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Finance Myths and Fundamentals

September 26th, 2014 at 02:26 am

I was discussing

Text is this article and Link is http://www.entrepreneur.com/article/234454
this article with someone online the other day, and when I mentioned that the SO and I actually did reach millionaire status by age ~30 via saving rather than focusing on income, I received what I initially thought was an odd response.

"But you don't have a million dollars in liquid cash", he said. "Stocks can go down as well as up!"

At first, I was really confused, because that comment was clearly meant as a dig, as if holding investments worth a million dollars is somehow not as legitimate as having a million dollars in cash, simply because the market could go down, but who in their right minds would (unless one were running a corporation) hold that much in cash?

But then I started to unpack the implicit assumptions in his statement, and I came to a few realizations about his point-of-view.

His comment makes the assumption (like many other people, I'm sure), that being "rich" or "wealthy" is about having a lot of money. But that is not the right way to think about it. Conceptually, money is merely an abstract representation of value, and cash is just a single form of that value. The technical and more inclusive term for "stuff with value" is "assets", and that includes anything that has monetary worth, whether it's cold hard cash, a stock portfolio, physical property, or a business.

Most individuals who are wealthy hold their net worth primarily in assets, not in cash, and there's a reason for that -- cash is static in value. I have taken three finance classes, and every single one of them opened with TVM, or the time value of money, which is a fundamental concept in finance that the value of money does not stay constant; it changes over time according to an interest or a market rate. Thus, in order for money to hold its purchasing power, it needs to earn an interest rate that is at least equivalent to inflation. That usually means not holding assets as cash, which can only depreciate over time, but as investments, which can appreciate over time.

The second part of his comment, about market fluctuations, assumes that a down market means you've lost money. But those losses are purely on paper, and would not be realized until the assets were sold, which any prudent investor should refrain from doing (if they can help it). I didn't panic at all in 2008; that was actually the year I switched to a much higher-paying job, and started hitting the 401(k) as hard as I could. And I plan on calmly riding out any future market downturns, so I'm not too phased by unrealized short-term capital losses.

Furthermore, there is another fundamental theory in finance called the
Text is Capital Asset Pricing Model, or CAPM and Link is http://www.investopedia.com/articles/06/capm.asp
Capital Asset Pricing Model, or CAPM. The basic take-home message of CAPM, as I understand it, is that risk and reward go hand-in-hand. (I don't claim to have a sophisticated understanding of finance theory, but not only was CAPM taught in finance class, it also
Text is won the Nobel Prize in economics and Link is http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1990/press.html
won the Nobel Prize in economics, so I assume it's not completely full of shit.) I am chasing returns at this time, so I'm fine with taking on some risk. I am not going to fall for the trap of
Text is loss aversion and Link is http://en.wikipedia.org/wiki/Loss_aversion
loss aversion like he seems to be, especially when I don't invest anything that I'm going to need anyway.

It's fairly unfortunate when people hold onto these incorrect assumptions, and they don't have a more mature understanding of how finances work. I feel like I've barely scratched the surface of this vast and fascinating topic, but what little I do know already makes a huge difference in how I approach my finances.

And that knowledge is power.

Goals for FIRE and SWRs

September 23rd, 2014 at 07:09 am

How much does one need to retire securely?

I've been trying to answer this age-old question ever since I learned how to spreadsheet. In fact, my Google Drive is littered with the desiccated remains of various retirement projection spreadsheets that I've attempted over the years, but could never figure out how to finish. Usually, it ends with me throwing up my hands and going, "It's a pointless crapshoot to try to guess 40 years into the future, but it's impossible to overshoot it at this juncture, so just maximize the sh*t out this, and you can figure out the details later."

That has been a pretty good approach up to now, but if I really want to FIRE it up in the next decade or so, I need to set actual goals and criteria for success.

I know that the standard guideline for having enough retirement savings is the 4% rule. So if your expenses total no more than 4% of your nest egg, then your nest egg can sustain you indefinitely, assuming a 7% rate of return with inflation at 3%.

