Your Bank Balance is at Zero

http://www.ideasonideas.com/2010/11/your-bank-balance-is-at-zero/

by karjaluoto • 16 years ago

106 76 16 years ago

ideasonideas.com

noonespecial• 16 years ago

Link is broken, here:

http://www.ideasonideas.com/2010/11/your-bank-balance-is-at-...

niels• 16 years ago

I recently sold my huge apartment + furnitures, don't have a car anymore. I really felt owning these things were limiting my freedom and having a huge cost both economically as well as mentally. I'm really excited about embarking on a more minimalistic lifestyle, where I think twice about the cost of ownership. I now have more money and more freedom. Great article.

eru• 16 years ago

I have moved to Britain recently and did not take much stuff. Most of what I do have is replaceable.

Sometimes I feel more uprooted than liberated by the lack of stuff.

tomedme• 16 years ago

I have recently offloaded a whole bunch of stuff, streamlining my possessions before going travelling - and it is weird at first. My feelings are definitely a mix of uprooted and liberated, in equal measures.

joshrule• 16 years ago

While I've spent years reading this message in various places (most recently at http://mnmlist.com and http://farbeyondthestars.com), I'm always refreshed by it.

Perhaps it's not the author's main point, but living lightly means we have more time to invest in the things and experiences that interest us, and that is a good thing.

rbranson• 16 years ago

I feel as though with all things, there is a balance. I know people who are addicted to "stuff" and always keep acquiring huge piles of things. There is an optimistic point of minimalism though. Ownership is a commitment that can pay dividends or it can put you in shackles, a bit like human relationships. So, consider every purchase in this light and you might find the optimal point of "stuff."

karjaluoto5• 16 years ago

Precisely. I'm not against owning things; I just question whether we need to own everything.

sosuke2• 16 years ago

What about building a greater than zero balance for your loved ones or children? If you never save and always rent you will never be able to pass anything along to the next generation creating another set of folks that have to start from zero.

When I hear these arguments I always figure they already have a great enough balance to counteract these issues or have no loved ones to pass along equity too.

cake• 16 years ago

I'm not sure he's saying you shouldn't save. You could leave a good amount of capital to your kids too without owning a house.

karjaluoto5• 16 years ago

Bingo.

msquared• 16 years ago

Hmm. While this is definitely true, I think you stand to leave more to your children if you own, opposed to renting. If your rent is comparable to mortgage (assumption, I know) you will wind up paying less after the mortgage is over. If you die at 80, and start paying rent at 20, that's 60 years of rent, compared to, say, a 30-year mortgage. That's 30 more years of rent.

I know, I know, someone is going to say "well, what about upkeep and maintenance and killing rats and xyz?" The way I'm seeing this (which, by the by, is originating completely from a 3-beer-deep opinionated loudmouth) is that it's negligible compared to the fact that you are investing your money in something that is of material value.

robryan• 16 years ago

I'm more of the mindset that if I have children that they shouldn't expect to receive any type of inheritance. Sure they might end up receiving but just not to rely on it.

In turn I don't expect to receive anything from my parents, would much rather they enjoy what they have earned.

sosuke2• 16 years ago

Expecting to receive inheritance is not something you can do when your born but planning to leave equity is absolutely something that can be done. I'd rather give my children a small boost than nothing at all. Doing something like home ownership can give you something to pass along and something to enjoy too!

fr0sty3• 16 years ago

There are people who have an opposition to 'dynastic wealth' and would very much prefer there to be no inheritances or for them to be massively taxed. I don't agree in the least.

I also don't buy the radical minimalism/anti-ownership ethic either. Being so independent of things makes you in turn totally dependent on merchants who provide the things you want or need.

I'm with Heinlein: 'specialization is for insects.'

edit: formatting

theBobMcCormick6• 16 years ago

I'm with Chuck Palahniuk: "The thing you own, end up owning you". :-)

fr0sty3• 16 years ago

I can't edit the parent any more, but I wanted to add a citation:

One of the 'people' in opposition is Warren Buffet[1]:

> "Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline," Buffett said. "A progressive and meaningful estate tax is needed to curb the movement of a democracy toward plutocracy."

