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June 15, 2010

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I particularly agree with Steve Maxwell's logic on buying a house. Too many people believe the bigger and more expensive the house is, the better their lives will be inside the house. I'd rather have an amazing wife and kids in 1200sq.ft. house than no-communication family in 4500sq.ft. But that's just me.

I agree and live my life in much the same way... but

Who are the people buying $2-30 mm homes? Who are the people flying on all the private jets? Who are the people driving in nice cars? Buying second homes for $1mm+? Traveling first class? Buying expensive food and wine?

If there is no wealth backing these decisions, there is a ton of cash-flow. Some wealthy people clearly spend. (Old limely flies first class on his European trips.)I'm just saying.

Tyler, I assume that the people buying all the really expensive stuff are uber wealthy or that they will have financial problems in the future (like Nicholas Cage). Buying a $30 million dollar home is spending less than you earn for Bill Gates. :-)

It's all a matter of perspective and how much wealth a person actually has...Steve Maxwell's $750,000 house sounds like way too much to me, but to Steve Maxwell, it's way better than the $1.5 million home he was looking at, lol.

I totally agree with BFS. At the end of the day it comes down to

“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” — Charles Dickens, David Copperfield

If you have the money to spend AND the house gives you more happiness, buy that $1.5m home. After all, if we don't spend money on something that we can afford and gives us a lot of happiness, what are we earning for. If you have expensive taste, earn more to cover enough savings + money for necessities + the luxury you want, then you are all set.

Spend less than you earn. Buy only what you need, not always what you want. Use money as a tool to make your life better.

Good advice from a lady long gone. She left quite a fortune.

BFS
You shared enough here and on your blog so that I don't think you'll mind my aharing that you and Mr BFS are in the early years of your career. $100 or $1,000 is a different sum for you than say me. As you know, I'm farther downstream in my life than you.
In terms of accumulated wealth, I'm not in Old Limey area but, I don't need to pinch my pennies quite as hard now as when I was working. Actually, I am having to learn how to spend now. I spend, but not wastefully. And, FMF, my monthly outgo is still less than my monthly income. ;-) Old habits die hard.

I'm not spending the way the people in Tyler's example are. But as you stated BFS it is a matter of perspective.

BillV, exactly! I'm sure the $2000 cruise we are going on this summer won't sound as extravagant to me when we're retired. Right now, it feels like a grand ol' splurge that I'm even dreaming about...

And feel free to share info about me whenever...when you have a blog with your income and monthly budget posted, there really aren't a lot of secrets left, lol.

BFS. I love cruises. I've been eying one of the river cruises, but that will have to wait until 2011 or 12. Tellus where you are going.

I would phrase things a little differently.
I like to obtain excellent value for the money that I spend. It doesn't matter to me whether I am spending $20, $200, $2,000, or $20,000 I want to be certain that I am not paying through the nose just for a brand name, just to impress someone, for exclusivity, or because it's cool.
If you adopt that attitude with every purchase you will be surprised how much money it adds up to over a year - then extrapolate it over a lifetime and take into account the compounding effect of investing the difference rather than spending it and you will be amazed.
I have bought many items of clothing on eBay and get a real kick when nobody else bids and I pick up something that I really like for peanuts - it's their loss, my gain.
I like restaurants that have a very low corkage charge when you bring your own bottle of wine - couple that with finding a great low price wine that you really enjoy and it lowers a restaurant bill significantly.
I also never buy a new book. I just bought a $14 book at Amazon in excellent condition for $0.01 + $3.99 shipping, that's definitely good value.
I buy prescription glasses online from a California company that uses an optics lab in China to produce quality glasses at prices that are way less than even buying them at Costco.
It also doesn't bother me that I am the only person in my upscale neighborhood that washes their own car and does their own landscape maintenance.
As for bottled water, that's a huge ripoff, some of it is more expensive than gasoline. I have a reverse osmosis system under the sink and I test its output regularly with a TDS (total dissolved solids) meter to ensure that it's working properly and that it's removing over 97% of all impurities.
My method does require that you have lots of self assurance and don't give a damn that others may think you're cheap or eccentric even though you are.