And that's where I start getting twitchy. Can you really count on 7% returns in perpetuity? I know that's (more or less) the historical long-term stock market average, but there's no way to know for sure what future returns will look like. Plus, I would need to be sustained for many decades longer than a normal retiree, which makes projections even more difficult to make. I don't want to run out of money, especially given the fact that I can easily continue working and I don't have to take early retirement at all in the first place.

What I'm getting at is that I am very risk-averse and financially conservative. And I don't mean risk-averse in the sense of investing; on the contrary, I'm fairly risk-tolerant there because I know my timelines are flexible. I'm risk-averse in the sense that my mind always jumps to worst-case scenarios. I don't like being on the edge. My natural tendency is to save and save and save, because I don't know what could happen tomorrow and I might need that cushion. I could lose my job. (Actually, been there, done that. :P) Or come down with cancer. A tree (or a meteor) could fall on the house. The SO's Beetle could get creamed by a Mack truck. The possibilities for catastrophe are endless.

As a result of this rampant paranoia, I need to build in a large safety margin. I need to know that I can survive anything, and I'm not decreasing my financial resilience by giving up a fairly nice income. But I also want to be somewhat realistic and not let irrational fears and rampant goal inflation make FIRE unattainable, even though the honest truth is that I'd be terrified.

But I'm gonna force myself to come up with something just to get the ball rolling.

My current thought process is that I have two criteria that must be fulfilled before I would feel comfortable declaring FIRE -- a paid-off house, and two million in assets.

The paid-off house is pretty straightforward. As detailed in my

Text is recent spending review and Link is http://amberfocus.savingadvice.com/2014/09/12/comprehensive-spending-review_152268/
recent spending review, the mortgage is by far our largest fixed expense, and knocking that out alone would drop our annual spending from $40K down to $25K, with another $5K being shaved off when I stop renting in and driving to/from NY. Furthermore, the mortgage is something that needs to be done sooner or later. We're already paying extra towards the mortgage every month, and we're on track to paying it off in about ten years.

As for the two million in assets... We already have $1M, which, according to a 4% withdrawal rate, could already (in theory, with proper allocations, etc.) support our current $40K in annual expenses. But as I've already said, I don't feel even remotely safe enough with a 4% SWR. With a two million dollar portfolio and ~$20K in expenses, that would be a 1% SWR, which I think is conservative enough. And even if something horrible were to happen to the SO, I should still be able to handle a 2% SWR on my half of the two million. And there's even wiggle room to increase spending if it really came to that.

So I think the preliminary goals for FIRE should be no mortgage and $2M. I would not be too surprised if I chicken out and raise/revise it later, but this seems reasonable for the time being. I'm already thinking that home equity and inaccessible retirement vehicles shouldn't be included in the $2M, but we'll cross that bridge when we come to it.

And I've also got some time before we reach the goal to work on emotional readiness and all that jazz.

Frustrated with Financial Advisors

July 8th, 2014 at 03:47 pm

My workplace will occasionally bring in financial advisors to give seminars and one-on-one consultations. I've been to two of these sessions, meeting with three advisors total, the most recent of which was just this past week, and have come away frustrated at the lack of productivity every time.

I understand that it's a free service, the scope of their help is limited by time, and they're likely not expecting someone like me, but I think it goes beyond that.

The main crux of the issue is that we simply don't see eye-to-eye philosophically.

For this most recent meeting, I tried to go prepared. In the past, showing my various account balances just resulted in sputters of disbelief and a request to repeat my age, so I brought my complete Social Security earnings history. When I say that my spending is such that a withdrawal rate of $20K is sufficient to maintain my lifestyle, I get asked what kind of car I drive and what model phone I have, so I actually tallied up the entirety of my annual spending to demonstrate that I am not, in fact, grossly underestimating my expenses.

But it didn't work. I still got asked to repeat my age. I still got told soothingly that "circumstances change", that expenses rise over time, and that once I get used to a higher standard of living, it's difficult to go back. The advisor took one look at the grocery line on my budget and told me, pityingly, "Well, you don't look like you eat much".

That last comment just made me laugh, because it shows how deceiving appearances can be. Now, I am a tiny, tiny person, so I guess it might seem like I "don't eat much", but that's not the case at all. I actually love eating and cooking, and I even briefly attended culinary school and worked as a prep cook at a restaurant before my pharmaceutical career took off. Our pantry is stocked to the brim, we make all our food from scratch, and we eat like kings -- all on a fraction of the cost of average households.

