Trading Up

The headline today (May 2012) read “Housing Market Recovery Gains Traction.” I guess that’s a good thing. It’s certainly good for anyone trying to sell a house or hoping that it will at least be worth what they owe on it. I suspect we’ll see more of those stories as time goes on and eventually (probably not for a very long time) we’ll see that home prices have surpassed their 2006 peak.

Don’t get too excited because, human nature being what it is, I’m sure people will fall right back into the trap of bad habits.

I wrote the piece below for a previous blog I ran in March 2006 (before the collapse) about why owning a home is a danger for some people. As long as you don’t get caught in this trap, you’ll be fine.

Trading Up

My parents have owned the same house for more than 30 years. My cousin owned her home for 40 years, raised her children in it and one of those kids will probably live in that house after she’s gone.

Modest HomeHave you ever heard of a mortgage burning party? Well, it used to be that people would buy a house and live in it until they died, working year after year with one goal in mind, paying off the mortgage. When the day finally came and the mortgage was paid off the homeowner would burn the mortgage as a final act of freedom. It was a significant event.

This has become rare these days as people continue trading up to ever larger homes with more amenities that end up costing more to maintain. It’s theBig House common roadblock to wealth – status.

It’s not a conscious thing. We don’t wake up one morning and say “I’m going to put status over saving today.” But when it comes time to buy something major like a car, you probably want the newest model with the most amenities and biggest engine. If you could get a Mercedes or BMW you would.

It’s the same with a home. You’re probably going to stretch to afford the most you can and, in time, when your financial picture brightens and you’ve built up some equity, you’ll want to upgrade. Never mind that you already have rooms that are rarely used or that it will cost more to heat and cool the house. No, you want a bigger house so that you can impress friends and family. Like I said, this might not be a conscious decision but if you would just ask yourself the question “is it really necessary for me to move” you’ll be surprised at the answer.

We do this all the time. Do you really need that new DVD? Do you really need that new grill or would a bit of cleaning work just as well and save you hundreds of dollars?

Yeah little things add up but big things add up quicker. So stay in your current house a bit longer. Keep that car for a few years after you finish the payments. It may be a subconscious thing, seeking status, but you can make a conscious effort to fight that urge and do more by spending less.

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Stalking Your Money

Being successful simply is not possible if you don’t have your finances under control. I’ve said it before and I’ll say it again, success is not determined by how much money you have, there’s a lot more to it than that, but how you use the money you have plays a big part in success. If you’re playing catch up but never make progress, are in debt, or simply don’t know where your money is going, you’re putting yourself at a disadvantage.

In a previous post I made it clear that budgets often don’t work and that you will be much better off if you tracked your spending. If every transaction is accounted for then your budget is taken care of. You know exactly where your money is going and how to make adjustments.

The video below is a follow-up to a previous video and will show you how to use Quicken personal finance software to begin keeping track of your spending. If there is anything you resolve to do in 2012 make it tracking your spending. Here’s to a very happy and successful New Year.

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Functional Financial Illiteracy


New York Stock ExchangeAsk anyone and they will tell you that it is very important to understand your finances, to be smart about your investments. Those same people, however, often are not knowledgeable about finance and investment, if surveys and polls are to be believed. One study published in December 2006 states: “Our review reveals that many households are unfamiliar with even the most basic economic concepts needed to make saving and investment decisions.” (emphasis added)

You simply can’t ask What Next without some level of financial literacy.

The media  seems to work hard to educate and inform us. Money Magazine, Smart Money Magazine,, and CNBC are read or watched by millions but can they be trusted? When the headlines on the covers of the magazines are things like “Top Mutual Funds for This Year” or “What the Market Will do Next,” they cannot be trusted because no one can predict these things accurately. When CNBC holds a “Million Dollar Portfolio Challenge” and rings the closing bell of the stock market to promote their casinoization of investing they lose any credibility they had.Roulette

The language of investing perpetuates the gambling myth. A stock that does well is called a “winner,” an investment recommendation is called a “hot tip” as if it were a horse running in the third race at the track. No wonder planning for the future is called the “retirement game.” The stock market, investing in general, is not a game where, if the “player” gets lucky, he can beat the house.

Asking What Next takes a much different approach to investing. It’s systematic, researched, and individual. Investing with a What Next outlook means weighing options, understanding that an investment in one area often precludes an investment in another area, recognizes that it’s folly to attempt to do better than “the market” when the market is made up of people all trying to do the same thing. For me, educating myself meant pursuing a career change into financial planning. That was a bit extreme. For most people, seeking the advice of a financial planner would suffice.

Asking What Next is only the first step. Understanding What Next requires work.

ConfusedMany people making financial decisions are functional yet financially illiterate. It’s time to change that. I’d stop treating investing like a game by avoiding the “Million Dollar Portfolio Challenge” and start educating myself on a reasoned, systematic approach to the future.

In my opinion your best resources to educate yourself and take a What Next approach to your finances, investments, and retirement planning are the following. Watch an episode of Til Debt Do Us Part on CNBC then check out Gail Vaz-Oxlade’s website. I’m a big fan of The Coffeehouse Investor both the book and the website – check them out. Of course there’s always my book What Next A Proactive Approach to Success – I’m kind of partial to that one (also available as an eBook).

A big part of What Next is taking action. Will you check out any of the above suggestions?

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