Archive for July, 2009

Know What You're Getting Yourself Into

July 27, 2009 Leave a comment

homeThe Wall Street Journal has a great article by Neal Templin on homeownership and the true value of owning a home.  Many people believe that owning a home is a way to get rich.  We can learn a lot from looking at the people who believed that and are now coping with the fact that they over extended themselves to buy a home, refinanced excessively and/or have watched the value of their home plummet.

This article reminded me of some advice I received when I first moved to New York City.  I love New York and despite the fact that it is one of the most expensive cities in the country (if not THE most expensive) I knew I wanted to live here.  I came to New York knowing that I had to be careful with my finances.  I had just graduated from law school with debt in the six figures.  I had a great paying job at a large law firm, but knew that I had to be careful not to dig myself into a financial hole.  Dinners out, nightclubs, bars, cabs, shopping – they all had the potential to suck my bank account dry. I was going to be a responsible young worker.  I would have my fun, but I would pay down my debt and save for the future.

So, I was surprised when two of my friends suggested that I buy a home as soon as possible  Here were two well-educated professionals who were telling me to incur more debt when I barely had my first paycheck in hand.  I didn’t have a down payment.  I didn’t have a real job history.  So why did they recommend I buy a home when I wasn’t prepared to do so?  They were under the assumption that real estate was the best investment you could make.  They believed that the value of real estate was going to continue to increase.  You’ll get tax breaks!  You can’t lose!  Get in while you can and watch your investment soar!  Needless to say, I did not buy a home and I am grateful for that.  It didn’t make sense for my situation.  They more research I did, the more I realized that I wasn’t prepared to buy a home.  I knew it wasn’t a foolproof investment and it didn’t make sense for someone in my situation.

There are many lessons that can be taken away from Wall Street Journal article but the one that I think is most useful is a lesson you can apply to many parts of your life.  It’s a general lesson that says that you must understand what you are getting yourself into.  It’s the old adage of look before you leap.  Don’t just put your money somewhere because someone else says you should.  With all investments, you must understand what you are investing in, why you are investing in it and what you will get in return.

Categories: Uncategorized

Trouble Areas

July 17, 2009 Leave a comment

Drinks and eating out.  These are my trouble areas.   We all have trouble areas.  These are the places where we tend to spend a lot of our money.  These things that we enjoy.  They make us happy.  And they eat up more than their fair share of our income.  I live in New York City and much of the socializing is done at happy hour, brunch, dinner and weekend parties.  For me, I spend a lot of money in these areas but I get to relax, take time out of my crazy day and relax with friends.  To me, it’s generally worth the expense.

Why does it matter, you ask?  If it’s worth the expense, why pinpoint your trouble area?  Because when things become tight financially or if you’re making plans to save for a specific expense, you know where you can cut back without excessive stress.  One thing we’ve learned during this economic crisis is that moderation is undervalued.  We can use our hard earned money to enjoy our lives but we can’t us it all to enjoy everything.  When things become really hard, look to your trouble areas and find ways to cut back how much you spend.  You don’t need to give it up all together, but become creative.  I know how much I tend to spend on drinks and eating out in a month.  I know that I can have friends over for drinks or plan a potluck if I need to cut back on my expenses but don’t want to give up time with my friends.  Find a cheaper version of your trouble area so that you don’t give up something that’s important to you.

Do you know what your trouble areas are?  Shoes?  Fancy electronics?  Are there ways to cut back or enjoy the items you already have without incurring more expenses?  Maybe you’re not sure what your trouble areas are.  Finding out takes a little bit of time but the control you gain over your life and your finances makes it worth the trouble.  Track your expenses for a month.  Don’t give me that look!  It’s just one month!   Estimate how much you think you spend on everything and then track the information for a month.  And I mean everything.  This includes that afternoon snack at the vending machine.  Yes, I know it’s only $0.75.  Write it down*!  At the end of the month, compare your actual expenditures with the estimates from the beginning of the month.  Are there any surprises?  Have you spotted your trouble areas?  Knowing this information gives you power to control how you spend and where you spend your money. 

* If you regularly use your credit card for expenses, most of your tracking has been done for you!  But don’t neglect the things you pay for in cash.  Just keep receipts or jot the information down in a little notebook.  Be as accurate as possible.  I’m serious about the vending machine.  That may be your trouble area!

Categories: Uncategorized