Showing posts with label money. Show all posts
Showing posts with label money. Show all posts
This is the busiest Fall I can remember. I’m not a big fan of saying that I’m busy, because I firmly believe that there’s always time for something if you want there to be--it’s all about priorities. Nonetheless...wow, we are busy. During the months of September & October 2008:
- Our son Max started Kindergarten
- I started teaching a graduate course at a local university
- We have several improvement & repair projects going on at our house
- I have two major deals underway in the office (one of which recently died, which is always fun)
- We moved a significant amount of money into a real estate investment
- And we’re taking Max & Esmé on a three-week trip to Japan and South Korea to visit some old friends
Recently at Lifehacker there was a post entitled Why Renting Might Be Better Than Buying a Home, which linked to a pair of articles at the Millionaire Mommy Next Door blog discussing the merits of *not* being a homeowner. I made a comment that the author of the articles appreciated, so I thought I’d reproduce it here:
I am currently a homeowner (of a house I can easily afford--this is important), but I have always been a strong proponent of rental housing. Renters are sometimes considered second-class citizens in this country, and that is a real shame. A lease, although different than fee ownership, is still a bona fide interest in real estate. I would go so far as to say that renters-by-choice in the U.S. should be applauded in 2007 for being significantly more intelligent than their home-owning counterparts.
I feel qualified to comment on this since (a) I happen to work in real estate investment & development, (b) I am a homeowner, and (c) I have been a renter in the past many times over.
Speaking as someone who invests in real estate to make a living, let me say that a personal residence is about the only type of real estate that I would *not* consider an investment. It's a place to live, and it's an emotional transaction. As such, it is a bad investment.
A house is something you dump money *into*. A real estate (or any other) investment is something you pull money *out of*. Please note the direction of the cash flow.
Not only have I observed this to be true in my own life/career, but this advice has been affirmed by several other (much older than me) investment mentors, and I'm talking about people who know how to make money here, people with net worth containing 8 and more digits.
In the past several years, many people have been fortunate to see the value of their homes appreciate rapidly, especially those living on coasts. The lucky ones monetized this before the trend reversed. There are many people still left holding hot potatoes, as we are now all reading in the news.
Home equity should not be a major piece of your net worth. If it is, you should consider some 'portfolio re-balancing.'
Although I am a strong proponent of renting, I will admit that there is a significant emotional satisfaction from owning. And that's my point: Buy a house because you want to buy a house, not because you think it's better financially than renting.
I am currently a homeowner (of a house I can easily afford--this is important), but I have always been a strong proponent of rental housing. Renters are sometimes considered second-class citizens in this country, and that is a real shame. A lease, although different than fee ownership, is still a bona fide interest in real estate. I would go so far as to say that renters-by-choice in the U.S. should be applauded in 2007 for being significantly more intelligent than their home-owning counterparts.
If you don’t play the lottery, you are going to hell.
One of my prior bosses had a saying about the lottery: “Jason, it’s like buying life insurance. I play the lottery because if I don’t--and all these a.h.’s [he meant this endearingly] around here win without me--I’d kill myself.”
The last two office environments in which I’ve worked have had lottery pools, and it seems everyone participates except me. My lack of participation seems to baffle, and almost offend, those around me. They can’t seem to understand why I’d risk not sharing in that big (potential) payoff.
Odds vary among the high-payoff lotteries in this country, but a nice average probability to win is around 1 in 125,000,000. With a jackpot of $100 million, a single ticket’s expected value is about $0.74. If your ticket costs $2.00, the net value of this transaction is -$1.26 (note the minus sign). Using these odds and ticket prices, the lottery’s jackpot would need to rise to over $250 million before you have a net positive transaction value.
Therefore, if you’re given a choice between lighting $2.00 on fire and playing the lottery, it is indeed better to play the lottery. But I’d wager that buying a piece of pizza, for example, is a better use of the money.
