each other.
  • I’d start my own company (prob need more than $10M for that!)
  • I would probably end up giving most of it away when I die, but I’d make sure that I could give to the people who deserve it while I’m alive.

If I were rich, I wouldn’t want anyone to know. But I’d be less afraid of what the future holds. I wouldn’t ask myself whether I should have kids because of my bipolar disorder, afraid that I’d lose a job and not have enough money to keep a house or maintain a reasonable lifestyle. I’ve always dreamt of being wealthy. I feel like, in a way, I have many of the tools to get there. I clearly need to start my own company, to find the right ADD medication to help me focus, to find the right psychologist to get me out of my head for long enough to succeed.

Life is short. You can be happy on a $30k paycheck and you can be happy on a $1M paycheck. I want freedom. Financial freedom. Every year is another lottery ticket. Every year is another chance. But I’m running out of chances. Sure, I’m still young… gah, I’ll be 28 next month… it just feels like I need to find wealth before I turn 30, 31 or 32. That’s when I really have to start making a family, if I’m going to. That’s when I’ll want to be able to work part time and be in my children’s lives. That’s when I run out of this time called youth to win, and win big. If it wealth were so far out of reach, that would be one thing, but somehow I’ve managed to put myself on a path where it’s possible. There are still a lot of unknowns. Still a lot of needing to focus my mind to impress, fighting my anxiety to be known, believing in myself, letting go of guilt for privilege, and kicking some major ass.

I don’t even know this person I’ve become. Six years ago I was on the verge of suicide, applying for hundreds of thousands of jobs, unable to get even an entry level position. Then one opportunity after another made its way against the tide of possibility, and each failure opened up a new door with a brighter tunnel to walk through, and somehow I’ve gotten where I am today. Some of it I’ve faked, some of it I deserve, some of it is sheer luck. And any day I could fall. Living with bipolar (II), it feels like everyday I’m running on the edge of a cliff. It’s thrilling, it’s exhilarating the rush of defying gravity, and yet I know one of these days I will trip and fall yet again, and have to climb all the way back up. The trick is to never stop climbing, and better yet, to run fast enough that your feet barely touch the ground, to run so fast you’re practically flying and no one knows can figure out how to stop you, because the moment you look like you’re about to hurl yourself over that cliff, you’ve landed on an even bigger success, and even bigger improbability, and you just keep going.

 

 

Taxing the Rich, Class Warfare, and the Quest To Be in the Top 1%

With $3,000 extra after my recurring bills are taken care of per month, I know I have a chance, albeit a tiny one, to ride the tailwind of the rich to my own wealth. As I dream of prosperity, I also acknowledge the class war that is brewing throughout the world, and in America.

The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent.

For the white collar workers of the world, and even those with mid-level government jobs like teaching at the nation’s public schools, wealth — as in ascent to the top 1% — is not even fathomable. The only goal regarding finances is to be able to pay the mortgage and children’s doctor bills.

Then there are those in my bucket… the 20 somethings with a dream of one day being in that top 1%, knowing it’s unlikely, but in the least working in an industry where odds are better than playing the lottery in becoming a millionaire, in the least. Continue reading

I Will Teach — Me — to Be Rich

Earlier today on my lunch break I opened up the PDF first chapter of Ramit Sethi’s “I Will Teach You To Be Rich” and read through it quickly.

One part that stuck out was early on when he poses the question “what do you define as rich?” He argues that you first must figure out what rich means to you in order to get there.

What does “rich” mean to me?

It means…

  1. Having enough passive income to not have to work.
  2. Having enough passive income to fund my own business.
  3. Having enough passive income to fund my own business and fail. Maybe 3 times.
  4. Being able to work when I want, for who I want.
  5. Having enough money to donate large sums each year without feeling like it hurts my ability to achieve above goals.
  6. Manage to do this while also having a family with 2-3 kids and supporting an upper middle class lifestyle and occasional splurges.

A few years ago, I would have said “making over $50k a year.” Well, that was never rich in my mind, but it sure came close. I recently reviewed my social security statement for the past six years and realized that with the exception of last year, my largest yearly income to date was $25k. Last year I made about $63k. This year, I should hit $80k-$100k. And that still doesn’t feel rich. I feel less rich now than I did when I was making $25k because instead of wealth being impossible, it instead is a hard, yet achievable road of long hours, late nights, working for ‘the man’, or finding the right startup to get lucky at.

If I never have kids, never buy a house, avoid graduate school, and maintain my current level of saving ($50k per year) with a 5% rate of return on average, I’ll have over $1 million by the time I’m 40.

But is that rich? Not at all.

What does “being rich” mean to you?

Traits that Top Billionaires Share

Forbes.com put up a great post on Friday titled “A Recipe for Riches.” It looks at whether billionaires are born or made.

They analyzed 400 top self-made billionaires on their richest people in the world list and determined the following:

1. “A significant percentage of them had parents with a high aptitude for math. The ability to crunch numbers is crucial to becoming a billionaire, and mathematical prowess is hereditary. Some of the most common professions among the parents of Forbes 400 members (for whom we could find the information) were engineer, accountant and small-business owner.”

My dad is a math man. He was an actuary. Mom, not so much. But my dad’s side are all math brains.

