There Are Two Ways To Be 'Rich'
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2017-09-04 09:55 by Karl Denninger
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There Are Two Ways To Be 'Rich'
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The first is to grind at the wheel, take small amounts of money as you acquire them and risk everything, fail early, fail hard, and fail often.

This usually works, but exactly how many times you will fail, and at what cost, is another matter.  Personally, my number was "three"; that is, the third time I wound up with something durable (in terms of a large multiple of what I put in originally.)

But there's a problem with this path -- it takes a hell of lot out of you and if you "crack" before you hit your personal number of failures then you're utterly screwed.

It forces you to be a bastard in some fashion, because the world is not a nice place.  The people in it aren't nice either, and a huge percentage of them not only will cheat, lie and steal, if they're in a larger business than you are they'll do it and the government won't stomp on them even if what they're doing is illegal.

If you try the same thing, on the other hand, you will be bankrupted and will probably go to prison.

This means you need to get real creative.  You can get lucky, of course, but in truth that's a bad strategy.  Oh sure, there are those who do it in every business cycle and "win", but the "out of business" signs massively outnumber the lucky ones.  For everyone who makes a million or ten with a large component of luck there are fifty who wind up with nothing at all.  This leaves the alternative as a strategy to adopt: (1) be a five alarm bastard so that nobody dares **** with you hard and (2) stay on the right side of the law so that if someone tries (especially on the criminal side) they get nowhere with their allegations because everyone who actually cares has already looked at you and figured out that you're almost-certainly not cheating.  The hard part is doing both while watching those larger than you lie, cheat, steal and commit crimes which nobody does a damn thing about.  You damn well better have your head on straight going down this road because if you don't you'll either join them (and get caught) or worse, go postal.

But let's say that for whatever reason this isn't you.  Maybe you're just not cut out that way.  Maybe you know you can't keep the steely-eyed stare when severely provoked and will descend into either some sort of self-destructive cycle (e.g. booze, etc) leading to a blow-up or you just aren't willing to do it. Putting in 100-hour weeks for years is something many people just can't do without emotionally or physically breaking in some way, and one of the worst things to do is to undertake such a path while knowing it's simply not in you.

How do you deal with reality if what you want to do and be leads you somewhere like this, but you just don't have that 100+ hour a week drive in you?

I’m not someone who really likes to sit still for forever and I find most jobs to be boring and repetitive. I may not be amazing at everything I do but I enjoy all the hobbies and traveling that I go take on. Traveling has changed my life and seeing myself as a traveler and finding out whom I am supposed to be in this world has been so eye opening.

There is an alternative: Need little and it's a hell of a lot easier.

In other words structure your life so you don't have debt.  You don't drive expensive cars; you drive cheap-to-operate ones that go a hell of a long way on a little fuel, are older and thus cost almost-nothing to insure.  Don't acquire a lot of "stuff", acquire memories instead -- they take up no space.  Be happy sleeping in a tent instead of a hotel (and God Forbid, if you need a hotel for a night or two it's Motel 6 as you can ****, shower and shave just as well there as you can at the Sheraton!)  Have a reserve and keep it in case things go to hell and carry no balance on any credit card -- ever.  Have a friend or two somewhere and an address you can bail to if things really go to **** on you (it happens), and keep enough in funds available to buy a bus ticket there -- just in case -- along with a bag that will carry all the things you really can't lose.  And finally, pay attention to your health when it comes to the precursors to chronic disease that are under your control -- specifically, how much and what goes down your pie hole.

I see far too many people who need the manicured lawn, the Lexus, BMW or Mercedes (or worse, two or more!) in the driveway, the big house that costs a metric ****-ton to insure, heat and cool, never mind being in hock up to their nuts in order to "have" all of it.  More than 75% of Americans are one missed paycheck away from being on the street; they literally live paycheck-to-paycheck with zero savings and zero real equity -- in anything.  Of that 75% nearly seven in ten are carrying more than half the median income in non-housing debt and half are carrying that on credit cards. Worse, three-quarters of American over 40 along with close to half of those over 20 (and nearly all of the above 75%) can't manage to run one mile or hike three without being winded or worse; the average American is consuming multiple prescription drugs and is headed for Type II diabetes, a heart attack or both with a large percentage 50 or more pounds overweight -- that is, they're fat and it's all a result of choices they make each and every day.

