There is an awful lot of misinformation out there about investing, much of it propagated by people who stand to benefit from leading others astray. Detangling all of it will take time and while I intend to do that on this blog eventually, I want to start with a simple, basic strategy that a lot of people can follow. This strategy will outperform most of the “experts” over time and at a much lower cost than what they will charge you. As a general side note, please remember this; very few people in the media are impartial anymore. Don’t act on any financial advice that is given out publicly without evaluating who the source is and what he or she may have to gain from disseminating it.
Cash is king and that is where you should start. If you don’t
have enough on hand to deal with life when it happens to you, it is going to
cost you dearly. For example, you can’t pull money out of your 401k very easily
(or cheaply) to deal with sudden medical expenses. It is better to have enough
cash saved up before sacrificing liquidity in favor of potentially higher
returns. A lot of people will tell you to have six months to a year of expenses
on hand. I think that is a decent place to start but also that it is a little
more nuanced than that. Think about your personal situation. How many incomes
are in your household and how many total people? If there are more mouths to
feed than sources of income doing so, your cash needs are greater. Conversely,
if you have a household of two working partners and no dependents, you can
probably get by with somewhat less cash, particularly if your incomes are
relatively similar. No matter what you do, keep in mind that the basis for your
calculations should be your expenses, not your income. And if you don’t know at
least approximately what your monthly expenses are, then you need to go back
and start there.
Once you are comfortable with your cash position, you can
start investing. I recommend a 401k if your employer offers one. Of course, not
all 401k offerings are the same. A good one will include at least some level of
employer matching, at least a handful of low cost (expense ratio of no more
than .5% and preferably lower) investment options, and a reasonable vesting
schedule. Sadly, my current employer fails on that last point with a ridiculous
six years to 100%! But I digress. You can put a maximum of $19k a year into a
401k and it will lower your taxable income accordingly. But assuming your MAGI
(modified adjusted gross income) is less than $122k, you can also put up to $6k
a year into a Roth IRA.
But start by contributing at least enough to your 401k to
get the employer match. A typical one seems to be 50% of the first 6% of your
salary (in other words, 3% if you contribute 6). From there, you can determine
where to go with the excess. In general, a 401k reduces your tax liability
today while a Roth IRA reduces your tax liability in retirement. Since your tax
rate is very likely lower today than it will be years down the road, there is a
solid argument to be made for putting $6k into your Roth IRA and then going
back to finish maxing out your 401k. But I would start with some combination of
these two, again taking the phase outs based on your income under consideration
in the case of the Roth IRA.
What should you invest in with your 401k and Roth IRA money?
This is an easy one. Go for low cost index funds that mirror your objectives.
If you’re young and you have a long time until you plan to retire, you can
afford to be risky so you can go with a heavier stock to bond ratio – as high
as 100/0 even. If you’re getting older, you will likely want to move towards
the other end of the spectrum. It’s all a matter of risk tolerance but
remember, more risk typically produces more reward.
Regardless of the risk you want to take on, this next point
is the most important of all on investment choices. Do not let anyone bleed
your retirement savings year after year. Actively managed funds almost never
outperform index funds over the long term and they are much more expensive. A
fee of over .5% will eat up a ton of your money over time. If Vanguard options
are available to you, there is a good reason they are the largest mutual fund
company on earth. Their funds are the gold standard in providing low cost funds
with competitive returns. You would be hard pressed to go wrong if you’re
looking at anything of theirs.
What if you’re making less than $122k a year (roughly 90% of
people are below that level) and you are already maxing out both your 401k and
your Roth IRA or you’re making more than that and doing all you can with those
two avenues? First, pat yourself on the back because if you stay on that course
and make decent investment decisions, your retirement is more secure than that
of almost anyone you know. Now, prepare to have a little fun. With that $25k a
year going into your long term retirement funding, you can afford to get
aggressive with any excess if you want to. In my case, I do some more
conventional stuff and I’ve also started a side business investing in real
estate. In your case, the world is your oyster. This is where you may want to
talk to a professional if you aren’t sure. I work with both attorneys and a CPA
with my business. If you work with a financial advisor/planner, make sure they
are fee only. If not, they’re likely to put you in the investments that are
most profitable to them while your interests wind up more of a secondary
consideration. But you can also just stick with more conventional investment
choices like the ones I mentioned for your 401k and Roth IRA if you prefer.
I do want to stress one point, however. Unless you have a
fairly large amount available to invest, say at least mid five figures, I would
stay away from individual stocks. With less than mid five figures, you simply
don’t have enough to be able to diversify adequately. The less diversified you
are, the more you are gambling. And consider this; almost no one in the history
of mankind has picked stocks well enough to beat the market consistently over
time. Do you think you will be one of the handful of counter examples? If not,
your best bet is probably to stick to mutual funds for stock market investing.
I think this is enough for now. I kept it very basic because
with investing, as with so many things, getting started is most important. And
if people feel overwhelmed, it tends to push them in exactly the opposite
direction. As always on my posts, if you have any questions, feel free to
comment below or email me at email@example.com.
I have to be honest; I despise the word frugal. Or more accurately, I hate the way people tend to use it. The exact definition is “characterized by or reflecting economy in the use of resources.” According to that definition, I suppose I am frugal – usually. But in order to define me that way, you have to think about that definition accurately. I’ll give you an example. When I was a child in a lower middle class, single parent household, washing the dishes included washing the little plastic lunch bags so they could be reused. I would say Ziploc but I can guarantee you we had the off brand ones. I still feel my blood boiling at the number of my living, breathing moments I spent doing this. The things cost a fucking penny. I don’t care how low anyone is in life; we live in the richest country in the world and even the most hopeless person’s time would be far better spent doing almost anything else. And I will prove it. Assuming the process of washing, rinsing, and eventually putting away takes ten seconds per bag, which is almost certainly an underestimate by half or more, the person doing it is valuing his time (or having it valued for him by someone who didn’t really think it through) at six bags per minute, which ultimately extends to $3.60 per hour when processing $.01 bags. Even a twelve year old can earn more than that delivering papers or mowing lawns. I know because I did both.
What I just described isn’t frugal. It’s insane. But
hopefully now some folks I occasionally frustrate will have a slightly better
understanding of why it can be difficult for me to spend money at times, even
when it would be nothing to me. That scarcity mentality was drilled into me
very young and I fight it every day. I legitimately believe it is a form of
mental disorder. But anyway, that is an extreme example of the type of
ridiculous bullshit people associate with the word frugal. Aside from the
occasional extravagance I manage to grant myself as a man who is already on
pace to be financially independent well before 40, I do believe in using
resources efficiently. The infuriating lunch bag example above is actually the
opposite of frugal since there are is an almost infinite number of better ways
one’s time could be used.
