Accumulation vs Wealth

Tuesday, July 13, 2010
Posted in category Economics

My new article is up at the Clare Boothe Luce Policy Institute: “Stuff Does Not Equal Wealth.” This is a revamped version of an older piece I wrote a few years ago. It is essentially a teaching tool with the audience being high school and college women.

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11 Responses to Accumulation vs Wealth

  1. Iluvatar says:

    July 13th, 2010 at 11:21 pm

    I don’t even have to read it to know (is that telling or what? Am I that sick?)

    Lemme guess, it is a bottom line CPA-style assets minus debts right? (If I guessed right do I win anything? Like a moped or somethin’?)

    But I loved the original article!

    And dude@!

    Working towards a 30-45% savings rate of net income (after taxes) right now!

    Bye, bye FiOS! See ya’! Bye, bye store-bought cigarettes (take your taxes and shove it – hard!). Bye, bye processed foods (just grease monkeyed 3+ lbs of flank steak w/ bell peppers fried in vegetable oil – YUM! – took me 2 days to clean out the kitchen and it still reeks – LOL!). Man the onions caramelized in that stuff (they get so sweet!) – it is the bomb!

  2. Iluvatar says:

    July 13th, 2010 at 11:53 pm

    I just checked the article.

    It IS the same one I read on assets minus liabilities!

    i get the moped, right? (hahahahaha)

  3. Jeannie Queenie says:

    July 14th, 2010 at 12:06 am

    Truer words were never spoken Karen. I always thought that those who had a need to keep with the Joneses were pretty sad, and even moreso, insecure. If you are looking to ‘things’ to boost your image, you need to look again and realize that ‘things’ don’t define you as a person. I heard on NPR the other day that 80% of what americans buy in a year is eventually viewed in regret for they realize it didn’t make them happy as they hoped. In fact, the happiest ones were those who lived below their means.

    As one who has always been what you call a frugalist, I can vouch for the wonderful freedom and peace of mind that accrues when you have absolutely no debt and that asset side of the ledger passes the liiablility side by a mile. My one regret is that for ten years when I moved to Boston that I had to rent and lose ten years of rent outlays into a hugh black hole never to be seen again. At that time this took over 50% of my net pay for Boston was and still is a terribly expensive place to live. I vouched that I would reach my goal of a roof paid off by retirement age and sure am glad that I did just that. Seeing all those folks who are now losing homes and are at the mercy of landlords who can set whatever price for rent, not to mention all the nutcake landlords I had that had the audacity to go through my stuff when I was at work and often ‘helping themselves to whatever, be it detergent or wine or even a stock certificate or two’, I vowed to have my own roof so that I would never ever be beholden to a scumball landlord ever again..and I had four of them, each outdoing the other in the ‘crooked dept’. One old chinese guy even had the audacity to check on me in the morning while I slept…when I awoke and saw him standing over me, I never screamed so loud in my life. This same guy wanted me to pay my rent under the table even though one of his sons was an IRS agent and another was a cop in BROOKLINE, and the third owned part of Chinatown
    …..what a nightmare that was. I told lhim he would have to take a check for I refused to carry hundreds of $$$ in my purse for anyone.

    So, I have gotten off the track here regarding keeping a good fico score and not living for things. I have since come to the realization that you needn’t keep up with the Joneses, in fact, the ‘Joneses can kiss your assets.’

  4. clark says:

    July 14th, 2010 at 10:32 pm

    Nice article, using the word equity right off the bat seemed a bit risky, especially without a definition. J/k.

    I liked this part the best:

    “While hyper-consumers might be perceived as rich by envious acquaintances, their balance sheets would be just as likely to reveal that they are the opposite of rich: they have plenty of devaluing assets…”

    That phrase caused me to pause and reflect…

    Housing is expected by some to drop another 30% and not recover for decades, if at all, possibly wiping out any financial gains or a break even return, such that: many earlier and current buyers who thought they were building equity were actually digging a financial hole they cannot get out of – or attaching themselves to a financial alligator – it’s as if they were stuffing money into a tiny bright slot with someone else’s name on it, meaning they never really got anything out of it or saw the money again, someone else did.

    Not to mention the future effects from a large portion of the Boomer’s strategery of selling their houses all at once into a market of younger unemployed people who cannot afford to buy, combined with a return of 20% down requirements… things like that.

    From the looks of some cities though you’d never be able to tell, it’s as if the good times will never quit rolling.

    Renting has been a good option and provided a fair return for the money given, in spite of it’s pitfalls, although; living beneath ones means to keep the rent to income ratio in line hasn’t been easy (doing things like living in a less than desirable location or changing the locks even if the landlord says you can’t) it’s much easier to bear than the shift in living standards those who get foreclosed on experience.
    Having some money left over is good too.