How do you get out of that box?  I'll tell you what people think they can do to get out of it -- play Powerball.  Here's the math on that folks -- it's roughly 1 in 300 million you'll pick the right numbers.  You need to pay $2 for a ticket, however, which means the money odds require $600 million in the jackpot, not 300.  It only gets worse from there since that "Jackpot" amount is a 20 year annuity and the cash value of said jackpot is much less, so now we're up close to a billion before the money odds work for you.  And then we must account for taxes, which of course you don't get rebated on with your ticket purchase but must pay to the tune of 40% immediately if you win.  Of course all of this works only if you're the only one who gets the right numbers; if someone else also picks them you must split the prize.  This means that even when the Powerball has a $600 million jackpot buying a ticket is still a losing bet to the tune of at least 2:1 against you before accounting for the risk of multiple winners.

Why does the Powerball sell any tickets?  The usual claim is that it's a "stupidity tax" but the facts are that plenty of people know damn well that the odds are massively against them but all they have left is luck because they've decided to bury themselves over the space of years in a debt-trapped lifestyle.  So they play anyway, often with money they can't afford to lose.

Don't do it.

Be the one who needs little; optionality is a virtue and leads to nice, calm sleep instead of restless nights, dependence and, for far too many people, insanity.

On this Labor Day consider the option to stop destroying your health, need little, labor less and live more.

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Posts: 2661
Incept: 2011-04-14

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But there's a problem with this path -- it takes a hell of lot out of you.

Believe it or not I understood that as a teenager. I knew that if I did not find something that I really, really, liked that anything I got involved in that "takes a hell of lot out of you" would just eat my soul and leave me with nothing.

It took me awhile to find something that decent income that I both enjoyed and was good at but I found it. What I did not do before I found it and got a steady stream of income going was load myself with debt or other obligations. Optionality (cash vs debt) is always the key, then you can have "nice, calm sleep instead of restless nights, dependence and, for far too many people, insanity." AND, if a deal comes along you can take advantage of it.

I try and try to stress that "AND" to my students. No one knows when a "deal" will come along and if you have cash, or if you have to enough cash so that the bank will loan you the rest, then you can take advantage of it.

After all that, I'm starting to shed "stuff", especially the stuff that I have not looked at or used in 10+ years. My friends and I used to joke when we were younger: if there is stuff that you haven't unboxed after two moves you probably should just get rid of it."

Happy non-Labor Day,


Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
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The few times a decade I buy a lottery ticket of some sort, I get $2 worth of entertainment daydreaming about what I'd do with the money.

That's all it is. Entertainment.
Posts: 1
Incept: 2017-09-04

Boston, MA
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It's also tough to wait for a full 20% down [and only a 15-year loan] to buy that house..
It's also tough to create and stick to a cashflow budget including putting away for retirement and that house in the future and emergencies.. I do buckets for categories of spending.

It could be considered impossible to live life without credit cards, but if you're executing a zero-base budget then there's no actual reason for them. [Discover may offer you 5% cash-back on restaurants this month.. but you'd be better off financially if you didn't go to Ruth's Chris at all.. and just used the debit card tied to your bank account]

I'll never say don't enjoy life --- my favorite restaurant here in Boston is a Brazilian meat place [churrascaria?] where myself and the lady get almost 4 pounds of meat for under $25 total, and I confirmed with the owner [because it's a ma-and-pa establishment with 9 tables] that it's the same meat distributor and brand of grill that Fogo De Expensive uses downtown.

And that car shouldn't be anything resembling great until after the home purchase..
And those grocery runs can be all stocking up on discounts even if it's top quality stuff like sirloins.. just froze some for $2.50/lb..

It's also a fun experience to buy something [sofa/TV/etc] costing >$200 using all cash to get a gigantic discount nearly 40-50% off list and off what others in the area charge for the same item. But you can't do that unless you plan your shopping like a mission..

