2020/12/21

Hiding Wealth

Hidden Wealth

*Disclaimer: The following is not intended to be, and should not be taken as, investment advice.*

Perhaps the greatest disservice done to inmates of the American educational system, besides teaching them to hate themselves, is keeping them ignorant of wealth.

This ignorance isn't limited to the means of wealth creation. Most people have a false notion of what being wealthy really means.

Here's a test to see if you're one of them.

Andrew earns a salary of $250,000 a year at his corporate job. He leases a new Nissan Murano and rents a 3,000 square-foot house. Subscriptions to Disney+, Netflix, and several MMOs keep him entertained. He orders from Uber Eats most nights. After rent and student loan payments, credit card bills, utilities, insurance premiums, and video game DLC fees, he has $400 in cash at the end of each month.

Bill makes $48,000 a year as a writer. He doesn't earn a wage but draws royalties from his 21 published books each month. He cooks at home, only buys new clothes when the old ones wear out and doesn't have Disney+ or Netflix. Unlike Andrew, Bill drives a 10-year-old pickup he paid cash for, owns a house valued at $60,000 that he bought for $45,000, and makes regular contributions to an indexed mutual fund and a Roth IRA. Like Andrew, Bill ends up with $400 in his pocket after monthly expenses.

Who is wealthier--Andrew or Bill?

Most people, upon first meeting Andrew with his fashionable clothes and cool ride; and Bill stepping out of his decade-old Tundra in a Wal-Mart jacket, would assume it's the former.

And they'd be dead wrong.

Because except for the clothes on his back and a collection of rapidly depreciating home electronics, Andrew doesn't own anything.

Cue the objection: "But Andrew pulls down 250K a year!"

Yes, and he's got no more to show for it than a coke dealer who funnels all his money up his nose.

Rule 1 of accumulating wealth: Don't get high on your own supply.

Rule 2: Know the all-important difference between wealth and income.

  • Income: Cash flow derived from some activity
  • Wealth: Appreciating assets that generate passive or semi-passive income
In the two examples above, Andrew's work gives him respectable cash flow. Too bad for him, he spends that cash on perishable consumer goods, recurring charges that don't create equity, and depreciating liabilities.

Bill, on the other hand, has multiple sources of wealth. His books, once published, continue to earn royalties which constitute a modest but passive income stream. They also include bundles of rights which Bill could license for additional royalties, residuals, etc.

Note to authors: Do you think of your books as long-term investments? If not, start now.

Vehicles depreciate, so Bill's truck isn't his biggest asset on its face. He could still borrow against the pink slip if he gets desperate or sell it for a little quick cash. More importantly though, it's a truck. As Nick Rochefort says, if you've got a truck, you've always got a job. 

Say Bill's friend needs a load of tools hauled across town. Bill can take the gig for gas + 50 bucks. People need stuff lugged around even in the hardest of times. Absent other income, Bill won't be putting on the Ritz, but he won't starve, either.

You are not allowed to go car shopping until you watch this video:

Then there's Bill's house. It's probably his most versatile asset. For starters, he's got equity in it. Let's get creative, though. Say he decides to rent the place out for $1000 per month. That alone increases his cash flow by 25%. That's not all, though. The house's value increased by $15,000 since he bought it, raising his net worth. Maintaining a rental property affords him certain tax breaks, as well.

In light of the preceding, it shouldn't be surprising that home ownership is the single biggest contributing factor to household wealth.

If you've been following this blog for a while, you probably aren't surprised that Generation Y has the lowest home ownership rates of any extant cohort, either.

Gen Y were the first test subjects of the global elites' current indoctrination scheme. That long-gestating plan is now coming to the fore as our rulers unveil their aim to prevent their subjects from owning anything.

Mass media and the schools spent decades hiding wealth creating knowledge and conditioning everyone to mistake conspicuous consumption for wealth. Hence the disturbing lack of opposition among people under 40 to being reduced to neo-serfdom.

All the more reason to learn about and start obtaining wealth while it's still relatively easy. Author David Stewart expands on these concepts in his recent video. Give it a watch.


If you're an author, publishing your own books is an often overlooked way of generating wealth that's now totally within your control. If you're ready to go pro, take advantage of my professional editing services. I used the same skills to write and publish my own best selling books.

Don't Give Money to People Who Hate You - Brian Niemeier

18 comments:

  1. Bill's a smart dude. In addition, if Bill isn't paying himself every month (his investments, savings, emergency fund, etc) like it's an obligation, then he's missing something.

