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This article is by editor Linda Vergon.

The small, rectangular ceramic flower pots I kept in the two window sills of my bathroom had never budged an inch in the 14 years I owned the home, but one day I saw that one was close to falling out onto the counter below. I wondered if a small earthquake had caused it to move as I pushed it back in place. About a week later, I came home to find that the pot had actually fallen completely off the little ledge and onto the counter. This time I stopped to understand why, and I discovered that the small window was separated from the sill. I went outside. From there I could tell that the window had been pried from the house and someone had left a hacksaw on the ground. Evidently, I surprised whoever was trying to make their way into my home.

That day marked the end of my being blissfully unaware of the fact that there were people who were willing to commit crimes in my neighborhood. At the time, I was a single mom with a nine-year-old, and I felt a profound sense of terror. I locked the side gate and alerted my neighbors. The police couldn’t lift any fingerprints, so nothing ever came of the incident except how it affected me. It wasn’t long before I was interviewing home security companies.

I loved the system I chose. I could open the garage door and unlock the house from my key fob as I arrived home; I could even turn on the lights remotely or program them to come on automatically. If there was an intruder, a piercing alarm sounded and the security company would immediately notify police or the fire department if it was the smoke alarm.

Here’s how the costs broke down for the system I got back in 1999:

  • $600 – Door and window sensors, motion sensors, lighting timers, key fobs, alarm, security panel, and garden signs
  • $200 – Installation
  • $99 – Monthly service fee

Over the next eight years, I spent a little more than $10,000 for the convenience of security. I never second-guessed my decision because I needed to know that my son and I were as safe as possible after that event, and it made me feel like our home wouldn’t be easily invaded while we were away. To this day, security is at the top of my list of priorities whenever I move. But now that my situation has changed and I’m not a single mom anymore, I’m more inclined to rethink my decisions about security. Like Kristin, my husband and I have been thinking of moving to a different apartment in the same city. We’re not expecting that there will be an issue with security, but we are starting to travel more frequently and it would be nice to know our things are safe.

I haven’t looked into a new system yet, but I understand that the equipment and installation is roughly the same (depending on what you want, of course). And the monitoring can run $15 to $100 a month, I’m told. Then again, the systems available today are much more sophisticated and, because my husband is well-versed in tech-y stuff, I bet he would love to put in sensors and monitor things over the Internet himself. I understand you can even monitor the temperature to save on utilities. But what is your experience? How do you keep your living situation secure, and how much does it cost? Is a home security system worth the money in your experience, or do you set up your own system and monitor it yourself?

This article is about Ask the Readers

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This is a post from staff writer Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the adviser for The Motley Fool’s Rule Your Retirement service.

If you love cat pictures, today is your lucky day. Because I’m back!

As longtime readers will recall, I contributed to Get Rich Slowly from 2009 to 2013. I often wrote about more “technical” (i.e., boring) topics, such as taxes and IRAs. In order to provide a reprieve from the technical-ness, J.D. occasionally sprinkled in cat pictures. I tried not to take it personally.

Photo: ZUMA Press
Photo: ZUMA Press

But for the record, I think other creatures would have been more appropriate. Such as the blob fish.

For those who remember me, it’s great to see you again. For those who don’t, here’s my Cliff’s Notes tale of priesthood, eating pre-chewed food, reproduction, and why I know a thing or few about money.

I hung up my GRS writing boots last year because I had overloaded my life with new ventures, which included more actual financial planning for folks. But things have settled down, which allows me once again to be a part of this self- and other-bettering community. But here’s the thing about financial plans: They’re really financial projections, using just your current numbers — the size of your IRAs and 401(k)s, how much you add to those accounts, your current Social Security benefit estimate, and so on. A financial adviser — or you, using a retirement calculator — inputs a bunch of figures and out comes the verdict: You’re guilty of not saving enough, or you’re innocent of all financial wrongdoing.

I wholeheartedly believe that everyone should do just such an analysis annually to estimate whether they have a reasonable shot at retirement, or other financial goal, and to determine what they can do if things aren’t looking so hot. However, these analyses also have their limitations because they only care about what can be quantified.

So more and more over the years, I’ve found myself using financial-judging software as the basis for starting a discussion, and then wading into more fluid factors that are also crucial indicators of future financial freedom. Here are five of those factors, oh-so-briefly explained. I could devote an entire article to each. (Yay, more cats! Or blob fish! Or a sitcom about them getting married but their parents not understanding!) But what follows will give you an idea.