But what's more, that comment also betrayed the tacit assumptions made by the advisor. I am tiny because I don't eat, and she feels sorry for me because she assumed that I'm purposefully depriving myself, and that I will let it go at some point. It's fairly galling to me, mostly because it really reminds me of the condescending comments I've gotten my entire life when I tell people that I don't want kids, and they're like, "Oh, you may say that NOW, but just wait and see..."

Um, no. I know what I want, it's not the same as what you want, please don't project yourself onto me while ignoring what I actually say, because it causes you to come to incorrect conclusions about me, which makes me quite grumpy.

The truth of the matter is, at our current level of spending, we have almost everything we could possibly want, and I frankly don't know what else to spend money on. I don't want a bigger house; I actually prefer it small and cozy. I don't want a fancy car -- I barely even want a car at all, although I accept that I need one at the present time. I don't want a smartphone, I'm perfectly fine with my six year old phone, and I don't even have texting or a data plan.

And as for food... When I can make gorgeous artisan bread for less than a dollar per loaf, why would I ever want to spend more? And even if I go hog-wild and stop subbing walnuts for pine nuts in my pesto recipe because pine nuts are too expensive, I still don't see my grocery bill increasing by that much, because at the end of the day, any raw ingredients, even pine nuts, simply don't add up to more than a few hundred dollars a year.

Perhaps the hardest fact for these financial advisors to wrap their heads around is that I really and truly do not find consumerism to be all that appealing. For me, frugality is not a form of masochistic self-deprivation; I genuinely find it much more satisfying to live a simple and efficient lifestyle. As a result of these dispositional differences, all of their advice and experience is predicated on a set of assumptions that do not apply to me.

I think this is a big part of why haven't felt comfortable and in sync with these financial advisors. (Hell, I think this is a big part of why I feel out of place in this world. :P)

There was a bit of good news that came out of this session, though. After I finally got her to stop fighting me on the validity of my numbers, she conceded that she does think I can early retire in ten years. Actually, she doesn't think I need more than five years, especially if I can line up a side hustle. Obviously, I won't just take her word for it, but at least this tells me that I'm not on a wild goose chase. This is a realistic and achievable goal.

I just have to work out all the details.

'O Capitalism' relaunched -- Welcome to Catching FIRE!

June 17th, 2014 at 03:55 pm

In honor of the relaunch of this blog, I am rechristening it! It's new name is Catching FIRE.

"FIRE" was an unknown term to me until recently. It all started when I was listening to an episode of Marketplace Money, and heard an interview with the man who runs the website, Mr. Money Mustache. That interview caught my attention because he described the simplest way I've ever heard to determine whether one can retire.

Take your annual spending, and multiple it by 25. If your retirement fund is worth at least that, then you're good to go. If not, you need to either save more or cut spending until you reach that magical 25 times or 4% ratio.

Curious, I tried it. Our current annual household spending is around $40K. Multiply it by 25, and you get one million dollars. With my net worth sitting at around half a million, and the SO's at around $400K...

Wait, what? Is it true that we're that close?! That can't possibly be! I know we're very good savers, but to be 90% of the way to retirement by age 30 is simply absurd. As they say in The Princess Bride, "INCONCEIVABLE!"

I've been saving for retirement since my first job out of college, but actual retirement has always been a very abstract concept because it was such a long way off. I knew that theoretically I should front-load retirement savings while time and the power of compounding was on my side, but I never thought I'd actually reap the fruits until decades later.

In The Millionaire Next Door, financial independence was defined as the ability to maintain one's lifestyle without working for a wage. While that sounded like an awesomely powerful achievement, most of the millionaires in that book were self-employed entrepreneurs. I knew that entrepreneurship wasn't really my style, so I figured that particular brand of financial independence was out of my reach. I'd have to run the traditional rat race, and just do the best that I can in that arena.

So I put my head down and plugged along, and resigned to continue plodding for the next three decades... until this 4% rule blew my mind out of the water. And after browsing on the MMM forums, I was introduced to the concept of FIRE -- Financially Independent, Retired Early -- and it all started to come together. You don't have to be a small business owner to achieve financial independence. All you need is to grow enough assets to generate the cashflow required to support your living expenses. That's not rocket science. I mean, I can do that.

