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You cost me an opportunity, man…

Okay, so maybe you personally didn’t cost me an opportunity, but at some point, someone has.  And it sucked.

Did you know that when you spend money that you don’t otherwise need to, you are costing yourself an opportunity?  You aren’t just costing yourself the opportunity to spend it on something else, but you are actually costing yourself the opportunity to invest that money elsewhere and make it grow.  And since money is just an exchange rate for time, you are costing yourself time (that’s the reason why efficiency experts tend to be interested in finance as well).

I hate it when that happens.  There have been a few times in the past several years when I’ve said to myself, “Self, if I had enough money, I could buy that and make a ton of money.”  Now, I’ll give you that I am no investment expert and have lost my fair share of money learning how to invest in securities, bonds, you name it.  But it’s inexcusable that I didn’t even have the option, because the money I had was tied up elsewhere.

You shouldn’t use that as an excuse not to invest, but it’s important to be conscious of how your spending affects these things.  If you aren’t, you could find yourself in the same boat I’ve been in several times in the past few years, saying “If I only…”  And being able to take advantage of those opportunities makes all our efforts to get our spending under control well worth it.

June 16, 2009 | Filed Under Investment, Money

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Should you buy?

A friend of mine from high school and I were chatting the other day about homeownership. He was telling me he felt like he “had to buy now” because prices are so low, and he felt like prices in his area were leveling out. Our conversation was cut short after I told him that if I had to do it over again, even now I probably would still avoid buying, but I promised him a follow up blog entry about my position on this, since I feel like the topic is definitely in the purview of the site. So, as I see them, here are the benefits and drawbacks of owning your own place.

Drawback: The Burden of Debt

This is my major reason for disliking the “homeowner” experience – I hate the fact that I am effectively in debt up to my ears. I don’t have any non-mortgage debt anymore (I’ve paid off my consumer debt pretty aggressively over the years, mainly because I hated that debt sensation as well. The truth of things is that debt, to me at least, is like a yoke around my neck, keeping me enslaved to my desk. For you, maybe indebtedness is less visceral. But I am aggressively paying down my mortgage to return a sense of control over my finances, even though it means cutting back on other things for which I would like to be saving.

Benefit: Pride

This is the main reason I bought a house in the first place, and remains the best part of the whole experience. I don’t want people to think I’m down on homeownership in concept – it’s more mortgages that I dislike than anything else. How much is this pride worth to you? For me, it isn’t worth the extra expense of owning, but for someone else who knows. My priorities aren’t necessarily right for the guy down the street.

Drawback: Unexpected Expenses

When I bought my place, I was not obvious to me the extra expenses that I would incur as a homeowner, and my parents, whom I was looking to for guidance on this, hadn’t rented in so long that they couldn’t accurately provide sanguine advice on the topic. It turns out, year over year, owning is costing be about 20% more than renting would in my neighborhood. Not because of my mortgage (my minimum mortgage payments are within 3% of the going rental rate), but because of all the extra crap I am responsible for as an owner.

The fact of the matter is, stuff breaks. Either you are paying for it directly (paying the plumber, the electrician, or buying appliances) or indirectly through your HOA dues. But you’re paying for it. When you rent, the owner of the property eats that cost. It doesn’t affect your rent directly, and if they raise the rent when you are up for renewal, you’re free to move to someplace less expensive. You don’t have that freedom as an owner.

Benefit: Control Over Your Home

If you own the place, you can paint the walls crazy colors, flush mount your entertainment system, knock down walls, etc. It’s your house – you can’t do those things in a rental. If you want more space, and are so inclined, you can add a room. Or build a pool. This kind of control over your environment, your own personal kingdom, is very satisfying. The most fun I had when I bought was picking the colors for the walls, and figuring out where everything should go and what I wanted to ‘do’ with the place. When I was just renting, there was not that same level of excitement.

Granted, normally, I don’t give a crap about that kind of stuff – but when it’s for your house, all the sudden it holds your attention. I’ll admit it’s a bit weird, but I feel like other people who have gone through the same experience will back me up on it.

