Tuesday, December 11, 2012

Before taking all of the personal finance advice out there, consider the issues

Maybe it's because I tend towards surliness, but when I saw this article in the Wall Street Journal, I startled everyone around me when I yelled HA!

The article itself is a good one--it points out the drawbacks to downsizing.  I don't disagree with the points raised (though if a grown child is going to insist--the way a few did in the article--that their parents hang on to a large family home that no longer houses six people, said child should take over the mortgage payments or shut up).

The thing is, I've given the side-eye to a lot of advice for years.  Not because it's necessarily bad, but because it's simple and doesn't take other things into account.

Move to a smaller home.  Sure. As long as your current home is maintained well and has good market value and you can actually sell it for the price you need (not want, not think you should get, but need).  Also, you have to make sure that the smaller home costs substantially less than the house you sold.  Selling a large home in a tony suburb of Boston isn't going to be helpful if you buy a condo in Beacon Hill.

While we're at it, 'downsizing' does not mean buying a house with the best of everything but has fewer square feet.  If you sell your large suburban home for a condo with a six-burner Viking stove and professionally designed kitchen, you're likely not going to save much if any money.  It does not mean, buying another home that is marginally less expensive than your current home.  If you are not going to come out way ahead, and if you are going to make a lot of upgrades to your new place, don't bother.

Also, this advice frustrated me because my place was already of modest size.  I could have moved right into the city in a much smaller place for more money.  No thanks.

I'm not saying don't do it.  But make sure it's actually an option and that you can keep to the spirit of the advice.

Move to a place with a lower cost of living.  This is great advice on the face of it.  Moving from an expensive greater metropolitan area to a more rural area far away (say, from metropolitan Boston to a small town in Kansas) will save you lots right off the bat.  You can sell your house, buy another place, and have lots of money left over.

What you will not have is your support network nearby.  This is what makes me tear my hair out about this advice.  It's one thing if you have a new job or another type of opportunity somewhere and you make a go of it.  Go for it.  When I was a kid my father got promotions and job opportunities that required us to move, and we went for it.  I can't see my folks moving to say, small-town Kansas just to save money, however.

Just moving out to where you don't know anyone to save money can backfire.  You'll be spending money to go back and visit family.  You will not have the family and friends you may rely on for emotional and practical support when things get tough, and you will not be able to give the kind of support you want when things get tough for them.  That can take a toll.  That can be quite lonely.  And not for nothing, but you aren't living in a bubble of pure math--you're a person with emotions and relationships and all kinds of needs that pure math isn't going to address.

Also, the things you may be used to--and that were actually quite cost effective--likely don't exist, or exist in the quantity that you may need.  Living out in a rural area means you have to drive more, much more, to get to the store or any place for entertainment.  Food prices are not necessarily lower.  Depending on where you live, the weather can also provide new hazards that you may or may not be prepared for.

I'm not saying don't do it.  But learn everything you can about the area before you take the plunge.

Buy at the thrift store.  Look, I like getting stuff from the thrift store.  I have some cute sweaters that I got from it. It's a great place to go if you need housewares.  But if I got all of my clothes there, shopping would be a full-time job for me.  So. . .if you have the time for that, go for it.  If you have kids and will be spending a lot of time shopping for clothes anyway, go for it.  I hate shopping and doing it like a job gives me hives.  I want to get the basic thing I need and clear out.

I'm not saying don't do it.  But be prepared to spend a lot of time doing it.  If you enjoy it, that's great; it's a good way to save money.  If you hate shopping, you'll resent the time you spend.

Buy a used car.  Generally I am for this (I bought my car used).  However, there are things to consider: first, if you don't have the money to buy a car with cash and will have to make payments anyway, you might get a better rate if you buy new (dealerships promote them with low rates).  A lot of used cars don't cost that much less than new cars--the insurance may cost less but not by that much.  If you want to save money and you want to buy used, you're going to have to buy very used.  Which is fine--I'm all for that as well! But it may be older than what you want.  (A lot of people who tell you to buy used seem to think that buying a car that's a couple of years old will save you a lot.  It really won't.)  Buy very used, and save money for maintenance.