All of a sudden, financial independence and retirement went from a dreamy and remote "someday" to concretely achievable in the not-so-distant future. And what an awesome, dream-come-true achievement that would be. Rather than some abstract and impossibly far away concept, I have a solid goal to plan and strive for now.

We're gonna catch some FIRE.

My net worth: 2006 vs. 2014

June 16th, 2014 at 09:27 pm

I was reading back over some of my old entries, and discovered that in 2006, my net worth was $5K.

Today, my net worth is around half a million.

That's two orders of magnitude increase in eight years. Whoa.

Granted, my salary did almost triple between then and now, which is very helpful. And I've always tried to keep expenses low, so I can save more of my income. And I've had help -- ever since my SO moved in, we share expenses and live very efficiently.

But I must also point out that I haven't actually been trying to grow my wealth. All I've been doing is maxing out my retirement accounts, and auto-investing in some index funds. It's all very passive, autopilot, set-it-and-forget-it style investing. Aside from logging into my checking account to pay off my credit cards every month, I can go months without checking my other financial accounts.

A few months back, though, I logged into mint.com, and noticed that my net worth topped half a million. I was in total shock. That was a huge milestone.

I am well-aware that in recent years, the stock market has been going gangbusters, which obviously contributed to the exponential growth of my net worth -- a pattern which will likely not hold forever.

But it also made me acutely aware that the playing field has now fundamentally changed.

Instead of generating wealth by saving income and watching those savings accumulate in a linear fashion, I now release those savings into the market, for it to do what it will. Instead of having savings be the main driver of increases in wealth, market appreciation is now the primary source of the (exponential) increases (or decreases!) in wealth. It's an entirely new paradigm, and it is a little frightening.

This is why I need to learn more than just how to play good defense -- or even offense; my salary is not going to triple again. I need to learn how to manage and balance investments, because that is the only path forward. I guess I'm in the big leagues now. Gotta step up and own it. Or at least try.

Flash Forward

June 16th, 2014 at 05:00 pm

It's been a while, but I am back, and I am rebooting O Capitalism!

When I started this blog back in 2006, I had just graduated from college, and was starting to work through the ins and outs of being on my own. After figuring out the basics of frugal living and financial management (including the magic of compounding interest), and especially after landing a terrific new job, I sort of went on autopilot for a while, and stopped thinking about and working at personal finance.

However, a lot has happened over the past six years, and here's the whirlwind cliff notes version. After changing jobs, I bought a house (2008), my SO moved in (2009), we got some cats (2009, 2010), I lost my job (2011), I earned a Master's degree (2011), I found a new job out of state (2011), I paid off one of my student loans (2011), I replaced the 14-year-old car I inherited from my parents (2013), I refinanced my mortgage (2013), and that brings me to now.

This year, 2014, I am turning 30. It's hard to believe that time has flown so fast, but I am officially bidding good-bye to my 20s and young adulthood. I feel like I need to reassess where I've been, where I'm going, and plot a fresh new course for the next decade. After all, this is a long game.

Let's play.

While you were gone...

March 23rd, 2008 at 09:59 am

I've been sitting here, trying to decide how to portray this past year, whereby I transformed from a bright-eyed and bushy-tailed academic wannabe to, well, a corporate whore. Wink

For anyone in biomedical research, especially in academia, the

Text is funding situation and Link is http://scienceblogs.com/transcript/2006/07/nih_funding_stagnates.php
funding situation is getting dire as NIH grants become more and more scarce. Labs, including my own at Yale, were running out of money, and new grant applications still get continually rejected. My PI's (principle investigator, also known as the boss or head of the lab) attempt to solve this problem involved hiring more postdocs, and pushing his staff as far as they can stand, and then some, to try to eke out the publications that the lab needs to renew existing grants and land new ones.

I don't think anything has shaken my faith in science more than reading and generating data for my PI's grant applications. I'd do the experiment once, and get a small positive effect. I'd repeat it, and get a small negative effect. The third time is the charm, and will finally answer the question, right? Nope, the third result is *no* effect.