The pressure to participate in intra-office lottery pools reminds me of the pressure exerted by religious folk ‘encouraging’ non-believers to believe. It’s a fear of hell thing, and a strikingly similar argument that goes something like this:
Playing the lottery is a small but losing transaction. Just like small wins add up over time to fatten your bank account, small loses repeated faithfully over time add up to drain it. Further, communal lottery pools are almost a form of harassment. Although on the surface they appear harmless enough, these pools are strikingly similar to being shaken down for protection money. Pay up, or you’ll work here forever.
Pay up, or you’ll go to hell.
One of my prior bosses had a saying about the lottery: “Jason, it’s like buying life insurance. I play the lottery because if I don’t--and all these a.h.’s [he meant this endearingly] around here win without me--I’d kill myself.”
The last two office environments in which I’ve worked have had lottery pools, and it seems everyone participates except me. My lack of participation seems to baffle, and almost offend, those around me. They can’t seem to understand why I’d risk not sharing in that big (potential) payoff.
Odds vary among the high-payoff lotteries in this country, but a nice average probability to win is around 1 in 125,000,000. With a jackpot of $100 million, a single ticket’s expected value is about $0.74. If your ticket costs $2.00, the net value of this transaction is -$1.26 (note the minus sign). Using these odds and ticket prices, the lottery’s jackpot would need to rise to over $250 million before you have a net positive transaction value.
Therefore, if you’re given a choice between lighting $2.00 on fire and playing the lottery, it is indeed better to play the lottery. But I’d wager that buying a piece of pizza, for example, is a better use of the money.
The pressure to participate in intra-office lottery pools reminds me of the pressure exerted by religious folk ‘encouraging’ non-believers to believe. It’s a fear of hell thing, and a strikingly similar argument that goes something like this:
You should [play the lottery/convert to my religion] because it [only costs $2.00/only takes a prayer] and the consequences include [having to slog away at this job after your coworkers all retire to somewhere tropical/going to hell].
Playing the lottery is a small but losing transaction. Just like small wins add up over time to fatten your bank account, small loses repeated faithfully over time add up to drain it. Further, communal lottery pools are almost a form of harassment. Although on the surface they appear harmless enough, these pools are strikingly similar to being shaken down for protection money. Pay up, or you’ll work here forever.
Pay up, or you’ll go to hell.
Scraping vs. ‘Plunking’Having finally come to a point in my life where I feel that I have control (and am relatively happy with the state of) my finances, some useful monetary analogies have grown up within my head. One of these is as follows:
Imagine a big soup pot. This is your potential net worth. Now picture a steady but slow stream (or drip drip drip, if you prefer) of thick, translucent red liquid pouring into the container from above. This is money--your income. To pay your expenses, you must dip a ladle down into the container and take some of the liquid out. If you have a net worth close to zero, you can imagine the sound of the ladle scraping bottom as you try to scoop up enough to pay for this month’s expenses. If you have a larger net worth, you can imagine the nice ‘plunk’ sound as the ladle goes deep into the plentiful liquid to easily pull out as much as is necessary.
There are many little images you can create from this analogy:
- If you don’t have a budget, your soup pot has holes in the bottom of it
- If you are deep in debt, you don’t even have a soup pot (you’re filling someone else’s)
- If you avoid using the liquid faster than it drips in, soon you’ll have a nice deep pool
- Find ways to make the liquid flow into the pot faster
- From time to time, someone suddenly pours in a cup full (these are windfalls)
- As your soup pot fills up, you are entitled to larger and larger pots (and consequently a larger ladle--the reward for your patience and discipline)
Recently, nearly two years after originally beginning play, and just shortly after the level cap was raised to 70 with the expansion, I reached level 60 in World of Warcraft. The real news here is that, as cheap as I am, someone figured out how to get me to pay $14.99 per month for something that I only play once or twice per week, at most...
A question was posed: Are people happier when they are "time-affluent" or "money-affluent"? My answer:
Ultimately, I believe everything, including happiness, comes from within, but is then influenced (dampened or reinforced) by things external. Related to this, I believe that the life we experience (all the things external) is more or less a result of our internal orientation.
Over time, people bring to themselves what they are.
I believe happiness is most reinforced by positive relationships with other people. Those of us who are fortunate enough to have loved ones close to us (spouse, children, friends, parents, siblings) have an easier time of it.