Again, I'm not saying don't do it.  But know what you can spend in total (not what you can spend as a monthly payment--you don't want a six-year car loan) and figure out what you can get for that.  If you insist on having a car not older than two or three years old (in some cases four or five years old), see how much a car of the same model costs new.  

Move closer to work.  That's great (I did it, recently though there are risks in what I've done).  If you work in an expensive metropolitan city, moving closer may not be financially feasible.  When I worked in town, let me tell you, I lived as close as I could possibly live that I could afford.  That meant I lived out in the burbs. Yes, I wouldn't need a car in town.  But I'd be paying a lot more for a tiny place.  We all have our tradeoffs, of course, but I don't need to live in a city. (I lived in a mega-city for three and a half years; it was great but three and a half years were more than enough.)

Also, keep in mind, if the economy (or the nature of your work) has had you skip around a fair bit, and that skipping was not all done in the same city, moving can backfire.  You move and lose your job--then you get another one in city X that is 30 miles away.  You move and then you're laid off.  You get another job in city Y . . . you might just want to stay put and make the best of it until you feel a little more secure.

I'm not saying don't do it.  Just make sure you've got job security and that you're not painting yourself into a corner.

Okay, I know a lot of people with disagree with me on this, and just FYI, I get why.  I'm curious--is there personal finance advice that you don't follow or think is a little simple?  What is it and why do you feel that way?

Edited to add: Nicoleandmaggie have a post on a related topic.

10 comments:

  1. There is a lot of personal finance advice that I do not follow. I hate debt and generally do not follow advice that involves staying in it. For instance, I do not believe in taking 30 years to pay off a home just because the interest rate is low.

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    1. Yeah, and the whole THINK OF THE MORTGAGE TAX DEDUCTION belongs on the Good Ship Side-Eye. Really? Compare what you save in taxes to what you pay in interest and frankly, it's no contest. If you can pay that off early, do it!

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    2. Not just that but also not everybody's mortgage deduction gets them above the standard tax deduction even if they do itemize. (As we talk about on our last Monday's post... ;) )

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    3. I'm with you guys on on hating debt. We're paying off our mortgage a quickly as we can right now.

      We also recently bought a car and at first we were 100% we'd buy used. But the pricing did not make sense at all. Instead we decided to buy a super reliable car with low gas mileage for the type of car we wanted. Hopefully we'll drive it for 10+ years.

      Thanks for the post Pamela.

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  2. This is related to our post yesterday on Mr. Money Moustache vs. Laura Vanderkam!

    And absolutely on all of your points. (And the way markets work, prices should adjust so that for the average person it's a wash between new vs. used cars... when used cars are a great substitute for new, their prices increase, which is what you see with good quality cars.)

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    1. Oh, thank you for pointing me to your post--I've been terrible about catching up on blogs these days. I'll link to you in my post. It is so true that there is a serious push-pull between being super frugal or very career focused.

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  3. Excellent post, Pamela! I too have had the same thoughts about the advice, "Move to an area with a lower cost of living". You do lose your support network when you do that and that isn't always a good thing. Belinda from Frugal Workshop

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  4. I use some of the frugal advice some of the time. My job commute is 35 miles away and we live in a snow belt, so I need a reliable vehicle--and we buy new. My dad is a retired GM employee so I do benefit from the family discount! And I hate shopping at thrift shops. I rarely find anything I like. I am, however, an avid clearance shopper. We live close enough to our area's shopping district for me to regularly scout out the sales (once you learn where sale items are kept--and sometimes they are hidden--you can make a quick swing through to check it out).

    The overall frugal advice which I find to be most beneficial is to be prepared and buy ahead (my kids will keep growing, so buy the next size up in clothing before they need it!) ... cook at home frequently and eat out rarely (also better for my waistline--ahem!) ... and to watch impulse buys. You are SO right--not every piece of advice fits every person or situation. And you can't put a price on family and friends.

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  5. Great post Pamela! Some top advice in here. I think when I am old and any potential children have flown the nest I will get a smaller place, but in the same town/place that I live.

    Glad I'm not the only one who has trouble finding anything in thrift shops!

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  6. Any time you get advice on any subject you should always question it. I'm a big believer that following blindly can lead to problems down the road.

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