FMF,

It's interesting- I followed all these tips, bought a 950 sq ft condo in cash for $175K back in 2005 and have lived there rent and mortgage free for 5 years, saving up all the while. Now I would like to buy a house in Palos Verdes, CA in Malaga Cove- great view of LA, the ocean, year round ocean breezes and pleasant weather. Only problem is most houses go for $1.8 million or so. I have the money after saving but buying there would wipe out the cash cushion I've built up. And the property tax burden ($18k a year) seems too expensive to fathom. Guess I'll have to keep dreaming for a while longer while sweating out the 95 F degree weather that I encounter everyday here!

-Mike

I really think being a millionaire is much easier than people think. Just consistency and longevity.

you are right Financial Samurai, I am with you - but let's not forget, to some, the point you make is part of their subconscious and inherent in them. to others, it is light starring them in the face as if they were deer.

it's the same concept when we say the world is too small. it is a relative phrase isn't it? as a traveler of 27+ countries and 6 continents, to me the world cannot get any smaller. but to someone who has never left their state, or even city limits, the world is too big.

let's pray and hope for increased awareness and financial literally globally. thanks to blogs like these (yes FMF this is for you), hopefully the trend is ever increasing.

Mike:
I was in the same position 15 years ago that you are (and still am). A former colleague of mine that started his own business and was doing well moved up into a really nice location in Monte Sereno which is between Los Gatos and Saratoga in Silicon Valley. It wasn't the home that I envied, it was the lot and the views. He had a nice acre lot with acres of unbuilt land all around and a wonderful uninterrupted view, across a beautiful swimming pool, of the Santa Cruz mountains that are green all year. He paid right around $1M for it (now worth more than double). The former owners, an old couple, decided to sell it after it was badly damaged in the Loma Prieta 7.1 earthquake in 1989. The property taxes on it would have been about $11,000 at the time, and on my much nicer, newer home, on flat land, in a great development, but with no views, they were $1,300. My home had no damage at all in that quake. It just didn't make any sense to have to pay almost another $10,000/year in taxes to live in a much older home, on hilly, earthquake prone land, and in an area that would have become a less desirable location for us as we got up into our 70's, 80's and maybe 90's. That was just too much money to pay for a view. A downside was that he's a keen gardener like myself and found later that he couldn't grow anything except native plants because the deer came in and ate everything he planted, even on his front porch.
Our decision to stay put looks better and better the older we get, especially since if we are lucky enough to live long enough one or both of us may have to give up driving, my wife is already saying that she may not renew her license when it comes due.
I can vouch for the beauty and desireability of Palos Verdes in Southern California, we used to drive through the area when we visited friends that lived nearby when we would take our kids to Disneyland in the 60's.

Old Limey,

Thanks for your comment- I do dream of great weather and views but my mind doesn't justify the expense... maybe I can use vacations and other travel to keep me going. I do fear that after the initial thrill wears off I will take the views and great weather for granted while being all the poorer off in the process. Good to hear your point of view as it is a great sanity check for me!

Mike-

Just wait a year or two and buy it for half! :)

Tyler:
It's amazing to me that the nice, well kept up homes in the most desirable areas of Northern California around where I live have come through unscathed so far. It's the new mega mansions that people moved to that were 50 miles away from where they worked and out in the rural farming areas where land was very cheap that have had their prices cut by more than half. Micro climates and air quality variations are very influential on home prices, if you get the nice cool breezes rolling in at sunset and have a well insulated and nicely shaded home that makes A/C a luxury rather than a necessity you pay a lot more for a lot less house than in areas that are too far away from the bay and the ocean to benefit.

Old Limey is right- I'm still stunned to hear how many people are lined up to take a huge mortgage to buy in CA.

-Mike

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