Renting – is it money in the trash?
I hope everyone had a fun 4th of July weekend. As with a lot of holiday weekends, there were parties, picnics, and all the other obligations that come with being ‘civilized.’ What I have been noticing this year, probably because I’m spending so much time writing this blog, that a lot of people actually do talk about money in social settings – far more than I had previously realized. I don’t know how much of it is the economy, or the lower expectation of privacy that came along with the Internet age, but no fewer than three separate people decided to bring up a money-related topic, and no, I didn’t prompt them.
A common theme through all of these discussions was renting vs. buying a home – more specifically, that renting an apartment was throwing away your money. Of course, I took my usual stance that buying is not something that is going to get you ahead. I talked about how it was 20% more expensive for me to buy than it was to rent, if you factor in maintenance costs on my home and all of the phantom costs. But the conversation kept coming back to “I don’t want to keep throwing away money on rent.”
Rent is not a waste of money – particularly if you are getting a good deal on your property. Rich people rent places all the time – it’s middle class, middle income people who are obsessed with home ownership, even if it doesn’t make good financial sense. Renting is even less expensive when you consider the hassle and liabilities of home maintenance and repairs – I most certainly didn’t expect home ownership to have been as expensive as it has been.
The key to making renting work for you, rather than against you, is to have a concerted investment plan. Figure out how much you could pay for a house – most people pay more for their homes than they would to rent the same size place. Take that number and go apartment shopping – your goal is to find a place that is at least 10% less expensive than whatever that number ended up as. If you can afford $1000/month in rent, find a place that you can rent for $900. Then, take that extra $100 and invest it every month in an index fund (DOW, S&P 500, Russell 2000, take your pick – just make sure it’s an index that is diversified). Do that for the next 20 years – more likely than not, you’ll end up on top.
Don’t believe me? Dinkytown has a great calculator for running all sorts of different scenarios – I popped mine in and it turns out I am going to just about break even over twenty years. And I bought relatively low. People who bought at the top of the market are probably never going to recover. If you’re someone who can leverage that tax credit from the government, you already have a sizable down payment, and you can buy a place you’ll be happy with for the amount you’re willing to spend you ‘might’ come out on top, so run the numbers. But don’t forget to factor in things like your HOA fees and maintenance costs (the calculator has a section for that – I recommend adding 1/12 of your monthly payment to this field to cover maintenance, plus whatever fees you would have).
All of this is why I don’t think spending money on rent is throwing money in the trash. What do you think – am I crazy?
Cable Company Madness
I received my Comcast bill this month and I was unhappy to discover it was $60 higher than it was last month. Apparently, my eligibility for their ’special’ (i.e. regular – who pays retail for cable anyway?) prices was up, so they thought maybe they could jack up my rate without anyone noticing. Talk about a load of crap – that’s a $720 price increase for the entire year. It really bugs me when utility companies think they can get away with this stuff. I was tempted to just cancel my service right then and there.
However, since I didn’t feel like spending a vacation day waiting around for Verizon to set up FIOS, I gave them a call to see what they would do to keep me as a customer. I talked to their standard customer service rep, told him my problem, and mentioned “I received an advertisement from Verizon for what appears to be the same level of service for about what I was paying before.” Talk about magic words.
Less than five minutes later, his manager (probably actually someone in retentions) has me set up with a deal that’s better than my old one (faster Internet) for $4 less a month than I was paying before. Amazing. And all I had to do is give them a call.
Think about this – I just effectively made $2800/hr since the call took me no more than 15 minutes. Would you do something, even if it made you a bit uncomfortable, for that much money? Have you ever made that much money in such a short period of time before? When people tell me that comparison shopping is too much of a hassle, or that they don’t like the awkwardness of asking for a discount, sometimes the only thing I can do is shake my head. You can get huge discounts if you know who to talk to and what to say. Next time one of your bills (cell phone, cable, Internet, whatever) comes in, and you think it should be lower, try making this call:
Company: Hi there, what can I do for you today?
Me: I just got my most recent bill, and I’m unhappy with the cost – I would really like to be spending less money on this every month. Can you help me out with that?
