Category: Purpose

“I’m quite good at spending money, but a lifetime of outrageous wealth hasn’t taught me much about managing it.” – Game of Thrones

I need a better picture for this, but I give up.  Here’s a dolphin.

I was talking with a friend the other day about personal finances, and we were discussing how we were both in pretty good financial shape, but we were (yet) in very different places.

Most of my money is ludicrously liquid, in fact, when I grab a quarter, it turns into a wet, squishy mess.  But by liquid, I really mean that have the ability to use it, right now, right here for anything from purchasing a prodigious plethora of Pez® and pantyhose to just letting it sit and rot.  Mainly my money has just been sitting and rotting slowly due to inflation.

As I’ve discussed before, most of my time (day and night, sometimes) had been spent out of the house actually earning the money, and I’d given very little thought to actively managing it and the best way to do that.  I’ve missed some great deals, but I’ve also missed plenty of bad ones, like that Shetland pony farm.  Never could get those seeds to sprout.

My friend, however, has a great financial structure going forward, but he’s fairly illiquid – he can’t really touch vast chunks of that money, in some cases he can’t touch it for 20 years into the future, or it would require severe penalties (like losing a kidney, or paying massive taxes – but I repeat myself) in order to get at it.  I think his setup has him set up far better than me, 20 years from now.

In the conversation we were having, I came up with the epiphany – our money has different shape.  Shape, like a fine pair of pantyhose, has two sides.  Money shape has at least two – liquidity and risk.

Liquidity

Liquidity is when your money is available.  The greater the liquidity, the more available your asset is.  So, if I have $10 in my hand, I can use it immediately if I so chose.  Or I can do like government and just light fire to it and watch the pretty flames.  But let’s look at liquidity from liquid to solid of assets we own.

Money

• Cash – As above. You can do anything you want with it.  Well, most things.  It can’t help you go faster than the speed of light.
• Checking Accounts/(Debit Cards) – Either way, the money is immediately and totally available, as long as you have money in your account or have recently paid your credit card bill. Many places still checks, which are becoming an obscure throwback to another age when men could actually sign their name.  I pay bills with checks.  I have never owned a debit card, but I hear they go great with fish.
• (Credit Card would go here if Credit Cards were an asset – they’re not, they’re a loan)
• Things – Some things are almost as good as cash, but they’re not cash. Silver coins, gold bars, Pez®.  This could go nearly anywhere, depending upon the thing, the time of the day, and the tide.  Beanie Babies® probably are about as liquid as land near a former Soviet nuclear/biological warfare testing site.  Sorry if you thought those would pay for college.
• Stocks/Bonds – These are pretty liquid, it will still take a day or two to get a check and get paid.
• Savings Account – Different than checking – they can hold your deposit for a period of time if they want to after you ask for it, generally no more than 30 days. It’s actually a loan to the bank.  Do you really trust those guys?
• 401k/IRA – The money is yours, but you get hit with a huge penalty for breaking that piggy bank, takes weeks to get a check. I think it’s just a plan for you to save your money and put it all in the same place so the government can find it easily and use it to buy Carmex™.
• Home – Generally takes more than a month to sell/close. Might take a year.  Might take longer.
• Land – See above, but . . . location, location, location.
• 401K/IRA (no penalty) – Become 59 and ½ years old. So, if you’re 59.49999, pretty liquid.  But easy to calculate how much time until you are liquid.
• Pension – Get it at a predetermined age, generally 65.
• Social Security – Can start drawing early, but you get less over time. If you die early, that’s a good deal.  Wait, did I just really type that?

