I saw an ad in the paper featuring the new housing development we almost bought in March of 2007. It brought back a flood of emotions when I saw it because while I still very much want to live there, I was glad that I didn’t jump in with both feet because it was being offered at $100,000 off the asking price + $75,000 in free upgrades. It’s just unbelievable that the same house is being offered at $175,000 less now.
I read somewhere that about 12 million mortgage holders owe more than their homes’ current value. No kidding when any down payment less than $175,000 already went down the drain. Actually, experts (if you still believe those people anymore) predicts that one third of all homes with mortgages will soon be under water. Yikes.
But then I think about all these stats and I gotta say.. “so what?” If I own a home and live happily in it, do I really care that my house is under water? Whether my house is worth more or less than my mortgage, my monthly payment is still the same. The same payment, due on the same day. While it might “seem” like I lost money, I am sure I will still enjoy living in my house everyday and seeing progress in paying off my 30 year fixed mortgage.
While the economy seems to be going up in flames and people are worried left and right, homeowners should be happy because they have a place called home. They are still living happily and taking their kids out to the park. While home ownership cost rose 37% in the last decade, rent increases were 50%.
You might not be able to tell these days with all the bad news about the housing market, but it’s still an incredible feeling to own your own home. It’s still worthwhile and it’s still the American Dream.
Don’t lose hope. Our American Dream is still alive.
We’ve all heard that buying bulk is one of the most effective way of saving money. Mathematically, it makes so much sense because buying in bulk means paying less for the same amount but like everything else in life, there are exceptions. Today, let’s explore the other side of this argument.
Starbucks Gift Cards
Over at Costco, I noticed that they are starting to sell Starbucks gift cards. 5 x $20 ($100) worth of credit is only sold for $79. At a glance, it’s such a great deal because we are getting more than a 20% discount but is it really a good deal? If you paid for the gift cards up front, isn’t it much easier for you to give in to going to the coffee shop? If you end up going to Starbucks more often than you would otherwise, haven’t you paid extra?
Spices
Whenever I have a huge container of a certain spice, I always end up using more. It’s pretty apparent because Emma and I can use up the first half of any container of spice (be it soy sauce, salt or pepper) much quicker than the second half (the last 10% always lasts us a looooooooong time)
Ice-Cream
I used to feel that the Hagen Daaz tiny containers are so overpriced (although extremely tasty). With the generic brand which sells for about the same price, there’s 4 times the amount of ice-cream. Then one day, I realized that when I buy the generic brand, I finish it at about the same amount of time (I’m not kidding, I literally eat 4 times the amount). I notice that because of Hagan Daaz’s small container, I end up scooping less out each time. These days, I feel comfort when I buy that more expensive brand of ice-cream because I know I’m not really overspending.
The examples go on and on so what do you think? Do you buy in bulk and if you do so to save money, how do you keep yourself from using more?
Even though the second stimulus check proposal was voted down a while ago, there are talks again surrounding the need for another one. Personally, I never really thought it was a great idea, as I share the view that we should really be spending money our social programs which are badly imbalanced at the moment.
This also reminds me though of our first stimulus check and I want to ask you this:
[poll id=”20″]
Judging from the people that I spoke with about the check during the past few months, many people actually used the money to buy something which was exactly what the government wanted us to do. However, I suspect that the poll results above will be a little different since we are a bit more financially savvy. If anything, at least we won’t believe that it was “free” money from the government as we will be paying it back in later years somehow.
What Do You Think of This?
Another reason why I wrote this post was because of a couple thoughts that suddenly dawned on me about this subject. Let me know what you think.
- If we saved all of the money that the stimulus check gave us and pay it back to the government through tax hikes, aren’t we ahead because we get free interests? I figured that it will be even more beneficial for those that paid down their credit card debt since the interests are much higher there.
- Whether the government approves stimulus checks or not, it probably doesn’t have much affect of plans for the social programs. Even if many of us want the government to fix our social securities imbalance, the government’s decision is probably not going to be based on whether we are $0, $150 or $300 billion more in debt because of the stimulus checks. Sure they will use deficit and what not for excuses, but I doubt that’s the real reason why no one has ever tackled the problems of the social programs.
Although those thoughts popped up in my head, I still vote for no stimulus checks but what do you think?
In one of our dreaming moments during the weekend, Emma and I jokingly spoke about joining a private golf country club. It was brand new, relatively close from where we live and also extremely nice.
The financial commitment to enroll were:
- $30,000 to join (although that can be negotiated down to possibly $20,000 we heard) and 90% of the current initiation fee can be refunded when we decide to leave the club so we can theoretically even make money on this
- $475 monthly dues
So when we talked about whether we could afford it or not, the first reaction from the two of us were YES. Maybe its not so much of a dream anymore because:
- We can get our initiation fee back
- $475 a month is something we could come up with
Think Harder to Stop Wasting Money
Although we could come up with the monthly payment and hence we could “afford” joining, it obviously wasn’t a very sound financial decision for us. Here are a few reasons why:
- We Still Need to Buy a House – We already have a sizable down payment for our house, but we should make sure we borrow as little as possible when we actually make that purchase. It would be unwise for us to spend excessively right now and then take a larger mortgage payment.