[1] http://www.reuters.com/article/idUSN1442383020071114

gte910h• 16 years ago

If your children are dependent or semi dependent, aka, college, you should have term life insurance for the period of your life to make sure the expenses you planned on covering for them are covered.

The education you provide your children should start them far from 0. Actual inherited wealth of a vast sum nature is rarely a good thing for character, and often is counterproductive at making good humans.

Additionally, if it's actually inherited, they don't get it until their late 40s, 50s, 60s or 70s with modern lifespans of those rich enough to get constant good medical treatment. Additionally the pandering nature that can make relationships in the later years of a parents life who has money is not always the healthiest thing to inject into family life.

fennecfoxen2• 16 years ago

Human capital: one of the most effective investments you can make.

karjaluoto5• 16 years ago

I'm not proposing leaving nothing to one's children. Instead, I'm asking readers to consider the merits of both renting and owning and choosing what fits for them.

Admittedly, I have positioned my argument strongly from a renter's perspective, as I believe the "default setting" is heavily skewed toward ownership.

Fact of the matter is that many of us believe we need to own everything, when many things can be rented more economically and fruitfully (e.g. car co-op versus car ownership).

potatolicious5• 16 years ago

+1 on the car co-op vs. car ownership thing.

Home ownership is less clear-cut since homes tend to preserve their value well (not as well as we've thought, though!), so it's realistic to leave something of substantial value behind.

Cars though, cars are 100% consumable. There's not a lick of persistent value behind them. Personally, I'm avoiding the car ownership pitfall for as long as humanly possible, but in this country that's not indefinitely.

It's a gigantic money sink - one that most people I grew up with don't even realize, since they bought their cars along with their first jobs. They've never done a budget without their car being in the mix, to them this $1K+ per month expenditure is perfectly normal and unavoidable. A necessity of life.

dolinsky• 16 years ago

> If you never save and always rent

I see that as a red herring. The key if you are going to rent is to save the difference between what your rent is and what your mortgage + other costs of ownership would be and put that capital to work for you through other investment vehicles. In America there is this convoluted idea that 'everyone should own a home'. It's a ridiculous premise and should be nothing more than a pipe dream for many people who do currently own a mortgage on a home.

http://www.nytimes.com/interactive/business/buy-rent-calcula...

fennecfoxen2• 16 years ago

Yeah. The problem with housing is that people are told "the house is an investment". Houses are lousy places to grow capital. Their primary method of generating a meaningful return on your investment is the imputed rent. But you have to consume the imputed rent immediately.

Some spending on housing is inevitable, and some is just consumption. Investing in a house to secure the former is responsible; the latter is luxury and irresponsible if you can't afford it.

Also, people underprice issues like maintenance and risks as a matter of routine.

theBobMcCormick6• 16 years ago

If you want to leave them equity, why not leave it to them in stocks, mutual funds, etc. instead of a house?

cube• 16 years ago

A few months back I realized one main aspect of travel, I tremendously enjoy: the lack of stuff. Traveling around with just one suitcase of clothes and my laptop opened my eyes: Of all the stuff I own, everything I really needed for my every day life was right there with me. And it is so easily replaceable...

I never was a big gatherer, but since then I really cut down on buying things. In addition to that I'm getting rid of my things, some are easier to lose some are harder to give away or sell, but in the end it feels great. I actually find it liberating to stand in a store and _not_ buy the fancy item which would inevitably be degraded to be clutter on the shelf in a few weeks. The money I spend goes into the few things I really use all the time, like my iPhone. I also eat better. All in all I'd say it made me a happier person.

barrkel• 16 years ago

It's funny you say that, as one of the things that bothers me most about travelling is the lack of handy access to the things I appreciate making my life easier. Usually it's simple creature comforts: a nice chair, a good work desk, a supply of hot water, tea and fresh milk; but getting those things from a hotel is tough and frequently overly expensive. Staying in a furnished apartment is better, but next thing you know you want a variety of food, better cooking implements, and various other things that don't have lifetimes that match up well with a typical stay in an apartment or hotel (1 or 2 weeks for me).

A some of the bigger upsets in my life come from times I've lost stuff, either through the upheaval of moving, or data from crashed hard drives. Physical and informational tokens can act as triggers for remembrance of past experiences, and it's not nice when you lose those photos, diaries or whatever.