I also believe that a strong orientation toward internal happiness comes from a childhood full of mostly love, joy and fun. This builds confidence and enables people to stand on their own. I believe the strongest relationships are between people who are comfortable by themselves.
Relating this to work and money: Not having enough money to avoid "living paycheck to paycheck" will cause a lot of stress for anyone--internally happy or not. It's not so bad to work hard for money, even if it takes a lot of time, so long as your priorities remain correctly aligned (i.e., don't neglect yourself, your spouse, your children, your family, your friends). If you find yourself working 80 hours per week at a job you love, so be it. If you feel better working 3 days per week for less money, so be it. Happiness is equally possible in all situations. Again, it is not a product of your situation, it is only influenced by it.
A final thought* -- If you are not happy, in all likelihood it is largely because you are not living up to the internal expectations you have set for yourself.
(*Not in original post. Original post here.)
Ultimately, I believe everything, including happiness, comes from within, but is then influenced (dampened or reinforced) by things external. Related to this, I believe that the life we experience (all the things external) is more or less a result of our internal orientation.
Over time, people bring to themselves what they are.
I believe happiness is most reinforced by positive relationships with other people. Those of us who are fortunate enough to have loved ones close to us (spouse, children, friends, parents, siblings) have an easier time of it.
I also believe that a strong orientation toward internal happiness comes from a childhood full of mostly love, joy and fun. This builds confidence and enables people to stand on their own. I believe the strongest relationships are between people who are comfortable by themselves.
Relating this to work and money: Not having enough money to avoid "living paycheck to paycheck" will cause a lot of stress for anyone--internally happy or not. It's not so bad to work hard for money, even if it takes a lot of time, so long as your priorities remain correctly aligned (i.e., don't neglect yourself, your spouse, your children, your family, your friends). If you find yourself working 80 hours per week at a job you love, so be it. If you feel better working 3 days per week for less money, so be it. Happiness is equally possible in all situations. Again, it is not a product of your situation, it is only influenced by it.
A final thought* -- If you are not happy, in all likelihood it is largely because you are not living up to the internal expectations you have set for yourself.
(*Not in original post. Original post here.)
On ask.metafilter.com, a user asks: "In the U.S., why does a family need two incomes to live at a standard that was previously attainable by one?" Here is my answer.
Wow, this guy is trying to do the same thing as me. Except he's given himself 20 years to do it (I'm shooting for 10). And he's way ahead of me. And he's a couple years younger than me. And he's single with no kids. Sheesh...guess I have my work cut out for me.
Great website, though!
Great website, though!
On haggling, Part 1: At the right time and the right place, almost everything is negotiable. I'd haggle everything if I had the time, whether the price had six zeros in it or one. The art of negotiation is much too complex to even scratch the surface here, but from my mentors (and a bit of experience) I have learned a couple rules-of-thumb for the simpler situations:
1. If you do not ask, you will most certainly not receive. If you do ask, typically the worst that can happen is "no." I'm amazed at what I've been able to get over the years just by asking, even when it seemed unreasonable or impossible. My wife is even bolder at this than I am...
2. To have any leverage at all, you always need to have one thing in your pocket: The ability to walk away. When negotiating, it is critical to (a) not really care that much about whether or not you are able to get what you're trying to get, and/or (b) have a strong, acceptable alternative already in hand that you can fall back on if you aren't successful in the current negotiation.
In short: Always ask for "it", but make sure you don't want "it" too badly.
On haggling, Part 2: Forgive my verbosity on this topic (one I truly love), but I have a couple more haggling stories to add--these were learning experiences:
In 2000, my wife and I were haggling over a piece of leather baggage near Il Porcellino in Florence. As I recall, $1 US was trading for just over 1,900 Lire at the time. The asking price was L120,000, or a bit more than $60. I negotiated the vendor down to L80,000 ($40-ish). After pulling all the money out of my pocket, I realized--honestly--that all I had was L50,000. I told the vendor in broken Italian that I would go back to the hotel (just a few blocks away) and get the remainder. He was a bit upset--he thought I was negotiating (I wasn't). I *insisted* that I would be right back with the additional money, but he didn't want me to leave. Long story short, I got the luggage for L50,000 (just over $25). Shows the power of walking away--truly walking away, not bluffing, not pretending you're going to walk away.