Happy labor day everyone
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Spokane WA
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Great post, Karl.


My very wise late mother used to tell us that three moves is as good as a fire.

A few years back we decided to take that tack and clean out every room every other year. Amazing how much shot we get rid of every time.
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My very wise late mother used to tell us that three moves is as good as a fire.

My late Daddy had a saying that is so similar it's scary.


Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
Posts: 43
Incept: 2010-01-10

Giant Side of Texas
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My work requires I have a pickup capable of pulling 6,000# at times. I have found early 2000 Fords with the V10 work great. I bought a '99 for $3,500 and drove it for almost 200,000 miles and blew a head gasket. During the 200,000 miles I developed a good relationship with a mechanic. Many times my truck went in for service on Wednesday night and was back on the road Thursday morning. They did oil changes with full authority to fix anything they found. I averaged $250 a month per year for service.
Sure it's nickle and dimeing but that thing makes me $$$.
When the head gasket let go my mechanic knew of a relatively low mile,152,000, 2001 for $5K. My first truck was in the shop, mechanic made a call, I looked at the truck and wrote the check. Next day I moved tools and was back in business. That was 2 months ago and the truck has paid for itself. Doing this makes me have a relationship with a great mechanic. My $$ is regular and he moves other work out of the way to put me in and has worked evenings and weekends to be sure I stay working.
Same with lodging. I have found if you look, many of the older motels have as great a bed as most midpriced motels and because I have high dollar tools I do not leave in my truck, a back in motel is easier to live with. When all I can charge is the GSA daily perform, if I can find a nice, safe, clean room for $50 cash the rest goes in my pocket. Sure I can do a $135 Holiday Inn Express but all I get is a tax write off. To hell with Uncle Sam. The money I save gets put in my pocket. And knowing the $80 odd dollars in my pocket is mine.

If your gonna grow up stupid
Ya better grow up tough
Posts: 28
Incept: 2017-04-29

DeKalb, Illinois
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When I got back from Vietnam, I managed to get a job in a factory. I soon realized that this was a dead end, and I was surrounded by miserable people. So, I went to my local community college, learned how to study, and did very well. I would work nights, and go to school days. I graduated from there, and applied to my Once Beloved University. I was accepted, and graduated from there with a BA in 1977. I then started grad school. I was working at least 2 jobs during this. I had to stop that graduate program due to my GI Bill running out, and I started working in electrical engineering job shops. I gradually got very good at microwave work, and later millimeter wave work. I worked in sales for a while during the early 1980s, and learned a very important lesson: no matter how you are officially paid, your pay is always a sales commission. Eventually, I worked in remote sensing, and then ghost wrote several reports for a Chicago think tank. I moved back to Illinois, and I later worked there for several years. The commute was terrible, and I wore out a lot of cars. This also gave me some insights.

My boss at the think tank talked me into going back to finish my MA. He also talked me into going back for my PhD. He was a true Renaissance Man, and I owe him a lot!

So, I have learned to live in a modest house, save lots of money, and buy used cars. Now, I can live very cheaply, and will be moving up to some land I purchased in north central Wisconsin some years ago, when family conditions permit.

I saw all of this reinforced when I was the executor of my cousin's estate. She and her husband worked for prominent railroads. They both worked long hours, and paid for it with their declining health. He had most of his sinuses dissolved by a fire in a caboose, and retired on disability. She worked in intermodal management solving problems for customers. She knew very well how railroads worked, and should have been a real asset, but was never really rewarded for all that she did. He was diabetic, and did not take care of himself. He eventually came down with two unrelated cancers after his kidneys were permanently damaged. He died on the operating table. She tried desperately to save him, and wrecked what was left of her health in the process. When he died, she became terminally depressed. I talked with her every day. We had her funeral on the I year anniversary of his funeral. The death certificate blames tobacco, but I know that it was really from a broken heart.

It took me about 4 trips to finally get her house cleared out. I found all of her craft stuff, that she wanted to get back to enjoying when she retired, and a lot of baking equipment that she used to use for special occasion cakes. She never made it to retirement. I filled a 20 cubic yard dumpster, and a 26 foot U-Haul truck. We left some stuff behind. I kept going through all of that clutter, and all I could see were broken dreams.