Drawback: Even the Best HOAs Suck

This is more of a recent thing, and if you can manage to get a place without an HOA, you’re a lucky person. Even well managed HOAs take away from some of the proceeding benefit. They can force you to do things their way, for some reason that may not make much sense to anyone. This is a huge negative, because then you can’t just do what you want with what you own. Not to mention its just one more thing you have to pay for – the purpose of an HOA is to socialize some costs so as to both reduce overall cost and increase cost certainty. But in exchange you give up some of that control over your property. I’m not sure if it is really a fair trade.

Drawback: Opportunity Costs

Opportunity cost is funny, because it’s not something that is easy to show. There are several places that have talked about this at length, and although it’s a topic I would like to go into in more depth, this piece really isn’t the place for it. I will say that the additional cost of owning is magnified because it is in effect tied up in an investment that doesn’t rapidly increase in value, and could probably be better invested elsewhere. It’s really interesting to me how the math plays out in this, I actually think its similar to the idea of should you buy a new or used car – and the best answer is ‘it depends.’

Benefit: Stability

This is a benefit and a drawback, and I’ll discuss the drawback side of it next. But there is definitely a benefit here in that owning a house causes you to be more stable. Are you someone that would like to ’settle down,’ at least conceptually? Buying a place will definitely force you to do just that – the added responsibilities are substantial, and will cause you to be more deliberate in your actions going forward. Also, you don’t have to worry about the landlord deciding not to renew your lease, so moving isn’t something that can be subjected upon you.

Drawback: Loss of Flexibility

I put this last because it sums things up nicely for me. I regret the loss of flexibility in my job (and in turn my life) because I own a home and have a mortgage. That’s not to say that I don’t like the work that I do, just that I mourn the loss of that ability to say “You know what, I want to go live on the beach and write full time, instead of working my 9-5.” But beyond that, your needs change over your life, and what you needed 5 years ago in a home is probably not what you need today. I wonder how many families are crammed into too small a house because they just couldn’t afford to sell. If that same family was renting, moving to a larger place would be much less of an undertaking.

June 15, 2009 | Filed Under Investment, Money, Planning / Goals

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Secure Yourself

If you’re coming into this piece from Moolanomy, please check out some of my other pieces while you are here.  Some of my most popular ones are Never Move For Money!, Fixing your W2 Withholding for Fun and Profit, and Sales, lies, and videotape.

I’ve been thinking a lot about online security and our finances recently.  Doesn’t it scare you that someone could literally spend a few hours at a computer, and probably destroy your life for months, if they manage to break into your bank account or one of your other web-based accounts?  It scares me.

This week, I spent some time writing a guest post for Moolanomy about this very topic (it will hopefully be posted sometime in the next few days, if it hasn’t been already), and I covered a few basic things we all should be doing to protect our online financial identies from thieves.  This is stuff like making sure your bank has enhanced online security measures available to you (and using them), and making sure you’re using secure passwords on any sites where you are storing personally identifiable information.  This is good stuff, but really, it isn’t enough.

Why?  Because if someone breaks into your computer and puts a virus on it (or you just pick one up roaming around the web), all of that work is for naught.  My girlfriend and I learned this first hand when she got a virus on her laptop that had a keystroke logger built into it – basically, it was on the prowl for any usernames or passwords we used to log into any of our websites.  Talk about a flurry of activity, finding a clean computer and changing all of our passwords.  No fun.  And I only used her computer once to log in and check my balance.

So, what can you do?  Here are some things to make sure you have set up:

In the Moolanomy piece (which I will link back to when it is active), I talk a good deal about those last two bullet points.  At some point I will do the same thing here.  I don’t want to go into detail about this today, but I thought it was worth breaking out of my current blogging theme to talk about.  What do you think?  Do you have any other suggestions on how to secure yourself when working online?