In 2001, I talked a Best Buy store clerk into accepting my return of a video game that I had opened and played for a month (strictly against store policy). I was persistent to the point of annoying everyone in the store, including the 20 people behind me in line, but I got what I wanted. The logic I used at the time reminded me of the logic Ford Prefect used to convince Prosser to lie down in front of the bulldozer in Arthur Dent's stead while they stepped down to the pub to have a drink. But I suspect it wasn't my logic that convinced him, it was the 20 angry people behind me.
I use the basic negotiation skills I've learned *all the time* at work, for both internal (salary, responsibilities) and external (transactions) applications. The ability to negotiate effectively is one of the most important skills a person can have. Read "Getting Past No" and "Getting To Yes" by William Ury. Also, "Negotiating Rationally" by Bazerman & Neal.
On haggling, Part 3: Ok, just one more, I promise: First "real" job after undergrad; got the call from the managing partner; we want to hire you; what are your expectations for starting salary? Me: Oh, how about $X? Him (with 0.0000001 seconds delay): $X sounds perfect, when can you start?
Arrrrgh! Sold myself short, way short! He pounced as I lowballed myself! Since then I have asked for the moon every time, and sometimes gotten it.
1. If you do not ask, you will most certainly not receive. If you do ask, typically the worst that can happen is "no." I'm amazed at what I've been able to get over the years just by asking, even when it seemed unreasonable or impossible. My wife is even bolder at this than I am...
2. To have any leverage at all, you always need to have one thing in your pocket: The ability to walk away. When negotiating, it is critical to (a) not really care that much about whether or not you are able to get what you're trying to get, and/or (b) have a strong, acceptable alternative already in hand that you can fall back on if you aren't successful in the current negotiation.
In short: Always ask for "it", but make sure you don't want "it" too badly.
On haggling, Part 2: Forgive my verbosity on this topic (one I truly love), but I have a couple more haggling stories to add--these were learning experiences:
In 2000, my wife and I were haggling over a piece of leather baggage near Il Porcellino in Florence. As I recall, $1 US was trading for just over 1,900 Lire at the time. The asking price was L120,000, or a bit more than $60. I negotiated the vendor down to L80,000 ($40-ish). After pulling all the money out of my pocket, I realized--honestly--that all I had was L50,000. I told the vendor in broken Italian that I would go back to the hotel (just a few blocks away) and get the remainder. He was a bit upset--he thought I was negotiating (I wasn't). I *insisted* that I would be right back with the additional money, but he didn't want me to leave. Long story short, I got the luggage for L50,000 (just over $25). Shows the power of walking away--truly walking away, not bluffing, not pretending you're going to walk away.
In 2001, I talked a Best Buy store clerk into accepting my return of a video game that I had opened and played for a month (strictly against store policy). I was persistent to the point of annoying everyone in the store, including the 20 people behind me in line, but I got what I wanted. The logic I used at the time reminded me of the logic Ford Prefect used to convince Prosser to lie down in front of the bulldozer in Arthur Dent's stead while they stepped down to the pub to have a drink. But I suspect it wasn't my logic that convinced him, it was the 20 angry people behind me.
I use the basic negotiation skills I've learned *all the time* at work, for both internal (salary, responsibilities) and external (transactions) applications. The ability to negotiate effectively is one of the most important skills a person can have. Read "Getting Past No" and "Getting To Yes" by William Ury. Also, "Negotiating Rationally" by Bazerman & Neal.
On haggling, Part 3: Ok, just one more, I promise: First "real" job after undergrad; got the call from the managing partner; we want to hire you; what are your expectations for starting salary? Me: Oh, how about $X? Him (with 0.0000001 seconds delay): $X sounds perfect, when can you start?
Arrrrgh! Sold myself short, way short! He pounced as I lowballed myself! Since then I have asked for the moon every time, and sometimes gotten it.