So, I have been radically downsizing here for my eventual move. I want to continue to live very frugally, and to not pay a lot in property taxes, or other taxes. After a while, stuff that you own, starts to own you. Karl is right!
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A lot of good comments there. I for one have always promised myself to never become car or house poor. I did get a little lucky in that one year after my divorce in CT my house appreciated 100% because of IBM moving into CT area. So when I had to move to my new job in WI I had a nice cash balance. That was back in 1986 and I have never had any debt and always saved at least 20% of what I made and I did very well in my new position to become one of four top people in the company. I have been retired for about eight years and me and my new wife of 29 years are doing well.

IT'S THE SPENDING STUPID The US must become less a government of men, and more a government of LAW.When people lose everything and have nothing left to lose they lose it -Gerald Celente
Posts: 122
Incept: 2010-07-06

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Excellent Ticket Mr. D. I live in a small, mostly rural county in a beat up but watertight and paid for home. I have two rental houses and marvel at the ways my tenants urinate money away. One tenant made 50 K per year but spent it all on booze, cigs and pot. The kids slept on bare mattresses covered in nasty skin oils and dirt, but, Mom and Dad had booze, pot and smokes. My wife gave the family a set of sheets because she was sorry for the kids.

In 10 years, I raised the rent on this family from $800 to $845 a month in several increments. The wife chewed me out for " taking advantage of the little people " and sent several insulting emails that the rental was a dump and " not worth the rent " The end came when she paid the rent late and cussed me when I asked for the late fee. I ended the month to month lease and gave them 30 days notice as required by law.

The family moved and ended up paying the same rent for a 2 bedroom as they paid for my 4 bedroom. They had to rent a 30 yard dumpster for all the junk they hoarded. I wonder if that last insult was worth it?
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I downsized in steps. Moved from 2100 sq ft house to 900 sq ft apartment to 200 sq ft travel trailer. Now I have almost no debt and a house that I can move just about anywhere.
Posts: 237
Incept: 2009-05-06

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Guess I chose the alternative. I drive a paid-off old (but in great condition) car and my house is paid off. I have no paid TV and use a flip phone. I rarely eat out. (My cooking is better anyway) I did make a six figure salary for several years at one point and saved a good portion of it. I buy only what I need and don't buy new models of anything unless my old model no longer works, can't function due to updated technology, or can't be repaired. I bought a 1700 sq. ft. house when all my friends were buying 3000 to 5000 sq. ft. houses just because they could. My friends thought I was crazy at the time. Last night, I heard one of my neighbors (who is always yelling so the rest of us can hear their business) say they have a $500,000 house they can't keep. Yeah! They might be moving! That doesn't surprise me. These people are always buying cars, campers, new electronics, etc. They always have 3 dogs. The mother also smokes 2 to 3 packs of cigarettes a day, a very expensive habit these days. Her 23 year old can't get his life together and keeps coming back home to live off Mom and Dad. So no surprise they can't afford their house. I predicted this would happen. Good riddance.

Although I like that I have no debt and live fine, I would prefer to have more money so I'm still working on ways to increase income especially passive income.
Posts: 273
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"I see far too many people who need the manicured lawn, the Lexus, BMW or Mercedes (or worse, two or more!) in the driveway, the big house that costs a metric ****-ton to insure, heat and cool, never mind being in hock up to their nuts in order to "have" all of it."

You can also add social media pressures (photos/selfies etc.) that creates a need to keep up nowadays! I do yearn for the time when your private life was really private!
Posts: 133
Incept: 2009-05-26

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I'd like to offer a 3rd alternative, which I do not endorse in any way, but have to recognize its existence. Cheat :). In fact, combined with a few years of hard work, it is very powerful indeed.