When used correctly, frugality can make life better. One way
is that it allows you to have better quality products. For example, I own a
Vitamix blender that cost $500. After nearly six years of daily use, it still
works like it did the day I got it, which means it could blend a boot into fine
powder if I could fit one in. The thing is probably more powerful than some of
those sad, go cart looking hatchback things some people call cars these days
(seriously, why?!?). It is still under warranty for the remainder of year seven
and that is irrelevant because less than 1% of Vitamix blenders are ever repaired
under warranty. I will actually be shocked if it doesn’t last another decade.
So what did my $500 get me? It got me a blender that blends a combination of
fruits and vegetables into a very drinkable smoothie on a daily basis (and
often blends other things as well since I enjoy cooking) in an incredibly
efficient manner and will continue doing it long enough that by the time it’s
on its way to blender heaven, I will have paid significantly less than a dime
per use. There are probably only a handful of blenders on the market that can
even do what this one can a single time. Most of the ones I’ve seen take much
longer and don’t blend nearly as thoroughly. More time equals more strain on
the motor and a shorter lifespan. Plus, more time equals more investment on
your part with each use. Believe it or not, there are also blenders even more
expensive than the Vitamix. I haven’t done the math and couldn’t without making
significant assumptions that would render the exercise pointless, but I would
be very surprised if there is another blender that can match the Vitamix in a
true apples to apples, dollar to dollar comparison.
Yes, $500 is a lot to spend on a blender. But when you
evaluate it holistically rather than on a simple cash flow basis, it was a
frugal purchase. The key is to do your homework. For example, I was recently
looking to make another “best money can buy” style purchase in the form of a
coffee making apparatus. I used that word because for the kind of money that can
be spent, I think a fancier word than “maker” or “machine” is necessary. I
quickly learned that I could spend well over $1000 for a contraption that ultimately
pours hot water through ground beans. And after fairly thorough research, I
concluded that I shouldn’t. I couldn’t find a single high end option that didn’t
have mixed reviews at best, with most of the bad ones referencing durability
issues within only a few years. Apparently it is simply too difficult a task to
produce a coffee maker that can match both the quality and durability of my
blender. I ultimately ended up spending around $50 total on a solution that is
producing great quality coffee and appears that it will do so for a long time
to come – a handheld burr grinder and a French press, both in attractive stainless
steel that makes them counter worthy. Oh. And an old electric kettle that
probably cost $10 ten years ago is also part of the ensemble, although its
appearance keeps it relegated to a cupboard. Had I spent 10 or 20 times as much
on a setup that had ultimately let me down way too soon, I would have been
making a terribly un-frugal decision.
So there you have it. Frugal isn’t quite the dirty word its colloquial use would have you believing. If you do it right, you get the best possible outcome in every situation and ultimately pay less for it, even if you have to put more cash into the deal on the front end. And to save you the analysis on one purchase, go buy the 7000 pack of high quality, Ziploc lunch bags at Costco for maybe ten bucks and don’t ever think about them again. That’s all for now. I have a morning workout to get to and business deals to discuss. Have a lovely day.
Up until now, most of my health/fitness effort in life has been on the exercise side with nutrition being an afterthought. Of course I know now how foolish this was but hindsight is 20/20. For years, I ate without a thought beyond that I needed a lot of protein and a lot of everything overall and my time in the gym would take care of the rest. This was obviously a terrible approach and I can only guess what it has cost me. Unfortunately, because I usually do spend a prodigious amount of time in the gym, I have always been in above average physical shape so I have never been forced to confront the nutrition side in a serious way. In my mid twenties, I started to pay a little bit of attention to nutrition, but not much. At least I started eating more fruits and vegetables but aside from that, my diet was still pretty bad. When I was married, my diet got a little bit better, but again, not much. We both spent a fair amount of time in the gym and were both in above average shape so again, we did the bare minimum with nutrition and neither of us was interested enough in breaking the cycle.
But when I got divorced, things finally changed. With no one
else around to worry about pleasing and a newfound mission to prove someone
very, very wrong, I started experimenting more in the kitchen. Instead of
choosing a recipe I wanted to eat and then making it, possibly substituting a
healthier ingredient or two but otherwise keeping it the same, I started to
choose the healthiest ingredients and then find recipes that featured them. And
sometimes I would simply build my own recipes from the ground up that would
start out as very healthy culinary disasters but evolve over time into very
healthy, edible meals – and sometimes even beyond that point. But over the last
year, I’ve taken it to the next level. I’ve started paying attention to the big
picture – making sure I get plenty of vegetables, a moderate amount of mostly
high quality carbohydrates, a reasonable amount of protein, and less garbage.
And since this year started, I’ve eaten almost no garbage and have paid for
zero. As a result, my fitness level, which was probably at an 8 before, is
knocking on the door of 9 – even in spite of a rash of injuries that has held
Why the nutritional history? I want people to know what a flippant attitude I’ve had towards nutrition for most of my life because it’s a great example of how it’s never too late to start doing the right things. This concept applies to many areas, although today I want to talk about nutrition. Over the last year, I’ve heard more and more about intermittent fasting and recently, it reached the tipping point quite by accident. When I sprained my ankle, I wound up missing a couple weeks of doing almost any leg exercises in the gym. In an attempt to mitigate the situation as well as improve my overall efficiency, I devised a plan to eat less. I had been spending 30-40 minutes making elaborate breakfast burritos totally from scratch in the mornings.
I decided to temporarily scrap this meal to account for the
dramatic reduction in calories I would be burning and get myself moving more
quickly in the mornings at the same time. This is easily the healthiest meal I
eat so imagine my surprise when I started feeling better without it (I have
since added it back in, often as dinner since I have more time in the evenings).
And it wasn’t just the way I felt. Even though I was putting in about half the
work in the gym and even less than that on the cardio side, it wasn’t the all
out disaster I was expecting. I did lose about twenty pounds (not a one of
which I wanted to lose, mind you) and while a lot of it was muscle, I couldn’t
help but notice that a lot of it was also fat, to the point where my overall
composition was noticeably improving.
I started researching in an effort to figure out what was
going on and all roads seemed to lead to the same place. While the focus of
nutrition is usually on what you are eating, there is more and more evidence
that the timing of that eating is very important as well. I had inadvertently
stumbled onto time restricted eating – the very same thing I had overheard so
many people talking about and dismissed as “just the latest trend.” I’m still
in the process of researching but I’ve learned enough to form a hypothesis and
launch an experiment. In simple, general terms, the theory is that one’s
metabolism can only work effectively for so many hours per day. Unfortunately,
we in the western world tend to eat basically the entire time we’re awake. If
you think about it, this wouldn’t have been possible for our distant ancestors
and even for people a century ago, who largely wouldn’t have been able to
afford such excess. Anyway, for some of those hours we’re eating, our
metabolisms are struggling severely. In order for them to work optimally, it
appears that eating should be restricted to twelve hours per day on the high
end. And there is evidence that fewer hours will yield even better results.
