Thursday, June 30, 2005

In pursuit of financial freedom - Jun. 30, 2005

In pursuit of financial freedom - Jun. 30, 2005: "Ultimately, financial independence boils down to one thing: freedom of choice. "

Monday, June 27, 2005

Money Magazine: 50 Smartest things to do with your money

Money Magazine: 50 Smartest things to do with your money

A great read, some of the suggestions are a bit odd, but in general, nice common sense advices.


Saturday, June 25, 2005

Real estate and Early Retirement

Real estates in many parts of North America have boomed lately. House prices jumped as much as 100% in some large cities (New-York, San-Francisco, Vancouver, Toronto, Boston).

Feeling richer, people increased their spending level in the last few years like never before. Many people tap in the increased value of their house by refinancing the mortgage and use the credit to finance projects and spending.

I'm very cautious about the increasing real estate market. Some thoughts:

  • Your house is no ordinary investment and you should not add your house value to your wealth just as you add the value of you stocks to your wealth. When the value of your house increases, the cost of lodging increases as well, which means that if you need the cash flow from the value of your house during your retirement, you'll have to find some new lodging, which will also have increased in cost. The real gain in wealth is the difference in value you'll get if you sell your house and the cost of lodging somewhere else. Thus, you can actually be wealthier thank to the booming real estate market only if, for instance, you plan to go in a cheaper city or district or get a smaller house.
  • As your house value increases, so do your tax expenses. If you refinance, the interests on the mortgage also increase.
  • When people such as Buffet and Munger warn about a real estate bubble, you should be cautious. Any investment that is not cash or deposits has a value that is an estimate by the market and is highly volatile by nature when market conditions change. At the top of the tech bubble in 1999, people felt rich, but they forgot one thing: the stock market goes up and down and unless you are talented enough to know when you are at the top and the bottom of a market, you should not evaluate your wealth based on the value of what you own at a specific date, but rather on a longer term average (the real value of your house is more likely to be near its 10 years average value than as of today), taking into account volatility and risk.

Anyway, nobody that seek to retire early would tap into its real estate by refinancing the mortgage at a higher value. That would mean you are living beyond your means.

Tuesday, June 14, 2005

FPA Journal - Reality Retirement Planning: A New Paradigm for an Old Science

FPA Journal - Reality Retirement Planning: A New Paradigm for an Old Science: "Traditional retirement income planning generally assumes that a household's expenditures during retirement increase by a certain percentage each year to reflect historical inflation rates. This type of planning usually results in increasingly higher withdrawals from the retiree's nest egg to help sustain inflation-adjusted expenses throughout retirement.

Reality retirement planning is similar to the traditional approach in that it increases spending for inflation. This strategy differs from the traditional approach because it assumes that a household's real spending needs decrease incrementally throughout retirement."

Sunday, June 12, 2005

Beware great deals that aren't

MSN Money - Beware great deals that aren't

Particularly, I think the used car vs 0% financing on new car is very intesting.

Now, about warehouses... Even if I live the frugal way, I never go to places such as Wal-Mart, even though you would normally save by going there (and I know that prices are actually lower that my local store most of the time). I live near the downtown, so I think going to local stores might be cheaper that Wal-Mart.

Wal-Marts are generally located in suburbs. In my case, the nearest Wal-Mart is a 10km (~6 miles) run from my home. Parkings are always full and it is always the rush hour there, so my average time spent ony to get there and coming back is more than 30 minutes. Since your time has money value, I'm paying myself $10 for these 30 minutes.

Compare this to the nearest local store, where I can find most of what I need, at a walking distance from home.
Time spent to go: 0 minute, since most of the time, I will jump by the store when I'm walking for any reason in front of it. On top of that, the total 20km (~12 miles) run in car to Wal-Mart, at approximately 0.3$/mile costs about $3.5 just to get there.

And finally, I hate going to Wal-Mart and other warehouses. It is noisy. There are children everywhere running into you. It takes so long to check-out. In the parking lot, people are aggressive. It smells bad. I dislike annoucements on the speakers saying "Thank you for shopping at X" or "Security, camera 3, Security, Camera 3".