I just came back from a village on an island in Greece, where I spent all the summers of my childhood and early adulthood. It's a serene, scenic place, with a beautiful beach, very nice views, and relaxing atmosphere. The village has about 500 people and the nearest town, 2 miles away, has 4 thousand. It's not in the US, so there are no suburbs, no lawns, no neighbor 4km away etc. The houses are next to each other but the place is sparsely populated. There's plenty of farmland an of course the sea, which provides great fishing opportunities (and is quite calm since it's in the Mediterranean).

I ran into a childhood friend who I hadn't seen for 17 years. Unlike me, he didn't get a higher education but started working at 15 as a waiter, then became a farmer (he had some land and bought some more since most people his age didn't want to cultivate land anymore), and also worked construction. He was basically working about 16 hours per day, almost all manual labor. Through a combination of hard work, but most importantly, BY NOT PAYING ANY TAXES (i.e. cheating), he managed to accumulate 1M euro by 2009. He built 5 houses, without a single mortgage. However, he also got massive subsidies from the government (cheating/theft again) in order to build those houses, as well as cultivate specific crops.

So basically in 2009, this guy had about 50x the money I had, since I chose to educate myself and most importantly not be a cheater :).

Of course, in 2017, things are different, since now he has to (THE HORROR), pay some taxes! (including property tax for his houses and land. Property tax is a new thing in Greece, it's only been going on for the last 4 years). He still doesn't pay anything close to what he should, since he's still able to cheat, but not to the extent he could 10 years ago.

He's also not the only one that did this. Most people on the village and the entire island even took advantage of cheating opportunities to amass a lot of wealth. They of course complain about the condition of the roads, while boasting about their tax-evasion ability. Oh and they all vote socialist/communist, because capitalism is evil & all that.

Moral of the story?
- It's amazing how much money you can accumulate if you pay no taxes. This is a clear indication of how damaging a punitive taxation system is for production (i.e. the US tax system is horrible, but unlike Greece, it's harder to cheat).
- Hard work pays off (and is motivating enough) when you don't have to pay taxes :).
- Cheating in all its forms helps (tax evasion, falsifying land size for the purpose of subsidies, the subsidies themselves even).

Cheating aside however, life in a place like that is a lot like Karl describes. They grow their own food (without a shred of Monsanto), they grow their own meat (free-ranging cows and a lot of sheep), they make their own milk and of course they get fresh fish for most of the year. And the whole tax-evasion & cheating is the cherry on top.
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Killben wrote..
You can also add social media pressures (photos/selfies etc.) that creates a need to keep up nowadays! I do yearn for the time when your private life was really private!

The time is now. Simply disconnect. It's liberating. If you cannot disconnect, strictly ration your usage of said "social media". The amount of noise generated by these content consumption engines is nauseating.
Posts: 649
Incept: 2012-04-19

South of Canada
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Believe I've mentioned before that my ex was the type that had to have material luxuries to allegedly be happy. I surrendered to buying the Lexus and countless other smaller ticket items but it was clear that the path she was on would be unsustainable. If you find happiness in stuff it always takes more stuff to stay happy. Of course a car or handbag or what have you won't make someone happy, but I couldn't convince her of that. The irony is that without my saving nature there would never have been money to buy luxury items, at least without using credit.

Since she left I've been able to live quite contently on half the income. Found a wonderful woman who is perhaps more thrifty than I am. Have refi'd into a 15 year and paying extra principle each month. In less than a decade the mortgage will be retired and we will be 100% debt free. I'm not a huge fan of Dave Ramsey but I like his message on debt. Being debt free is how I plan to be "rich."
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There was a story about a parking lot at the Fort Worth Zoo years ago in the newspaper. For a decade or more a man was stationed at the entrance of the parking lot collecting fees for parking in the lot. One day he simply disappeared. Question arose from both the zoo and the city. Seems both parties thought the other party was in control of the lot and never questioned what was going on there. Somebody took the risk and it paid off generously.

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A True American Patriot!
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Thank you! Presently thinking of downsizing to a house I found in another State that cost a tenth of what I can get for my present house. Starting to get rid of all those unfinished dreams and projects, that big dumpster is looking better everyday.

You are so right about health, without that nothing in life counts.

"This marks the beginning of the end."- Barack Obama 2-26-09
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