On the other hand, going into a store, I am very seldom tempted to buy fancy items. I usually get more joy from my ability to purchase something than actually purchasing it; probably a relic of growing up in poverty. The best purchases have been food, wine, holidays, theatre and art: experiences.

mrtron• 16 years ago

I moved to Asia for 5 months and found the same thing.

I brought a big suitcase full of items, but probably only used a backpack full. I purchased local clothes (for cheap) that were better suited to the climate and everything else was easily replaceable.

I also agree investing heavily into a few key items is important. My Macbook was irreplaceable. I wish I spent more on a better camera, it was a good one but I used it enough to justify getting a great one.

Now that I am back I realize I have a lot of stuff that is completely unnecessary. It is surprisingly difficult to get rid of, but I am donating it in chunks.

jtbigwoo• 16 years ago

Somebody has to own the stuff you're renting. If I'm a renter I'm just passing along the responsibility to someone else. If the vast majority of us are renters rather than owners, who has incentive to do any maintenance or improvement? The landlord and her employees will do the minimum cosmetic fixes to keep rents increasing. The residents have no reason to keep the place nice--they can just move on. This article is not an indictment of our disposable culture. It's an amplification of that culture to encompass our whole lives.

Look, I think we fill our lives with too much stuff, but refusing to take an ownership stake in housing, transportation, etc. will lead to worse outcomes, not better.

cjy2• 16 years ago

"If the vast majority of us are renters rather than owners, who has incentive to do any maintenance or improvement?"

This doesn't make sense. The remaining owners will still compete for renters. If my landlord does a bad job, I will find a better landlord. In fact, you can argue that concentrating ownership makes maintenance more efficient. My landlord has much more experience at plumbing, painting, installing appliances etc. than I ever would.

fr0sty3• 16 years ago

Renting introduces a Principal-Agent problem[1] because the owner's incentives are not entirely in line with yours. Maximum profit is realized by doing the minimum amount of repairs necessary to keep people from moving out. Switching apartments is not free (in time, money or effort) so the bar a landlord has to clear is only 'not bad enough to leave'. I doubt homeowners would choose the same standard.

[1] http://en.wikipedia.org/wiki/Principal-agent_problem

erikstarck• 16 years ago

I think this news item from yesterday is related:

http://www.calculatedriskblog.com/2010/11/ny-fed-continued-d... "Since its peak in the third quarter of 2008, nearly $1 trillion has been shaved from outstanding consumer debts." "So are consumers becoming more frugal? Yes. Holding aside defaults, they are indeed reducing their debts at a pace not seen over the last ten years."

Looks like we're moving from a loan-and-own economy to an age of access, where you only pay for access to stuff (aka "rent").

I can only go as far as to my self.

I don't buy CDs anymore, I pay for access to Spotify.

I don't buy books anymore, I pay for access to an ebook on my Kindle (although it's a one time fee).

I don't buy DVDs, I pay to get access to an online stream.

And so forth.

aelaguiz2• 16 years ago

This article mirrors an implicit assumption that I see in a lot of these anti-materialist articles - that being that accumulation is the desired result of the undesired (and presumably unfulfilling), all dreaded, "work." For some of us accumulation of material possessions is a welcome side effect of a highly fulfilling passion which is "work." When I say work I say it with a prideful passion in my voice, not with disdain at the damned capitalists for forcing me into this materialist trap. I love my work first, but the car is nice too. Perhaps the author just needs to find some purpose.

karjaluoto5• 16 years ago

I'm quite convinced I have found some purpose. For that matter, I quite like my work.

What concerns me is the idea that so many feel they need to own something, in order to enjoy it.

aelaguiz2• 16 years ago

I think that class of people is attempting to fill a void in their life with possessions, but that doesn't imply that all or even most ownership is unhealthy/bad. If you are buying things to find fulfillment you might as well eat the money, but if you are fulfilled and buying things (responsibly) - I applaud you.

klochner2• 16 years ago

It strikes me that choosing to rent over owning is the antithesis to the theme of "Zen and the Art of Motorcycle Maintenance" (recommended book).

The driving metaphor comes from the contrast between (effectively) renting a BMW motorcycle (since they are hard to repair), and owning a simpler model that can be maintained by oneself.

