Nov 30, 2012

Commonly Accepted Financial Principles I Think Are Stupid

I've shared bits of my fiscal philosophy on past posts.  There's enough meat on this topic to scribble out some more money malarkeyPlus there's a shiny new $ tab up top there to bundle them together nicely.  

Today's episode picks at commonly accepted "conventional wisdom" on saving and spending.  You know the drill, I'm not an investment expert and could be making 84% of this stuff up.  Do what makes sense for your picture.  Let's go... 

"Buy a home, don't rent, otherwise you're flushing bills down the hole." 


Not everyone should own a house.  Renting is no more wasteful than stuffing your face at Fuddruckers or purchasing a new pair of Wranglers. You're getting something for your money, a roof overhead, and renting looks like a smart choice compared to people stuck in this hot mess: over-finance a house they can't afford, the lifeless skin-colored mansion drops in value via a limp market, their mortgage flips upside down and becomes a disaster. I'd rather rent than borrow against the bank on a beautiful home that's slipped into an upside down scenario.

"You get what you pay for."

I disagree. 

Sure, sometimes you get better quality when paying more, but this is less true in today's global market. For example, a name brand cable (Monster HDMI) to connect a Blu-ray player to your set will run $60 at Best Buy. The shrewd consumer will instead peruse, order a generic-brand cable directly from the Chinese factory for 3 bucks (with free shipping). Brands are less relevant today than they used to be. Always dig a bit on Google to find the true cost of a product. Doing so may mean you get more than you paid for.

"Everyone should go to college. You won't get a good job without at least a four year degree."


Some are not cut out for college. Other kids rack up $100,000 in school debt prepping for a job that pulls in $45K a year. Foolish if you ask me.

This statement is more accurate:  everybody needs to graduate high school, and most kids will need additional training after if they desire income that slots them comfortably in the middle class.  Additional training may be a BA degree, trade school, certification or apprenticeship.  Forcing people kicking and screaming into college will surely result in a large debt, dissatisfaction, flunkage and possible unemployment down the road.

I knew as a greasy-faced geek in high school I wanted to be a computer programmer.  My friends went off to state universities for Bachelor and M.A. degrees.  I did my own thing, opted into a 2-year Associate program and was working full time making good bucks writing software for a f500 company at age 19.  While wearing braces.  No regrets, be brave and different when it makes sense.

"Have fun later, save up for a rainy day."

"Enjoy life now and spend today.  You don't know what tomorrow holds and you may get hit by a bus."

Each of the above statements is partially correct.  But if taken to the extreme, they become stupid.

A couple 'thetical scenarios to get my point across.

a)  Wendel lives for the future and is an xtreme saver.  He uses one T.P. square per wipe, never eats out and with proud frugality proclaims, "my last vacation was in 1987."  His theory is funnel it all into savings now, then enjoy it later during retirement.

b)  Zoe lives for the now and is a hardcore spender.  "I'll have time to save later, better to live it up when I'm young."  She has little in her retirement fund and consumes her paycheck as quickly as it comes in. 

I've followed the path of the first scenario more than the second. 

I went 5 years here recently without a vacation.  Pumped on the 401K, Roth and stocks early when married.  It was the "save now and enjoy it later" mentality.  Then I lost $50,000 of my 401K in the divorce.  It made me realize how fleeting and vain money is.  Work the arse off, save diligently for later, wife bails and with an attorney's pen stroke, a big wad be gone.  

I now see saving and spending through a different filter.
My Take:  Now and Later

Running buddy Greg and I discussed the saving/spending balance last week on a 7 miler.  We're in our 30s and see parents, uncles and neighbors in their 60s having heart attacks, chemo, back surgery and knee replacements.  The unfortunate part of life is when we're young with kiddos and full of health, we don't often have time for vacation or the money to purchase a big ride for shuttling our family around.  Plus we siphon a bunch into savings for later, with a goal of basking those golden years in traveling carefree glory.  

But by the time we retire we're old, diseased and worn out.  Euro' tours and a new car will be low on our list when we're 70 and wearing diapers.  

So we must save enough for tomorrow AND enjoy life on purpose today.
Estimate how tall a pile we'll need to live 30 years of retirement.  What age do I want to stop working?  How much per year will be needed by 2042?  How hard will inflation spank my bank?  At what age will I kick the bucket?  