My issue is that I’ve been living too far up the liquidity tree.  I’ve been serially under-invested, and have been for years. As I mentioned above, another dimension to money is risk of loss:

• Cash – 100% risk of loss. Inflation, over time will destroy cash purchasing power.  It’s the way that government keeps promises – it taxes those who save and are responsible!
• Gold/Silver/Pez® – Only lost if you don’t know where you buried it, but values may vary greatly even during a year.
• Stock Market – Inflation adjusted, it’s probably one of the best defenses against the tide of inflation. Individual stocks are much more risky than index funds, but have the potential for much greater gain.  Probably the best long term choice, but I hate to buy now, when the market is at an all-time high.
• House – Even if it blows up, you still own the crater. If only there were a market for craters.
• Pension – Generally, these are horribly underfunded. Good luck, especially if you’re a California government employee!
• Social Security – I’ve always felt that I’d never get any money back on this scheme. Still betting that.

The impacts of the shape of your money are significant.  I have more choices now than my friend, and unless I do a good job managing those choices, I’ll have many fewer as I get older.  The nice part of this, however, is the choices are mine, and I’ll live with the outcomes.

Now, to invest in an S&P index fund?  Or maybe horde Pez® for the apocalypse?

Choices, choices.

By Michael Adams (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

This is Sedan, Kansas on a high traffic day.  Some protesters closed the road down once, but nobody noticed.

I restarted blogging after being inspired by a post on Financial Samurai (thanks, Sam!) – I had blogged for about five years two to three times a week before putting the blog on a pause that lasted most of Joe Biden’s term as vice president.  I’m sad that I missed the opportunity to Biden-ize the blog.

I stopped primarily because work was fairly consuming, but also because I had run out of things to say, and you know that I would rather eat a squirming kitten whole than produce work that was shoddy and substandard. What do I look like, Johnny Depp?  (That was metaphorical – Johnny Depp often looks like he’s been fighting in an alley for a can of Sterno®.  I only occasionally look like that.)

When I lived in Alaska, blogging was a good way to view a new location through new eyes – I learned about Alaska, and told my readers about it, too.  Our move to Houston represented for me our Beverly Hillbillies© moment – people who belong in Alaska attempting to get by in a very hot, very big city.  True story:  It was so hot in Houston that I often was sweating.

Then we packed up and moved to Northeast Midwestia, and, well, I’d lived in small towns, so it wasn’t nearly as unique to me.  Also, The Boy and Pugsley had reached the ages where we were doing stuff with them three and five nights a week.  By the time I got home, I was fairly tired, the job was engrossing but also very, very time consuming.  Again, I’m not going to give you junky posts.  Do I have to bring Johnny Depp back into this?

The change (for me) came when, in the middle of moving responsibilities for what I do at work that I came across this post at Financial Samurai.  The post had gone was viral because people were gnashing their teeth at the temerity of the thought that people who made $500,000 a year might be just “getting by.”

But if you go through the post, you can see that the logic and reasoning is sound.  You can earn that kind of money in New York or Chicago, or L.A. and life is stressful.  $500,000 doesn’t even buy a used legal paper box in San Francisco.  The median home price in San Francisco (not a home in a median, the mathematical median, where 50% of the houses are above, and 50% are below) is $1,300,000.  And you can get a lovely 844 square foot (that’s two cubic megaparsecs in metric) for that.  Dr. Housing Bubble describes one here.

I was scratching my head, and thought, hey, there must some way to piggy back off of Financial Samurai’s success relate the costs to the coastal folks of what life is like in the hinterlands.  I threw a dart, and . . . . Sedan, Kansas showed up.

I would imagine that some people in Sedan drive sedans, but that’s not how it got its name.  Sedan, Kansas (founded in 1871) was named after the Battle of Sedan (September, 1870) which occurred during the Franco-Prussian War.  The Prussians crushed the French 43-12, and most of the French points were scored during the fourth quarter after Kaiser Wilhelm had already gotten a Gatorade™ dunk.

Why was this so big for the people who named the town Sedan?  I have no idea.  Maybe they just hate the French there?

Anyhow, Sedan, Kansas has a much greater continuity of government than Germany or France, and is a sleepy little town that has a high school and a marching band, and a hospital and a Pizza Hut©.

And that’s where you come in, because you, dear reader, could live large in Sedan.

Let’s look:

Let’s create a family of four, but a two income family

The husband is a teacher.  I’m pretty sure that a teacher there makes more than $25,000, but let’s go with that for now.