Company: I’m afraid there isn’t much I can do for you, I’m sorry.
Me: Really? Well XYZ company is offering the same level of service for less – maybe I should consider switching.
[if there is no competition, you can say you are considering canceling your service outright - that works just as well]
Company: Before you do that, let me see if my manager has anything he can do.
[two minutes on hold]
Company: My manager has authorized me to put a $25 monthly credit on your account – is that acceptable?
Me: Sounds great!
Okay, so a $25 monthly credit doesn’t sound like much, but that’s $300 a year, all from a 10 minute phone call. You just made yourself $1800/hr – it’s that easy. Congratulations!
Peddlers and Purveyors – Medicine Made Complicated
As a lot of you all are already aware, I have moderate to severe allergies that pretty much have me medicated daily. I’ve done the shots, pills, nasal sprays, sinus washes, etc. Basically, you name it, I’ve tried it.
Anyhow, I was at the pharmacy yesterday getting my first refill on my allergy prescriptions and I’m surprised to find out that my insurance is trying to give me the shaft (surprise!) on a generic allergy medication I’ve been taking for several years now. Basically, they want to charge me 5x as much for the generic drug because there are ‘over the counter’ options available, which quite frankly just don’t work as well for me.
You would think these companies would want to keep their costs down by giving you what you need, right? If I’m properly medicated for allergies, I get sinus infections a lot less frequently, which equals less total money out of pocket for them. If I’m forced into the OTC alternative, I tend to have problems more frequently. So I call them and try to get them to honor what is listed as the “generic” copay on my insurance card. And I get no customer service whatsoever – as a matter of fact, the only thing the person on the phone can tell me is that there is a P.O. Box in Salt Lake City I can send a letter to for an “appeal.”
Great. No wonder medical costs in this country are sky high. Thank you United Health Care.
Now that I’ve ranted for a few hundred words, you’re probably thinking, what the heck does this have to do with this site? Well, I started looking around, and it turns out there are free prescription drug programs available that actually beat out your drug coverage in some cases – for this particular prescription, one in particular saves about $10 a month, which although not a ton is better than nothing.
Seriously though, what gives? Why is it cheaper for me to get allergy medication using some card I printed off the internet instead of getting it through my health insurance? These modern day drug peddlers, the ones licensed by the DEA, don’t seem to care how this is handled – they just want you to pay. And I’d really like to know why some drugs seem to get substantially more expensive as they get older – it’s the exact opposite situation that you see in every other business.
I’m going to try out some of these programs and see how well they work – I’ll report back later. Hopefully, I can convince the pharmacist to use the discount card or my insurance, depending on which one is cheaper. Otherwise, I’ll have to pick up my prescriptions at two different pharmacies, and that just sounds like a pain.
Doing it like strippers do
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 was talking with one of my readers today and he made a great point about yesterday’s post – I could have gone much further with it than I did. Rather than leave so much unsaid, I decided to do a follow up piece for today. Particularly since I have yet another bachelors party to go to this weekend.
Stripper Lesson #1 – Be Shameless
Strippers, like most other entertainers, have to have little or no shame, otherwise they wouldn’t be able to do what they do. While I’m not suggesting everyone run around naked, there is a lot to be said about being shameless, particularly when you’re talking about personal finance and entrepreneurship. Not only do you have to go out and ask for what you want, but you have to believe that you deserve it. There is no question that strippers believe they are worth whatever money you pay them to do their thing – follow their lead on this, they are on to something.
Stripper Lesson #2 – Be Aggressive
Strippers are nothing if not aggressive – they come right up to you and expect that you will hand over your hard-earned money to them, just because they are naked and in front of you. When was the last time you were that aggressive about getting exactly what you wanted? I’m willing to bet that whatever it was, you found a way to get it, didn’t you? It’s amazing was a bit of assertiveness can add to a situation, particularly if you are self-employed, or are trying to be.