I came up with a random guess of $2.5 million, then wove together a ruthless droid-like plan to hopefully achieve that number.  Key your calculator, it's reasonable to think that $2.5m could run out in 25 or 30 years.  Inflation's a bear and the pot may boil dry much sooner than 25 years if health and other unknowns blow a gasket.  Never assume extras like social security, pensions and other entitlements will pay up three decades from now.

The other half of the equation is to intentionally, aggressively enjoy the days of our youth.  Take vacation while still (somewhat) young.  Eat at my favorite restaurant on Saturdays.  Buy toys once in awhile.  Give until it hurts.  Thank God for His many blessings.

What say you?


  1. yo momma11/30/2012

    I work so I can travel.I've saved for later.

    1. Yes you do, Mom. Yes you do.

  2. Beard:
    I've been reading your blog ever since YHL featured you. I get a kick out of your attitude and your writing style. I agree with what you said above. Even though my husband and I own our home (and the bank until it's paid off), I'm all for renting. My husband wanted to buy. We seem to be outnumbered in this. Don't even get me started about college. Yes, I have a 4-year degree after going to community college and then transferring a couple of times; but this idea educators are pushing that says everybody needs and is entitled to a college degree is a load of crap. We need to get back to vocational and technical programs as well as mentoring and apprenticeships. Not everybody is meant for college; and quite frankly this idea that the first 2 years of any degree program needs to be a broad-based liberal arts foundation is silly. With today's economy especially, we all need to evaluate the worth of spending a significant amount of money on college costs only to be in debt upon graduation. College is a racket. That's what say I!

    1. I didn't get diddly squat for web traffic on this blog until YHL helped a brother out. 20,000 hits a month now, I owe them. Thanks for staying with me and continuing to read!

      A few years remain on my mortgage, hoping to have it paid soon. Refinanced to 3.3%, it's a smallish home but at least I'll own it an not JP Morgan.

      Bachelor's degree is required for some professions, nothing wrong with that. Agree with you that the push for everyone to get a four year or they're toast is hogwash. As you said, half the time on a BA degree is fluffy liberal arts junk.

      College is useful at the theoretical and philosophical level of training, but nothing is a more effective teacher than real-world experience. That's why I opted to get 'er done quick on the education front and start earning experience and money in the workplace sooner rather than later. Action and hands-on skills that pay the bills are what count.

    2. Another YHL follower here! Apartment therapy to YHL to your amazing kitchen remodel. I pop in from time to time to share my unsolicited opinion about personal things in your life! Don't you just love the internet!?

      As for this topic, I am really on the fence. I feel like not having a 4-year degree will close a lot of doors in your life. I have a couple friends who have hit ceilings in their companies because of a lack of degree - like they couldn't move into management. And I got a job out of college for which I had zero qualifications or experience because of my shiny BS from a good private university. My boss flat out told me that if I could get a degree in Mathematics from SU I could handle the job I was applying for. He just assumed I'd be a smart problem solver because of my degree.

      And about the rent or buy, you are totally right! Where I live, it doesn't make sense the buy (although we did!). For what we're paying in mortgage, we could rent a much bigger, nicer house, in a nicer neighborhood. We often ask ourselves if this was the right choice.

  3. I too am a big fan of the real world experience track, but it seems like these days, at least in my neck of the woods, it's hard to even get a foot in any non-factory door without at least a 2 year degree. Even at jobs paying $30,000. I wish companies wouldn't be so narrow minded and our kids today may have more options than racking up college debt.

    1. Two years of training is fair for jobs that open at $30k. All of us need a skill to pay the bills, there are several options for acquiring those skills. It would be useful for more kids to solidify what they want to do for a living BEFORE entering college. Doing so would go a long way towards thwarting unnecessary investment of time and money for a degree that may not line up with the line of work they settle on.

  4. The biggest issue with college expectations come from mainly two different sources. First, parents feel - and understandably so - their kids' lives should be better than theirs. Due to a generational gap, many believe that 4-year college is the only way to achieve this. It's not.

    Second, employers are placing too much of an emphasis on college graduation. In my time being unemployed I saw many job openings; some of which didn't sound like they would need an applicant with a 4-year college degree, yet for some reason a college degree was always at the top of their list of requirements.