There’s a rural hospital there, too.  And the wife is a nurse.  Let’s say that she makes $25,000, too.

Both of their retirement is through the state, so I’ll not mess up the calculations with a 401k.  They could save more.

Kansas taxes, and taxes on incomes of an intact family of four are a pretty good rate.  I used TurboTax© to calculate this, so any errors are mine.  TurboTax® required that I put in names for the family, so I used Bob, Bob2 (his wife), Bob3, and Bob4.

Child Care

Bob and Bob2 don’t pay much in child care.  Child care doesn’t cost much in Sedan (possibly due to the Franco-German war?) and Bob is a teacher – he just needs some in-service days covered.  It’s possible that Bob2 could take a day off from the hospital and turn this down to zero, but I’ve tossed in a completely defensible $1800.  It would probably be less.

Food

Again, one of the advantages of Sedan might be viewed as a disadvantage to the uninitiated – Sedan has few restaurants.  I’m not sure how good any of them are, and at $11,600, a year, I think the family could eat very well, indeed.

Mortgage

This is my favorite.  I went to Realtor©.com and found a 2000 square foot house for sale for $84,000.  Yeah.  It’s silly low.  Now if you were going to try to move, you could probably bet that house would sit on the market for a year or more.  But since you bought it for less than a carport (no land) costs in San Francisco, you might be okay.  I tossed in some guesses for insurance and taxes.

Home Maintenance

Can Bob fix it?  Yes, he can.  $1,100 probably takes care of most of the honey-do list.

Vacations

$400.  Go camping.  Or go visit Grandma Bob in Branson and stay at her place.

Cars and Gas and Insurance and Taxes

Bob owns his cheap cars.  He hardly drives at all, being in town, so gas is cheap, too.  And cheap cars=cheap insurance and taxes.

Clothes

Bob2 is a bit of a shoe-hound, so I tossed $4800 in.  Plus Bob3 is growing like a weed!

Sports/Lessons

Small town – Aunt Bob teaches piano for $5 a lesson.  Flag football is $10 for the season.

Guaranteed Student Loans

Teaching in a small town Bob qualifies for whatever super secret handout they give to teachers.  Probably Bob2, as well.  I put down $200 a month.

Unexpected

$5,000.  What for?  Who can say?  If I knew it would be expected, goof.

So, I subtract the costs from the income?

That’s more than power couple in New York in the original post, who only saved $7,300 a year.

What amazes me, especially after living in a big city, is why they don’t sell their overpriced homes, buy a much bigger house, and live like royalty out in the boonies.  One house in Sedan is for sale now (April, 2017) and it is 3,400 square feet on 41 acres.  But it costs the whopping sum of $345,000.  How much would that house (in a safe free public school district) cost in New York?  It’s like a unicorn, or a balanced federal budget – it simply does not exist.  Did I mention the 41 acres has its own lake?

Many people live in these economic centers work really, really hard, but they end up being poor their whole lives, because:

“We buy things we don’t need, to impress people we don’t like.”

-Tyler Durden (Fight Club)

I read a great quote (and I can’t remember where it came from) that went like this:

“If you have to ask how much money you need to retire, you’re asking the wrong question.”  And it’s true – it’s not only what you have, it’s also what you spend, and what you think you simply must have.  I’ve heard of happy people in their 40’s retiring with $400,000 and thriving.  And people who retired at 65 with $5,000,000 ending up unhappy and broke.  Understand that the biggest part of this is you.  It’s not what you have, it’s what you think you need.

So, I’m back blogging, and am really sad that I missed being able to make fun of Biden.  Ohhhh, perhaps he’d eat a kitten?  Or fight Johnny Depp?

Now, every Wednesday I must remind you that I’m not a financial professional, and taking my advice might just be the most foolish thing you ever did, besides the time you burned your eyebrows off.

In the future some blog posts might be sponsored, and, again, in the future (past April, 2017), I might get paid for some of the links (I’ll tell you if so) but my advice will be like a professional psychic – for entertainment only.