Two Decisions That Can Save You Millions

save you millions

What are the most useful money investment and saving tricks?


I don’t know why more people don’t do this. But I can tell you how to save millions of dollars. Just two simple decisions:

A) Don’t buy a house.

Lets say you buy a $500,000 house.

You put $150,000 down (30%). You pay another $30,000 real estate commissions.

You put another $50,000 into maintenance (I’m making it up but that seems very conservative).

That’s $230,000 GONE.

(this house is built on top of a massive fault line for earthquakes. People like to gamble)

Do you get it back? Maybe. If you bought at the right time, if you are a good real estate investor, if you don’t need the money back at the same time the market crashes, and several other factors. If you don’t just put that money into the next house you buy.

Do you spend less on rent? Mortgage plus real estate taxes on the above are about $3000 / month.

Maybe you would spend $3000–4000 a month. Maybe more. Maybe less. Depends on the market.

So in the owning situation you are out $230,000 for a LONG time.

In the second situation, you keep your $230,000. You can use that to start a business, to invest, to do whatever.

In both cases you spend around the same amount of money per month.

In the ownership case, you might gain money if the house gains. But from 1890 – 2004, housing prices gained 0.4% a year over inflation. There are much better investments. And your investment is tied up in an asset that is 100% illiquid (i.e. you can’t get your money out).

Is it a “home” if you rent? That is 100% up to you and nobody else. Find the situation that works for you. It’s not your home anyway if the bank or state can easily take it away (and they will) when times are hard for you.

What if you wait 20 years and pay off your mortgage? Then good for you. But average house turnover in the United States is four years.

$230,000 means you have to make about $450,000 pre-taxes.

I’ve written about this a few other times. You can read more about it here.

B) Don’t send kids to college.

This is an emotional issue for many people. I’ve lost friends over this.

If a kid wants to go to college, there are many ways to do it and I understand (believe me) that it is hard for a parent to say “no”.

But first let’s look at some facts:

  • 94% of all jobs created in the past 10 years were freelance or part-time that did not require a degree. This is not political. It’s during both Bush and Obama. But this is the reality of a society that is outsourcing and automating.

This trend will ONLY continue.

  • 40% of all jobs held by recent college graduates don’t require a college degree.
  • Average income for people ages 18–35 have gone from $36,000 to $33,000 adjusted for inflation since 1992 according to the Bureau of Labor Statistics.

Again, this is not political, but reality. More mobility in jobs leads to more choice, more outsourcing leads to cheaper labor, and more automation leads to downsizing.

  • Tuition has gone up faster than Inflation EVERY YEAR since 1977. Not on average. EVERY year.
  • Student loan debt is at it’s highest level ever. $1.2 trillion in debt held by 40,000,000 Americans. You can’t have kids starting companies if a gun is to their head to pay down debt. And it’s the one debt our children can’t restructure in bankruptcy.
  • This last one is not a fact but an opinion: these industries will change in the next ten years due to more automation and innovation: automotive, real estate, insurance, Wall Street, publishing, retail.

Degrees vary in price. And I don’t like looking at “average degree price”. There’s ways to go to college super cheap (go to community college for two years for almost nothing and then go to a state school to get bachelor’s degree.

But average private school degree seems to be about $60,000 a year when everything is counted (books, food, housing, degree). And average stay at a “4 year school” is 5 years.

That’s $300,000 to many families. Again, not all. There are many ways to do college cheaper but obviously many American families do not do those ways.

But will kids learn? Yes, as opposed to when I was college-age there are infinite online resources for learning. And even great schools like MIT have their entire courses (videos, tests, homework, etc) online so the only thing extra they provide are certificates and social life.

To help figure out how kids can learn, make a living, and come to grips with this change in reality I called up the CEO of the largest job website in the world and asked him where a kid can learn FAST to learn the skills to make up to $2,000 in a weekend.

Oh, and if you are at all interested in learning how to make $2,000 dollars in a weekend (using skills you already know)… I’ll tell you how for free.

This is the result. Zoom in if you want to see the text further:

But do kids need to network at school? No, because networking is now moving across interests online rather than geographical locations. Interests first, then meet ups.

But do kids need the certificate? No, see statistics above?

But what if a kid is not motivated to learn other than college? Even a better reason not to spend $300,000 (or even $1) on their education until they try things and become more motivated. I feel I started to really LEARN when I was about 23 years old and had to learn for both work (computers) and for skills that I loved (writing).