Your non-portfolio assets. We all have a lot of stuff. In fact, that’s why we have a house, according to the late, great comedian George Carlin, who said, “Your house is nothing more than a place to keep your stuff while you go out and get more stuff.” For some, a house is not enough. According to the Self Storage Association, 9 percent of American households were renting a unit as of 2012. Chances are, you have stuff you either don’t need or that could be replaced with a less-expensive option. It starts with your stuff-container (your house) but can involve a wide and diverse range of property: other real estate, collectibles, electronics, appliances, household items, vehicles (including bikes and boats), and the many gifts of Christmases past. You can fall back on hawking these wares in a pinch, but it is even better to turn depreciating dust-collectors into growing assets now by selling them and investing the proceeds. An investment in the Vanguard 500 index fund would have grown to almost 19 times its value over the past three decades. And unless you’re a 95-year-old javelin catcher who smokes, you should think of your investment time horizon in terms of decades.

Your human capital. Regardless of what advertisers or Wall Street might say, your biggest asset isn’t what you buy or own. Your biggest asset is you — what you can do, what you know, what you’ve accomplished, and who you know. In financial terms, this can be considered your human capital — your ability to earn an income (including the variety of ways, the amount you would earn, and how easy it is to move in and out of the workforce), the things you can do that you would otherwise have to pay someone else to do, and your social and professional network. A sub-category is your financial literacy, i.e., how smart you are with your money.

Your health. A recent study from gerontologist Ken Dychtwald and Merrill Lynch found that good health is the No. 1 ingredient of a happy retirement. It is hard to enjoy your golden years if your creaky bones have you in tears. But there is also a financial component: Healthier people spend less money on health care. They keep the money that would otherwise go to hospitals, pharmacies, and the medical equipment industrial complex. Of course we are all very fortunate and grateful such things exist, but they don’t come cheap. Plus, healthier folks feel better, can do more, and can work later in life if they want to — as opposed to the approximately 25 percent of retirees who left the workforce at least partially for health reasons.

Your habits. Financial success is determined largely by financial behavior. As “The Millionaire Next Door” — the study of real-life wealth by Thomas Stanley and William Danko — and Stanley’s follow-up “Stop Acting Rich” taught us, monetary security doesn’t just happen. The majority of Americans who earned their millionaire-hood did so by having a plan for where their money would go, maintaining a system for making sure they are on track, living on 80 percent or less of their income, and not buying homes in high-priced neighborhoods. Only 30 percent of the variability of wealth among households is explained by income, so the truly well-off are doing something right besides bringing home a bunch of bacon.

Your family’s assets. When it comes to stuff, you may have heard that you can’t take it with you (even though many people think shopping is a divine experience). You might be in line for an eventual inheritance. But for many families, the biggest “asset” is the support they give one another, such as child care, elder care, professional expertise, hard-earned wisdom, and a safety net. However, to keep wealth of all kinds in the family as seamlessly and cheaply as possible, you and your relatives should have frequent and open discussions as well as the properly executed financial documents.


This article is by staff writer Kristin Wong.

Despite that I don’t own it, I like my apartment. It’s got a mountainous view, it’s comfortable, and my neighbors are few but friendly. Sure, I’d like to own a home someday. But, unless I move to another city, that probably isn’t going to happen in the next few years. I’m fine with that. Like my neighbor said, I’d rather live here than anywhere else, at least for now.

If you sense a wee bit of defensiveness in my tone, you’re not imagining it. Part of me is trying to justify something.

After my upstairs neighbor moved out a few months ago, our management company began gutting their apartment. We found out they were completely updating it and tearing down walls to put in central air, a dishwasher and an entirely different floor plan.

It didn’t take long for me to notice all the stuff I hate about our apartment: doing the dishes by hand — what are we, cavemen? — and no central air. Life shouldn’t be this hard.

In case there’s any doubt, I’m joking. My point is: I never really noticed these things until I learned about the amenities that will be enjoyed by the Future Joneses in Apartment 9.

“We should move into that apartment,” my boyfriend and I have been joking over the past few months. “Wouldn’t that be funny? To move up one flight of stairs?”