The stated benefit is greater autonomy and satisfaction derived through taking ownership and solving one's own problems - a more classical approach to life. Rather than taking a "fix this for me" attitude, you see the world as something that you have control over.

Personally, I've found it very satisfying every time I'm able to repair something in my car, which I've owned for 8 years.

mjschultz2• 16 years ago

I absolutely agree with the satisfaction of repairing something yourself. In fact, I think even having the choice of either repairing it myself or hiring someone I deem competent to repair it is a worthwhile difference.

When I was an apartment dweller, I signed a 1 year contract and they kept telling me that if anything breaks call them. That included windows, pipes, stoves, refrigerators, and light bulbs. I wasn't even supposed to change a light bulb if it burned out on me. Admittedly this is only one experience with what I hope was a very poor renting operation, but they owned all the buildings in the vicinity.

I was so happy when I replaced my kitchen sink faucet on my own and in a way that satisfied what I wanted.

theBobMcCormick6• 16 years ago

Wait until you've done it enough times. As someone who's owned his own home for about 16 years, I'd be quite happy if I never had to replace a faucet, fix hail damaged siding, clean a gutter, etc. again. I look at it as one of the "necessary" evils of home ownership.

sudont2• 16 years ago

The parts are sourced from a retailer. You're just pushing the "fix this for me" up one level and ignoring the entire inextricable chains of production.

The sense of control is a false one. Is there control in the availability of parts, or their manufacture?

klochner2• 16 years ago

That's a false dilemma - the choice isn't between full-service rentals and forging my own steel from ore I dig out of the ground.

Increasing one's autonomy has value, whether or not you ever reach full autonomy.

Dylanlacey• 16 years ago

Pushing things one level up is still a valid control metaphor. You're not a worse programmer because you use a 4th level abstraction instead of a 3rd level.

Or, to put it another way, C programmers aren't "Better" at programming then I am just because they're C programmers and I use C# / Ruby / Others.

(They're better because they're grumpier and they'll hit me with their beards if I don't please them)

brc2• 16 years ago

As someone who owns and maintains and older car in the face of 'why don't you just trade it' opinions from others, I also gain a lot of satisfaction in being able to be in tune with a vehicle, to understand when it is happy, when it is looking for service, to understand the history of the roads it's been on and history of the use it's had.

A lot of people with a 'vehicle is an appliance' mindset would never understand that, but vehicles are like houses in that they create and are intrinsically involved with memories. Some happy, some sad, all baked into our lives. That's why many women have to apologise and say sorry to a car they are disposing from their lives, as if it's anything but a inanimate lump of metal, plastic, glass and rubber. They're not saying goodbye to the object, they are saying goodbye to the memories.

gonzo• 16 years ago

8 years?

I still own my 88 Toyota Landcruiser. 170K original miles.

And yes, I do all the work on it myself.

icefox• 16 years ago

I know that there is just _way_ too much profit in the monthly payments, but a car company that somehow forced you to pay in cash woudl quickly create a status symbol for itself.

S_A_P• 16 years ago

I generally like the idea that we should take some time to assess what is important in life. I dont, however think there is a one size fits all answer to what we should own and what we should rent, or how we should spend our money. I have read posts similar to this before, and they can seem to smack of some sense of condescension. I sense a bit at the end with the Louis Vutton/BMW comments.

Like I said, it is great to encourage others to evaluate what is a need vs a want, but I dont necessarily think something should be considered a cage just because it is purchased or unnecessary for life.

jleyank• 16 years ago

Having lost money on 3 of the 4 houses we've owned, I can confidently state that if you can't see staying in the same house when switching jobs you're better off renting. Houses might be "investments you can live in", but they are a long-term investment. The US favors home ownership, but that is not the case, say, in Canada. Do the math, and see which investment provides the better return for your time window. But invest it somewhere...

theBobMcCormick6• 16 years ago

It's rather interesting and jarring to me to see how many of the reply's in this thread are so aggressively defensive of the very idea that owning more stuff might not always be better than not owning more stuff.

