How to Afford Anything
kenrockwell.com
kenrockwell.com
Incidentally, for those interested in photography I wouldn't take this guy's photo advise either. The guy lacks depth in understanding and sometimes makes statements that are just ridiculous.
That's just a contradiction, not hypocrisy.
Anyway, my point was that his recommendations are not worth much.
It's all about what you care more: the nice pleasures in life, or the big stuff you are waiting for. Personally, i don't think his approach differs much from someone who is a spender, it's a matter of what gives you more pleasure in life. For someone who cares about the nice add-ons like driving a car which is expensive to mantain, but gives you the joy, it's the same clever/stupid thing as saving for a camera. You could say buying one expensive product per year and living lower standard every day is irrational. YMMV, and that's it.
Oh, and if someone feels offended that this dude calls other stupid - he's quite known in photog online community for such statements.
Besides that, some points can be useful for someone who isn't a spender by choice, but because he cannot manage their daily spendings.
By his own admission, purchasing a condo and riding it up to the very top of the largest real estate bubble in history netted him only a 1% return. Any other market at any other time would likely have netted him a loss on that purchase.
In a non-bubble market, I wonder how much more he would have gained by renting that very same condo and investing the difference instead?
Renting is just like insurance, you pay a premium so that others take the greater financial risk: You're not tied down, you can move anytime, and you don't have to care about the housing market or interest rates. For some people this is worth it, for some it's not. Your mileage may wary.
The only other problem I have with his text is that he seems to suffer from analysis paralysis by not buying a computer for years since they drop off in value so fast. There's also a value in having a computer, or whatever other item, in that time.
Yes, if you wait one year you'll get a faster computer than what you can buy now, but you'll also be stuck with your current computer for one more year. How much does that cost? Sometimes you just have to suck it up.
This is why I still enjoy, and buy games for, my (refurbished) PlayStation 2 (actually, I still play games on my SNES too). My workstation was dated, so I built a new machine with parts just below top-of-the-line (Core2Quad rather than i7, 600 GB instead of 1.5 TB hard drives, for example).
The advice in the article about new cars is valid; new cars depreciate as soon as you drive them off the lot, because then they're "used." You might get a nice warranty package with it, but you can get extended warranties for used cars from certain dealerships.
Spent the money saved on high quality Power supply, case and motherboard.
The next upgrade is a top-of-the-line Core2Quad when local distributors slash prices on those to dump their old stock.
I'm aware there is a trade-off in Electricity consumption Edit: technical typo
More seriously I have a PS2 and a printout of the top 25 games for the PS2. Whenever I think of a new game system I can just look at that list, buy any one of those games for extremely cheap and have a ton of fun. (The good SNES games on ebay are a more expensive, but still $10-$20, Chrono Trigger was a bit more...)
Right now an average sized house is about as much to rent as it is to buy with a mortgage (at least here in the UK anyway). There is no sane way anyone should be renting a whole house.
I should have mentioned; my calculations included most of those extras. To be honest, though, the only important thing is what you are paying out in total each month.
Your scenario assumes that (1) he could rent the same or an equivalent property for much less of cash outflow than buying and (2) he could have invested the difference in some other asset that had a much higher return than appreciation of the condo.
If the amount the rental amount is about the same amount as the mortage payments then you are almost certainly going to be worse off renting than buying under average market conditions.
Of course he could. If your rent is paying your landlord's mortgage, you're overpaying.
> and (2) he could have invested the difference in some other asset that had a much higher return than appreciation of the condo.
Finding an asset with a better than 1% return is not difficult.
> If the amount the rental amount is about the same amount as the mortage payments then you are almost certainly going to be worse off renting than buying under average market conditions.
If you're wasting your money by paying your landlord's mortgage, you're going to be worse off than if you refuse to waste money and pay a reasonable rent. Renting is cheaper than home ownership; if it's not, you're doing it wrong.
When I'm going to be somewhere long-term, or at least have a flexible schedule for moving away, I'll want to buy.
Over here (Uruguay), rents are way more expensive than an equivalent mortgage... simply put, people (myself included) don't have capital for the down payment (and the mortgage process is expensive in itself, at least U$D 1000 which is not a small sum here), so they don't have an option - it's renting, or the street/slums.
