Advanced Personal Finance

I can’t help myself.  Whenever I see a Hummer on the road, I’m compelled to look at the driver to see what kind of a douche would drive such a thing.  I have done this for years, long before gas cost $4 a gallon.  I have no idea why.

But it now seems that the smart thing to do if you own one of these abominations is not to sell it.  Apparently the market for used large SUVs is, to use a great phrase I read in the Wall Street Journal, “continuing to bore a hole to the center of the earth.”  Predictably, with gas prices as they are, nobody wants to own a large SUV.  And since car makers can’t move their inventory easily, they’re giving incentives and cutting deals.  That makes it that much harder to sell a used one.

I’ve even heard stories of car dealers simply turning away large SUV trade-ins.  They won’t buy them, period.  As it is, 36% of SUV trade-ins are upside down.  That is, the loan is larger than the current value.

But back to the point.  Large SUVs are going for $1,000 - $3,000 less than they were last year.  So even with gas at $4 a gallon, the incremental cost of fueling that thing for the year is still a better deal than selling into this market.  So I guess when I take a look at that Hummer driver now, I can say they’re making the economically smart choice.  What a laugh.

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Sometimes I get carried away on this blog.  I fall into the trap of living in a narrowly defined world.  I read lots of personal finance blogs and the Wall Street Journal.  I think about money too much and other topics not enough.  I sometimes fail to step away from things I’m comfortable with and look past alternative views and new areas of interest.  Of this I am guilty.

All the information about writing blogs tells you to stay on topic and write great content.  If you do that, people will read what you write. 

Stay on topic. 

The problem with that is you begin to focus too much on your topic.  You think too much about personal finance, or politics, or cats, or your kids - whatever it is you write about.

So I read personal finance blogs too much and other topics not enough.  And sometimes I come upon a post in a PF blog that really gets to me.  And when I say “gets to me,” I mean “drives me nuts.”  Today I read such a post.  It was a post on All Financial Matters written by a semi-regular contributor who has her own PF blog.  Almost invariably when I read something by this author, I disagree.  Sometimes I disagree vehemently.  This was such a time.

When writing elicits a strong emotional response, it is the definition of good writing.  I have to concede her that - she gets an emotional response from me most all the time.  Good for her.

The subject of this person’s post is how many people her age are “dumber” (her word, not mine) than previous generations.  Her proximate concern is financial, but she extrapolates how these “uneducated” and “ignorant masses” (again, her words not mine) signal the end of American greatness.

This, in a single word, is crap.

Maybe, just maybe, “every single one of [her] friends and peers” that are so ignorant of how to calculate compound interest place a higher priority on things other than getting rich.  Maybe, instead of teaching their kids the beauty of the all-important dollar, these people are more focused on teaching their kids to be good people.  Maybe, just maybe, these poor, stupid fools not maxing out their Roth IRAs are living presently.

In this blog, and in my conversations with friends and family, I have been guilty of being preachy.  There’s a fine line between educating and being a jerk and I’ve crossed it numerous times.  I apologize.  If you read the comments on the AFM post, Jeremy of Gen X Finance seems to get it right better than me.  He didn’t cross that line when he spoke to someone he came in contact with on the subject.

So here’s the news. 

America’s kids aren’t all going to turn out to be indulged dullards.  The US economy won’t turn into a flaming wreck.  Gold isn’t going to $10,000 per troy ounce.  Old people aren’t all geniuses who are brilliant with their money.  Lots of kids know how to read and can do advanced math, and some of them are even American kids.  And video games, iPods, and cell phones won’t bring down the Republic.

It’s not “The End of the World as We Know It.”  Get a grip.

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Moving to a lower cost of living location is a popularly advocated means to cut expenses and live below your means.  But does moving to a cheaper area really save the kind of money most people would need to save to make such a dislocation worthwhile? 

Maybe not.

