“You and I both know that a million dollars is nothing”

I was talking recently with a good friend who is a successful engineer in Tokyo. He is, among my friends and family, the one who has been the most receptive to what I’ve been recently preaching about financial independence, frugality, and investments. He’s also one of those who has been the most critical about it. But at least he’s reacting to it, which is more than I can say about most of my friends who actively ignore me when I’m talking about FI.

This friend, Richard (not his real name), is making a 6 figures salary, approximately $140k or $150k for his base salary, if I had to guess. He also gets some bonus in the form of stock from his company. Although we don’t share our numbers specifically, I have to assume he makes close to $200k a year total. In Tokyo, where, in my experience, salaries are significantly lower than in, say, Silicon Valley, this is huge.

We’ve been talking money a lot: he has a lot of it and has been looking for ways to invest it. In general, he’s gone about it the wrong way, talking to banks about his money, when we in the financial independence community know that it’s all about avoiding the banks and their underperforming products. I tried many times to get him to understand that investing in an index ETF is the simplest and most efficient thing he could do, he has been blocked in a mindset that tells him it would be harder to open a brokerage account, than it would be to go and talk to banks. As a result, he’s spent countless hours talking to banks in Japan who offer him products with 1% or 2% return, while I keep telling him he should just go and open a brokerage account to enjoy the 7%+ I’ve been getting for a while now.

I do feel bad for Richard on his investment struggles, because I used to be in his shoes. I used to think less than 3 years ago that investing was complicated, that “they” (the banks, wall street, the tax man, you name it) took the bulk of my money leaving me with the crumbs, and that is was worthless trying to find something that did not exist: a good investment.

Throughout our conversation, Richard admitted to me that he has close to 1 million dollars saved. A third of that is in a life insurance in Europe (which, from his description sounded like the equivalent of a 401k rather than an actual life insurance, although he was unable to give me details besides “I know it’s invested in ETFs”), another third is his company stock, and a third in cash.

He then told me: “but you and I both know that 1 million is nothing today”. I didn’t say a word and kind of nodded, but I was almost boiling inside. From where I stand, a million dollars gets the average household very close to financial independence (if not directly FI), in any country of the world: a million dollar invested properly lets you live on $40’000 per year. That’s probably not enough to live in a fancy place in Tokyo, but is not “nothing” either. More to my point: invested properly, that million dollar can grow into 2 millions within ten years. 2 millions provide $80’000 a year, which, in my experience, is more than enough to provide a good life for a family of 4 in Tokyo.

To me, the bottom line is, independently of what your actual number is, a million dollars “starting point” is more than enough to at least get you on a fast track to financial independence. Anecdotal evidence confirms that $1.5 millions is actually the sweet spot for a majority of people.

Rephrasing, I’m not saying that 1 million (or 1.5 million) dollars is “the” target that everybody should be looking for, rather that even if it’s not enough for a given person’s situation, it is probably getting them a big head start thanks to the power of kom-pounding, baring any specific circumstances (health problem requiring a huge pile of money, etc…). Richard just failed to accept that, no matter how I tried to phrase it in our conversations.

Of course, discussing with him, it was clear that the issue was twofold: 1) the lack of basic financial knowledge to understand he should be investing his money much more simply and cleverly (as I discussed above), and 2) a huge problem of lifestyle inflation. Richard confessed he and his girlfriend spend almost his entire paycheck every month.

They don’t keep a budget, neither do they check how much they spend every month, but he seemed to think their two biggest expenses were restaurants and travel. We didn’t speak much about their travel habits, but he was shocked when I told him that in 2016, my family went out for lunch/dinner less than 5 times. I kind of boast about my frugality here on this blog, but (obviously?) in person I’m much more reserved. So, when I told him we rarely went to restaurants, I quickly added “well, my situation’s different. With the kids it’s tough to go out anyway, I used to go out much more often when we didn’t have kids”. Which, in a way, was true, but today there’s also the conscious effort of being frugal.

Richard’s not my only friend with a lifestyle inflation problem, and I was there myself not so long ago. Many of these engineer/executive friends spend the entirety of their paycheck, and only keep their stock (although some of them are smart enough to diversify that part a bit). They’re still all becoming rich, probably slower than they could be, but definitely faster than the majority Japan’s population. They don’t really need to be worried, to be honest. Richard has a million dollars today, and unless he messes things up really badly, is on track to get to 3 or 4 millions by the time he retires. But it feels crazy to me nowadays that a couple in Tokyo find ways to spend $150k a year without really noticing.

I have also this nasty internal “competition” that I’m running internally against Richard. He and I are alike in many aspects, so I tend to compare myself to him a lot. Financial success being one of these criteria. In particular, Richard told me that a third of his fortune came directly from his parents. Although my parents helped me financially, it’s definitely not been to that level. I think it’s a willingness to prove the frugal way of FI works, rather than jealousy, but there’s this nasty side of me that want to compete with Richard. I kind of hope he keeps being stubborn with his money habits, so I can tell him in 30 years when he retires: “oh, finally, joining the club of people who don’t have to work for a living? But you’re 25 years late, buddy. Hope you enjoyed the ride and not listening to my advice”.

I’m wondering if some time in the future I could have enough money invested that it generates more than Richard’s crazy salary + his not-so-great investments. You know, just to make a point.*

I know, I’m a terrible person.

Richard, unlike many of my other friends, is one of those people who believes in constantly improving oneself. So even though he despises the idea of dealing with his money, he is committed to doing something about it. He promised he would be looking into brokerage accounts, and into reducing his expenses. There’s hope!

* I’m not seriously considering this, people. It would be crazy for me to work 10 or 20 more years just to tell “told ya” to my then 60 years old friend 🙂

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