Stripper Lesson #3 – Don’t Sell Yourself Short
Strippers will do different ‘things’ for differing amounts of money. A great example of this is that for a $1 (or a $5 if you’re in Vegas), the dancer will do something a bit special for you. However, if you wanted a lap dance for the same amount, they’d laugh in your face. They have a number in their head about what they think their ‘value’ is, and would rather walk away than accept less than that. This is a concept that freelancers and your regular old workers could both learn from – if you are willing to walk away from a job unless you got a raise, you’re a lot more likely to get that raise. Why? Because no one is going to value you more than you do, so if you don’t think you’re worth it, they won’t either.
Stripper Lesson #4 – Keep ‘em Coming Back
Once you’ve got someones attention, you have to hold on to it. If you start out strong, but end weak, your customer is going to remember the ending a lot more than the beginning. Strippers (well, the good ones at least) know this, so they save their best ‘tricks’ for near the end of their dances. Then you go back to your friends telling them how “it just kept getting better and better!” Can your employer (or customers) say the same thing about you?
Stripper Lesson #5 – Get Good Help
This is more of a strip club lesson, but it still applies. What is more important to a strip club than the strippers? The bouncers and bartenders. The bartenders lubricate your wallet, so you end up spending more, while the bouncers make sure nothing gets out of hand. Sometimes, the bouncers and the bartenders are the same people – I find that is particularly true in my professional life. The people I rely on most both break down barriers for me, and make sure that things don’t go too far down the wrong path.
Stripper Lesson #6 – Do It Low and Good
Okay, so this has a bit of a double meaning when you’re talking about a stripper, but the idea here is that you want to find something that you do well that is sale-able and has a low cost of entry. Writing, programming, photography, graphic editing, housekeeping, landscaping, and yes, stripping, all qualify here. I touched on this a bit yesterday, but anyone who wants to be wealthy needs to have something that one thing that pushes them over the edge. Either you have to spend less, or earn more. I’m firmly in the earn more camp – so figure out a way to do it!
Stripper Lesson #7 – Do It Like You Love It
I don’t know many strippers, but have you ever met (or heard of) a stripper who wasn’t at least a bit proud of their work? They certainly seem to be when they’re at the club – most of them walk around flaunting their stuff, daring you to look at them so they can pry a few more dollar bills out of your wallet. If you enjoy what you do, you’re going to do it better, and your customer or employer is going to be happier with what you’ve done. This is key, particularly if the work you are doing is something after your “real job,” because if you don’t love it, you won’t keep it up.
So, I guess the question is – are there any more lessons we could learn from strippers?
Strippernomics
The economics of stripping amaze me sometimes. There you are, participating in a friend’s bachelor (or bachelorette, I suppose) party, and you’re being harassed by naked people who want your money because they took their clothes off. But they won’t actually do anything for it that they won’t already do for free (well, maybe with the exception of a lap dance). Why would anyone throw money at these people? How is that fun?
You’re right – I just don’t see the appeal. I get the whole ‘right of passing’ thing that goes along with it being a bachelor party, but couldn’t we find a better way to be debaucherous, other than paying some naked girl to pretend like she is the guy’s girlfriend and not have sex with him?
Now that I’ve ranted a bit, the reason I wanted to talk about this here is that I think this is a brilliant business model, since it literally has people throwing money at you and there is almost no investment on your part, other than a bit of shame and some of your time. I’m not suggesting that people go out and do this for a living, but if you’re looking to make some extra money, it behooves you to consider businesses that require very little or no capital investment.
If you already have a sale-able skill, such as writing or programming, those are perfect because they don’t require you to spend any money to make money in return. I’m sure other skills fit this bill just as well. Maybe the answer to your financial issues isn’t to spend a bunch less money (although that can be good), and rather focus on ways to bring more in every month. Even if that means working at the strip club outside of town…
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.
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.
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:
- A basic in-home firewall – most routers cover this for you, but if you’re plugging straight into your cable modem, you may want to consider a software solution
- Up to date virus protection – there are plenty of free ones available, as well as the commercial packages that are out there from McAfee or Norton. All of them are about the same – I currently use Avira and am pretty happy with it, even though I have to deal with some nag screens because I haven’t paid for it this year.
- Always connect to secure sites (such as your bank) using https (the link in the address bar should look like https://www.yourbankhere.com) – this will encrypt all of your communication with that bank, not just what they require.
