Lazy Man and Money

My 2017 Resolution is Personal Finance Blasphemy

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(I hate clickbait titles but it’s appropriate.)

dog on couch

Nearly every blog I read is making a resolution. I subscribe to the Bill Murray line of thinking that it’s best to wait a couple of weeks. However, there is one resolution that I’ll share now.

I resolve to spend money. I want people to call me Spendy McSpendington.

This is difficult for me, because I’ve been Frugal McFrugalface for a long time. It was nearly a decade ago that I put together hundreds of tips on how to save money… and I was frugal long before that.

Things changed in the last month. It was kind of a chain reaction of events:

  • It was time to replace our couch which lead to this conundrum.

  • Our carpets were in worse shape than the couch. Between the standard amount of mess that a 3 and 4 year old make and my dog sitting gig, it was time for a change. Once one dog pees on the rug another will follow and it’s almost impossible to keep up with it, no matter how much Nature’s Miracle Urine Destroyer we use. (It’s a great product, but sometimes there’s simply too much especially when you have 500+ dog day stays in a year like we had.)

  • My Subaru Forrester was a mess for the same reason the carpets were. It’s not just the dog and the kids, but it’s the beach car as well. I shouldn’t throw the kids and dogs completely under the bus, I probably generated most of the trash.

So here’s what we did after Christmas to close out the year:

  • We bought a new couch! (I might have more to say on that next week. It wasn’t very eventful.)

  • We put in some new waterproof vinyl plank flooring (more on that in the future too).

  • Finally, my wife gave me a gift card for a local car detailer who made the Forrester look almost new again. I couldn’t recognize my car.

That’s a lot to do in the span of a week or so. In total it was about $4000. Of course the flooring and the couch should last for years and years, so I think of it as being amortized over a long time. Still, that’s quite a spending spree for a few days. We’re not done as we’re looking to make other improvements throughout the house.

There’s a method to the spending. We got some great deals on the flooring and couch. More importantly, they’ll be easier to clean in the future which saves me time and energy.

We’re making 2017 the year of comfort. This means that we’re going to try to be spend more to live more comfortably. Many personal finance bloggers focus on fighting lifestyle inflation. We’ve been winning that war for 10 years and it’s time to judicially spend to improve our quality of life.

Lifestyle Inflation Cure: Real Estate Investing

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A couple of weeks ago, when I wrote about Approaching a Net Worth Milestone, I got a great comment by Big-D:

“I find that as I hit milestones, and surpassed them, they meant not as much to me as I thought they would. The issue with Net Worth is that it is kind of like looking at a toy chest. There are some toys you can play with, there are some that are your favorites, and there are some that you don’t play with because of various reasons. Net worth is like that. You have assets which are cool for net worth but you cannot play with them (liquidity).

An example of this is real estate and life insurance (which are considered assets for net worth). So let me see, yes I have a house, which I can use for home equity lines of credit, but that puts me more in the red than in the black. Life insurance is like a toy you have, but cannot do anything with until you die.

In my example, I have a $400k life insurance policy, and have $300k in equity in homes (I have rental properties, plus my own home). So at the end of the day, Yes, I am a millionaire… but [I can’t] live stupidly as much of my million dollars is “non-liquid” and not able to be turned into “cash” if needed. Granted I am not hurting, but still this makes the issue a “what does a millionaire mean now days?” conversation.”

I think this is exceptional insight and it mirrors a lot of what we are doing. We now have 3 rental properties, plus our own home. Two of them were never intended to be rental properties, the first condos my wife and I bought to live in separately. As such, they aren’t your typical investment property… and actually run at a loss. The loss is small enough, and possibly even a positive if you include the equity we are building that it is better than taking the big hit with selling.

Each month, we are forced to put our money towards these appreciating assets. The bank wants their mortgage payment. If it was a voluntary deposit into a brokerage account, we could decide to skip this month. Even with a retirement account we could probably do the same. Or worse, we could pull that money out of the brokerage and use it to buy a great McMansion. Many people do that and maybe it’s the right choice for them, but I like my financial freedom and McMansions can be a recipe for being “house rich and cash poor.”

The great thing about real estate investing is that the bank gives us no such flexibility… and I love it.

Big-D hit the nail on the head. The investment is so illiquid that it would be a bear to the get money out. (I plug my ears and close my eyes like a child whenever Mr. HELOC mentioned.)

Now you might say, “If you are mostly breaking even, you have rental income coming in and that’s covering those mortgage payments.” That’s true to some degree, but we had to put 20% down, which is a significant check to write at the beginning. If we want to buy another, we are going to save up another 20%. Plus there’s the emergency fund that has to be bigger than usual due to these obligations (what if there are tenants?) There’s money that goes into maintaining it as well.

Overall, between saving up money to buy the places, maintaining them, the emergency fund necessary for them, and still maxing out retirement accounts, we mostly steer clear of lifestyle inflation.

However, like many things in life there is a balance. It’s okay to enjoy life. You don’t want to be living like you are on your last penny because you’ve forced yourself with too many obligations.