    Let's say he's got that $400 in his pocket after all other obligations are clear. Set aside $50 or $100 for your carry-around cash for the month. Pay $200 into investments or savings, and put $50-100 into an emergency fund (mason jar, simple checking account, other immediate cash access storage). In a few years at $100/month, Bill has between $3000 to $4000 stashed for an emergency, and that could be anything up to and including buying a serviceable used car or dealing with a moderate home repair issue. He's also contributing regularly to his long-term investment/savings goal.

    Bill probably uses any credit card he has as nothing more than a 25-day personal loan that has to be repaid monthly or incur healthy penalties. He never holds a month-to-month balance over $0. Bill probably never buys anything on that card that he doesn't already have the money in the bank to buy, but he buys everything he needs with it, if possible. Why use your money when you can use the bank's? Bill then pays for all his CC purchases with a single draft to the CC company. Bill probably allows himself one impulse buy a month on his CC of no more than $50. ( Did we mention Bill probably checks his bank balance weekly to know what's in it so he's confident he can pay all his CC debt at the end of the month? )

    If he's a coffee drinker, Bill also has a coffee maker or cold brew system at home and a 4+ cup thermos, because Starbuck's OTC drugs are expensive. He contributes to the coffee fund at the office, or even buys an inexpensive coffee maker for the break room for everyone's benefit (including his). Whatta guy!

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    1. "Pay yourself first." Absolutely critical point. Thanks for filling in that major oversight on my part!

      Re: Bill's credit card - You're 90% on the money. There've been some recent changes to how banks & the credit bureaus handle reporting that calls for some slight tweaks to your example, though.

      Banks now report to the credit bureaus twice per month. The exact dates aren't published, and they vary on a case-by-case basis. Having a balance < $2 on a reporting day inflicts a major ding on your credit score. If it's $0, they penalize your score by the maximum number of points allowable.

      TL; DR: Everything else you said is solid. The only change I'd make is for Bill to make sure he always carries a $2 minimum balance on his CC, not to exceed $99.

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    2. Correction duly noted and welcomed, Brian!

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    3. Brian and Man of the atom

      Interesting. This is more American credit cards. In Canada it's different. The cards come under the provincial consumer protection laws in the province I live has extendive protections and comes down very hard on usury.
      In my case I only use 2 credit cards and I'm relatively strict only using it if I can pay it off.
      I pay in cash whenever I can.
      I impose on myself a relative frugality.

      xavier

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    4. Bill bought the coffee maker for work using part of the $500-800 cashback he earns every year from his CC spending habits. He used the rest on Christmas presents for his friends and family, a nice Christmas dinner, and shoes and sleeping bags for the homeless shelter. Whatta guy!

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    5. Remembering to use CC reward points before they expire--another great point I missed. Thanks!

      I should also specify that running a $2 constant CC balance is mainly for getting Bill's credit rating up to 850 so he qualifies for the bank's platinum tier mortgage rate on his next rental property.

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  2. Consider the advice that children have crammed into their heads throughout the entirety of their schooling, 'go to college to get a high paying job'. Leaving aside the massive debt that they encourage, that advice says nothing to building wealth. Even simple ideas like compound interest aren't, or not in my schooling anyway, discussed.

    Generations have been prepared for serfdom.

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    1. Yeah, the mantra drummed into their heads basically is, "Disregard helpmeets. Acquire currency."

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  3. Excellent video on car buying there -- Buy used, and buy used Japanese cars. Those Hondas etc. go for a long time, and even longer if maintained correctly!

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    1. It's advice I endorse without reservation because I've taken it myself.

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    2. The Korean brand's are also just as good.

      xavier

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    3. Recently, yes. In the 80s and early 90s, the Korean makes had not come up to Japanese standards.
      I know of one Acura Legend owner (mid 90s, I believe) who has over 500,000 miles on his car, on the original engine. He does regular maintenance on the car, and it has treated him right.

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    4. Nick Rochefort from the video above was the #1 Acura salesman in his New Jersey region. He loved selling that make more than any other because he says Acura buyers know what they want.

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    5. For those who don't know, Acura is Honda's luxury brand.

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  4. For the same ~$50 Andrew spends on subscription services every month, Bill can walk out of any used media store with an armload of books and movies that he now owns, can pass onto his kids, share with his friends, or trade back in for a modest discount towards his next trip to the store. Alternatively, if Bill had the option, he bought a home near an excellent library system and pays nothing for his books and movies. He uses the money saved this way to make occasional quality of life upgrades to his PC, which serves as his one-stop work, movie, and gaming device.

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    1. The final straw that led to me cutting my cable was the realization that for the price I had been paying for cable, I could easily a season of a new TV show and a few movies, new, every month.

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  5. Yeah. The subscription model only gets more value *if* Andrew regularly consumes more media per month than could be bought for that amount, AND he doesn't care enough about any of said media to want to keep it, consume it again, pass it on to his kids, etc.

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