People who know me sometimes wonder why I’m so frugal. They question why I don’t seem to eat out. They can’t understand why I rather watch a movie at home than go to the movie theaters and they certainly don’t feel that I’m actually enjoying life. They, like most people, are simply failing to look at my life from my point of view.
Once in a while, stumbling onto a piece of history bring back a flood of memories. While I was going through those boxes in storage labeled “university” last week trying to find my degree for the insurance company, I started reading through some of the notes I took during those four unbelievable years.
Education is Not Just for Academics
I have heard countless times that education is useless. That those classes we all took were on subjects that had no real world value. Some even called it a waste of time but for me, it was priceless.
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Emma and I caught the “house hunting bug” lately – we have been touring a ton of houses. The whole process is similar to advertising in that the more houses we look at, the more we want to look (and buy). No wonder my realtor was so aggressive even though we told her our time frame to purchase is in 6-12 months. (It’s all an evil ploy if you ask me but anyway…)
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The impact of investment costs is never emphasized enough. In order to see how much it affects mutual funds returns, let’s compare a few different domestic stock mutual funds:
- Fund A: Vanguard’s Total Stock Market Index charges no sales load and has an annual expense ratio of 0.15%.
- Fund B: American Funds’ Investment Company of America charges a 5.75% sales load and has an annual expense ratio of 0.59%.
- Fund C: BlackRock’s Focus Growth Fund charges no sales load and has an annual expense ratio of 2.03%.
With credit cards so convenient, loans so common and debt socially acceptable, getting into debt is extremely easy. I still have vivid memories of the two people who sold me on my college credit card. It had the school logo on there and best of all, it helped the school every time I use the card to pay for a purchase. How cool is that?
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California is a beautiful place to live in since there’s no shortage of pacific ocean views down here. The gorgeous surroundings and year round perfect weather have attracted many who want to buy a house here. During the last decade, this went to the extreme as home prices went through the roof..
I frequent a local housing blog daily, and a property it featured a few days ago really raised my eyebrow. The owners of the house managed to withdraw $886,800 through home equity loans during the 14+ years that it’s been occupied. While these examples are abundant in places close to where I live, this one takes it a step further because the owners only put down $29,300 in 1994 for the house that cost $263,200 at the time. Apparently, the home values appreciating fives times at well over $1 million dollars (again, with a $29,300 down payment) isn’t enough to keep them afloat.
Oh my god.
If I told you that you can make 30x the investment in 14 years, you’d think I am just a salesman who is trying to sell you a financial product. In fact, if a buyer accepts the asking price, it would make the investment close to 56x but I heavily discounted the multiple because it’s hard to say how much the house will eventually sell for.
With decades of good fortune in the home purchase, what was left? Memories of a lavish lifestyle and nothing more.
Why? While the owner is asking for close to $1.6 million, it’s improbable that someone will buy it at those ridiculous prices. There are much newer homes for sale in nearby areas for as much as 25% less, so even 25% off the asking price might be too high. With the total debt of the property at $1.15 million (HELOC + mortgage), the owner will be lucky to come out even.
- Hopefully, the family will learn a lesson.
- Hopefully, this gives you a glimpse of why we are in such a mess.
- Hopefully, nobody tries this again (or at least for a very long time)
Reading these types of stories makes you wonder. Maybe:
- It’s not all wall street’s fault for creating this mess.
- It’s not the government’s fault for trying to help.
- We should share some of the blame too.
Responsible spending lessons should be drilled into every America’s mind, because our survival as a nation will depend on it.