So just these two things can save $530,000. Assuming you have two children and that’s $830,000.

Compound that $530,000 just 5% for 30 years and you have an extra $2,300,000 to retire on.

Compound $830,000 and that’s an extra $3,500,000 to retire with.

It’s relaxing to retire with that much. And you can help your kids, give to charity, give to your grand-kids, take relaxing vacations, reduce stress in your life to live a long and happy life.

I know I made assumptions (price of house, price of college) so put in your own. But I’m mostly just going by what I see are the real averages based on what people write to me as opposed to what the newspapers say.

(you can vacation in this room in an underwater hotel in the Maldives. Relaxing and beautiful. Save your money.).

  • Miguel Gonzalez

    Excellent article. Even your “opinions”, as stated, resonate with my personal experience and I completely agree with you. I, as many others did, experienced serious financial hardship around 2008-2009, resulting in the loss of “my home”. Like you said, you never really own anything in this country anymore. The government can take it away from you. And those who do not believe it, just try not paying your taxes on your “paid” home for a few years and see what happens.

  • Karen C

    I zoomed in on the chart but only could read the headers, nothing underneath (via Chrome). I was going to send this to my son, since he has decided that he doesn’t want to spend the money for college with no guarantee of a job afterwards, and alot of debt (he doesn’t want the debt). Seems like this would be right up his alley.

  • wyswyg

    This reality is a little tough to swallow.

  • Marco

    Hey I was studying a lot of CS online, there is some great cheap/free material no doubt about that… but by taking actual university courses in data structures and algorithms, software architecture I realised that I was not working as hard as I could have.
    I think a mix of the hardest college units and MOOC’s is a good trade-off…

  • Vucla

    I get everything about the costs associated with buying a house, but if we’re going to do the math we can’t ignore that renting is also expensive. Let’s say that it costs $2,500/month to rent a place equivalent to one that costs $500,00 to buy. That’s $30,000/year, which will cost $900,000 over that same 30 year time period and leave you without a house to live in or sell at the end. How much money are we really freeing up to invest and compound?

    • no1uknow1

      not only that. Rent goes up, mortgage is usually fixed! Not only that, he says houses are illiquid – not true, I got a home equity line on my house and bought a business with the money (it tanked, but i still have the house!). Every mortgage payment includes a significant percent which is “principal” – compared to renting, this is basically putting money in the bank every month. Has James Altucher never heard the term “building equity”?

      • If by a ‘significant percent’ you mean 25, then yes you do build up equity over time. When you buy a house with a 30 year mortgage, 3/4s of the the early payments go to interest…. and that’s only if rates stay at these historically low rates.Typically with interest you will pay at least 1.5x the purchase price for the privilege of the bank letting you stay in their house (not including taxes, insurance, maintenance, repairs, etc.) . Certainly in credit bubbles, if your timing is right, you can do better owning your home than renting but since 2009 it’s been better to rent and put the extra into the stock market. Rentiers like myself, and I suspect you, have done well in the post-2009 financial asset bubble (or at least recovered well) but it’s only because the Fed was protecting our a$$e$. Risk never looks like risk until it turns against you and you are whistling past the graveyard on your failed business but how much equity in your shelter have you given up by treating your home as a cash machine?

        • no1uknow1

          treating it like a cash machine? You mean turning it into a cash machine. i borrowed more home equity to buy a new bigger home where i live and i now rent the first home for a profit over 1K per month.
          And don’t forget all that interest has a silver lining, unlike rent, you can write it off on your taxes.
          When you talk about 25% you are focusing on year one. Buying a house is a long term game. Although I hear you about post-2009, I bought mine way before that and at the time I thought the price was high but I am so glad I didn’t wait any longer to buy or I would’ve been priced out.

    • ByMyth

      My rule of thumb to value a property is 10-15 years rent depending on the location. Sometimes I feel 15 is a stretch especially if there is annual maintenance fee…

    • The thing that gets ignored in most rent vs. buy comparisons is the cost of maintenance, repairs and saving up for the big ticket items like replacing the roof. These costs typically run between 1 and 3% of home value annually. When you include these along with property taxes and insurance (and coming up with the down payment) long term home ownership is barely a breakeven… but you do get a cheap place to live. I built an interactive chart that shows how it really works http://ashworthpartners.com/rent-vs-buy-and-the-great-myth-of-homeownership-as-an-investment/

  • Tim Foley

    James… I couldn’t agree more. Two years ago after my wife suffered a sudden cardiac arrest (at 39!) we ditched the house… our stuff… the whole kit and caboodle, and with our three pre-teen kids took off on a trip to… who know’s where. We’re now exploring southern Guatemala.