As for me, I’m aiming for eight to nine hours per day. One
unwelcome revelation in my research was that coffee counts, even if you only
drink it black as I do, because it forces metabolic processes to start. So I’ve
had to make some adjustments and here is what I’m doing now. I wake up at 6am
and instead of having coffee, I head straight to the gym after chugging the 24
ounces of water I drink immediately when I wake up (your body gets dehydrated
during the night). I get home between 7:30 and 8. Then I do 20-30 minutes of
core work and then I do some language practice (I’m always working on improving
my German and Spanish). Sometimes I also work in a chore or two around the
apartment. Finally, around 9, I make coffee, drink a protein shake, and drink a
smoothie of mostly leafy green vegetables with a little fruit. When the coffee
is ready, I do my morning reading. From there, I get my workday going.
I eat a big lunch and a reasonable sized dinner. But the dinner (and my evening smoothie) has to happen by about 5 if I’m going to stay within my eight hour target. I will note that I’m not going to be 100% rigid. If I’m out for drinks once or twice a week, I’m not going to sit there sipping water in order to keep my fast going. However, I may consider starting the day with a late lunch; I’ll cross that bridge when I come to it. Lucky for me, I work out of my home, don’t travel as much as I did in the past, and am usually back home doing emails, follow ups, etc by around 4 so as to avoid as much of the stupidly insane Houston traffic as possible. Back in my office droning days, this would have taken more planning and effort. But even if I were in that position today, I would probably try something like this. For me, success in life is quality times quantity. If there is a way to improve my health and fitness level, then I’d be willing to tolerate a very high cost in both financial expense and inconvenience. There was a time when I didn’t think that way. But I’m thankful to be here today. There is absolutely nothing worth more than health.
After a while, I’ll do another post on this with both my
observed results and any conclusions I come to with my research. If anyone out
there wants to try this with me, I would love to compare notes!
Disclaimer: I am not selling anything, doing affiliate
marketing, or any other shenanigans. In no way will I make any money if anyone
follows my lead and signs up for the account I describe in this post.
I went into more details on this previously, but for a while now, I have mainly kept my cash in a combination of a credit union checking account and an online savings account. First, it would flow into the checking account from my paychecks and various other sources. I was paid 7.5% on the first $500 in the account and .2% on the rest. Each month, I would pay my bills, transfer some to investments, transfer some to my online savings account, and leave a few thousand in checking. The online savings account paid me a better rate than the .2% I would otherwise have been paid on the balance above $500 left in the checking account and of course the investments paid significantly more (at least most of the time). Today, that online savings account is paying 2.45% and if the FED would stop letting the stock market and our very stock market oriented president intimidate it, that rate would continue to go higher.
Mostly, this is a pretty awesome system. I only keep around
$10k of cash on hand (any excess usually gets invested) and of that $10k, the
first $500 makes $37.50 a year and the last $6500 makes $159.25 for an average
ROI of 2.8% which covers inflation and just a little bit extra – not bad for my
emergency/float cash. So what’s the problem? I’m getting crushed on the other
$3k I usually keep in my checking account, which makes only .2%. Previously, I
had simply lived with this and considered it a small price to pay to have
enough cash on hand to deal with any minor to moderate issues that came along.
But no mas! Introducing the SoFi Checking Account!
The SoFi Checking Account is a hybrid account with a ton to
offer. First and foremost, it pays 2.25%. Second, there are basically no fees
of any kind to have to dodge using direct deposit, minimum balances, an absurd
number of debit card transactions each month, etc. Third, and this is a big one
for some folks, there are no ATM fees – ANYWHERE. There is a little bit of
weirdness as SoFi itself is not an actual bank. So it uses partner banks to
actually store the money. But not to worry; all of them are FDIC insured, which
makes them just as secure as any other US bank.
It’s not every day that I change primary bank accounts but
today is one of them! My new setup will be as follows. I will leave $500
sitting in the existing checking account since I’m not about to give up my 7.5%
rate on that money. A minimum monthly direct deposit of $250 is required to
avoid a monthly maintenance fee so I will deposit that much and then move it
into an investment from there on a monthly basis. But the rest of the incoming
cash will be destined for this new SoFi account, meaning the $3k average
balance will earn me $73.50 per year. Subtract the paltry $6 a year that money
was making me before and I’m left with a profit of $67.50. And if the FED gets
its head out of its ass and continues its long, slow march back towards
responsible currency management, that return is likely to go up rapidly. If it
increases its funds rate to a historically normal level, this payoff would more
What did it cost me to get this money? About ten minutes.
The account setup process was actually incredibly easy and that took about
five. The other five minutes involved printing out the ol’ direct deposit
change form, filling it out, and emailing it over to our payroll lady, who is
accustomed to getting these from me on a fairly regular basis and I’m quite
sure loves me for it. For those ten beautiful minutes, I made a cool $405 an
hour! I would work that job 24/7/365 if I could. And every year this account
keeps paying out at this rate, or preferably higher, those ten minutes become retroactively
that much more valuable. Sweet!
Let it never be said that I’m using this blog the way most people use social media – presenting a highlight reel as if it accurately represented the entirety of my life and there wasn’t even a hint of a struggle anywhere. On the contrary, my struggles are the only reason I have been able to attain the highlight reel moments and the only reason I have been able to enjoy them. Yes, I’m successful in many areas of life and I want to help others attain success of their own. But I believe I would be doing a disservice if I led anyone to believe that success would come without a price or that it would mean an easy life from that day forward. There is no utopia or lasting easiness in life and if you spend your time wishing for it, you will ruin your opportunities to enjoy the happiness that is actually possible.
In a recent post, I mentioned that I’ve dealt with depression for most of my life and that while the situation has improved dramatically, I’ve accepted that the disease will always be a part of me. And as it so happens, I’m contending with it today. It started early yesterday evening during a real estate investing webinar (that is my side business; as it progresses I may write about it here). It had been a very solid day. I wound up crossing literally every item off of my to do list, something that rarely happens because I aim very high. Just about every aspect of the day had gone well. Sure, there are some storms lurking on the horizon for me and yes, a couple of them are almost certain to get very ugly. But this is nothing out of the ordinary in my profession; with great privilege comes great responsibility.
I ended last night the way I always try to. I got to bed
reasonably close to on schedule, I hit every point on my checklist, and my last
thoughts before I fell asleep were about events of the day I was thankful for.
It isn’t uncommon for me to get depressed at night but usually my regular
routine, which is designed largely for this purpose, is enough to ensure that I
wake up feeling back to normal. But this morning, the depression was still very
noticeably present, pressing down on every inch of me like a giant, invisible
lead vest. This is far from my first rodeo so I know what usually works. I
ignored the feelings and worked through my routine, confident that by the time
I finished my morning workout, momentum would have built and pulled me through.