    I have a feeling with the tightening economy we will see a dramatic turn from traditional 4-year colleges in the short-term.

    1. Yes and yes, I agree with you on both fronts.

      I think the reason some employers looks for a four year degree has less to do with the education the graduate received and more with proving the kid has the determination and drive to work hard in school to get good grades. A 3.8 GPA may translate into a hard working employee.

      If I were hiring, the ability to get work done is more important than formal education. But how do I know if a person in their early 20s with no work experience is able to get the job done? A college degree with solid grades is one positive indicator. I'd make every single new hire go through an internship first. An 8-week trial on the job would give a good taste of whether the candidate's going to be a good fit.

  5. Anonymous12/01/2012

    In theory, I'm all for spending and living very frugally. How's my life actually playing out? ...well, we've had fun and bought come cool stuff but we're hoping we can make our bills this month. I'm working on some hardcore budgeting now, after realizing the mess I created. :P Thankfully, our problem is just a drained bank account and not tons of debt.

    1. Debt is similar to weight loss, it's never too late to lace 'em up and go for a run. Or in your case, to rehydrate that bank account. The first step to making things better is admitting change needs to happen. Sounds like you are there.

      My order of preference for mounting that cash cow would be this:

      1) Save one thousand dollars
      2) Pay off all bad debt, like credit cards
      3) If your employer offers a 401K match, contribute the minimum amount to receive the max match
      4) If you have a family, take out a Term life insurance policy. Reasonable rates if you're under age 40, your family will thank you
      5) After that, it's up to you on best direction for saving and investments

      I'm rooting for you, make 2013 count!

  6. Well, I'm 61 and hopefully I won't be in diapers til I'm 80... ;)

    1. I'll be happy just to be alive at 80, with or without Depends. My family history shows we pretty much crap out around 75.

  7. I feel like it depends on the college. I have applied for a ton of jobs that required masters degrees or more, even though the job description doesn't seem to demand that much education. So, in a way, it may be on the safe side to get a four year degree (at least) even though it may not seem to benefit you right away. Especially because you don't know how your future will play out.

    However--choosing the right college may be the make-it-or-break-it decision here. Will you choose a local state school or community college and leave with a degree and minimal debt or will you choose the out of state private institution and leave with the same degree and over $100K in debt?

    In today's economy, I feel like there is soooo much wasted money in degrees.

    1. High schoolers (with help from their parents) would be wise to figure out what they want to do for a living by the time they're in 11th grade. I used to think like this:

      "It's okay for students to not know what they want to do for a living until they are two years into college. Give them time to decide what direction they want to take in life, then pin down their major."

      I've changed my thinking on this and now strongly believe kids need to firm up their plans well BEFORE they start college. Doing so makes it clear what degree they'll need to work for, which helps direct the college they should aim to, which makes it easier to know what scholarships to apply for in high school. I know this is easier said than done, but do you agree?

      My daughter is only 10, but we already talk about college. We discuss what she's good at, what she's not so good at, and what are some possible occupations that will line up well with what she enjoys. She likes the idea of being a teacher. I think she'd make an excellent one, and won't be surprised if she goes for it in 8 years (4-yr degree required).

  8. Anonymous12/01/2012

    I must admit that I am pretty sour on the whole college education thing right now. For the short version, between my husband & I (we're around 30), we have almost 4 degrees. Guess what...we are struggling majorly! My profession does not pay much and I work like crazy. My husband's degrees have not made "climbing the corporate ladder" any easier, as he unfortunately, has not really climbed the ladder much at all in the last few years. This is not his fault, as he is an excellent worker. I think a lot of this has to do with our crappy current location, but, nevertheless, I will not be pressuring my children to go to college. I'd be working less & making a bit more money if I were doing something that didn't require a 4 year degree (such as personal training, hairdresser, etc).

    1. Are some of the things you listed that would pull in more money, such as personal training or a hairdresser something that would interest you? If so, why not make a change and go for it?