But at some point, we got kind of serious about it. “Well, the rent will only be $240 more per month,” he pointed out. In our area, that’s not a huge jump. Plus, we split rent, so we’d each only pay an extra $120 a month. “If we moved, we’d still be living below our means,” I conceded. “But I don’t know.”

It’s pure lifestyle inflation. And in recent weeks, I admit that I’ve started to mull over the question of whether lifestyle inflation is ever okay and, if so, how do you decide when it is okay? Here’s how I’m sorting out my thoughts on the matter.

(Warning: This is another one of those “First World problem” posts. I’m really grateful to be debating over something like this.)

How will this affect my budget?

It’s the first, and most important, question. Our spending will automatically change, monthly, with this expense. It’s not something we buy once and get to enjoy it. It will truly inflate our lifestyle and our budget. To be honest, I don’t really use a strict budget. I make savings goals each year, and simply aim to reach those goals.

I crunched the numbers to see what our spending looks like, using the 50/30/20 paradigm (50 percent bills/30 percent spending/20 percent savings goals) as reference. If we were still trying to get out of debt, it would change my perspective quite a bit, but here’s how my spending stacks up in any event, generally speaking.

  • 27 percent: Bills and rent (14 percent rent, 13 percent bills)

  • 35 percent: Savings

  • 38 percent: Spending

I was surprised that spending was my highest percentage, because I consider myself a frugal person. But I guess it makes sense — my fixed expenses are pretty low, compared to the 50/30/20 method, and that’s because I am so frugal with those expenses. I cut back on the things I don’t care about so I can spend more money on the things I love, like travel and dining out.

If we moved to the new apartment, the bills and rent percentage would jump to almost 30 percent.

“That’s still great compared to most people’s budgets,” my boyfriend argued. Which is true, but I’d rather compare my spending to my own goals, not other people’s expenses.

So back to the question: How will this affect our budget? I’m not going to budge on my savings goals.

I guess I could always take on extra work to make up the difference. That would keep my spending and income gap in tact. But dammit, I don’t want to work more.

In that case, the extra money would have to come out of our spending. That means less dining out or less travel. I have to ask myself, Is the apartment worth giving up a bit on those things? And, in that case, is it truly lifestyle inflation, or just a trade-off?

(Note: My boyfriend and I haven’t fully merged our finances yet, so I’m only calculating my own budgetary changes.)

What is the opportunity cost?

The extra amount I’d pay each month, $120, equates to $1,440 a year. And I could be losing even more than that, if you consider the opportunity cost. What additional opportunities are we giving up by spending that money?

For example, let’s say we choose to invest that money instead. If I invest $140 a month, in a year, that’s almost $1,500 (assuming a return of 7 percent). And in three years, that would be $4,800. If we combined our savings, that amount will jump to about $9,500.

Suddenly, I wonder if I really hate doing the dishes that much. Is a more comfortable lifestyle worth the opportunity cost?

And what is that cost in terms of my goals?

Let’s say my goal is to save up for a down payment for a home in L.A. If I save that money instead, I could buy a home sooner. But how much sooner? Homes here are expensive, and, unfortunately, $9,500 would be about a tenth of what our down payment might cost. I might rather live it up in this apartment for the next three to five years at the risk of pushing back my homeownership goal a bit. In that time, maybe I’ll pick a cheaper place to live, anyhow.

What am I getting in return?

I showed my boyfriend that figure.

“But it’s not like we’re not getting anything in return for our money,” he said. “Plus, we’ll cut back on spending, not our savings.”

Even though I defended renting a while back, I couldn’t help but argue:

“But we’re spending more money on a place we don’t even own. It’s like throwing money away.”

“With that logic,” he said, “Why don’t we just move into the cheapest apartment we can find?”

He has a point. Renting is just our reality. I’d love to buy a home someday; but if I stay where I’m at, it’ll be a while before that happens. Isn’t it okay to enjoy my income a little in the meantime?

Still, there’s a part of me that feels we’re spending more money on something, and, when it’s all said and done, we have nothing to show for it, because we don’t own it.

“When we travel, we don’t own anything, either,” he said. “Except the memories. It’s more of an experience purchase. In this case, we’re paying for comfort.”