But again I was wrong. I had a good, solid workout. No personal records were
set but it was a little over an hour very well spent. And yet, I still didn’t
feel any better.
At that point, I decided I needed to take the situation more
seriously. One of my favorite depression fighting techniques is called a
thought record. Basically, it involves systematically pinpointing the thoughts
that are causing the depression and weighing the evidence for and against them.
Usually, I am able to conclude that the thoughts are not an accurate reflection
of reality and disregard them, and usually the negative feelings dissipate
pretty quickly. In this case, I put a lot of effort in, but it ultimately
became clear that I was already thinking in a balanced way. There are plenty of
legitimate concerns in my world right now and I am neither exaggerating, nor
minimizing/overlooking them. For anyone who thinks life is easy once you’re
doing very well financially, I can tell you that it isn’t. Yes, things get
easier financially, although there is a strong diminishing return effect due to
the progressive nature of our tax code. But the reality is that you’re being
compensated for taking on additional stress. There is a great saying about
this; if it was easy, everyone would do it. Only you can determine what makes
the most sense for you, but many people choose to have less money and less
stress and I’m pretty sure I will turn back in that direction in my own life
But as I said, I work in a high stress job and this is not
new. On any given day, I’m likely to be at odds with customers, dealers, various
service providing entities, and maybe most of all, people in my office.
Conflict and high pressure comprise the medium in which most of our business
gets done. Many people can’t handle it and in fact, my job was only open in
this territory because the last man to hold it had a very public nervous
breakdown. And that is not uncommon in this line of work; tons of people wash out.
But the point is, I’ve learned to handle ongoing conflicts of varying intensity
and I can’t remember too many times over the last few years when I’ve had none
to speak of. It could be a situation where a long enough duration of fighting
has worn me down to the point where I can’t handle any more, but I don’t think
so. I don’t feel like I’m in that place or anywhere near it. I’ve been feeling
consistently great lately, in fact. So while I can’t rule it out as a cause, I
doubt my current bout of depression is coming from this particular source, even
if it does appear to be the simplest and most logical explanation.
And that’s where I’m at now. I’m about to head downstairs
for my evening cardio and certainly there is a possibility I will feel better
after that. But it’s also very possible that I won’t and that it could take me
a few more days, or even weeks, to get through this fog. I know a number of
things that help me – exercise, fresh air, sunlight, doing the right things and
building momentum to truck right through it, analyzing my thought patterns and
challenging their logic as objectively as possible, and talking to people I
love. I tried most of these methods during the course of today and I will
continue to pursue them because the continuation of this particular episode of
depression is not a foregone conclusion, like a minimum number of years to be
served on a prison sentence. I can break out of this at any moment and at some
point in the near future, I will. But sometimes the answers don’t come immediately
and rather than present this as a problem that is easy to solve with a
systematic approach, I wanted to use my present circumstances as an example of
how it can be more complex than that. Just like anything else worth doing,
breaking out of depression doesn’t always come easily, even if you have a lot
of experience doing it. Be well, my friends.
As I’ve mentioned previously, I can’t overstate the importance of continuing your lifelong education. And reading books (or listening to audio books if you don’t like to sit and read) is a great way to contribute to that. Here are my thoughts on a couple of books I’ve enjoyed recently.
Borrow: The American Way of Debt (2012) by Louis Hyman
Full disclosure: I love both history and economics so your
mileage may vary on this one. With that out of the way, I loved this book! It
chronicles the history of the use of credit in the United States from prior to
the Great Depression all the way up until 2012 when it was published. Credit is
as old as agriculture (how do procure the necessary equipment, supplies, labor,
etc until harvest time when you finally get paid?) and it has played a huge
role in the growth of the most powerful economy in the history of mankind to
date. Basically, credit to the American economy is PED use to professional
athletes. If you use none at all, you’re ordinary and probably unsuccessful. If
you use too much, you run into problems – for example, a failed drug test or an
early death as a result of your organs more or less crushing your heart against
your rib cage until it explodes. But with just the right balance (think vintage
Arnold versus today’s bodybuilders), legends are born.
The analogy is mine; I don’t believe this book mentions steroids
or even sports for that matter. But it does paint a balanced picture of how
credit has both hurt us and benefited us as a nation. It also illustrates the
patterns in the way the economy cycles, which can be very valuable knowledge to
have. Unfortunately, the author closes it abruptly and in rather shallow
fashion with a quick and superficial admonishment about how more government
oversight would fix the biggest problems. Regardless of whether you agree or
disagree with his assertion, it’s disappointing to see someone paint such a
vivid, thorough picture and then wrap it up like a professor who just realized
he’s gone over on his lecture and everyone is getting up to leave. I would have
enjoyed seeing him form his argument and present evidence for it but instead he
basically just stated it and promptly left the room.
Weak conclusion aside, this was a very worthwhile book to read.
It really helped me to round things out and I already had a pretty solid base
in both American history and economics. To someone who has neither of those, it
would probably be even more helpful. I recommend this book to anyone who has ever
heard someone say “back in my day, people would have never dreamed of borrowing
money.” You have probably always known deep down that unless that guy stepped
out of a time machine before he said that, he was full of shit. But if you read
this book, you will have the facts to back it up.
Tribe: On Homecoming and Belonging (2016) by Sebastian
This is a special book that has a lot to say. It was so
profound that there were several times when I put the book down and found
myself deep in thought about what I had just read and the way it relates to
issues in our society today. What’s more, it manages to present its message in an
extremely succinct fashion – something the author of this blog could certainly
take a lesson on at times! The book is just over a hundred pages and yet, I
haven’t stopped thinking about it since I finished it.
If I had to summarize the message of this book, I would say
that victory has made us weak. We in the western world have gotten so far
beyond the subsistence based existence of most of humanity’s past that we now
have obese people with devices containing the entire world’s knowledge in the
palm of their hands who genuinely believe they are poor. But in the process of
getting here, we have lost sight of something crucial. Today, we are the
wealthiest collection of people that has ever existed but we are also much more
disconnected from one another than almost any of our ancestors were. Each of us
lives an incredibly isolated life by historical standards and the author posits
that this is the cause of the epidemic of mental health issues we collectively
struggle against. All of this is very well researched and put together.
This book won’t take anyone more than a few hours to read and
I promise it will change you in some way. It is for anyone from extreme liberal
to extreme conservative and anywhere in between. It explains so much of what we
see every day and how we might be able to make this world a better place if we
would just pay attention to what is really important. This author has a gift
and I would definitely read another book based on nothing more than his name
being on the cover.
