Weekly Update

One of the things that I found absolutely intriguing about life is observing the trials and tribulations of myself and my buddies, and to basically see them (or myself, in some cases) take a step back and logically and emotionally assess themselves.

Take the behavioral impact that an aggressively increasing pool of cash, or significantly increased salaries, has on the average Joe's psyche. Perhaps because my association with my friends says a lot about our common psychology, I've only seen very few of them be able to manage largess increases in stride.

MT, JP, and I are guilty of going out and blowing it on "relatively" expensive toys such as nice cars, namely.

When one meets SK from Chicago for the first time, he looks like he's ready to start a bar fight at any second. You may or may not expect him to be frugal when it comes to his daily living expenses and assets, but you probably wouldn't expect him to be extremely philanthropic with whatever he's saved up to his family relatives and other "friends", who 1) he's already not on good terms with, to begin with, and 2) always end up screwing up their payments back to him. This has been going on for two years now, yet he still keeps getting into these personal loans while fueling is ever-growing hatred for them. ("Helping family out" is one thing, but helping out vainly + hating them more through the process is unnecessary.)

Financially speaking, my financial acumen is sometimes a bit more honed and advanced than sometimes those with more capital than I currently have. However, there are definitely those around me who are even savvier than I am, with less means than I have.

There are acquaintances and friends few and far between that have been low-key with their newly-found "micro-wealth". However, when I observe them and compare them against me, or SK, or MT, for example, anecdotally speaking, at least within my own circle of acquaintances, I think we've involuntarily proven the ol' saying, "Money does change people."

What's really changed, isn't our morals, as one would expect. What's changed is our perception of money, and far it travels. We start thinking in terms of $1000's vs. $100's. We're waiving $1000 fees, quickly assessing, in the most inaccurate way possible, our time we take to avoid this $1000 fee multiplied by my hourly rate ends up costing us more than simply taking the $1000 fee hit. What's changed is that we now earn more than our parents could've dreamed of earning, and that we adopt the whole "think rich, grow rich" philosophy.

That's not to say that those "think rich, grow rich" books are baseless. Their content probably delves much more into exactly how to "think rich" properly. Unfortunately, what I did was take the words "think rich" at literal, face value, and turn it into a personal finance disaster for the last 3 years.

Like I said, our morals haven't changed, for the most part. Seeing that I was drowning myself deeper and deeper in financial morass, I took drastic actions by eliminating the expensive car out of my life. Next was selling off the Pine Ave. condo. Both were both timely and timeless choices, especially the condo. Immediately after I listed it for 3 weeks and sold it at my staggering asking price, the market collapsed in the Long Beach area.

In parallel, I noticed that my career path was on the fast track of domestic extinction. Opportunity presented itself to still actually earn a very decent salary, although the pay was significantly reduced from my senior level consulting position, and yet acquire a whole new set of financial analysis skills-- to be paid quite well to learn and train, while usually people pay to acquire new skills out of their own pockets. By taking advantage of that, I realized that the budget squeeze would tighten even more so that I first imagined.

So, now, I'm back to realizing that the intrinsic value of an item or event relative its absolute dollar value really depends on the scope and context of the situation at hand. Factors include actual billable work-hours lost or gained, leisure hours lost or gained, opportunity cost or advantage, budget and financial impact on reaching goals and milestones, internal rate of returns, among other factors based on individual scenarios.

For example, if a favorable California real estate deal presented itself to me and I was interested in financing, then there's no sense in haggling over even $10,000 or $20,000 most of the time. I'd easily turn a blind eye and deaf ear to plasma TV / included new appliances incentives.

But, I'm willing to exert the effort to save $500 / year on auto insurance. Why pay more?

Meanwhile, I'm now not willing to shell out $1500 to an attorney for document review when the document contains only the minimally required legalese on it on rather insignificant issues. I've learned that, although it's recommended that one consults an attorney to review legal documents, it shouldn't be taken literally as to review *every* legal document, even if it's part of, say, a real estate deal. Attorneys charge per hour. Have them review what's necessary, anything that could cause an issue to waffle towards litigation. It cost me nearly one year's worth of Roth IRA contributions, $3000+, to realize this fact.

So, my cash flow is doing incrementally better nowadays.

SK's case was one where, even though he's been a mortgage lender / broker for the past few years, the first few years involved him trying to sell us on the ideas of ARM's and interest-only's and other exotic animals. SK was basically acting as a salesman whose main interest was pushing volume in order to increase his bottom line. Quite frankly, though, I don't think he sold these products knowing the long-term ill-effects they'd have. Despite all that SK told me, I had my personal reservations about these vehicles.

Fast-forward two years. My conclusions have been firmly villified. SK's outlook has changed accordingly. As if in step with this change, I've noticed that he's far more budget-oriented and financially analytical, maybe even slightly more so than I am. For example, I presented a foreclosure opportunity to him, because I saw a $4K-$5K margin from it. However, SK felt that if any unforeseen closing costs were added to our industry average estimates, it'd immediately eat into the net margin. Immediately, it dashed our pursuit. Furthermore, at that moment, it dawned on me that I could purchase a newly built home in a far more favorable area, even though at 2x the cost, through conventional RE processes, that exhibited greater resale and rental income potential. Why not?

MT, on the other hand, has acquired a significant amount of wealth, Unfortunately, his recent decisions may end up to be his cash flow's worst enemy.