And here’s the comfort we’d be getting in return:

  • A bit more free time: We’d save time doing the dishes. Also, when both of us have a busy week, we sometimes order out too much and avoid cooking. Cooking equals dishes, and I know neither of us will have time to do those dishes the next day, so it’s just easier to order out. I’m not arguing that this dishwasher will save us money, but it might make it easier to avoid stress spending.

  • Brand new stuff: This is a rarity when you rent. It’d be really nice to use a tub and toilet that a hundred other people haven’t used on a regular basis.

  • More space: The apartment is slightly bigger, which is nice, though it’s not that big of a deal to me. I don’t mind small spaces. But it would be nice to have more room for my home office.

  • Better aesthetics: The layout, lighting and amenities are better, making our day-to-day environment more comfortable and pleasant.

How frequently will I enjoy this?

Another important consideration in mulling over my lifestyle upgrade: Is this upgrade something I will enjoy often? It makes sense to spend your money where you spend your time.

A couple of years ago, we splurged on an expensive mattress, part of the justification being that we spend 8 hours a day on the thing. My back and I have zero regrets about that decision.

On the other hand, I once bought an expensive pair of heels. I work from home and rarely go to fancy places, so these shoes mostly just collect dust in my closet. Every now and then, I look at them and wonder if I should just try to sell them.

The apartment splurge is something I would enjoy on a daily basis, especially since I work from home. Also, I’d have more room for my home office, which would be nice.

I like being frugal. But, as we’ve discussed before, frugality isn’t just about saving money. It mostly seems to be about optimizing value. I’m not saying that this move would be a frugal choice; I just wonder if it’s inherently un-frugal. I’ll admit, I’m leaning on the side of moving, because I have no real concrete goals, I’m just saving to save, and, hell, I want to live a little. I’m into personal finance for the financial freedom, flexibility and options. What’s the point of managing my money so well if, when I finally get to the third stage of finance, I hesitate to spend it on day-to-day comfort and convenience?

It all sounds very rational, but the cautious side of me worries that I’m only justifying things. After all, I didn’t get to the third stage by giving into lifestyle inflation.

Still, it sure would be nice to move into what now seems like the perfect apartment.

What do you think? Is moving into a better apartment a bad personal finance decision? How do you decide on lifestyle upgrades? Is there something else to consider?


This article is by staff writer William Cowie.

My wife and I took the dog for a walk the other day in our neighborhood. About half a block up the street we met Heather and George as they were unloading one of those moving PODS thingies. We introduced ourselves and asked their life’s story, or at least the part about buying the house they were moving into.

Turns out they were buying something better than they had before — trading up, in other words, as were the couple who sold them the house. Our direct neighbor, Elsie, works in a realtor’s office and she confirms that this is happening all across town these days. Most of their clients are selling because they are getting something better.

Is the value of your home, and your equity, increasing? How does that growing equity make you feel? Does it make you feel rich? Well, OK, maybe not rich, but a little better off than a few years ago? Are you tempted by those ads home builders fill the weekend newspaper with? (If, of course, you still read newspapers.) Have you been invited to a friend’s housewarming after they sold their home and bought a nicer one? Did you walk around their new home and say to yourself, “Hey, we could afford something like this. Why should we be the only ones left behind?”

A growing optimism

The times we live in impose a “feeling” on us. The German term zeitgeist (spirit of the time) is often used to describe this. The Roaring Twenties were famous for the general feeling of optimism and prosperity. The Great Depression brought, well, depression. The first decade of this millennium brought something akin to the Roaring Twenties as every neighbor and his dog were flipping houses and making thousands doing it. Then the Great Recession brought another round of pessimism, when everyone thought the world as we know it was coming to a speedy end.

Now, as that pessimism is fading in the rear view mirror, it’s easy for things like a more stable job, growing home value and equity and a recovering 401(k) portfolio to draw us into the zeitgeist of today, one of relief and renewed optimism. Granted, it’s nothing like the heady days of the postwar Golden Age or the Roaring Twenties, but it’s not the pit of depression anymore, either.

There’s another emotional overhang from the Great Recession many people feel. When their homes went underwater (i.e. they owed more on their home than its market value), there descended on them a feeling of being trapped. Honor dictated that they not join the almost 10 million people who lost their homes or simply walked away from them, so they stuck it out.