If I had to draw a conclusion, it would be that there is no effect. What ends up happening? The PI grabs the result that fits with his hypothesis, plops it into the grant application like it is fact, and pretends that the other two results don't exist.

Meh?

I've heard the justification. "We must put our best foot forward in the grant application to get the money FIRST, and then we can explore the complexities in greater detail AFTER," he explained. Um, okay. That's great and all, but if your hypothesis is WRONG, or even seriously flawed, you won't be able to publish those coveted Shiny Papers In High-Impact Journals, even if you get the money.

Right? Or am I missing something here?

And then there were my PI's ill-conceived attempts to save money, like giving every lab member a monthly budget for their experiments. Now I take care of keeping the lab stocked with "common" lab supplies, while the other lab members ordered the specific reagents they needed for their own experiments. But after the budget got imposed, everyone was afraid of ordering reagents and spending money, so they all ended up coming to me and asking me to order their reagents for them, since I'm "in charge of ordering stuff"; but really, they just wanted my name on the bill instead of theirs. In fact, in the weeks prior to my departure, I was informed that members of the lab were specifically saying amongst themselves, "Oh, X, Y, and Z reagents are expensive, but we need them for the experiment! We must make Mimi order then before she leaves!" Rolleyes

I could go on and on about how the budget crunch, and my PI's clear inability to effectively manage his funds and his staff, sent everything into a downward spiral, but I'll spare you the grisly details. Let's just say that I grew increasingly bitter, disheartened, and I completely burnt out.

By the summer of 2007, I was already sending out e-mails and scoping out new jobs. I got my driver's license, moved in with my boyfriend, and started carpooling to work so that it forced me to adhere to a consistent work schedule, rather than pouring in countless hours of unpaid and thankless overtime. I also enrolled in culinary arts classes at a local community college, because all I could think about at work was how much I'd rather be cooking at a restaurant. It's the same kind of manual labor, minus the biohazard.

I got a break during November, when attending a conference. (Me and three other postdocs crammed ourselves into a tiny motel room for five days to cut expenses. After that experience, we vowed never to do that again. Two guys, two girls, two bed, and one smoker did not a pleasant experience make.) I found out that a major pharmaceutical company in the state was hiring. Immediately, I sent in my resume.

The Monday before Thanksgiving, my PI comes into the office while I'm alone (I'm always the first one in, so he knows when he can find me alone), and asks me "what my plans are". I answered in the usual fashion, that I was going to stay until next summer, and then move on to industry. He replies that the funding situation is bad, and that I should start looking for jobs as soon as possible; the job market's not great, it may take me eight months to find something; I should even consider looking out of state! But, if I do get an offer, they'll probably want me to start right away, so I can leave earlier than next summer if I want to. Even next February!

Hint hint.

My PI can be incredibly passive-aggressive and manipulative, I can recognize a layoff warning when I hear one. Lovely. Maybe it's because he found out that I was no longer working 15 hours a week in overtime, thanks to my need to catch my carpool? Or that I was taking culinary classes, which had nothing to do with the Lab To Which Everyone Must Devote Their Entire Being? Or that my name is associated with all the major lab supplies expenditures? Or did he just choose me because I was the only staff without a family, and had the best chance of landing another job? Or because he knew I'd planned on leaving anyway? It didn't matter. It was done.

(Did I mention he had this talk with me the Monday before Thanksgiving? I had a really crappy Thanksgiving.)

But then, in December, I got a call back from Major Pharmaceutical Company. They wanted a phone interview! And then they wanted an in-person, on-site interview! I went out and spent $250 on an interview outfit, including $150 at a specialty shoe store on the only pair of shoes that fit me that I found acceptable. (As it turned out, I'm a size 4.5. Department stores don't even carry below a size 6, so I had to go to a specialty shoe store and pay the premium.)

The day after my interview in mid-December, I get a phone call. They're making me an offer! And paying me $10,000 more than I'd asked for.

I had a good Christmas. Wink

I told my PI of my job offer in January, and gave him my two weeks. I could tell by his body language that he was surprised and even dismayed that I would be leaving so soon (it kind of figures that he realizes at that particular moment that I am not, in fact, easily dispensable), but I insisted that my new job wanted me to start as soon as possible, and I would be taking a week off between jobs (the ONLY time I have EVER taken off), and two weeks was all that he was going to get.