People interested in personal finance advocate lots of different methods to either increase income or decrease expenses.  There has been a plethora of stuff (too much) written about the ever-ellusive ‘alternative income streams’ to do the former.  The latter garners an even greater amount of attention.  Free Money Finance has written several times about the idea of moving to another city to cut expenses.  My family just did it earlier this year.  Now David at My Two Dollars is planning on moving to a much cheaper area this summer.  But there’s excellent evidence from behavioral economics research that this isn’t the money-saving move people think it is.

One of the basic principles of the new field of behavioral economics is something called ‘anchoring.’  Basically, anchoring means once you’ve gotten used to the cost of something, you compare similar things to that cost.

Anchoring is relevant in this context because when people move to a lower cost of living area, they’re expectation of the cost of housing (among other things, I suppose) is anchored to their previous (more expensive) location.  So it’s been shown that when people move to a place with cheaper housing, they keep sinking the same amount of money into where they live.  A family moving from Dallas to Des Moines spends what they used to pay for their old house; they buy more house in Des Moines because they’re used to a certain mortgage payment.

Interestingly, it also works the other way.  If they move from a cheaper area to an expensive one, people typically just squeeze themselves into a smaller house and keep roughly the same size mortgage payment.

So maybe the advice to move to a lower cost of living city isn’t as automatically beneficial as I thought.  I can tell you, though, that in our case we did cut our payment by a third for a similar house when we moved.  Of course, everyone thinks they’re the exception to the rule, don’t they?

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There’s a new kid in town.  I’ve been reading a new personal finance blog for a couple of weeks now and thought some of my readers might enjoy it, too. 

It’s called Wise Money Decisions. 

The author, Jeff, has been at it for a few months now and I like his writing a lot.  Stop by if you get a chance and check him out.

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[This is part two of a two-part story about how I quit first and got a job second.  Here’s part one.]

When I left the story, I’d just volunteered to get fired from my job (without having another job lined up) in exchange for an incentive.  I realize at this point I didn’t give any context to what that incentive was.  In exchange for quitting and signing a waiver, I got three months of salary as severance along with company-paid medical for three months.

The master plan

Here was the plan. 

The company mandated that, once you volunteered, you had to be off their payroll in about two months.  That meant I had two months of getting paid and working while I looked for new employment.  After that, I’d be out a job, but I’d get paid for another three months.  We figured I could certainly find a good job in four months or so.  If it stretched beyond that, we had a decent amount of money in savings and investments.  Plus, my wife was supposed to return to work around that time after having our baby.  (As it happened, I didn’t get the severance check for a full month after I stopped working.  Good thing we didn’t need that money to, say, pay the bills!)

The job search and the perfect job

This story isn’t really about how I found another job, so I’ll keep this part short.  In the span of a few weeks, I had several phone interviews and some in-person interviews.  I was lucky enough that they were kind of clustered around the same time.  Of the three in-person interviews, one place flaked out, one place turned me down for lack of experience, and the third offered me the job.

The job I was offered was the one I really was hoping to get.  It is exactly what I wanted to do.  Moreover, and more importantly, it is work I’m really good at.  And it came with a sweet perq - I work from a home office.

Now let me tell you right now that working from home is absolutely, positively, one hundred percent as awesome as you dream about.  I am way productive because I don’t have people bugging me all the time.  My commute time is five seconds.  I get to wear shorts and a t-shirt.  Yeah, it’s good.

Funny thing is, that’s not even the best part.  I absolutely love my job.  I seriously can’t believe it.  You know how, every once in a great while, you’ll talk to someone who says they love their job?  I never believed them.  Never.  But I’m here to tell you, it is possible.  You can actually love your job.  I’ve seen the other side.

Is there a point to this story?

Well, yeah, there is.  My point is that you can take a chance and sometimes it will all work out.  It won’t always work out like you want.  It won’t even work out like you want very often.  But every once in a while…

I’m not saying to do what I did and quit before you have a job.  I’m saying be courageous.  Have faith.  Do not be miserable.  If you don’t like your situation - change it!  You do not want to look back on your life and wonder what might have been “if only.”

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