And no, there are no "no capital down" mortgages.
I'm not sure how long you have to stay somewhere to hit the break even point.
http://www.nytimes.com/interactive/business/buy-rent-calcula...
A lot of people believe they can't afford nice stuff, but often it's simply a matter of priorities and analysis.
Each person has to decide which things are worth splurging on. But the answer can't be "everything." Keeping your expectations low in some areas is a good idea - and if those areas are expensive ones, like car and house, all the better.
All around, good advice--but don't use fast food as a way to slim down the budget.
His best advice is probably to avoid eating out in general.
Kudos for not letting the will to frugality operate at the expense of others.
The money saved is incredible and you cannot put a price on the health benefits.
Then again, they may not. But it should be considered. One strategy would be to find the job, then move to within a few miles of it. But again, do the real estate costs of living there outweigh the gains? It's complicated.
The health benefits are probably the only really clear part. :) And no, you can't put a price on that. (Unless a gym membership would be equivilent...)
Car is just like another family member in terms of expenditure and long distance commute by car can be a real time sink baring audio books and pod casts.
I love reading Ken's articles. He talks about the weirdest things.
Of course, that means you're not subject to U.S. income tax, but you might be subject to some other country's income tax depending on where you spent your time.
I've met people who work on offshore oil rigs who have (claimed to have) avoided taxes this way, but apparently it is a recipe for an almost guaranteed audit. YMMV.
If you earn more than, I think, $86k outside the US, as a citizen, you have to pay income tax.
And either way, you have to file. The law even says you have to file for 10 years after giving up your citizenship!
The US sucks.
Then there's state tax. And oh yes, if you move overseas, you have to be very careful in arranging your affairs if you no longer want to pay state tax. If you want to vote, for example, you must have residence in a state. If you have residence in a state that has state tax, you have to pay.
So we're looking at a base mix of say 35%-45%, depending on how tax-crazy your (former) state is...
And for that, what do you get? Nothing. Not healthcare. Not unemployment insurance.
In Austria, we pay about 55% - but! - that includes very good healthcare, unemployment insurance (even for self-employed), guaranteed maternity/paternity leave, guaranteed housing if necessary (in a place you'd be happy to live in, with gardens and trees), pension, free higher education including in the fields of medicine and law (student housing and stipends!), and a lot more awesome stuff.
I used to pay $600 a month for my American health insurance and still ended up paying $2k when I sprained both my ankles and required several braces, crutches, an ER visit (which took HOURS), and physical therapy. Having used the Austrian system extensively since I got here, I can say that it is better in absolutely every way, even compared to the experience a moderately rich American can buy in the US.
Of course both countries allow substantial tax deductions for the self-employed. Deductions in the US are marginally better.
Oh, and what if you want to start a company? Or especially if you're unemployed? It's easier in the US, right?
Actually, Austria will extend your unemployment benefits and suspend your social insurance payments for an additional 6-18 months if you want to start a business.
The myth of American tax superiority is untrue, except for large corporations, and people who can afford and have the balls to maintain genuine tax shelters.
Oh yeah. And if you are an Austrian citizen who leaves the country? You don't have to pay taxes. Not even to vote.
The taxation pain point in the USA occurs when you make about $85-$100K (the same salary range as most nerd jobs). You get taxed the same as someone who makes $170K but definitely do not feel like you have the same spending power. It's also a bracket that is not a much lower tax rate than someone who makes $370K. There aren't that many visibly obvious social services available to someone who makes $85K so the taxes can seem like a rip-off.
In Austria, a person doesn't even pay taxes until they earn over 1200 euros a month. Until the whole silly Greek affair, that was the equivalent of $21,000 USD for an individual.
And... they still get retirement, maternity leave, unemployment insurance, free childcare, and great health care.
Not to mention, despite a 20% sales tax, raw food ingredients in Austria cost less than the equivalent I paid in Maryland 2 years ago when I left.
Additionally: Healthcare in the US is a hidden tax.
Yet more, how many people do you know who receive social benefits in the US? I have known quite a few, most notably a woman who was deeply involved in an abusive church and marriage and had 10 children with her husband before realizing she was in a very bad situation. Her family and his family disowned her, and what did the government do? Denied her food stamps. A woman who hadn't worked since she was 18, had no college, and 10 children!