- Set up unique usernames for each of your financial sites, and come up with a strong password formula
- Pick financial institutions with extra security features, and use them.
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?
Buying used
Buying a used car can be a scary experience. There’s no warranty, but you’re still spending a lot of money, and who knows, you could end up with a lemon. However, there are some things you can consider to protect yourself, particularly if you are buying from a private party:
- Make sure you’re getting a good deal – check kbb.com or a similar site and make sure you aren’t paying more than the 3rd party price for your car. You can use this as part of your negotiating – particularly if the car is in slightly less than perfect condition.
- Have a reputable mechanic inspect the car prior to purchase
- Consider Auto Repair Insurance – if the car has less than 100k miles on it, you can probably get what is in effect an ‘extended warranty’ – you might be able to get the seller to pay for it.
- Get all of the maintenance records for the car – if the seller doesn’t have them, make sure you get a significant discount on the vehicle and tell your mechanic about your concerns before he inspects the car.
- Get a vehicle history report from a company like Carfax
Even if you end up spending a bit of money on the car after you buy it, though, you are probably still better off than if you had bought a brand new car. So don’t worry too much. The last time I bought a used car the starter on it died a month later – it sucked, but since I got a great deal on the car anyway, it wasn’t much of a problem.
Cars, cars, and more cars – does it pay to pay for transport?
About 6 months ago I finally paid off the car that I foolishly bought brand new as I was graduating college (don’t get me wrong, I got a great deal, but I really couldn’t afford it and didn’t understand that at the time). When I got the thing, I was enamored with it, but after it was broken into a few years ago, it lost it’s luster for me. Now, it looks like any other 5 year old car, dinged up and dirty, although I keep up with the internal maintenance, so it’s still running like a champ. Recently, I’ve been fielding questions about what my plans were to replace it.
I usually respond by saying that I’m not looking to replace it anytime in the near future. Generally, I drive a car until it’s getting ready to die or has already died and been brought back to life once. My first car lasted me through 150k miles (it was my parents old car, we’d had it since the mid 80’s), and my second car lasted to about 200k miles (of which I put on about 70k). I will probably be driving this one until at least 150k miles, unless something goes horribly wrong with it or it’s in a major accident.
Transportation is a huge expense for most people, just behind housing as many people’s largest expense. So, would I buy a new car? Honestly, I think it depends. If I were to do it again (and eventually, I will), I probably wouldn’t buy new unless I could get it for below blue book. And to answer the question, yes, I paid less than blue book for the Celica when I bought it in 2004. Tomorrow, I’ll spend some time and talk about how I did that. Today, let’s focus on whether a cost sensitive individual should buy a new or used car.
The best way to look at how much a car costs over time is to look into TCO, or total cost of ownership. I usually think about TCO as a factor of mileage, usually talking in cost per thousand miles driven. My current car costs me $400 per 1000 miles. That’s a lot, but that number includes all my car payments (not the cost, but what I ended up paying after the financing), gasoline, and maintenance. I’ve had one major repair, on my AC compressor, which was thrown into the calculation. That car was purchased new. I drove my old car about the same number of miles as I have my current car, and it only cost me $140 per 1000 miles.
But that isn’t completely fair, because that old car was ready to go when I sold it, while my current car will go at least to 150k miles. Assuming I keep it that long, my cost per mile will go down, to about $240 per thousand miles. If I continue that out to 200k miles, I get down to $210 per thousand.
So, basically, even if I keep my current, new car until it dies (the new car gets about 3 miles per gallon better gas mileage than the old car – that’s factored into the calculations), it will still have cost me more per mile than my last car did. A huge amount? About $8000 if you’re talking driving each car 80,000 miles. I guess that means it pays to buy a gently used car.
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So, you want to know what's up with the brackets in the name? "Curly brackets (also called braces, or "squiggly brackets") are sometimes used in prose to indicate a series of equal choices" and "Square brackets are mainly used to enclose explanatory or missing material usually added by someone other than the original author, especially in quoted text." So basically, if you really want to be wealthy in life, you have to figure out how to get happy. Since that whole spiel would make a crappy name for a blog, I decided to do something a bit creative with some brackets.
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