If you’ve been reading this blog for a while, you may be aware that I sprained my ankle and wound up on crutches a while back. I’m happy to report that last week, I was able to start walking without the crutches and for the last few days, I’ve been walking with no limp at all and have resumed my regular workout schedule – albeit carefully! I am very happy and excited to get back to full throttle in the gym and all other areas of my life very soon.
Over the years, I’ve been through a lot of these situations
but I haven’t always handled them very well. This time, my attitude was much
better than ever before and it really helped. For one thing, it made the whole
experience feel like much less of an inconvenience. But also, while I certainly
can’t prove this, may even have helped to speed up my healing process. This was
a serious ankle sprain; we’re talking about a joint being in the wrong position
when it hit the floor, going much further in that direction, and causing immediate
and fairly severe pain. I was on crutches over a month as a result of a
previous sprain of similar severity. The mind can be incredibly powerful and
this has been documented plenty of times in medical contexts. In this case, I
believe that by having mine in a good, healthy state, I put it to work on
healing my ankle faster.
Whether or not that is true, the whole episode has been a
great reminder for me. Each and every one of us has so much to be thankful for
in life. It can be very easy to focus on negative things that appear more significant
in the moment and ignore the positives. Believe me, I have spent far too much
of my life looking at things that way. But when you lose something fundamental –
like the ability to walk – you suddenly realize the fallacy in this. Or at
least I do. There are plenty of people who would give almost anything just to
be able to walk ever again. Temporarily experiencing a taste of their reality for
myself gave me a valuable dose of perspective. Every morning, when I got out of
bed and realized I would need the crutches to progress any further, I got a
fresh reminder. Thankfully, this condition didn’t last long enough for it to
stop surprising me when I woke up!
Of course this experience will fade to some deep, dark corner of my memory bank before too long. But this time around, my goal is to slow down that process. Remember my challenge from a few posts ago? It would make it much easier to get started and to excel at it if the threshold were as low as being thankful to be able to walk, run, jump, work out, etc. And why not set it that low? Gratitude can enrich anyone’s life to an almost infinite degree and if you can get the ball rolling, even just a little bit, you’re moving in the right direction. It doesn’t matter how you do it.
This is where I have to call myself out. As disappointing as
it is, I’ve allowed myself to get bogged down with some frustrations in my work
over the last week or so. I’m doing all I can to improve the realities of these
few situations and while I wait for my efforts to hopefully produce results,
writing this post is helping me to refocus on what’s most important. Writing
this blog often does, which is a big part of why I enjoy doing it. And to keep
that going, I’m going to lay out a new challenge for myself and for anyone who
would like to join me.
The next time I get frustrated with a situation, I’m going
to look at it as an opportunity to improve myself – because that is exactly
what any problem is. My goal is to avoid reacting rashly and instead, to think
about the situation logically – starting with taking responsibility, which is
so crucial. What actions of mine led me here? What could I have done
differently? What can I do now that is likely to make things better? Once I
have a game plan for both current and future improvement, I can focus on
executing it. This process will be much more effective than letting emotions
take over and complaining about it. Of course, like so many worthwhile things
in life, this is a simple concept that will be difficult to implement. I’m
going to try my best to be up to the challenge – whenever I do get my next opportunity.
Hopefully you will as well if you choose to do this with me!
There is no getting around it. If it has four wheels and an
engine, I love it! From a finance perspective, this can be a dangerous area.
But a little knowledge goes a long way towards solving that problem. I could
write at least one book on this subject but I think I’m going to approach it one
topic per post. In this one, I’m going to talk about which brands are best and
worst from a financial perspective. I’m not going to cover every single brand
that exists – only the more common ones that are either at the top of the heap
or the bottom. I will touch on cars and trucks here but I will not talk about
SUVs simply because I know nothing about them. Why not? I’m a finance guy and
approach everything from that perspective. So in my world, SUVs basically don’t
exist. As you will notice as this post progresses, you need to look beyond the
brand name because those get bought and sold all the time. Who actually does
the manufacturing is much more important than the logo they’re slapping on the
With cars, I have to start with Toyota/Lexus. They are simply
the best of the best. It starts with their manufacturing process. These guys
are absolutely obsessive about efficiency and quality control and it shows in
everything they produce. They have very few misses. Almost any of their cars
are very reliable, efficient, and refined, and as a result, the cost of
ownership is low. That said, they are not perfect. While they’ve gained ground
in recent years, especially with the Lexus brand, they are a little weak on the
design side, both interior and exterior. And as a former Supra owner, I am
horrified and disgusted at the way the name is being bastardized today. That
car appears to be more BMW than Toyota and bears little resemblance to the
legend it shares its name with. That said, I’m sure it will sell very well;
just not to those of us who loved the original for what it was – a beautiful,
relatively reliable, extremely modifiable, high performance machine at a
surprisingly low price.
While not quite up to Toyota’s standard, Honda/Acura is a
solid choice as well. Originally a motorcycle manufacturer, Honda is a little
more performance oriented than Toyota. Their reliability and efficiency are
also great although both are a definite step below Toyota’s. In my opinion,
their design is hideous – especially with their Acura brand – but I suppose
beauty is in the eye of the beholder. One other Asian manufacturer that
deserves a mention is Hyundai/Kia/Genesis. These cars were much maligned years
ago but they have come a long way. Today they are nearly competitive with
Toyota and Honda on reliability and efficiency. And as a bonus, because they
are still working through their reputation struggles of the past, they are very
value oriented. They tend to offer features you normally don’t see at their
price points. I would expect Hyundai’s new Genesis luxury brand to continue
that trend and offer a very competitive value relative to that of its competition.
On the truck side, things are a little simpler; get a Ford.
The F150 has been outselling the competition for a very long time and with good
reason. It is the best truck, period. There are plenty of good competitors here
– the Silverado/Sierra and the Tundra at full size and the Ridgeline, Tacoma,
and Colorado/Canyon at mid size. That is the smallest trucks go these days
unless you want a Nissan Frontier, which is the lone small, cheap truck left in
existence (sadly, the legend in this category, the Ranger, is coming back as an
F150 Light, a similar bastardization to that of the Supra). In general, I don’t
recommend Nissan as it is a middle of the pack manufacturer but in this case,
it is the only option. Trucks are very expensive so I would only advocate
buying one if you genuinely need it. But if you are going to use a truck as a truck,
a Ford is a no brainer.
Those are the best brands. Which ones should you stay away
from? If we’re talking about cars, anything American is a pass. The big three
(Ford, GM, Fiat/Chrysler) have huge legacy costs that go into every vehicle
they produce. With big, expensive vehicles like trucks, they can make it work.
With cars, it simply handicaps them too much. The best evidence of this is
their reliability. With the better Asian brands, you can usually get the
odometer to six digits without doing much more than changing oil, brakes, etc.
If you pull that off with an American car, count yourself lucky and sell it
soon because that luck won’t last forever. That trend only accelerates as the
mileage gets higher.