2. “Consistent with the rest of the population, more American billionaires and near-billionaires were born in the fall than in any other season. However, relatively few of them were born in December, historically the month with the eighth-highest birth rate. Of the 380 self-made American tycoons who have appeared on the Forbes list of the World’s Billionaires in the past three years, 42 were born in September–more than in any other month.”

Well, I’m November. At least I got fall right. I wonder if birth month really has anything to do with ability to succeed. One could say that the fall season is when people get “back to work / back to school,” but aren’t yet overwhelmed by winter. Maybe babies born in Sept experience a certain kind of parenting and early months that help gear them towards mental growth and success later on? Just a guess.

3. “Of the 274 self-made tycoons on the Forbes 400, 14% either never started or never completed college. The number of precocious college dropouts is highest among those who forged careers as technology entrepreneurs: Bill Gates of Microsoft (MSFT), Steve Jobs of Apple (AAPL), Michael Dell of Dell (DELL), Larry Ellison of Oracle (ORCL) and Mark Zuckerberg of Facebook.”

That makes sense. Who has time to invent brilliant products when you’re busy studying for 4-5 final exams?

Other commonalities of the self-made richest people in the world? If they weren’t college dropouts, they had degrees – MBAs, etc – from top schools. That’s not a surprise. Roughly 70% of those with M.B.A.s obtained their master’s degrees from one of three Ivy League schools: Harvard, Columbia or the University of Pennsylvania’s Wharton School of Business.

Well, I guess I better get cracking at becoming a programming genius then. There’s now way I’m getting into any of those schools, nor do I want to devote my life to Wall Street.

Read the full article here.

Is Materialism the Devil Incarnate?

My fondest memories of childhood involve spending hours in the dressing room at the mall, with my mother bringing in yet another outfit to try on, then leaving each store with a few bags in hand, filled with my purchases for the day.

This is capitalism at its finest.

Are humans born innately greedy? Not all of us want to possess lavishly adorned lifestyles, but accumulating something provides a security blanket, plus something to show to lure in our partners.

My boyfriend has no desire to be rich or to buy new things (except the occasional expensive tech gadget). He wants to save up enough money so he can quit working, live on a commune, meditate, stare off into the mountains, and I’ll admit his lack of motivation to achieve materialistic wealth drives me nuts. Why? Because I am a materialistic person. I was raised that way.

Of course I can change. I can be happy with nothing or very little. I don’t need a new pair of shoes, but lord knows I want them.

All of this, dear readers, is in response to a post over at Get Rich Slowly entitled: 84 Year Old Social Worker Saves $1.4 Million.. The woman was frugal, but only because she didn’t care about fancy possessions. She paid for her house in cash. She drove a 30 year old car. She didn’t care about having the latest and greatest. Those who grew up during the Great Depression tend to live this way. Case in point, my boyfriend’s grandparents, who horde everything they’ve ever obtained, have a house that’s falling apart, drive cars that should be breaking down… any… minute… barely use any electricity, and while I don’t know for a fact, I’d bet they’re worth a small fortune. They worked. They didn’t spend. They saved.

That leads me to a related topic: Dubai. What on earth does Dubai have to do with all of this, you ask? I read a very interesting (and very long) article last night titled “The Dark Side of Dubai” – a controversial opinion piece published in The Independent. Don’t let it’s novel-length scare you, it’s worth reading from top to finish.

Dubai – at least from this writers point of view – is capitalism (minus the democracy) at its worst. Those who are rich become very rich, those who are poor are indebted and end up in jail or are basically unwilling indentured servants. Dubai is a surreal city that has been built to be an adult playground. The party capital of the middle eastern world, no longer an oxy-moron. Shopping malls and hotels piercing the sky. Luxury at its finest.

While Dubai may be an extreme case — if the article is true — this type of upper class gets richer and lower class gets poorer has been going on for decades. Even as I write this, I have workers being paid $2 per hour on the otherside of the world completing projects for me. When it comes down to it, capitalism is about cutting costs as much as possible so those who have can have more, and those who have not never shall have. It’s a vicious cycle. Democracy helps swing the pendulum in the direction of “fairness.” Human rights groups protest cruelty to citizens of the world. People who are hurt by people who don’t want to drive 30 year old cars.

Granted there are many shades of gray when it comes to greed. But we’re all guilty of it. If we weren’t greedy, our society as we know it would collapse. We need greed so jobs can exist. So innovation can occur. Buy now, go into debt, pay later, and on and on.

I’m not caught up in the debt cycle, fortunately, but still feel this strong urge to spend. I drive past the day laborers every day on my way to work – who are likely illegal immigrants from Mexico waiting around for a job. Loitering. They are free not to do this (the main difference between America and Dubai here) but still… when people are hungry, when their families are hungry, they need the work. So they wait. I drive past the hordes of men who look to my car waiting to see if I will stop with a job. I head off to my cushy office and middle class-paying job where I’ll never work as hard as they would between dawn and dusk. I accept my greed, feel uncomfortable spending time with people lacking this greed (my boyfriend) and those who are extremely greedy and superficial (those who just want to make money to buy the world).

I am afraid that the horrors of Dubai and the greed that built the city are within my cultural DNA. I’ll save and I’ll spend, and I’ll use the resources of the world to get ahead. And I wonder if that is so terrible – when so many people out there do this without stopping to think that this whole equation might be wrong.