So yes, I think paying 50% to Austria is actually cheaper than paying 40%+ to Uncle Sam, while also having to pay $600/mo for COBRA because I was denied by private insurance, and still hoemmorhaging money when I hurt myself. US taxes? Really not that low.
Except, as I said, for the very rich, and the large corporations, and people who can afford/have the balls to maintain genuine tax shelters.
When I was leaving MD, after I'd emptied my cabinets of everything, a friend got sick and I wanted to make him cookies. The ingredients for cookies from scratch - a pound of sugar, flour, butter, baking soda, baking powder, 6 eggs, milk, chocolate chips and 1 pack of jell-o vanilla instant pudding mix and one 20 oz bottle of Diet Coke cost me $57.81. At SAFEWAY. Not Whole Foods, Graul's or any fancy store. SAFEWAY.
I still have the receipt, pinned up as a reminder.
Don't worry about being embarrassed [about what you own]
I have always said this, and it may not be 100% correct, but:
The rich don't need to buy things to impress the circle they live in. They are already rich and don't need to prove it to anyone. Wasting money trying to "keep up with the Jones'" is, oddly, a sure way to lose money in the end.
The irony is that their last name is actually Jones.
So he obviously isn't taking his own advice. Maybe he could have posted tips on how to raise children cheaply instead of discouraging having them at all.
He does not, in fact, claim to have optimally implemented his own suggestions :)
Friends think we 'have money' because of the cars, but they don't realise that both cars are probably worth less than what they have lost in depreciation in the last two years on their own cars.
But I stress the major reason for owning these cars is because of the superior build quality, safety and features as compared to other cars in a similar price range.
Maybe in the US the bigger factor in maintenance is labor rather than parts, so the difference between a better and a cheaper car is not as much? And I understand that government doesn't punish displays of wealth with heavy taxes as much.
In places like the USA, a 10 year old Merecedes is probably worth 10% of it's original purchase price, but if it has been treated well (and continues to be treated well), is probably only 50% through it's useful service life. The sweet spot is probably at about 6 years old and 60,000 miles, when most buyers would stop considering it as an option. Buying them at about that age and keeping for 5-7 years is my advice, if you know how to sort the pearls from the swine.
The big cost for keeping old prestige cars on the road is a combination of parts and labour, but labour is pretty much the same for all cars (assuming you stay away from the dealer). Finding used/cheap parts and/or doing some of the work yourself is the best way.
I don't ever want to live anywhere where 'displays of wealth' are punished. I'm not rich, but I have no beef with people who are.
In terms of safety, the standards have gone up significantly from where they were 10-12 years go.
And even when an old premium car matches new run-of-the-mill vehicle in terms of safety technology, both passive and active safety features detiorate over time: body looses it's rigidy, original air bags unless replaced which is costly are much less likely to work properly after 8 years or so.
Cars heavily rely on electronic and software and becoming as transient as any other gadgets.
My advice:
- don't buy new, 3-6 year old car is a much better value
- exclude makes and models that are not routinely sold with 160K miles on a clock.
- go for a used car with high freeway, motorway, autobahn mileage (ca 20K miles a year), i.e. 60K-100K overall depending on a year. They are cheap and still very reliable.
- Regardless of car age, don't buy a car made during first 3 years of model production, i.e. before the first major facelift / upgrade. Cars are just like any other product and it takes about 3 years for a "service pack" to be delivered to a market.
- Another benefit apart from reliability of getting a car towards the end of the model lifecycle is the number of extras you'll be getting for free as standard.
- Have a clear exit strategy: sell before a major maintenance is due.I disagree with this strongly. The chassis stiffness and integrity in a BMW is engineered in - try opening the window on a BMW and 'squash' the window opening. It won't budge. Try doing the same thing on a japanese or korean car - it will easily bend to your arm. Same goes for suspension systems. Many BMWs run a full-subframe aluminium carrier for the suspension systems. These are lightweight, strong and isolate road bumps and NVH from the main body. They also last a very long time, unless abused or crash damaged. None of these features are in cheaper cars even today, even if the cheaper ones are stuffed full of airbags.