During a time like that, it’s easy to project the frustration and feeling of hopelessness on the physical building you live in. Then, when the day finally comes when the value of your home is higher than the loan balance, there’s a strong temptation to just sell and get the heck out of that home. And, while you’re at it, why not see if you can get something better by trading up?

Yet there’s another feeling riding shotgun with that one: When your income and wealth recover, it restores your sense of self-worth. Logic says you shouldn’t measure your worth by your stuff, but we live in a culture which, right or wrong, does exactly that. And it’s hard not to get sucked in, even if only a little, whether it’s paying ridiculous prices for a cup of coffee at the place with the naked lady logo, or trading up to get a nicer and perhaps newer home.

Movin’ on up

It’s easy to be seduced by a realtor or neighbor who keeps telling you how much richer you are because your home price has gone up so nicely. (“You worked so hard for that equity in your home — you deserve it!”) It’s probably worse here in Denver than most places: The local housing market seems to be hotter than other parts of the country, because many people are moving here for the legal marijuana. (I’m not making that up; we met a young couple who told us that’s why they moved to Denver from Minnesota … without even having a job lined up.)

Home prices, of course, have recovered from the Great Recession in most parts of the country. CoreLogic, the real estate data tracking firm, recently released their report for August, which shows that prices continue to rise, although the rate of price increases seems to be slowing a bit.

corelogic homeprices aug 2014

The line dropping doesn’t represent prices themselves, only the rate at which home prices are rising. As long as the line is above the 0 percent mark, it shows prices are rising, not falling. (The blue line represents all single dwelling homes, the red line excludes distressed sales.)

Why are people trading up their homes now? You might recall the post I wrote about seven months ago, showing why trading up at the top of the market is very unwise. The best time for trading up is in a recession, and the only smart thing to do at this time is to stay put — or trade down, if you absolutely, positively have to make a change. I was talking to a literary agent recently about my upcoming book on the four seasons of the economy, where I repeat that advice. When she read that part, she responded: “That might be too intuitive. I don’t think people need to hear that.”

Really? What do you think? When you see so many people hurt by trading up the last time the home market was hot, don’t you think they’d think twice this time around? Or is this just a new round of people heading for the most expensive lesson of their lives?

When it pays to trade down

Jenny and Karl (not their real names) bought a condo at the top of the market before the Great Recession. They’re both smart and educated. It wasn’t intuitive to them to not buy when prices were high, so they did. What got them was the zeitgeist pressure: “If you don’t buy now, you’ll never be able to afford it in the future.” Then their condo went underwater, like millions of others, and that grated on them every single day. They told us many times they would never have bought if they had known what would happen.

The logic is simple: To get the most value, you need to buy low. Yet very few people do. You’d think that when home prices dropped, sales would soar. You would be wrong. When the market hit rock bottom recently, people couldn’t give their homes away. Buying low is not as intuitive as some people may think. Builders were stuck with unsold inventory for months, even years.

If it’s intuitive to buy when the market is low, why didn’t anybody do it? The only people who did were smart investors, who came out in droves and scooped up underpriced bargains by the handful, especially in places like Las Vegas.

Jenny and Karl’s condo recovered in price, as did millions of others, and the time came when their home equity finally turned positive again. They sold their condo a couple of months ago, not to trade up, but to move out of town, to one of the smaller peripheral communities on the way to Kansas, where property prices are much lower than in the city. As Karl put it, “I’m dying in that place, man. The only way we’re moving again is if the city limits expand and we become incorporated again.” In other words, they’re using the high real estate market to trade down, not up.

They learned.

The sensible approach

We all make mistakes. My wife and I bought our first home at the top of the market, and it took us decades to recover from that. If we had waited just two years, we would have been able to save about 20 percent on the same house.

What should you do about home prices going up in your neck of the woods? To summarize the prudent courses of action:

  • If you’re itching to buy your first home, you may want to think twice. See that chart above? Home prices go up and down. Be patient — it’s not going to be too long before you can get the same home for much less.
  • If you’re considering trading up, you will also save several tens of thousands of dollars by waiting just a little.
  • If you’re an empty-nester considering scaling down, now might be a good time for that.

We have friends who recently retired and sold their home. They bought a motor home to live in, and travel the country. Who knows? They may be waiting for the market to drop before they buy again. Now that would be smart.

Hmmm … I’ve already started looking at Craigslist. This is a good time of the year to buy a motor home, isn’t it?


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