June 12, 2009 | Filed Under Finance, Investment, Money, Security

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Dilbert and what you shouldn’t do

This is one case where I want to be the PHB (Pointy Hair Boss), because in the long run he’s probably better off than the promiscuous secretary with the GED.  However, she probably made a good call living in the rented trailer, I’m sure that saves her a bunch of money.

Spend money on what you care about, cut the costs on the rest until they bleed.  You won’t regret it.

May 8, 2009 | Filed Under Finance, Investment

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Invest in others

Yesterday I talked a bit about investing in yourself.  I want you to make yourself another promise.  All that stuff is great, and I think you should just go out and do it.  No excuses.  There’s something else you should be doing as well, before you even start thinking about becoming wealthy.

Invest in someone else.

This may seem crazy – I mean, how does this have anything to do with being wealthy?  My definition of wealth is doing what you want, for whom you want, when you want.  Life is about service and the people who are the wealthiest are providing some sort of amazing service for others.  I don’t expect people to do that right away.  I just expect them to serve someone.

I’m not talking about making them dinner or folding their socks (although Mom’s get tons of points in this regard), rather, I’m talking about finding some way to help someone in a meaningful way every week.  Maybe you teach a coworker to do something they needed to know and didn’t before.  Or you volunteer to speak on a college campus about something which you are knowledgeable.  You could volunteer at a soup kitchen, teach a free yoga class, or maybe just listen to someone who’s having a rough time.

In the long run, these investments always pay dividends – ones that are even harder to predict than the ones from investing in yourself.  You never know, one of those kids in that college class might start the next Fortune 500 company, and have such respect for you that you get asked to be on the board of directors.  Someone in that soup kitchen might get back on their feet, end up your neighbor, and become a lifelong friend.  Who knows?  The only thing I know is that none of that will happen if you don’t spend a bit of your time on others.

May 6, 2009 | Filed Under Career, Finance, Investment

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Invest in yourself

Saving money is a great goal.  I encourage everyone to save money ‘off the top’ of their income – don’t even include it in your budgeting, because that will almost guarantee failure.  But before that, I want you to promise yourself something.

Promise to invest in yourself.

Personal finance blogs all over talk about the saving, making more money, and spending less than you earn.  These are all great things.  But rarely do they talk about investing in yourself.  And I think you should do this before you save a cent.

A great example of investing in yourself is schooling.  Getting your high school diploma, going to college, getting your M.B.A.  Anything like that.  But that’s not what I’m talking about here.  I’m talking about something a bit more esoteric.  I’m talking about taking a portion of every paycheck to make yourself better.  Maybe you spend $50 on a few books from the Personal MBA’s reading list (and actually read them), maybe you take a cooking class from a local chef.  Or if you’re shy, maybe you take some dancing lessons to learn how to be more comfortable with people in a social setting.  It doesn’t really matter what you do, just that you do it.  If you do just a little bit every week (or month, or whatever), rather than just resting on your laurels, not only will you learn something, but you’ll become a better person.  And heck, what is living all about anyway if it isn’t that?

Writing this blog is part of my daily self-investment.  I did a lot of writing around the ‘net in the late 90’s, before people even called these things blogs.  Back then it was ezines, or whatever.  I was OK at it and I had some success, but the bit of money I made really wasn’t the important thing that came out of it.  The important thing was that I learned how to write.  And more importantly, how to think like a writer (since you could argue that my English teachers taught me the mechanics).  Writers, I’ve noticed, see the world colored by the topics about which they write.  And the act of writing actually creates enlightenment, because it causes the brain to reorganize just a bit and look at things under a slightly different light.

The best part of investing in yourself is that it pays off in tiny little ways that are hard to quantify.  You will seem just a bit more interesting than others.  You’ll actually have enlightened opinions to share during a conversation.  And just maybe that conversation will be during a job interview and that opinion will net you an extra $5000.  Maybe you’ll be able to volunteer for a special project at work because you know how to write.  Who knows?  But don’t wait, start investing in yourself today.

May 5, 2009 | Filed Under Career, Investment, Money

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