  9. Anonymous12/02/2012

    So also reading since YHL intro. A varied portfolio...isn't that what is said over and over and a owning a home is just one piece of it. It is still the best way for people making a median wage to profit. Savings are not earning much, the market can tank any minute...a home that you care for and can afford is still the best investment. In upstate have been on the market here for over a year, but that (under 200,000) that are well cared for are selling sometimes in days and are making a considerable profit still.
    And, I totally agree that college is not THE answer. Being an educator, I don't think we are the ones hyping the college train. We know WAY too many kids working retail with 4 and 5 year degrees! The folks that I see getting jobs these days are those with a skill to offer. I work with adults (18 and up) getting retraining and they are getting good decent paying jobs...and better yet, that most of them enjoy!
    And lastly, moderation is the key to happiness. You know this, write about it constantly. Take a vacation. Memories are priceless and it might be all you are left with. My parents scraped and saved, the stories I could tell, for those golden retirement years and then, chronic illness arrived and along with it, bitterness for the remainder of their lives.
    Be present in the moment...prepare for the future...treasure the people who matter.

    1. I agree with you on diversification, investing 101 says don't fry all your eggs in one basket. Spread them puppies out so if one part of the market sags, hopefully your other eggs are safe in other parts that are on the rise.

      However, I'm not sure I'd agree that owning a home is the BEST way to make a buck. I've been in a brick ranch for 14 years, the housing market is all over the place but generally we'll come out ahead. A house very much makes sense as a tangible asset we live in each day, but there are other ways to make a greater raw profit. My Apple stock, for example, is cooking along nicely at 100% profit, and I see it going up even more in the long run. Plus it won't need a new roof on it next year like my house will.

  10. I, too, have been reading since you were featured on YHL and love to hear your take on things. My husband and I paid our home off in 12 years by restricting the size of our home and being reasonable about what we put into it. Now we own it outright and last year we paid for a major renovation to add an elevator and master bathroom and put in hardwood on the main level. The elevator was for my bad knees but it came in handy this summer after I had a triple bypass. We believed in minimal debt when we were first married and now we do not owe anyone. We do use credit cards but pay no fees and pay them off each month plus get benefits such as gas cards so essentially we are getting paid to use their cards. But our lives are not all saving. As a matter of fact, I will be retiring in 2013 at age 55. After the heart surgery I made the decision that I want to enjoy life more now and spend more time with my mom who is still very active. I can also do more work with my church and volunteer work in my free time. We have dilligently saved over the years for our retirement and are looking forward to enjoying our later years. I like your thinking and wish you the best in your future endeavors.

    1. Thanks for reading. I was getting bummed and nearly shutdown B&P at the one year mark since nobody was reading the bloody thing. Then YHL helped me out and the blog's finally getting some traction. Readers like you motivate me to write more.

      I was hoping to have my house paid off around the same time you and your husband did, a dozen years. But divorce wrinkled the plans a little, so I've got a few years to go yet.

      Working towards a high dollar amount in my retirement account sounds appealing, not so I can spend wads on a large house or travel later on, but to do as you are and have the option to retire early if I choose. Then volunteer, spend time with family and have freedom to do what strikes my fancy. Money doesn't buy happiness, but it certainly increases flexibility.

      I'm glad you shared your story of smart spending and aggressive saving. Now go reap your harvest!

  11. Anonymous12/02/2012

    Owning a home. Very situational. It's a good path if (a) you don't have existing competing debts already, (b) are stable with your finances - good credit history, steady employment, responsible, (c) understand and acknowledge that owning a home goes beyond paying the mortgage - it also means keeping the property up-to-date (inside and out), fixing things as they break, addressing short-term and long-term needs and budgeting for them, and (d) don't buy beyond your means (aka, don't forget that a larger house also means more $ to heat and cool it, more property tax, and more opportunities for more things to go wrong - not to mention more to clean, maintain and space to fill). I'm a homeowner and while I do love it and am glad I did it, it is work! :)

    College. Less about the 4-yr degree and more about honing valuable skills, whether through community college, universities, grad schools, apprenticeship programs, etc. Skills pay, degrees don't. How well you perform those skills will influence opportunity, salary, development, growth, etc. The key is to never stop learning. A degree might get you in the door (quicker), but what you offer on the job is what will determine your worth.