    Lacking a monopoly or cartel, the price charged for rent is capped by wages and competition, landlords cannot simply charge whatever they want, they can only charge what the market will bear.

    If a market seems to be made up of financial idiots and if rents are too high in relation to a person’s income then a sacrifice such as moving to another area might be required to live beneath ones means allowing one to achieve their financial goals, or to simply avoid the debt monster and it’s sidekick the tax & regulation leach.

  5. Not Sure says:

    July 17th, 2010 at 1:39 am

    “I vowed to have my own roof so that I would never ever be beholden to a scumball landlord ever again”
    Not to be overly negative here, but you do pay property taxes, do you not? And if you stop paying them, what do you suppose will happen? Pretty much the same thing as when you stop paying rent, I’d bet.

  6. Jeannie Queenie says:

    July 30th, 2010 at 11:44 pm

    Not Sure, I am not sure of what you are getting at above. What does a sleazeball landlord have to do with me paying taxes on my condo? And who would stop paying rent if they signed a years lease? I really fail to get your drift…perhaps you could elucidate on what you MEANT to say! If you
    have ever had to rent and each time found yourself in a nightmare situation, why would you want to throw money down a black hole for the privilege of having no privacy, not to mention being at the whim of a landlord who can change the terms/price of your rental at his own will?
    I’ll take my paid for roof anyday over being beholden to some greedy creep.

  7. clark says:

    August 8th, 2010 at 1:32 pm

    If I had That bad of a landlord I’d find them a new tenant to take over the lease or find Some way around the problem. Installing an alarm system would be number one and would likely keep out any nosey landlords.

    Where there’s a will, there’s a way. I guess throwing thousands of dollars away on a depreciating liability like real estate is one way to do it. I wouldn’t, I can’t afford to give away that much money, far more than is spent on rent.
    Many people take the low cost option and buy a mobile home and pay lot rent to get that extra privacy, I’m tempted by it. Such is too hard of a hit to the self-esteem of many to do though, especially if they think what they own and where they live defines who they are.

    Doing background checks on potential landlords might be a start? Or simply stop by their house and see how they live to get a sense of what kind of landlord they’d be.

    I don’t understand your lease terms, why would you sign a lease that says a landlord can increase your rent or change the terms of the lease? That’s the strangest lease terms I’ve ever heard of.

    Bottom line, don’t rent from creeps? There are many very nice people who would be glad to make the fair exchange of your money for a period of a roof over your head just the same as any other. A good thing to do that makes financial sense while housing prices crash, that is, avoiding catching a falling knife, better to wait and pick it up off the ground.

    Buying to avoid the official state sanctioned rental Gestapo inspectors, now that might, might be a reason to buy over renting, that is (according to the people at IF the purchase price is less than ~14% of your income And you don’t mind loosing equity from falling prices And you can afford both unexpected and expected repair and maintenance bills, And possibly a huge surge in property taxes. Buying real estate is like a bear trap for some people, although that probably doesn’t include the rich ruling class.

    Being as how this article is targeted at high school aged people, buying makes No sense at all. What with the economy and the need to go where the jobs are and who knows what the future will be like. It’s a long term purchase using a short term perspective.

  8. clark says:

    August 8th, 2010 at 2:05 pm

    oops, I meant to type, if the payments were ~14% of your monthly income or less. But even then, how dependable is an income these days?

  9. clark says:

    August 8th, 2010 at 2:40 pm

    Even the rich can act recklessly, found this comment over at that applies here:

    I agree…at 300K a should EASILY be able to afford a $825 note..the problem is the back end debt..most people in that position, stupidly have 100K in credit card debt, 2-3 car payments(usually luxury. gotta keep up with the community..which could easily be 900-1K a car…then the expensive clothes accesories, wife getting her hair done for $150 and the new chanel bag, kids in dance camps and tennis lessons and so on…

    Its usually not the salary that is the issue…but all the expenses added in the “keep up with appearances” thought

    Another person said,
    anyone making $325k a year and paying $5300 a month on housing WILL BE HOUSE-POOR.

  10. zoltan says:

    August 8th, 2010 at 5:07 pm

    What NotSure means is you still have a landlord, Jeannie Queenie. If you don’t pay that landlord (the government) rent (property tax), they will confiscate “your” property, even if the property itself is fully bought and paid for.

  11. mark says:

    August 29th, 2010 at 11:37 pm

    The marketplace is cynical – hopefully it’s going to swing back again our way soon too

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