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View Full Version : Doing More Now For Perceived Reward Later ???



heydude
2-27-12, 8:53pm
A lot of "perceived future rewards" are no longer coming true.

Plunge in to debt for a college degree thinking you'll get a high paying job. Not so much the case anymore.

Dumping thousands in to your mortgage hoping to get it paid off. Only to loose your job and be out everything.

Working harder at work doing things not part of your job for the future promise of a promotion only to get laid off.

Do you know any instances where you may be putting in a lot for a perceived future reward? Will it actually pay off? Have you had it pay off or got burned before?

Alan
2-27-12, 8:58pm
I feed myself daily in order to not starve later. Considering my waistline, it's paid off big time!

Spartana
2-27-12, 9:10pm
I run and workout everyday so that I can stay healthy even though I know I will eventually get old, weak, and die. Hmmm.. maybe Alan hgas the right idea!!

Well as far as paying money on a house in the hopes that it will get paid off one day - well you've got to live somewhere and ipay for it - rent or own. In many cases a mortgage is better than rent because often times (in normal times with normal mortgages) you will get something back. Even if it depreciates and you are underwater you still have the use of the house as a place to live. In that case it's no different then buying a car. If you plop down $25K for a new vehicle it's value is going to depreciate over time. You may even owe more on it then it's worth if you got a long term loan. But when you buy it, you aren't doing it as an investment, your doing it because you need a car. The same should be true for a house IMHO. Don't buy it as an investment, buy it as a place to live - an AFFORDABLE place to live - and if the value drops, it drops. You'll still have a roof over your head when the mortgage is paid off - just as you'kk still have a car to drive when that loan is paid off - something you wouldn't have with renting or leasing. And if you lose your job and have to get a foreclosure because you can't afford the mortgage, then you really aren't any worse off then if you had rented. Of course I'm assuming that what you pay in rent is the same as what you'd pay for a mortgage.

razz
2-28-12, 9:59am
If I pay for a mortgage-free house, plant a garden and sew my clothes, I am sheltered, fed and dressed and may be able to offer the same to extended family and friends if needed building community so that we can all support each other. Your model is too solitary which does not work for humans who have different talents, skills and abilities never mind age, strength and understanding.

ApatheticNoMore
2-28-12, 1:48pm
You can rent around here for vastly cheaper than a mortgage (would be at least a thousand more every month to buy). So a mortgage yea, you've really got to be up for the commitment.

A perceived reward that isn't coming true, investing for retirement!! Suffice to say that 6 years of investing for retirement, the money is probably worth less than I put in ....

Spartana
2-28-12, 2:14pm
You can rent around here for vastly cheaper than a mortgage (would be at least a thousand more every month to buy). So a mortgage yea, you've really got to be up for the commitment.



True but then it's fixed for how ever long your mortgage is - 30 years? - where as rents just keep on rising. When My Mom bought a house in Orange County , Calif. back a thousand years ago (when I was a young un and dinosaurs walked the earth :-)!) - she went from paying $80/month for rent to approx. $125/month for a mortgage including prop taxes and insurance. At that time it was a huge difference to her, but 30 years later her mortgage payment had gone up only about $30/month and she was paying around $155/month. Where as rents where around $2,500/month.

pcooley
2-28-12, 6:20pm
Rent here in New Mexico has always been much higher than our mortgage. A house like ours rents for around $1400 a month. Our mortgage is around $815 a month. We pay about $685 a month extra on the principal. Sometimes it feels like it would be much more fun to spend that money eating out and traveling. Our budget is pretty tight. At this point though, we have a six month emergency fund, and there's only six more years to go on the mortgage at the current rate. While we haven't always been able to pay much extra, we've managed to shave ten years off the original thirty year period of the mortgage.

lhamo
2-29-12, 12:43am
My investments toward a better life in the future have almost always paid off in a big way. Yes, there has been some luck and incredible good fortune underlying that, but a big part of it also is that I have the tendency to actively plan and work toward specific goals and try to avoid "magical thinking" that things will just work out great no matter what I do. In my case some of the important choices I have made/approaches I have taken have been the following:

1) Work hard at school, not necessarily to get good grades and scholarships, but to build the skills that allow me to be successful in learning and in life. Building a foundation as a child as someone with a life-long-learning orientation who actively seeks out new information and new skills is probably THE MOST IMPORTANT thing (aside from being fortunate enough to have been born into a middle class family in a developed country) that has contributed to personal, professional and financial success in my life.

