How to Afford Anything

http://www.kenrockwell.com/tech/how-to-afford-anything.htm

by sajid • 16 years ago

140 118 16 years ago

Alleyfield2• 16 years ago

We love Wal-Mart and Costco. They have the best prices on almost everything. We're not afraid to admit it; we think people who shop boutiques to buy the same things in fancier surroundings are stupid.

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.

getonit2• 16 years ago

Personalised service and nicer surroundings? Meh, I just want to buy stuff. If I want to hang around chatting to people, I'll go to a bar.

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?

Alleyfield2• 16 years ago

The point I was trying to make was that accusing someone of being stupid for shopping in boutiques tells more about your lack of perspective for other people - which is one definition of one being stupid.

zalew• 16 years ago

TL;DR: be a cheapo and then bam! buy sth expensive.

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.

charleso2• 16 years ago

I was more-or-less with him up until the "Don't Rent" advice.

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?

henrikschroder• 16 years ago

Agree, I would much rather rent my apartment if I could, but the way the market looks here it's not an option.

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.

billybob6• 16 years ago

Agreed. Better advice would be "stay behind the curve." Right now, if you want a Wii, it's expensive. If you're happy playing Playstation 2, it's cheap. A Wii will be cheap 5 years from now when something cooler is out. Same kind of thing applies to computers.

ErrantX3• 16 years ago

From a new-buyers perspective (i.e. my own) this is actually good advice.

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.

charleso2• 16 years ago

If, on top of your mortgage interest, you add in property taxes, property maintenance (2-5% annually?), brokerage fees and the gains foregone in purchasing property rather than bonds, is it still good advice?

muhammadatt• 16 years ago

Even if he suffered a loss (i.e. if the appreciation in the home value was not enough to offset his accumulated outflow of principal and interest) it probably would not be as much as he would have lost by renting.

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.

jemfinch3• 16 years ago

> Your scenario assumes that (1) he could rent the same or an equivalent property for much less of cash outflow than buying

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.

arghnoname2• 16 years ago

This is probably generally true, provided that you reside in the property long enough to recoup the rather high transaction costs. I did the math on purchasing recently and given how long I expect to be in my current area, the math doesn't add up, even assuming relatively low upkeep costs.

I'm not sure how long you have to stay somewhere to hit the break even point.

ebiester• 16 years ago

Rent versus buy is a function of how long you plan to stay in the property. If you know you're going to live in San Francisco for the rest of your life, buy as soon as you can and rent out any rooms needed to make it possible. If you plan to follow opportunity where it leads, you'll never want to buy.

jsiarto• 16 years ago

Not to nitpik this, but I don't consider eating off the dollar menu at McDonalds anyway to save money. In the long haul--that's probably what will end up killing you or at least racking up some medical bills. I'd rather spend 10x the dollar menu at a local lunch spot with real food that won't send me to an early grave.

All around, good advice--but don't use fast food as a way to slim down the budget.

jasonlotito3• 16 years ago

He doesn't suggest eating off the dollar menu as the way to save money. Rather, if you do eat at McDonalds, eat off the dollar menu. Subtle, but distinct difference.

jrockway2• 16 years ago

2000 cheeseburgers later, and you will have saved enough for that new laptop! Unfortunately, you'll be in a coma.

rationalbeaver• 16 years ago

Also, the food at the local lunch spot may be higher quality, but it is very likely to have tons of added salt, fat, oil, sugar and other deliciousness that is just as likely to land you in the hospital later in life.

His best advice is probably to avoid eating out in general.

edw5192• 16 years ago

...women don't give a crap what kind of car you have...

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.

elbenshira2• 16 years ago

Ken is, in fact, married, as you'll find out if you just read further down the article.

edw5192• 16 years ago

How'd I miss that?

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.

pvdm• 16 years ago

Married with 2 kids. Hypocrisy.

jasonlotito3• 16 years ago

> 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.

He addresses this specific issue further down.

afterburner8• 16 years ago

"women don't give a crap what kind of car you have"

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).

billybob6• 16 years ago

Personally, I think women who are concerned about your wealth and status (beyond "he's not a bum") are too shallow to worry about, anyway.

rythie• 16 years ago

Well in the U.K. we have a very easy system that tells you age of the car based on the number plate. Despite this, very few women know the ages of the cars they see. If the car is clean and a good make, they don't know the difference. If not, a personalized plate hides the value to most of the rest.

aymeric• 16 years ago

I highly recommend the book "Your Money or Your Life".

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.

elbenshira2• 16 years ago

...the real deal now is get your 4 year degree then take a job on a big yacht as a mate. You will start at $60K/year (tax-free take-home) with room, board and uniforms included.