    Life is sooo much cheaper… and simpler. And as a result… more fun. Money is no longer the first and last thought of every day. The focus now is to make the most of our time together.

    And no… no one has tried to harvest our valuable internal organs… yet anyway.

    The story is here… http://www.clunkmonkey.com

    Thanks for your writing!

    • hart

      Hi Tim. I’m sorry about your wife and I hope the experience is all the better for her and your family. I have been thinking things along these lines, but how do you fund your expenses.

      • Tim Foley

        Hi Hart – There’s work to be had everywhere we go. It’s a much simpler life that initially feels less glam – but then you look around at the places you are… and… It’s awesome!

  • Although I actually am paying for two of my children to go to college, I DO agree with this – it was a bitter pill to swallow to send all of that money into a university’s pocket with many of the issues facing these institutions these days. Even just by switching to a more specific to trade, less expensive school is a better option.

  • slotowner

    Even better than don’t buy a house.

    Don’t buy FOOD.
    If you buy food you either eat it & it’s gone or you let it sit & it goes bad & is gone. Money wasted. It’s still one of our biggest expenditures. I can arbitrarily say you can save $100 a day so you can invest or start up a business, maybe a restaurant.

    Just like John, I’m not going to give you any better ideas of what you could actually do with the money or any of the possible repercussions of that decision say like starvation.

    • bertbopper

      Food is one of the greatest pleasures and joys. You must be kidding. I love to spend on food.

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  • Nicklaus Lindemann

    I wish I wasn’t on autopilot for so much of my life. I was a horrible mess. Now I have to pay off $38,000 over the course of the next ten years. Yaaay! Funny thing is I no longer want to work in Criminal Justice…. I want to write books that help others. I want to start a dialogue through a YouTube series. I want to sell spec scripts and screenplays. Not saying I can’t or won’t do those things, just feels like I dug a deep hole and am now in need of a rope. One day at a time.

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    • I do think your education will be useful.
      Regret is one of the most toxic things, so I encourage you to look forward while making the most of what you’ve learned.
      Cheers

  • Kya Nguyen-Bates

    Thank you for this. I am 30 and have been beating myself up about not being able to afford to buy a home and not wanting to pay off a loan for the next 25 years.
    Also, I agree about the schooling. I switched my major in college and then 5 years after college got a job doing graphic design with only a little photoshop experience. I’ve learned along the way from YouTube and online tutorials. I think trade-school or something along those lines is where I’ll be sending my son (who knows what the job situation will be like by the time my toddler is graduated from high school with more AI’s in the workplace).

  • Jimmy Freeman

    This is a very good article (blog post?), in that it sparks GREAT comments! I’m going to say I fairly agree with the college point, but think the home you ownership side is not as simple as stated. There are good points made in the article and in the comments for the pros and cons of home ownership. What is between the lines of the comments is that ownership is emotional! That’s not good or bad per se. Ownership must balance the rational and the emotional. House, car, apparel, dogs, all have an emotional price tag, and an emotional pay off. This is often more important than the financial side.
    Example; if you grew up with a dog, and you believe your children need pets in their lives, but you can’t have pets if you rent, you buy a house. That’s not a right or wrong decision, it’s a right decision for you. (OK, for me.) But I still respect people who see it differently.
    Emotions can often lead to poor purchase choices. We all know people who have to have the right house, the right car, the right clothes. And then can’t afford the lifestyle they represent.
    So if this blog post (or comments) makes you think about why you need a house, or why you need college, or why THAT college, then it has been good for you. Appreciate your good luck in finding it.
    Even though I don’t agree with every point, thank you James. Thought provoking.

  • bertbopper

    It is from an American perspective: Here you have a mortgage on 100% of all housing costs, and it usually results in a monthly fee half the money you would spend on renting. The bad thing is a bank needs a job to give a mortgage. The good thing, it only needs it for one year. So make sure you both have a one year contract, buy a house and have much lower monthly fees. Then quit and diversify your income.

    On the college: I would go further: the thing where things get FU is at high school. It could be a place to learn those skills needed at 18 when leaving school, but right now it isn’t. Be really careful about your pick of high school for your kids. And if you want to do college, do it is Sweden, or Belgium. There’s a lot of countries that don’t leave you in debt.