A bit of calculation would show that a lot of people have no chance of building "great passive income" in 10 years. They simply do not have enough income to save that much.
"I started with $200" tells us nothing useful.
I can start with $5 and have great passive income if I'm making $100k and wife is making $70k and both of us are capable of saving a good chunk per year.
I can start with $5000 and have little more than extra pocket money after 10 years if my salary is in the $20k to $30k range and I'm capable of saving $100 per lucky moon.
GP is absolutely right, compound interest does not do much if you don't have much. There is nothing ridiculous about it.
Here's something you can learn in less than an hour:
Most retail "investing" is really just skimming money from workers and giving it to shareholders.
Real jobs-and-opportunity-building investing isn't particularly encouraged by the markets. It's much easier to make money with various techniques that rely on the political manipulation of asset prices - like property, stocks, crypto, and corporate image - than by actually doing and making useful things at a reasonable price.
Which is why stock is such a contentious issue in the startup world. The operating rule is that you don't share profit with ordinary workers unless it's unavoidable.
Ideally if you're a funder you don't even share it with founders. That's more challenging to organise and happens less frequently, but if you're a founder it's naive in the extreme to assume you'll be spared any attempts to make it happen.
There are a lot of blogs out there about people retiring early and living off residuals. When I looked closely the people involved were not like “normal” people. One couple were high paid lawyers and the wife could basically freelance a few times a year and make a killing. Another couple moved to Portugal and somehow kept $100k++ remote jobs from companies in NYC. Another was a very high paid Microsoft manager in Seattle.
My father in law is out of touch as well. He talks about maxing out your 401k. He pays he son $15 an hour on 1099 and talks about how he should be saving, impossible. When my wife was making $40k right out of college he preached it as well. If you’re making $40k you can’t put $18.5k into the bank.
There is most certainly a category of people who cannot save at all because some combination of life factors lead them up shit creek, but there are plenty of low income people who could do with a lesson or two from Mr. Money Mustache. He has various case studies involving low income people and there are legions of journal entries on his forums where people earning pittances have nevertheless saved enough to be secure. Many have saved enough to retire early.
Nothing is one-size-fits-all of course, but I'd much rather be surrounded by those kinds of 'can-do' types who don't sit around waiting for life to come to them.
Mr. Money Moustache is a terrible example. He (and his wife) had a $200k+ job within a year or two out of college. He is still working. He is making money off his website and as a motivational speaker. He has to spend a significant amount of time managing his investments to ensure that they keep an average of over 4% return.
MMM's lifestyle works well for MMM, because of his circumstances. Those circumstances don't easily carry over to the general populace.
Where I fell off the MMM train, within hours of discovering it, was a post about healthcare costs on the individual market where he wrote about how cheap they could actually be...
- If you had enough money in the bank to cover an extremely high family deductible for a year without it causing serious pain, if something bad happened, AND ALSO
- Two adults either of whom could, in months if not weeks, land a job with decent to excellent pay and a much better family insurance coverage, so there's almost no risk of having to pay that high deductible more than once, worst-case scenario is one of you has to work for a while.
Like yeah, no shit buddy, if you have in demand skills and are already rich health care can be cheap. Stuff's cheaper for the rich, news at 11. Thanks for the advice.
Then what really got me were the people in his comments section (can't recall if he was down there too, but he certainly didn't discourage it) shitting on anyone who even ever so timidly pointed out that this advice was entirely useless—no part of it actionable—for people who were still trying to become FIRE-tier rich, despite its being presented as generally useful advice and a tone of "I don't get why people complain about health care costs, what dummies!" throughout the post.
Compound interest does require saving or investing, but presumably over the years you learn more, make more and move up. Those that stay in minimum wage jobs for ten years have only themselves to blame. Why would someone have a salary in the $20-30k range after 10 years? Find a new job, go work in an oil field, go learn how to sell cars, become an expert in something! A guy with a squeegee could end up with a car wash empire in ten years; but it takes work and discipline.
Look at the statistics for Asian immigrants — astoundingly successful as a group, many arriving in the country without money or even English. When you see an Asian family all living upstairs in their convenience store with the kids working and studying hard — those kids end up a Harvard. Their parents certainly aren’t buying rent-to-own TVs.
You can literally get promoted to manager at a McDonalds in six months — if you just show up on time have have even a tiny shred of maturity and ambition you can move up, even in the most menial of industries. There is definitely some personal responsibility involved, getting yourself addicted to drugs won’t help. Nor will getting in relationships with toxic people.
What’s ridiculous is that there are people that live their whole life as victims. Either they have a low IQ and are just simple minded, or they make a series of bad decisions again and again. Suggesting that compound interest “doesn’t do much if you don’t have much” —- nobody is saying compound interest alone is going to make you rich; it merely amplifies and helps you create wealth. Perhaps compound interest isn’t the right first step, what it seems like some people really need is some Tony Robbins so they can get themselves out of victim mindset that poisons them for generations. Maybe some Dave Ramsey as a first step to get financially disciplined.
Like one of the earlier posters, I too lived out of my car. I worked menial restaurant jobs, was in extreme debt, no family resources, even some troubles with the law. But barely 10 years from that I ended up working at a FAANG. It’s a long, involved story in which nobody would be interested, however the point is that this idea that people are stuck in their minimum wage fate is just fatalism nonsense. That fatalism is common in Catholic countries — it’s the reason that entrepreneurs were seen as strange in places like Mexico — the idea that you can change your stars is just sacrilege; “god’s will” has been responsible for more generational poverty than almost any other cause. The secular equivalent is the myth that if you are poor, you will always be poor.
Understanding compound interest isn’t just about building wealth, it’s about understanding the consequences of debt. Buying that shiny thing you can’t afford with “easy, low payments,” ends up shackling you to debt.
Please don't discount the fact that--despite popular perception--economic mobility in America is much smaller than in most developed countries. Your rags-to-riches success (while wonderful) is a statistical outlier. The vast majority of studies bear this out. What one starts with (parents' income/wealth) has a massive impact on what one finishes with.
"I started with $200" tells us nothing useful.
I can start with $5 and have great passive income if I'm making $100k and wife is making $70k and both of us are capable of saving a good chunk per year.
I can start with $5000 and have little more than extra pocket money after 10 years if my salary is in the $20k to $30k range and I'm capable of saving $100 per lucky moon.
GP is absolutely right, compound interest does not do much if you don't have much. There is nothing ridiculous about it.