And please don’t be fooled by Chevy’s incredibly irritating JD
Power commercials. They are flat out bullshit. A lot of money changes hands when
it comes to using JD Power awards in marketing and they are dubious at best
anyway. In fact, some other manufacturers took Chevy to task on this recently,
pointing out some of the most blatant lies and threatening to take legal
action. While refusing to admit to anything, Chevy wisely pulled the ads in
question, tacitly revealing the reality of the situation in the process. It
shouldn’t have had to come to that but it’s a great example of how low the
standard for truth in advertising actually is. I ignore 99% of it in all forms
and I highly recommend you adopt that policy as well if you haven’t already.
Aside from American branded cars, I don’t recommend anything
German because of reliability issues and overall high cost of ownership. They
manufacture everything with very tight tolerances and the result is that while
the quality of the better brands (BMW and Mercedes Benz) is very high at first,
it goes downhill quickly from there and maintenance/repairs are not cheap.
Volkswagen (including Audi, Porsche, and some other brands under the same
ownership) is on the automatic pass list. I don’t recommend anything British
(or formerly British brands like Jaguar) as their reliability is atrocious,
particularly when it comes to electrical issues. And finally, while
Fiat/Chrysler vehicles (Dodge, Jeep, Alfa Romeo, Maserati, and a handful of
other brands are included under this banner) are usually cheaper than their
competition, there is a good reason for that. They are simply some of the worst
vehicles on the road. Efficiency and build quality are usually poor while
reliability is worse. This was the case long before Fiat got involved and it
hasn’t changed. And let’s not forget that the Ram logo is literally a vagina.
You can’t make this stuff up.
To sum this all up, if you’re looking for a car, you want
Toyota/Lexus, Honda/Acura, or Hyundai/Kia/Genesis. If you’re actually going to
use a truck, stick with Ford. If I didn’t mention a particular brand or group
of brands (ie German cars), that means it is somewhere in the middle – not among
the worst but not among the best either. And who wants to pay good money for
something average? Obviously you still want to research individual models but
in general, if you stick to the best brands I’ve listed here AND take care of whatever
you buy, you are very likely to come out ahead.
More and more folks have likely heard of the FIRE movement. Lately it seems to be a popular target for potshots from mainstream media personal finance hacks who want the average person to keep reading their recycled bullshit advice and fueling their viewer/reader numbers without ever being able to graduate to something better. And FIRE advocates have “fired” right back. Sorry, it had to be done. FIRE stands for Financial Independence Retire Early. You might be surprised to learn that I am not 100% on board. I had been at one time. But my perspective has evolved a little over the last few years.
I love the FI in FIRE. In the richest society in the history
of the world, we can all aspire to be financially independent if it is a high
enough priority. Sadly, it will never happen for most people because shiny
objects, slick sales pitches, lifestyles they feel obligated to live or
provide, neighbors that have to be kept up with, etc, always seem to be more
important. But for anyone who ever wishes he could say no at work with zero
fear of potential consequences, financial independence would make it possible.
For anyone who wants to go on vacation without planning it months in advance or
having money be a limiting factor, same thing. I could keep going but I think
you get the idea. There is nothing you can buy on this planet that is quite as
satisfying as knowing you will never again have to make a decision based on
such a crass factor as money. Or put another way, if you can think about money
for long enough, you can reach the point where you never need to again. The
FIRE movement is mostly about reaching that day as soon as possible so you can
enjoy the rest of them more.
I think most people can agree that financial independence is
a worthwhile goal. But many seem to object to the RE part. There is even a lot
of disagreement about the exact definition of the term. Some FIRE detractors
say it’s cheating if you work in any way, shape, or form after retiring early.
Others say it’s not worth “living like you’re poor” your whole life just so you
can retire at a young age. My take is that the term can be useful to anyone
regardless of exactly how you choose to define it. If it makes sense, you can
think of it as “retiring” from money being the most important factor in what
you do – or a factor at all, for that matter. I would also say that your living
standard is your choice and no one else’s. If you are happy and you aren’t
hurting anyone, tell them to go pound sand. The FIRE community welcomes people
all along the spectrum, from one extremely disciplined, analytical blogger who
lives on about $7k a year all the way to another rather neurotic one (I mean
that with love, Sam – and yes, it takes one to know one!) who seems to fear that
even the $200k+ his investments earn annually, combined with his incredible
intellect, might somehow not be quite enough.
Bottom line, FIRE can be whatever you want it to be. Unlike
with religion, where it could be considered a little hypocritical to be on the
ala carte plan, this is a very open and welcoming school of thought. Take what
you like and use it to make your life better; ignore what you don’t. I enjoy
hanging out with a local FIRE group and some of them take frugal to a level I
would never want to approach. Others seem to live higher on the hog than a man
of my humble origins is likely to ever want to – although I reserve the right
to change my mind on that point. It doesn’t matter. Everyone brings something
to the table and everyone benefits from both building relationships with
similar minded people and from being exposed to a wide range of ideas and
What is my personal FIRE struggle? At some point in your
life, a guidance counselor probably asked you what you would do if money didn’t
matter at all. That’s it for me, right there. Unless I veer pretty far from my
current path, I’ll reach financial independence in the next five to ten years but
I have absolutely no fucking clue what to do with my life when I get there. My
job has its tough moments but it is also incredibly rewarding on many levels.
Should I keep doing it and simply start finding ways to spend more money? I
suppose a mansion or two, a garage full of high end vehicles, or any number of
possible luxuries might grow on me. Or if I didn’t want to spend the unstoppable
excess on myself, I could give it to causes I care about. Altruistic or not,
that could be a great way to maximize the financial value of my life and put
that value into whatever I want to impact most. After all, the argument could
be made that if you can make a lot of money and benefit humanity in some way in
the process, you should. Or maybe I should tell the boss I’m retiring when I’m
roughly twenty years his junior and still younger than the vast majority of
people who do my job in any territory, or at any company for that matter. I don’t
hate the man by a long shot but something inside me wants to correct him and
say “no, I’m not resigning; I’m retiring” and demand a gold watch, or at least
a cake. And of course, there are a few choice people within the company who I
would absolutely love to see turn some shade of green at my party.
But what would I do then? Sure, this is a good problem to
have and I am immensely grateful for it. But that doesn’t make it any easier.
Sometimes it feels like a personal failing that I have a difficult time
deciding on a way to spend roughly half of my life without money being a
factor. Sure, I could go lay on a beach and drink beer somewhere or I could
travel the world and see all kinds of amazing things. But I have a feeling I
would get bored pretty quickly. And I’m not alone. Studies regularly show that
this can be a problem for lots of people – even at more traditional retirement
ages. One’s sense of purpose tends to get a little wrapped up in something if
you spend half your waking hours doing it year after year. And I think that’s
to be expected. If I had to guess, I’d say that there are probably a lot more
mes out there than there are Elon Musks. And a sense of purpose is an enormous
part of what makes life worth living, no matter who you are.