Buy Nothing Day is this Friday. Lifehacker did a post on it; there were some interesting commments. Here's mine:
Buy Nothing Day is simply a sanity check. It is a reminder that we don't--or shouldn't--need *things* to be happy. It is a reminder that mindless, excessive consumerism is not good for an individual or for a family, and should not be the primary basis of an economy. The idea of the "door-buster"--of getting people hyped up into a rabid state of intense desire for bargain-priced goods that they may or may not need--is reprehensible. We should be embarrassed by the froth coming out of our mouths.
For the record, although I am an individual with decisively liberal moral values, I am very much pro-capital. I enjoy making money, saving money, investing money. I love to buy nice things from time to time. But I don't go crazy. I take public transit instead of driving. I try to leave a small footprint, to live well below my means.
There is a burgeoning underclass in this country that is becoming completely trapped by the consumerist culture we've created over the years. Our buying patters, our city-building patterns, our dependence on the car, our expectation for an ultra-high standard of living (compared to the world as a whole)--all these factors (and a few more not mentioned) are eliminating the "middle class" and creating a poor, work-until-you die-class, and a middling-affluent work-until-you-die class. Of course in the top percentiles of society are the ultra-wealthy. Why are we moving in this direction? No one is to blame. Everyone is to blame. A consumption-dependent economy is part of the problem.
*Trade* always has been, and always will be, a part of the human condition. But we must stay sane. We must not behave like rabid dogs. Shun the door-buster. Embrace Buy Nothing Day for its symbolism alone, then learn from what you've done, and let that lesson manifest itself throughout the entire year.
Buy Nothing Day is simply a sanity check. It is a reminder that we don't--or shouldn't--need *things* to be happy. It is a reminder that mindless, excessive consumerism is not good for an individual or for a family, and should not be the primary basis of an economy. The idea of the "door-buster"--of getting people hyped up into a rabid state of intense desire for bargain-priced goods that they may or may not need--is reprehensible. We should be embarrassed by the froth coming out of our mouths.
For the record, although I am an individual with decisively liberal moral values, I am very much pro-capital. I enjoy making money, saving money, investing money. I love to buy nice things from time to time. But I don't go crazy. I take public transit instead of driving. I try to leave a small footprint, to live well below my means.
There is a burgeoning underclass in this country that is becoming completely trapped by the consumerist culture we've created over the years. Our buying patters, our city-building patterns, our dependence on the car, our expectation for an ultra-high standard of living (compared to the world as a whole)--all these factors (and a few more not mentioned) are eliminating the "middle class" and creating a poor, work-until-you die-class, and a middling-affluent work-until-you-die class. Of course in the top percentiles of society are the ultra-wealthy. Why are we moving in this direction? No one is to blame. Everyone is to blame. A consumption-dependent economy is part of the problem.
*Trade* always has been, and always will be, a part of the human condition. But we must stay sane. We must not behave like rabid dogs. Shun the door-buster. Embrace Buy Nothing Day for its symbolism alone, then learn from what you've done, and let that lesson manifest itself throughout the entire year.
Here are some recent comments I've left on Lifehacker:
- Dollars and sense: "A part of what you earn is yours to keep." It sounds so simple that it approaches being silly, but it's more difficult than most people are willing to admit. Can you save one penny for every ten pennies you earn? It's been said another way: "Pay yourself first." ... Read "The Richest Man in Babylon" by George Clason and "The Millionaire Next Door" by Thomas Stanley & William Danko. These are very basic, very illuminating books that will hopefully leave a lasting impression on you regarding the essence of managing your financial life and maybe, just maybe, *creating wealth*. ... There's no magic: 1) Save money--make this your first financial priority. What follows next is simple: 2) Spend less than you earn! Live below your means (according to the Motley Fool)! Budget! 3) Avoid the types of debt that work against you (i.e., home mortgage OK, mortgage on investment property OK, student loans bad but still OK because they can increase earning power and typically have very low interest rates, BUT, credit cards that carry a balance BAD, BAD, BAD!). 4) Invest your money. There are too many investment vehicles to name. Find one that suits your personality. This will take significant time and effort, but you must do it. Remember, earning less on your money than the rate of inflation means you're losing money.