As for airbags - they run self-test systems each and every time the car starts up, so you can tell if they don't work. A friend of mine recently crashed a 15 year old Honda - and the airbag worked just fine. These are seriously engineered active safety systems designed to work decades after being installed - they're not like the battery in a Nintendo. Every single electronic feature in my 14 year old BMW still works like new, from the sat-nav to the mood lighting, the auto-dim mirrors to the electric memory seats.
Also take body integrity - BMWs and mercedes generally use a double-sealing door seal, and a closing latch strong enough to pick up the whole car. Again, not repeating on new, cheaper models. They're also hot-dip galvanised when built at the factory, so rust is never a problem unless you have poor treatment or crash damage.
I could go on all day. If you've spent serious time underneath these vehicles, the difference in engineering is night and day with built-to-a-price cheap cars. Also, take a wander around a salvage yard where some crashed vehicles are. That will salve your doubts.
So you go to a walmart, see the elderly greeters at the door, feel sorry for them, then walk miles just to get the one thing and get back to the cashier to stand in a line...
vs.
You drive near a boutique, you get real personalized service, there's someone to help you all the time if you have any questions, the surrounding is a lot nicer, the whole process of buying that thing is much faster and much more comfortable.
Saying that people who shop boutiques to buy the same things are stupid just conveys a message that you are too constricted in your own scope of cheapness... And that's maybe a bit stupid.
Questions? Nah, I've done my homework already, and the answers didn't come from salesmen.
Faster? How does all that chatting, questioning and soaking up the ambience speed up a purchase?
'Buying' is swapping money for something you want. 'Shopping' is that too, plus all the things you mention, at a premium. His article on being frugal provides the context for applying the label 'stupid' to those who choose the latter - it is an unnecessary addition that costs money. If that extra is worth it for you, great, knock yourself out, but be aware that for people who don't think it's worth the cost, you'll always appear 'stupid'. (Just as they'll appear 'cheap' to those that think the extra is essential.)
Edit: PS: Did anyone else have the words "Yoink! You fat-cats didn't finish your plankton!" pop into their heads during reading the article?
What's wrong with that advice? It's an American thing that kids need to move out on their own at 18. My wife's culture sees that as rather harsh. She lived at home until 28, when at 27 she married. Her older sister lived at home, sharing a room with their younger sister, until she was 25 (I think), when she finally married and moved out for the first time. Her husband lived at home with his parents in a small room until he got married as well.
I was the odd one out, being American, and living on my own.
The entire family support structure is there. Living at home has many benefits. They were able to go to school, focus on their education, and their career early on without having to worry about paying lots of bills and taking care of their own house.
You'd think they wouldn't be ready for the real world, but you'd be wrong. In my brother-in-laws case, he had bought a house at about 20, and rented it out. This was done with his money, that he had saved, because his parents paid for everything (with some fun and interesting conditions along the way). But the house was bought, and rented for many years before they moved in after being married.
My wife and I benefit equally in many other ways from this close knit family life. We have day-care providers next door: family we can trust. Family is close, and we get the benefits that entail.
Sure, their are downsides, but overall, it's made me realize how harsh the "American" view of an 18-year-old's responsibilities are. If anything, it does less to support them in the long run.
No, living with your parents isn't bad. My wife has cousins in their 30's that are still living with their parents, preparing for marriage. A couple are preparing to move out, as they haven't married yet.
It's a different culture, for sure. But it's not as bad as it seems. I thought it was odd when I first saw it first hand, but after years of seeing the results, I can't help but think that throwing kids out at 18 is by far the weirder approach.
> I mean, he's advocating all this extreme frugality as a way to afford camera gear, right?
No. He's advocating all these ideas as methods you can use to obtain the things you really want.
> I mean, he's advocating all this extreme frugality as a way to afford camera gear, right?
I don't think that word means what he thinks it means. Caffeine is a psychoactive drug (so is your antihistamine), but it ain't a narcotic.
How strange.
OP advises being able to afford anything by being "frugal" and then claims to know what women care about. He must not be married.
I agree with much of OP's advice. Just be aware that the quickest way to stop following it isn't loss of discipline but falling in love with someone who doesn't want to live that way.