    Another rant. I especially shudder when kids enter college not knowing what they want to do so they spend several thousand dollars a year trying to "find themselves". WTH? My parents would have freaked had I done that. I graduated with a 4-yr degree in 3-yrs. Believe me, it can be done. One of the best decisions of my life. My advice is for students to put some thought into this well before they hit that first year of further education - what are you naturally gifted at, what are you passionate about, how do you intend to live your life, what goals do you have in life, do you want a family, does that change your educational pursuits, and the list goes on...gosh I'd love to mentor young students on this stuff!

    Save vs. spend. Tough balance. Like your approach. Pay into nest egg regularly, much as you would a monthly bill. But also live for experiences, memories and yes, even stuff, once in a while. I want to pass on knowing that I really lived, touched lives and hopefully left a positive mark someplace on this earth. If I'm lucky, as I hope to be, I want to be able to gift my kids with a little savings too, with the hope that they'll have the good sense to pay it forward by following suit someday for their family. What a different world that would be!

    1. Yes, all that.

      Homes are far more expensive to run than most people expect. Utilities, taxes, yard, insurance, furnishing and maintenance. Even on a new construction home, expect to fork over a dirty wad every so often for big ticket items like roof replacement, paint, siding, windows and a remodel. That's why I disagree with the commenter above about a house being the "best investment." Stocks blow homes outta the water on return in the long run, at least mine are so far.

      College is about the degree for certain professions. A doctor, lawyer, engineer or architect probably justify the high cost and number of years of training. I don't want a 2-yr degree doc' cutting on me.

      Save the amount needed to achieve the magic number to allow you to retire early and comfortably, but don't perpetually forsake a good time now in the name of delayed gratification.

      Good stuff there, thanks for the note.

  12. I am also an YHL reader, love your style. My husband has a 4 year degree and does he use it, nope not really. I don't have a degree; I have on the job training. We are lucky enough to have our own business (that he gets run at something he loves doing) and I have a gov't job that provides all of our benefits. My point being, that you are right college isn't for everyone. Sounds like you might be a Dave Ramsey listener? That is our next goal pay off that dang house!

    1. I read and listen to a lot of money sources, Ramsey is one of them, but I railed on him here. His advice to cut up credit cards and use debit cards is dumb for a couple reasons. He's correct that people that don't know how to use plastic shouldn't use, but for responsible spenders, credit cards provide far greater online security than debit cards. And I get hundreds back each year in rewards for paying on time each month.

    2. I agree with you on the credit card bit, we still have ours and plan on keeping it. We don't go and buy up 15 Happy Meal and Big Screen TVs on it every month. We are smart with our money and wouldn't be in the position we in if we weren't.

  13. Melissa12/03/2012

    In response to the comments about knowing what you want to do before starting college...I have to say "kind of." I entered college (4 year degree) with a profound love of biological sciences and a plan to become a high school (or middle school) science teacher. Fast forward a couple years to student teaching and I realized quickly that it was not the right choice for me. I didn't realize this until I was in the classroom. I was still in school (junior year) and was able to shift gears and focus on botany and the environment, really finding my true love of wetland science. I've been extremely happy with my choice to become a wetland scientist working for a consulting engineering firm and have been with the same company since two weeks after commencement. I had to pay my professional "dues" for the first few years by performing emergency spill response work and environmental site assessments to keep my foot in the door and learn the regulations (no class can really teach that), but it was well worth it in my case.

    p.s. Some states (mine, for example) require a master's degree to, not always a four year path, though that doesn't hold true for private schools (but those are another nightmare altogether...).

    1. Well, I'm glad you identified the gap and changed direction midway through school, sounds like it turned out well in the end. I think in the majority of cases, kids can and should pin down what they want to do in life before they start college. Yes, they may make a switch later on, but hopefully the change follows a similar path (science in your case).

      BP oil spill cleanup?

    2. Melissa12/04/2012

      Thankfully, not BP oil spill cleanup big...mostly historical spills related to past manufacturing practices and/or old, leaking underground storage tanks. Lots of soil screening/sampling, groundwater sampling and evaluation. Also did a few years on an emergency spill response rotation that mostly supported the electric utility companies in my area (the cleanup of mineral oil dielectric fluid, almost always non-PCB, from downed transformers...downed thanks to storm events, drunk drivers, age in general...). I'm 100% wetlands and wildlife work right now and have been for several (5+...eek!) years, but I miss the historical research (loves me some old maps...) that was required for Phase 1 ESAs. Ah, good times. Holed up in the local library, paging through old maps, city directories, building permits, etc...