So I wrestle with that problem all the time and until I get
it figured out, I’d be lying if I said I don’t use it as an excuse to justify
the occasional large expense. After all, there’s no sense rushing to get to a
destination if you don’t know if you will like what you find when you get
there. This was a lot easier when I was in love with someone and genuinely
wanted to spend the rest of my life with her, no matter what we were doing.
Even if I meet someone who means just as much to me somewhere down the line, I
don’t think I can ever put that much stock in another human being again – and that’s
a good thing. But it’s only one more thing I’ve realized does not answer what
will probably ultimately be the most important question of my existence.
But all that said, my general financial philosophy is
currently that as long as I stay on the path to be financially independent by
40 at the latest, I doubt it will lead anywhere bad. I consider staying open
minded, especially about trying new things, to be a crucial investment in my
future. My advice to anyone else is really about the same. I’ll end this post
with an excellent quote from Martin Luther King, Jr: “You don’t have to see the
whole staircase, just take the first step.”
Time for a fun post. This one is going to be long, opinionated, and speculative. But bear with me because I think I’m onto something here. The media won’t let us forget it; millennials are not buying houses at the rate members of other generations have. They have a hundred theories about why – most of which involve student loans, rising real estate prices, stagnant incomes, structural economic shifts, or simple lack of “good old fashioned American gumption.” Of course I don’t know everyone or everything, but as a millennial with an at least above average understanding of business, finance, and economics, I believe I’m as qualified as your average pundit to do some positing of my own on the subject. From my perspective, while each of the issues I mentioned plays a role, they aren’t contributing to a crisis at all. To the contrary, the nonstop hand wringing isn’t necessary and in fact, things are actually moving in a very positive direction.
Who am I? I’m a millennial who went to a consistently highly
ranked public university and graduated right into the heart of the worst
economic crisis the country has seen since the Great Depression – and into a
local economy that was struggling more than most for that matter. Between my
college girlfriend and I, we had a pair of decorated academic records, close to
$100k in debt, and zero jobs to speak of when we walked across the stage in our
gowns and funny hats. Our graduation speaker’s summarizing message was “we’ve
destroyed this once great country, you’re screwed, good luck.” It was about the
most depressing speech I could have imagined and also rather redundant since
our reality more or less already matched it. A little optimism would have been appreciated
and appropriate as well.
Over the next few months, both of us scratched, clawed, and
begged our way into the workforce. We each started out as underemployed temps
(so no guarantee of tomorrow much less benefits or work that was in any way
challenging or meaningful) serving in office drone functions making roughly
$30k a year each and well aware that we were lucky to be that well off. It
wasn’t an easy time but we were determined to get through it. Mortified by our
pile of debt, we made a plan to pay it off in a maximum of five years and stuck
to it, no matter how lean our life together had to be. We lived in a small one
bedroom apartment and drove one car together to work since our jobs happened to
be in the same direction. Luxuries like eating at restaurants were kept to a
minimum. Over the next few years, things gradually got better. We each
differentiated ourselves at work and got hired full time with small raises. My
girlfriend became my fiancé and my fiancé became my wife. And yes, it was a
relatively modest wedding – although a wonderful one as well. We both upgraded
jobs a couple of times and suddenly things looked much different. We bought a
pair of new cars – no luxury hood ornaments, but all the nicer features like
leather, fancy rims, touch screens, etc. We upgraded our living arrangements from
small one bedroom apartment to two bedroom condo style apartment to three
bedroom duplex. We did all of this while remaining on schedule with our five
year student loan repayment plan. A house might have been the next big step but
we were not about to consider that until our student loans were 100% eradicated.
But that never quite transpired. We had married too young
and while we had accomplished some impressive things together and grown
immensely as people, that growth had taken us in separate directions. We
divorced fairly abruptly, parted ways, and have never spoken again. Almost
simultaneously, I got my current job and my income doubled overnight and
continued from there. I worked hard and learned a lot and after a couple of
years, a significantly more desirable territory opened up. I lobbied for it
with all my might and got it and today I’m in Houston – over a thousand miles
away from the part of the world that never managed to feel like home in over
two decades of my living there. It has taken some time to develop this new
territory and that is still a work in progress but my income has increased
significantly since coming here. Plus my investments have continued to grow and
I’ve started a profitable side business as well.
While my post college life (and pre as well) started out
relatively bleak when compared to previous generations, I consider that an
advantage as I look back on it. I learned to separate wants from needs early on
– and significantly, I learned that before I had developed a taste for a more
expensive lifestyle than the bare bones existence of a student from a low
socioeconomic background. Gradually, in spite of the dismal economic
conditions, I was able to grind my way into a successful career path. And today,
well under a decade after setting out on that journey, my income has cleared
the 90th percentile. I’ve developed a taste for the finer things in
life but it has happened gradually and with the lessons of the past ever
present in the back of my mind, I am unwilling to spend more than half of what
I earn regardless of the circumstances.
Why the mini financial biography? I think the background of
my basic experience helps to illustrate the point I’m going to make. By my age,
most people in previous generations had a house and kids. I have neither.
However, my net worth is substantially higher than that of almost anyone of
previous generations at this point in their lives – adjusted for inflation, of
course. Barring a total disaster, it will be in the seven figures less than ten
years from now. At that point, I may or may not own a residence. But once again
barring a total disaster, there will be no kids. I think extremely logically
and have almost completely divorced myself from emotion when it comes to making
financial decisions. Kids made sense when each one repaid the parental
investment in full and then some, often in the form of free labor on a farm or
in the family business. Today, a kid will cost roughly a quarter million
dollars if you are a capable enough parent to prepare him or her to leave the
nest by eighteen – otherwise more. This is one of the most important financial
decisions anyone can make. Any argument in favor of having kids is 100% emotion
based and thus, irrelevant to me. No, I am not a robot. But I am willing and
able to override my feelings in order to put not just surviving, but thriving,
squarely in the number one spot.
Obviously I am not a typical millennial. But I believe that
more than members of any other generation, millennials reflect my way of
thinking on at least some level. For example, the rate of reproduction has
plummeted – in almost a perfectly inverse correlation with education level
attained. Millennials aren’t ruining everything; in many cases we’re ruining
bad things and making room for better ones. Motorcycles are about the most
dangerous form of transportation imaginable and guess what – very few of us are
buying them. Harley Davidson motorcycles are easily the worst possible variety
of motorcycles. They are big, ugly, egregiously loud, and they have zero of the
motorcycle’s three actual advantages – ridiculous speed, low cost, and great
gas mileage. Here again, millennials seem to have it right; Harley is on track
to be bankrupt in less than a decade because we simply do not buy their products.