I love reading Ken's articles. He talks about the weirdest things.

lacerus2• 16 years ago

Can anyone confirm that this is even remotely true? $60K tax-free!?

Kadin2• 16 years ago

It's tax-free if you stay outside the U.S. long enough. I believe the limit is 10 months/year, but it might be higher.

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.

erlanger• 16 years ago

  > ==Live with Your Parents==
  > I'm serious: This is what I did!

How to save money: Spend other peoples' money.

garply• 16 years ago

That's not really fair. My parents and my gf's parents both have houses with empty space that we could live in that's not being used. Essentially the space is being wasted. I bet many people's parents have similar available space (probably left over from when you were a child and living with your parents already).

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.

anamax3• 16 years ago

> Essentially the space is being wasted.

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.

sailormoon• 16 years ago

All this pain to drop $2.5k per year on a Nikon camera? Dude, seriously, just take a few months and learn some skills at something, then get a decent job using them. You'll be able to buy a new camera every freaking month.

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.

greyman• 16 years ago

> You'll be able to buy a new camera every freaking month.

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. ;-)

dagw• 16 years ago

If you read the whole article you'll see that he doesn't want to have a normal full time job. I don't know what his background is but he claims he used to be making 6 figures, so he probably has some viable skills. He has intentionally chosen to prioritize free time and freedom over cash-flow. While I probably wouldn't make the same choice myself, I can't really argue that he has made the wrong choice.

brg• 16 years ago

He has intentionally chosen to prioritize free time and freedom over cash-flow.

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.

rbranson• 16 years ago

I agree, so many people spend so much time saving money, what if they spent that time building a business or educating themselves? There's a hard limit on frugality, but there is no such limit on building wealth.

patio11• 16 years ago

Frugality is a force multiplier for building businesses. I bootstrapped for quite a while before going full time. If I had more expensive "lifestyle" needs like a car (and loan payments), an apartment in a more exclusive neighborhood, fancy clothes, or what have you, I'd still be building someone else's business rather than building mine.

harpastum• 16 years ago

Reminds me of Sun on the Moon by James Taylor:

  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

houseabsolute• 16 years ago

    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

I know that song too, we should be friends. :)

username3• 16 years ago

Why won't money buy time? If I had money, I wouldn't have to work and then I would have time.

altano• 16 years ago

Obsessive frugality strikes me as antithetical to spartan living, a goal that may not be the authors but does seem to be what most here are interested in, judging by past submissions of the same genre.

gjm11• 16 years ago

I'd be more impressed by his advice -- in order to be able to afford anything you need, be frugal about what you don't -- if he hadn't happened to mention the time that his wife bought a house for $2.8M (and returned it, whatever exactly he means by that). If you can afford houses that expensive, your ability to afford nice stuff is probably not entirely the result of frugality.

kmt2• 16 years ago

And what about the hypocrisy of "don't have kids" combined with his "support my growing family" footer?

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.

bobbin• 16 years ago

> And what about the hypocrisy of "don't have kids" combined with his "support my growing family" footer?

That's just a contradiction, not hypocrisy.

nzmsv• 16 years ago

So apparently Coke still has cocaine, and most companies are big conspiracies... If you ignore the the tin-foil hat stuff though, there are some good tips in the article.

tome• 16 years ago

He didn't say it still had cocaine. He said the first half of the name "Coca-Cola" comes from cocaine.

santry• 16 years ago

And it once actually contained cocaine.

http://www.snopes.com/cokelore/cocaine.asp

imp• 16 years ago

I can't tell if he's joking or not. He has a section titled "Don't Have Kids," yet he has two himself: http://www.kenrockwell.com/about.htm

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.

mortehu• 16 years ago

On the other hand, he wouldn't be in a good position to make that advise if he didn't have kids himself.

callahad• 16 years ago

Not having kids is consistant with the goal of maximizing your personal time and disposable income, consonant with the brunt of the article.

He does not, in fact, claim to have optimally implemented his own suggestions :)

swah• 16 years ago

IMHO, there is good and bad advice there. I always liked how people seem to miss the "live slight below your means" insight.

ganley• 16 years ago

His calculations for the cost of commuting take a wrong turn (no pun intended) somewhere. A 40-mile commute is 10K miles per year, which at IRS mileage rates is $5K, not the $10K he cites. He gets this math right for the 20-mile commute, but somehow multiplies the cost by 4 when he multiplies the commute distance by 2.

cobralibre• 16 years ago

If you can't afford the tip, then you can't afford the service.