- Our Life is Still Ahead of Us – Not only do we have plans to get a house, there will be additional expenses in our lives once we raise children and grow our family.
- Expect the Unexpected – 2 months ago, no one could imagine the Dow Jones Industrial Average losing 30% in a short few weeks but unexpected events like these happen all the time. Throwing $20,000 into an illiquid asset is not the best way to prepare for emergencies.
Thinking About Affordability is Why So Many Americans Are Poor
I have so many friends that think about nothing but whether they could come up with the monthly payment at the time of purchase. Just today, my coworker was telling me that his friend is paying $650 a month on his car lease. His friend probably didn’t do this but if he takes out his calculator and do a little math, he will realize that he is actually paying $100,000 for a car that’s worth $40,000.
The simple and common example above illustrates the danger of thinking about affordability. Think about all those stories you hear of people who’ve accumulated massive wealth because of their frugal lifestyle. These people don’t buy that new gadget or new car because they don’t see the need, not because they can’t afford it.
A Couple Other Points to Consider Other than Affordability
Despite affordability not being a good sole reason to buy something, it is still something we should consider. On top of that, here are a couple good questions to ask ourselves when we believe we should buy.
- Is it necessary or is it nice to have?
- Is there a more economical version?
- Would most people in your situation want to buy it?
- Would you still buy it if you had time to think about it? In other words, is it an impulse decision?
- How is that going to affect your short and long term goals?
Mind you, I’m not saying that everything you buy have to be necessary. If it is Emma’s birthday, I wouldn’t hesitate to get her a birthday cake even if it’s not something I will say is “necessary” for our survival. So just use these questions to challenge yourself to think through every buying decision.
Your Turn
If all you thought about was affordability before, try to broaden your thinking because it will help you keep more of your money. For others that are already experts at this, what’s your secret? How do you determine what to buy and what not to buy?
My wife’s investment assets are about to be switched over to another brokerage firm. She’s always had an account at TD Ameritrade and when she changed jobs, we felt it was the natural choice to open a traditional IRA account there.
When she called to checkup on the status of the transfer a week after the check from her former company was supposed to arrive at the brokerage firm, she was greeted by what I can only assume is a salesperson. From what my wife told me, the conversation after they told her the money hasn’t arrived yet went something like this.
Brokerage: We can help you with investment options and make sure that you have a well thought out plan to tackle your future.
Emma: Oh I’d like that, how do we get started?
Brokerage: Oh we… actually, how much money is being transferred into the 401k?
Emma: Oh about $8000 since I didn’t work there for that long
Brokerage: oh………… for that amount of money, you might as well not invest. Good bye.
Yes, he actually hung up. I’ve been resisting about posting anything bad about brokerages, even when someone emailed me and told me that they lost $50,000 in one day just because they couldn’t log into TD Ameritrade’s website to cover their short position recently. I felt that it was hard for the brokerage to give any money back for that person because it was impossible for the company to know which claims are true and which are false. However, there is absolutely no excuse for that person to hang up like that. $8,000 is more than enough money to be invested in the stock market. There is absolutely no reason for that person to discourage Emma in that way. Even if it was $800, everyone should be encouraged to save and invest as long as it’s for the long term.
I will be looking for another place to move all her assets. They have lost our business.
I followed my coworker a few days ago to a seminar hosted by his financial adviser about the economy and the stock market. Apart from the expected pitch about why their firm is solid and solvent, there were quite a few insightful and interesting comments about investing and what’s going on so I want to share these with you.
This is in no way everything we need to know but I found it pretty informative and hope that you do too.
Expect a Prolonged Period of Slow Economy
Stop hoping that the economy will recover tomorrow because we are just starting to see the slowdown. Technically, the US is not even in a recession yet. They are predicting that the US will enter the recession in the 2nd quarter of 2009.
Bad Economy Does Not Always Equal to Bad Stock Market
One of the speakers came up and gave some very interesting stats.
- The shortest recession was 9 months and the S&P dropped 46% in that time period
- The longest recession was 32 months where the S&P happened to also drop 46%
The longest recession was really a depression but the stock market wasn’t any worst off than the shortest recession. He also went on to say that statistically, the best time to invest in the stock market is 4 months before we get out of a recession. Obviously, the million dollar question is when we will get out of the recession but this is really anyone’s guess at this point.
Internally, they are predicting the DOW to go to 7,500
I thought falling from 14,000 down to 9,000 was pretty bad, but they believe that the DOW is in for another 1,500 point drop. When we asked why we shouldn’t just sell everything and wait till it drops down to that level and then buy, their response was thought provoking.
If you are really disciplined, then you can try it but it’s not like the 7,500 is a guarantee. We could be 8,500 or even 6,500 and the majority of the people who sell everything are always going to wait too long to get back in. They will keep telling themselves that it’s still too early to get in and miss the huge jump at the beginning that sparks the recovery.
Unless You Have a Crystal Ball, Regular and Consistent Investing is the Only Way to Invest in the Market
So much of the short term movement is going to depend on what the government does so there is really no way of knowing how the stock market will react in the short term. The only way to invest is to put money into the stock market and rely on the American economy to right itself and prosper in the long run (which historically it has done quite well).