My PI completely avoided me my last two weeks. He didn't attend my farewell lunch. I couldn't even find him on my last day to say goodbye.

And so, I closed that particular chapter of my life, and turned over a new leaf.

On January 28, 2008, I officially became a corporate whore. Smile

And corporate whore-ism never felt so good. Wink

I want a hybrid or an EV

January 6th, 2007 at 10:01 pm

Here in the northeast, it has been a very mild winter. Temperatures have been consistently hovering in the 40's and 50's.

New York City broke the records for latest appearance of snowfall. And here in CT, except for a light flurry in the first half of December that lasted for only few hours, it has also been snowless.

Cherry blossoms are blooming in Brooklyn, because the wildlife think that it is spring.

Earlier, I placed my new cilantro plants outside on the deck for the day, where it was 61 degrees, because I was worried that it was too warm in my room, as cilantro is a cool-weather herb, and will bolt to seed when soil temperatures rise above 75 degrees.

And in the context of An Inconvenient Truth, Al Gore's documentary on climate change (which I've already watched four times), all of these signs are quite, quite disturbing.

Currently, I don't drive, and I'm rather enjoying the monetary savings. The occasional hassle of having to take public transportation or carpool or walk is worth not having to pay for insurance, gas, parking, and maintenance expenses every month.

But I'm also a bit of an environmentalist, and burning one gallon of gasoline adds 19.8 lbs. of carbon dioxide into the atmosphere. And if I don't absolutely HAVE to do that, then I WON'T.

I'm going to delay getting a car for as long as I can bear it. If I can hold out for a few more years, hybrids will hopefully drop in price. If electric vehicles (EVs) become widely available by then, even better. I'm willing to pay a little extra if it means lower emissions (and lower gas expenditure!).

I'm also lusting after solar panels (or hydrogen fuel cells) for generating my own electricity, and growing my own food organically.

Someday. If the world doesn't end, first.

Go Dems!

November 8th, 2006 at 11:37 pm

I don't know if I'm asking for trouble posting this, since I've been advised to never discuss religion or politics on the internet and/or with strangers, but...

SQUEE! Go Dems for taking back Congress! And buh-bye Rummy. Good riddance.

Without even going into other issues (don't really want to open that can of worms on a public forum), I, for one, am sick of the financial indiscretions of this Republican administration.

I fully and freely admit that I am nowhere near educated or informed enough to feel comfortable presenting an ind-depth argument supporting my views, which are subject to change, but at the moment, I'd call myself a FISCAL conservative.

That means responsible, sustainable government taxation and spending. I generally side with taxing the rich, and government spending for necessary or good causes (social justice, education, research and development, etc.).

Oh, did I mention minimal government debt? Yeah, can't forget that one.

What has this current administration achieved? Tax cuts for the rich, spending cuts in non-military research and development (which happens to pay my salary), corporate handouts, burgeoning national debt, and a downright financial HEMORRHAGE into Iraq (which has also achieved next to nothing), none of which is consistent with my financial philosophy.

Now I have no clue if the Dems will do any better, but I think it's time for a regime change.

In other words, I'm with the kitty on this one. Big Grin

A diamond is forever?

September 21st, 2006 at 01:01 am

I watched "The Sixth Sense" a while back, and I remember this scene from it (don't worry, no spoilers).

Anna is showing an antique engagement ring to a young Indian couple.

ANNA: It's Edwardian. Beautifully worked. Entirely platinum with a mine cut diamond and an actual color Burmese Sapphire... It's timeless.

YOUNG MAN (looking wide-eyed and somewhat horrified): You got anything a little... plainer?

YOUNG WOMAN (brimming with indignance): Plainer? You want a plain ring to go with your plain fiance. Is that how it is?

YOUNG MAN (knows he's in trouble now and backpedalling furiously and hilariously): No, baby. Don't get in a tizzy. It's just... you're so beautiful... you're like a Burmese Sapphire all by yourself. You don't need all that.

YOUNG WOMAN (neither impressed nor appeased): Uh-huh.