I've been watching a marathon of back episodes of "Hoarders" (http://www.aetv.com/hoarders/index.jsp) on NetFlix streaming, and it's somewhat startling to me how much some of the replies here sound like the defensive responses of some of the hoarders in the show.

pyre• 16 years ago

I think that these threads always end up being more about ideology than hard facts. There are a lot of people that enjoy not being 'tied down' and being 'free and easy,' which things like 'having kids' or 'owning a house' tend to prevent. It then becomes more of a decision to pursue a particular lifestyle than anything else.

That said, the reaction of the people on Hoarders tend to be defensive reactions due to not wanting to deal with the issue at hand (i.e. extreme procrastination). Which is probably why most of them pick up their hoarding habits after the loss of a close loved one (usually a parent). They don't want to deal with the loss, so they are constantly pushing it away, and not dealing with it.

{edit} This tends to bleeding into everything else in their lives. They live for the momentary thrill of acquiring things, while not bothering with 'the boring stuff' like cleaning their house, or sorting their acquired items, or even deciding which items are/aren't worthless.

sliverstorm• 16 years ago

These articles go to an extreme; just because I don't want to rent everything I've got, doesn't mean I am a stuff-o-holic. I have a very hefty anchor back home- a ~50lb toolbox. By the wisdom of HN articles, that should be the first thing out my door, but it enables me to maintain my motorcycles. Why do I maintain my own motorcycles? Because an oil change costs $20 and 20 minutes when I do it, but $100 and an hour or three when the dealer does it.

seanc3• 16 years ago

People buy things for all kinds of reasons that aren't discussed in the article.

Convenience!

For me this is a prime motivator. I have sufficient demands on my time that added expense of owning a car is worth the 20 minutes it would take to access the closest virtu-car, and the 90 minutes I save every day driving in stead of busing.

I have enough space in my house for cold storage and a freezer. This means I can buy food in bulk and don't have to go to store as often.

Security!

Landlords kick tenants out out now and then. Rents can go up all of a sudden. My family rented for a long time when I was a kid, and we got booted out of several houses when the landlord decided not to renew to lease for one reason or another; wanted to give the house to a relative, wanted a pile more rent, et. cet.

Agency!

For some people home improvement and 'puttering around the house' is a big source of pleasure and recreation. Many people express themselves with the work of their hands, and owning tools and infrastructure to build things and so forth is important too them.

Finally, NRP's planet money has a great blog about the issue of buying vs. renting housing: http://www.npr.org/blogs/money/2010/11/05/131105373/the-frid...

tl;dr: this is about way more than money. It's about personal value choices

lutorm2• 16 years ago

The "security" aspect goes both ways. Owing money, which the vast majority of us will if we want to buy a house, is one of the principal insecurities of life. Given the current status of the housing market, that should be obvious to everyone.

Being forced to move out of your rented home seems a lot less severe than having the bank foreclose on your "owned" home.

seanc3• 16 years ago

Debt is only an insecurity if your income is insecure.

A renter with a long term lease holds just as much obligation as a home owner as far as that goes.

I would say that the risk of getting the boot from your rented dwelling is much larger than the risk of getting foreclosed.

The risks associated with foreclosure can be mitigated to some extent by the homeowner. Management of cash flow, pursuit of income security, adequate savings, all of these things are in the homeowners domain. Many many homeowners have secure incomes and live with extremely small foreclosure risk.

A renter can see the building sold out from under him and be out on his ear no matter what he does.

The bottom line is that this stuff leaves the realm of objective mathematical truth and enters personal risk profile and values very, very quickly. For some, income will have wide error bars and they need lots of flexibility. Someone else might have union seniority in a government job and be able to predict their income for the next twenty years.

satishf• 16 years ago

A great blog post from Tim Ellis on buying vs renting: http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buyi...

seanc3• 16 years ago

That is a good post, but as Christopher Mayer points out on the NPR piece, you have to be very careful about the market.

Cities with historically strong housing markets, such as Seattle and New York, have a very high ownership premium. Other cities with a more traditionally flat housing market, such as Pittsburgh or many rural communities, do not.

So if you live in Seattle like Tim, by all means, renting might be better for you. But in Madison, Wisconsin you might spend the same amount to own a house as you do to rent one.

YMMV.

lotharbot3• 16 years ago

It should be noted that Tim wrote this near the peak of the housing bubble in Seattle (Kenmore neighborhood). The house he identified for $425k in that piece would now sell for about $300k, which puts monthly costs at about 25% more expensive than renting instead of 78% more expensive.