  14. To second Melissa above--in the county I grew up also, you needed a master's to teach.

    To guarantee return for your degree & get your foot in any door, I think you need to stick to the best universities nationally (I'll arbitrarily say top 40?) and degrees that impart unique, quantitative skills. At a good university, you will also develop a strong work ethic and learn to compete with the best. Fortunately, we live in a country where many state universities are top-of-the-line, so that should help keep costs down.

    What I struggled with: I wish I had thought about my future family when I chose my career. I have a lucrative job I love, but with that comes stress and, often, long hours. I know Beard doesn't approve of working mothers, but I really enjoy it and wish I had chosen a family-friendly career to allow for both parenting & working. Now, I'll probably have to choose between one or the other. Being a teacher or a doctor (with a flexible schedule at a practice) comes to mind.

    1. Wiping baby poo' and their tiny hand grab around your pinky finger beats a lucrative career. My daughter is the greatest gift I'll ever get. Love my job, but the fruit of my loins has a soul that will live for all eternity.

  15. Anonymous12/04/2012

    Another YHL reader who came here due to the link. Your kitchen turned out awesome.
    I come by your site every week or so but am considering I need to come more often as once a week puts me reading through your entries too fast - I enjoy your writing. Your daughter and your relationship with her is wonderful to read about. I am childless so I have no experience but I think you are doing a great job.
    You should consider reading Mr. Money Mustache - great blog on financial independence with a twist, it may not be for everyone as there are occassional swear words but they are used to make a punch.
    K, USA

    1. Heading over to infiltrate Mr. 'Stache now, thanks K!

  16. I agree with all you mentioned, especially "Give 'till it hurts."

    But my husband would agree even more which is why I only like you.

    "Soul that will live for all eternity." Yes! Way to be an inspiration to so many.

    I think one of many ways in which we are dropping the ball as parents is in not guiding our children better in choosing a honest, good fit for them. I don't buy into, "You can be whatever you want to be." What a lie. Okay, maybe I could be a brain surgeon, but I would hate it - the stress - the intricate LIFESAVING/TAKING details...not for me. And there is no way I would have been accepted into that career field anyhow, so despite me wanting to do it or even working hard, I simply would not have made it. I think we were designed with gifts and talents and strengths and that those may be how/where God is leading us. After reading, "Why you can't be anything you want to be"

    I realized what an important job I have in helping my kids plan well throughout high school so they know which direction they need to head in after graduation.

    While education is important to my husband and I (veterinarian, education degree/home maker), we are fairly certain that some of our children will be amazing in a trade, and one desires the Priesthood (I know, vocation, not career, but sort of still...). Anyhow, that son, 14 1/2, is about to start reading the book to help focus him better.

    I highly recommend it.

    1. ...well said. As parents, we should help our kids identify their talents and gifts, seeking ways we can water and grow those gifts now and later. Many 18-year-olds enter college with no idea what they want in life, perhaps because mom and dad didn't help them drive this from a young age.

      I like to think I'm not raising a little girl, but a future adult. So we start talking about some somewhat complicated, adult topics early on. She'll be ready.

      I'll put your book recommendation on my Christmas list, thanks CS!

  17. Anonymous12/05/2012

    Oh, Christina, I'm so glad you said what many of us think and can't articulate as well as you did. I soooo agree with you!

  18. Another YHL reader here. Been following your blog & really enjoy reading of your adventures with Pigtails & Curls!

    Couldn't agree more with you on your perspective on college...I have found that real-life work experience can often trump a clueless kid with a degree who doesn't know a thing about dealing with people, operating in a corporate environment etc. Employers would be smart to identify people with a great job history vs just a degree. I started working at a large IT firm, as an intern, a few days after I graduated high school (age 17) and have now been working in a corporate environment for nearly 10 years with no degree. Have worked hard, gotten promotions, and have a great job doing what some people go into massive debt for by getting a college degree. For specialized career paths, obviously college is a no-brainer...but if a student isn't sure, they should go WORK in a real-life business setting...

    Thanks for sharing your life with us!

    1. Nice, you forged a plan, implemented the plan and are getting it done. Feels good, doesn't it?


Thanks for the note, check back for my response!