Marrying smart means to marry someone as cheap as you are.
That would require me to marry someone from the intersection of the sets WomenWhoWouldMarryMe and WomenWhoAreAsCheapAsMe. I suspect that the population of that intersection asymptotically approaches zero.
As for need, that obviously varies from person to person.
He addresses this specific issue further down.
Not when you're married, no... but when you're single? It's taken as an indicator of your wealth and status (whether consciously or not).
It gives you a step by step process to take control on your expenses, and then to move towards financial independence.
I read this book 6 years ago and it is still the most influential financial book I have read since.
I mean I'm all for living within your means and planning and frugality but seriously, don't eat out except for the cheapest fast food around? That's the wrong way to go about it. Upgrade your cash flow, not downgrade your life.
Yes, but on the other side, that "decent job" would (probably) significantly reduce the free time he can commit to photography. As one famous writer (or was it a philosopher?) once said that he don't have time to make money. ;-)
My read is completely opposite, he is sacrificing free time and freedom in order to obtain cash-flow. Specifically he is constraining himself to living within 10 miles of employement, and spend 2x as much time commuting to bicycle to work than take a car. He suggests spending time shopping, cooking, and cleaning to eating out (perhaps 2x the time of eating out, 10x time of fast food).
As with you I really can't argue that this is a wrong choice, but I will argue that this is not an honest argument. The cost of his frugality, in terms of time, is something never mentioned throughout the article.
I'd say those are more of a lifestyle choice than a sacrifice. He's prioritized free time and freedom to enable that lifestyle. It may look like a sacrifice to some but it's part of happiness for others.
I’ve been talking to a friend of mine
He says making money’s just a waste of time
He’s a lazy gent, he don’t pay no rent
He’s all bent out of shape from living in a tent
...
One for a nickel and two for a dime
Time may be money but your money won’t buy time the sun on the moon, the sun on the moon
the sun on the moon makes a mighty nice light
the sun on the moon my man,
ooo, bow wow wow, honk your horn
> ==Live with Your Parents==
> I'm serious: This is what I did!
My gf, who is Chinese, would love to live with her parents (thankfully she is even cheaper than I am). She nags me constantly about the $500 we pay our landlord every month for our apartment. Unfortunately, I was raised in the US where living with your parents after you graduate from school is a social faux pas.
Would you say that an undeveloped greenbelt around a city is wasted?
Empty space in a house is both an option and space. The latter is quite valuable.
Also, some people value the privacy.
The disconnect here is that what people HOPE to use is not what they are using in REALITY. Buy what you expect to use immediately or in a definite foreseeable future with a timeline. Get rid of things that merely represent possibilities; in many cases, those things become obsolete anyway. You might as well try to get a return on your investments when others might find immediate value on them.
When it comes to square footage, this is like any other investment on potential. If it is not exercised, then it sits there, taking the extra heating and cooling, adding to your taxes, and so forth. Buying bigger than you need has more costs than the initial sale. A good budget keeps in mind all these flows.
In other words, they derive intangible value by keeping that possibility around, regardless of how often they may actually exercise the option it gives them, if ever.
Many people have vacation homes or own boats that they rarely use, and could probably rent (on an as-needed basis) more cheaply, but the value to them is not simply in their actual use of the house/boat/whatever, but in the ownership itself. They derive value and enjoyment simply from the knowledge that they could go use the house, or take out the boat, whenever they wanted, even if they don't actually exercise that option very often.
It may not be a wholly rational choice when viewed from a purely economic perspective, but that's because humans aren't anywhere close to rational economic actors if you fail to take into account intangibles.
You're ignoring the intrinsic value of space, the value of privacy, and so on.
That's why I asked about a greenbelt around a city. It's land that just sits there, yet people seems to value that.
I could cram all my stuff into about 1/4th the space. It would be quite busy. Space makes it tranquil.
Actually, my parents would probably love me to move home because I cook sometimes and because I buy better beer and coffee than they can bring themselves to pay for.
I suspect a large part of the reason is that these millionaires are, for political reasons, whether in politics or not, showing that they buy American. Or, they need a truck for their small business.
Probably this attitude had helped him get where he was.