I remember being very amused by this scene because I sympathized with the man. Big Grin

And then there's a story that a friend told me, about her friend who recently got married. It wouldn't have been quite so big a deal if the girl wasn't just 19, and dating for all of three months before becoming engaged (and married 9 months later).

Oh, and then there's the Ring. A 1.5 carat diamond, surrounded by 0.5 carat diamonds, with 0.25 carat diamonds going all around the band. The stones were already in his family, so he just had to spend $2000 getting them set in the band.

"Just" $2000.

My friend estimated the cost of the stones to be at least $20,000.

EEK!

I wouldn't have believed this, except I actually *saw* a $25,000 diamond engagement ring in the Costco jewelry display case the other day.

Actually, I thought it cost $2500 until I realized I missed the extra 0. It did seem to *sparkle* more once I realized my error.

Anyway, these recent events have caused me to reflect upon the nature of EDAs--Expensive Displays of Affection. I know it's not Valentine's Day, but I've made my peace with V-day when I turned down a gift of an iPod shuffle two years ago.

I don't know if this makes me a horrible person, but a $25K ring would simply horrify me. I'd probably be more likely to dump the guy than accept the engagement offer.

I know different people value different things, but EDAs never impressed me. Maybe it's because it is such a transparently manipulative marketing scheme--the product of a consumerist culture that tries to place a price tag on everything, including "love".

And since "love" is supposedly "priceless", you can charge whatever you want for it, since the main emotional value of EDAs come as a direct consequence of their high monetary costs. How convenient!

Furthermore, this marketing scheme shamelessly capitalizes on the "If you truly loved me" mythology, which is ultimately meaningless because you can use it to justify just about anything.

Observe:

"If you truly loved me, you'd get me this ring."

And:

"If you truly loved me, you wouldn't need a ring to prove it."

Two polar opposite statements, and both are "validated" by the "If you truly loved me" myth. This is the main reason why I never use this expression.

Now this does not mean that I don't have any romance in my soul, or even that I don't like pretty rocks. Actually, I love pretty rocks. I find their molecular crystalline structures and indices of refraction to be sexy as heck... in the name of chemistry and physics. Wink

But if you must pop $25K on something to display your affection? Don't buy a ring, or even a fancy wedding/honeymoon.

Put it towards a down payment on a house that we're going to buy together. *That's* true commitment, to me.

Now if only the SO read my blog... Heh. Big Grin

What's important about money to me?

September 18th, 2006 at 07:13 pm

I'm currently reading David Bach's "Smart Women Finish Rich."

Don't have many thoughts on the book yet, as I haven't gotten too far, but I did enjoy his "values ladder" exercise. It was definitely a perspective I hadn't considered before.

Ask yourself the question, "What's important about money to you?", and keep reiterating with, "What's important about _________ to me?" Then, use that answer to realize how money can make your life *better*.

What a concept, right?

So, what's important about money to me?

Security. I want to know that if anything happens to me or my family, I'll be all right. Whether it's unemployment, an injury or medical emergency, a natural disaster, or even a death, I don't want to live in fear of what the future may hold.

Independence. I want to be completely self-reliant. I want to have my own job/career so that I can support myself. I want to have my own car and own a home. I want to answer to no one--not the landlord, not the debtors, not anyone.

Freedom. I want to be able to make choices that make me happy. I want to choose the career path that I desire, without having salary be a limiting factor. I want to be able to have children if I decide I want to raise them. I want to be able to reconcile the two.

How am I heading towards those goals? I'm medically insured, and I'm starting an emergency fund. At some point, I'll need to know the financial ins and outs of my family. A will or a trust would be good to set up and have.

I'm relatively self-reliant now, but I need to get my driver's license, so that a car becomes an option. I do like the freedom of not having a car, but I want the option to be available. I'm saving towards a house down payment.

I've made tentative plans for the next four to five years regarding saving for retirement. If I can match my projections, that will free me up to pursue graduate school and a possibly risky academic career, worry-free.

I'm not quite sure how to financially prepare for the prospect of creating little ones, but I'll start with saving for a house, and figure it out from there.

Financial planning is so much more fulfilling when you have concrete and heartfelt goals in mind.