- Starter homes: Buying a home you can actually afford is one of those bits of common sense that people seem to have forgotten, for the moment at least. Here's an interesting rule of thumb that I pass on to people: ... Assuming you are not burdened by a large amount of consumer debt, the upper limits of what could be considered 'an affordable home purchase price' are around 3x your gross annual income. If you want to build wealth, limit your home purchase price to 2x (or less) your gross annual income. ... These are extraordinarily simplified notions, and while helpful, should be used with caution. You must look at your total financial picture (especially all other debt obligations) before making any purchase decisions. And of course interest rates affect these multiples. As rates go up, the multiples will go down. ... One final note: I'm a firm believer that home ownership *should not* be the primary means by which one builds wealth. While coastal (and selected other) cities have seen tremendous appreciation, much of the country cannot consistently depend on this type of value growth. ... View owning a home as a tax-advantaged alternative to renting. Then carefully and aggressively invest your money elsewhere.
- How do you use your Palmtop Computer?
- Manage your distractions
- Dollars and sense: "A part of what you earn is yours to keep." It sounds so simple that it approaches being silly, but it's more difficult than most people are willing to admit. Can you save one penny for every ten pennies you earn? It's been said another way: "Pay yourself first." ... Read "The Richest Man in Babylon" by George Clason and "The Millionaire Next Door" by Thomas Stanley & William Danko. These are very basic, very illuminating books that will hopefully leave a lasting impression on you regarding the essence of managing your financial life and maybe, just maybe, *creating wealth*. ... There's no magic: 1) Save money--make this your first financial priority. What follows next is simple: 2) Spend less than you earn! Live below your means (according to the Motley Fool)! Budget! 3) Avoid the types of debt that work against you (i.e., home mortgage OK, mortgage on investment property OK, student loans bad but still OK because they can increase earning power and typically have very low interest rates, BUT, credit cards that carry a balance BAD, BAD, BAD!). 4) Invest your money. There are too many investment vehicles to name. Find one that suits your personality. This will take significant time and effort, but you must do it. Remember, earning less on your money than the rate of inflation means you're losing money.
- Starter homes: Buying a home you can actually afford is one of those bits of common sense that people seem to have forgotten, for the moment at least. Here's an interesting rule of thumb that I pass on to people: ... Assuming you are not burdened by a large amount of consumer debt, the upper limits of what could be considered 'an affordable home purchase price' are around 3x your gross annual income. If you want to build wealth, limit your home purchase price to 2x (or less) your gross annual income. ... These are extraordinarily simplified notions, and while helpful, should be used with caution. You must look at your total financial picture (especially all other debt obligations) before making any purchase decisions. And of course interest rates affect these multiples. As rates go up, the multiples will go down. ... One final note: I'm a firm believer that home ownership *should not* be the primary means by which one builds wealth. While coastal (and selected other) cities have seen tremendous appreciation, much of the country cannot consistently depend on this type of value growth. ... View owning a home as a tax-advantaged alternative to renting. Then carefully and aggressively invest your money elsewhere.
- How do you use your Palmtop Computer?
- Manage your distractions
Mr. Micawber was waiting for me within the gate, and we went up to his room (top story but one), and cried very much. He solemnly conjured me, I remember, to take warning by his fate; and to observe that if a man had twenty pounds a-year for his income, and spent nineteen pounds nineteen shillings and sixpence, he would be happy, but that if he spent twenty pounds one he would be miserable. After which he borrowed a shilling of me for porter, gave me a written order on Mrs. Micawber for the amount, and put away his pocket-handkerchief, and cheered up.
The harsh fiery altar of probability that is Las Vegas:
- Tuesday, at Caesar’s Palace: Gambled $10, won $35, up $25 for the day.
- Wednesday, at Treasure Island: Started with $25, gambled $20, won $60, up $65 for the week.
- Thursday: No gambling.
- Friday, at the Venetian: Started with $65, gambled $20, won $80, lost $60 doing more gambling, still up $65 for the week—held at par from Wednesday.
- Saturday, at the Luxor: Started with $65, gambled $30, won nothing, still up $35 for the week.
Sidenote: If you ever try to call gambling "gaming" in my presence, I'll smack you.
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