How about beer? Entire generations drank nothing but piss water and apparently
it never occurred to them to ask for anything better. Millennials didn’t ask.
We demanded. And today, quality beer is widely available while the mass
producers of swill fight for dwindling market share with sort of clever
commercials as they quietly buy up every craft beer brand they can.
On to home ownership – the foundation of the mighty American
economic legacy. It’s true. We aren’t buying them in very high numbers. And
yes, all of the problems I mentioned are playing a role. But I fought through
all of them and could now buy a house without financing if I wanted to. Most
millennials aren’t quite there, but plenty are succeeding in fighting their way
through. The American economic engine has been finding creative ways to make
things affordable for people who can’t actually afford them for a very long
time – since before the Great Depression, in fact. I really don’t buy the
general argument that millennials have just gotten such a raw economic deal
that it can’t be done yet again. I think the biggest issue at play here is
choice. Just like crappy, obnoxious, overpriced death machines (yes, I hate
Harley and can’t wait to see everything related to the company relegated to
Pawn Stars and similar shows) or piss water at any price, we are not buying
houses because we do not want what is available.
Back to the example of my life since it’s what I know best. Yes, I am “throwing my money away” on rent from the conventional perspective. But am I really? I spend just shy of $1200 a month on a very luxurious arrangement. Sure, it’s only a 700 square foot, one bedroom apartment. But that is plenty of space for me, the few possessions I chose to keep when I came here, and the even fewer I have acquired since. It was built in 2013 and has granite countertops, hardwood floors, ten foot ceilings, beautiful track lighting, and a balcony overlooking a resort style pool complete with gas grills all around (the view from my balcony tonight is the featured picture for this post). In addition to the pool areas (yes, there are more than one), the complex has gated entrances, security guards on patrol, a serviceable gym (and I’m pretty picky about them), a clubhouse with a very nice pool table, coffee, and light refreshments, a computer room, several lounges that can be used whenever or even reserved for private events, a yoga studio, trash pickup at your door, about a hundred huge tvs everywhere you go that anyone can turn to any channel they like, and I’m probably leaving a bunch of stuff out. And by the way, I left out the best feature of all – portability. This area hasn’t turned out to be for me so in a little over a month, I’m moving to an even newer complex with even better amenities and in an area I think will be a better fit. And it will cost me roughly the same. If I were offered a better job in a different city, I could make a similar choice without having to worry about selling a house. Anyway, my current complex also happens to be located in an area where you’d be hard pressed to find a piece of real estate priced below half a million dollars. My new one will be in a somewhat more affordable market – if you consider $300k+ affordable when the median household income is around $60k a year. For the record, I do not.
And even if you were willing to spend that kind of money,
you literally couldn’t buy what I’m renting because it doesn’t exist. The
average American house has been growing consistently and today, it is around
2600 square feet. That would have been excessive when the average family was
twice the size it is today. Every one of those square feet has a cost –
mortgage interest, property taxes, time spent cleaning and maintaining,
utilities to heat/cool, more money spent on accumulating and maintaining
clutter, and more. The palaces people think they own are actually financial
prisons and worse, they take up tons of their time as well. This is
unsustainable. It was unsustainable in 2006 and society had a great opportunity
to learn that. But somehow that didn’t happen, just like it hasn’t in so many
other past opportunities, and the average house has only continued to grow.
I want exactly what I have – an appropriate sized residence
with premium, modern features and amenities and as little maintenance as
possible required – or preferably none. Sure, I could find a house or condo
with less than 1000 square feet. But it would probably be old and either
falling apart or shoddily renovated to attract buyers with as minimal an
investment as possible. And that’s because for a long time, we’ve been building
mostly modern mini mansions the average household can’t actually afford and
almost no appropriate sized homes. As a millennial, it certainly seems like far
more of my peers live in households of one or two than in households larger
than that. Even among those who have kids, very, very few have more than one or
two. And like it or not, millennials are now the largest generation in this
country, which is why all of this is so significant. So why do we continue to
build houses that could shelter small armies when almost no one needs more than
2000 square feet and most could get by with considerably less?
In theory, you should be paying more for rent than it would
cost you to own something comparable. That’s the premium you pay for bearing almost
no responsibility. But there are numerous, widespread scenarios where that isn’t
the case and that’s if appropriate properties are even available to buy in a
given area. My situation certainly falls into that category. Find me a property
in my area reasonably close to the size of my apartment that offers even
remotely similar amenities for $1200 or less and I will buy it and pay you
every dollar of equity I build in the first year as a finder’s fee. That’s how
confident I am that it’s not possible here. And I’m serious about that offer by
the way. I could go into an in depth analysis of the numbers and maybe I will
write a post on that one day but for now, suffice it to say that I’m a finance guy,
I look around and run the numbers regularly, and this isn’t even debatable in
I think we’re going to see housing change over time and I
believe the process has already started. We’re already seeing it on the margins
in the form of some extreme concepts like tiny houses, which started off as
media curiosities and today are growing common enough that most people have
heard of them. There is actually a market for those things and my guess is that
if builders were to start building new, modern houses of a slightly more
practical size, they would find that there is a huge market for those. Let me
rephrase that. When they start doing that, they will find that. I think we will
see a dramatic increase in premium featured houses being built in the 1000-1500
square foot range. In fact, if I see a builder doing this, I will seriously
consider investing. In time, I think the average size will drop to 2000, and
maybe even below, while the average age will decrease dramatically as tons of
houses are built to accommodate smaller household sizes and the weight of those
numbers pulls in that direction.
And we will all be better off. We as a country do not
benefit when such a high percentage of people are “house poor” to the point
where they are a few unexpected expenses or a moderate injury or illness away
from foreclosure. I don’t believe it benefits the economy when all factors are
considered and it certainly doesn’t benefit us as a society to have a bunch of
people living in such a terribly stressful situation. It certainly doesn’t
benefit us to have so much of our economy resting on the house of cards that is
the mortgage backed security system. And no, that has not been fixed since the
Great Recession. Just like the several previous times it has collapsed on
itself, some politicians slapped some wrists and introduced some new, “this
time we’re actually serious” sounding legislation that really just towed the
wreck of the Titanic in to port, threw a tarp (no pun intended here) over the
gaping hole in the hull, rearranged a few deck chairs, and sent it right back
out to sea. The problem won’t actually be fixed until we address the real, underlying
cause. But naïve optimist as it may make me sound like, I believe we will do it
– at least to an extent that will make a substantial improvement. I believe we
will “right size” houses and when the dust settles, it is going to be a very
good thing for everyone. The media and society at large loves to rip on my
generation and certainly plenty of it is warranted. However, I believe we have
been brought up in just the set of circumstances necessary to have made us
exactly the people to do what several previous generations have failed to.
Disagree? I would love to hear your reasoning.