In a completely average, non-bubble housing market, buying (counting insurance, taxes and breaks, maintenance, etc.) is about 20% more expensive than renting in the short term, but after 5-10 years of inflation and rent increases, renting becomes more expensive. There's a definite tradeoff between short-term savings with no equity but high flexibility vs. long-term savings with equity and permanence. That tradeoff was slanted heavily in favor of renting in Kenmore, WA in 2007, but as Tim's conclusion notes, it is not always so; whatever your situation, "run the numbers ... and do what works for you."

ulysses• 16 years ago

In SunDog, you'd start out without much cash, but you also started with a spaceship. Now, in order to keep the spaceship you had to fulfill a contract. To fulfill that contract, you had to make money to keep the ship going, and you had to explore a bunch of planets. The spaceship was reasonably roomy, could land on planets, and had a large all-terrain vehicle for exploring the surface and bringing back cargo.

I could see not needing an apartment, if I had an FTL spaceship like that.

teamonkey• 16 years ago

The same was true in Elite. In Elite II you inherited (tax free) from a recently-deceased relative 100 credits plus an Eagle starship.

Despite the game's apparent freedom, it only gives you one option - to take the ship and go. You can't, for example, sell the expensive space ship, re-invest it into the fish processing plant you work in and use the proceeds to live like a king on the poverty-stricken planet.

mlok• 16 years ago

There is an interesting video from Khan Academy related to this: "The math of renting vs. buying a home. Challenging the notion that it is always better to buy." http://www.khanacademy.org/video/renting-vs--buying-a-home?p...

theBobMcCormick6• 16 years ago

That's interesting to see it actually analyzed by someone with Mr. Khan's math skills. Not to mention the spreadsheet liked to from the 3rd video in the renting-vs-buying looks like it be a useful tool for running the comparison in your own local market/circumstances.

brc2• 16 years ago

I'd just like to post that I agree with the comment from 'Russ' in the article.

This article is a one-sided exploration of the buy-vs-rent debate. It doesn't explore all of the emotional connotations of owning something durable, and overweights certain experiences from the point of view of the author, when this cannot possible apply to a population of people.

Finally, as Russ comments - it's wrong to sneer at the purchase of a handbag or BMW - the person might be spending their money on a combination of quality product and brand, but once you start getting into the argument of purchasing x is right, and purchasing y is wrong- you're arguing simply from a relative point of view. As long as the transaction was not done under duress, where is the problem? My neighbour spends all his money on sailing. I find it a waste of money, but he clearly gets enjoyment from it. Who is right? Is it remotely possible for me to suggest that buying a sailboat is wrong? Wrong to who? As compared to what? Free choices are just that.

Owning a house in a falling market may seem like a foolish position, and for many, perhaps it is. But that goes to assume that the person owning a house does it for purely financial reasons, which, again, is wrong. Another neighbour of mine is an old lady in her 80's who owns her house and lives by herself. By any object measure she'd be better off selling the house and both investing and spending the considerable cash that would generate. But she enjoys her garden and the memories of a house that once contained her husband and family over the span of 40 years. Is she wrong to hold this position? Financially perhaps, but perhaps the currency aspect means very little to her in comparison with pleasure of her little piece of land with a house on it. She could sell her house, rent a nice retirement apartment and afford a around-the-world cruise. A rental-is-best mindset would recommend this view. How can I tell her she is wrong and someone else is right?

karjaluoto5• 16 years ago

I'd really encourage anyone interested in this discussion to read this comment: http://bit.ly/adXv1l

I believe it gets a little closer to the heart of what I was working to convey--particularly as the discussion seemed to later spiral into a primarily financial one.

henryw• 16 years ago

my favorite part of the article:

Few of us want to die, as evidenced by such statements as, “if I die…” (like there’s some possibility of an alternative). I hate to break it to you, but the only real variables are how and when. Other than that, we’re probably best to accept that you and I are both just toast. I find a kind of liberty in this knowledge. In fact, it suggests that most of the things I fret over are largely inconsequential, and that I shouldn’t squander these moments.

Your Bank Balance is at Zero

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