Kudos for not letting the will to frugality operate at the expense of others.

DanielStraight• 16 years ago

There's some good tips in there as well as some bad ones, but none of that is the point. The point is simple: spend money on things you care about; spend nothing on things you don't care about. The author doesn't care about eating out, but that doesn't mean no one else should. People are different. Any financial advice that doesn't take that into account is missing the point.

billybob6• 16 years ago

There's also the interesting idea of "don't disturb your contentment," to paraphrase. Drive a modest car and be happy; don't rent a fancy one or you'll start wanting it.

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.

tjmaxal2• 16 years ago

This is simply untenable for most people, and certainly impossible if we all lived like this.

BrandonM• 16 years ago

Really? Which parts?

tjmaxal2• 16 years ago

For starters if none of us have children then eventually we cease to exist as a species.

JohnFritzen• 16 years ago

What he mentioned about riding a bicycle instead of using a car is a huge win.

The money saved is incredible and you cannot put a price on the health benefits.

billybob6• 16 years ago

It sounds great, but like anything, there are tradeoffs. "What's the best-paying job I can find" vs "what's the best-paying job I can find within biking distance" are very different questions. The difference in income may far outweight the commuting costs.

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...)

Tichy• 16 years ago

Work+commute+gym is difficult to manage. There are only 24 hours in the day.

Unosolo2• 16 years ago

Ken lives in California. Climate, dress code, public transport availability, security - all are decisive factors when choosing a mode of transportation.

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.

afterburner8• 16 years ago

"When one group did a survey a few years ago, they discovered that the most popular car owned by millionaires was a Ford. Why? Simple: the people who still had and grew their money didn't waste it on luxuries to show off. All showing off does is make others spend more effort trying to scam you. "

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.

billybob6• 16 years ago

I dunno. Sam Walton (founder of Wal-mart) famously drove an old truck long after he was rich. He said he liked it and didn't care about driving something fancier.

Probably this attitude had helped him get where he was.

afterburner8• 16 years ago

Another factor may be that for those wanting to buy a fancy car, maybe they don't have many other obvious way to show off or look good. If you have a huge house, or own the world's largest retail chain, you probably don't need to show off, the showing off is practically done for you.

Xurinos3• 16 years ago

I read the same articles. It was not that it was a Ford but that it was a cheap car. Author probably said "Ford" expecting to imply "cheap". There are luxury trucks, too.

jrockway2• 16 years ago

Many Americans each waste many dollars every day on products laced with addictive narcotics.

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.

Judson• 16 years ago

As off as some of his points may be, this one caught my eye:

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.

brc4• 16 years ago

Ironically I have neighbours that have every toy under the sun - boats, motorhomes, 4 cars of varying sizes, indoor gym, hot tub, 4 storey house, expensive bicycles - the list goes on.

The irony is that their last name is actually Jones.

lotharbot• 16 years ago

An important insight he misses: the goal is not to eliminate "wasteful" spending in every one of the areas he lists, or to save in every one of the areas he identifies, or to be a complete cheapskate in every way possible. The goal is to figure out what's actually important to you and find ways to refocus spending away from the unimportant stuff into the important stuff. If having a big house is not really that important to you, don't pay extra for it; if eating out isn't that important, do it less; if having the top-of-the-line camera is something you care about, take what you save from having a smaller house and not eating out and use it to buy the camera you want.

A lot of people believe they can't afford nice stuff, but often it's simply a matter of priorities and analysis.

brc4• 16 years ago

His points on older prestige vehicles are true. I own two older BMWs which are in good condition, well kept and maintained. Most casual observers date the cars at 4-5 years old, instead of the actual 10-12 years they are. It is helped that they aren't used for a commute so are able to be kept clean and tidy and mileage low. I have these cars because they are built to a higher standard and are a pleasure to drive and own, with more features on them than you can get on most 'ordinary' new cars.

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.

GFischer2• 16 years ago

Older prestige cars are great, but in my country (Uruguay) they are heavily taxed - you have to pay 2.5% of its calculated value in taxes to the local government, plus a very heavy insurance extra, and maintenance is pretty expensive as well.

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.

brc4• 16 years ago

What, you have to pay extra on a used car? All countries require registration (which is a tax) but to my experience, it's calculated on engine size or other economy/pollution proxy.

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.

Unosolo2• 16 years ago

This might have been true 20 years ago, but advances in car technology during the recent decade were really fast. Newer cars accross the board have better handling, fuel economy, more creature comforts as standard. Luxuries that existed only on premium models became mainstream.

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.

brc4• 16 years ago

"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."

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.

How to Afford Anything

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