2) Learning to delay gratification and live within my means. Very important skill. All kinds of psych research is showing that the ability to defer gratification is one of the most important traits linked to life/professional success. Living within my means has meant making wise choices -- going back to my state school for college (and staying there for my MA and Ph.D.) rather than trying to go to SOAS or Oxford or Cambridge (which my academic advisors in the UK were encouraging me to consider -- I finished high school at a boarding school in the UK (on almost full scholarship). Would I have had a wonderful time at SOAS? Probably, but I would have ended my BA studies up to my patootie in debt, and may not have gotten the generous NSF fellowship that funded a large part of my graduate studies. Also worked a pretty heavy schedule (20-30 hours most weeks) while taking honors courses and Chinese as an undergraduate. Between college savings, scholarships, and working, I managed to finish all of my degrees debt free. And it isn't like I had a high-demand degree -- I'm a cultural anthropologist, and people aren't exactly leaping out of the bushes to offer us jobs. Yet I have had meaningful, well-compensated work since I was 19, and never had to resort to living on credit. Yes, I excel at delayed gratification....

3) Regarding making investments and then having them turn out unexpectedly poorly, I have also been fortunate -- I've never had to deal with a major financial crisis as an adult. But that is largely because I keep a HUGE emergency fund, which decades of living below my means has allowed me to build up. We could probably pay off our mortgage, but that would leave us too cash poor for my "baglady syndrome" mindset, and we have a low interest rate, so we're keeping the mortgage for now. ONce we have about a year's worth of expenses saved up in addition to the mortgage payoff, I might go ahead and do it as the extra cashflow would be nice and actually give us more security in a way. The mortgage is currently only about 16% of the market value of our house, so if we had to sell we would be fine -- we have WAAAAY more equity than we owe, and even if prices dropped substantially we would probably still walk away with more money than we put into the place.

4) In terms of reward for work, I have experienced the downside of that (hit the glass ceiling big time at my previous gig, and ended up leaving and taking a job that was a significant paycut). I learned a lot from it about setting appropriate boundaries and asking for what I need rather than waiting for someone to give it to me of their own accord. I am almost back up to my old salary at my new place (5 years after I left the place, and not accounting for singificant local inflation and currency depreciation), but for me the value of a healthy work environment where I have room to grow and develop is more significant than the base salary. In my new place my talents are recognized and supported, and I feel I have a future here. And if not, so be it -- I know I will find meaningful work with my skill set, and I'm not so focused on the pay.

5) Retirement savings. I am the poster child for a buy and hold, dollar cost averaging approach. We stabilized our retirement contribution plans after we moved to Beijing and I started my new job. That was in early 2008, just before the start of the recession. We had been contributing regularly prior to that, but not at maximum levels. Since 2008, DH and I both contribute the maximum we can to our employer-sponsored programs and our Roths. Was it scary to keep doing that as the values of our accounts were plummeting in 2008-2010? Yes, but I tried to keep Warren Buffett's advice in mind and treat it like we were buying everything on sale. I threw a big chunk of money into our kids college funds in the fall of 2009, for example -- best choice I ever made. Between the rebounding market and the local property market (we bought our apartment at the absolute bottom of a dip in our local housing market), our networth has nearly tripled since March 2009, when it hit its most recent low. And we had a pretty solid net worth to begin with.

I don't know, I guess what I am trying to say is that doing more now has generally always paid off in better results later -- sometimes it takes awhile and you have some bumps on the way, but at my core I'm more of an ant than a grasshopper.

lhamo

heydude
2-29-12, 12:59am
lhamo, i just fell in love with you

Jemima
2-29-12, 5:03am
Heydude, you make a lot of excellent points. I really don't understand people who are sacrificing so much to put their kids through college when the children would likely be better off apprenticing in organic farming or plumbing. The day of cushy corporate jobs is over.

I can't say I've gotten burned before except for trusting in individuals who weren't trustworthy. Getting my Master's in psych and my CPA certainly paid off. However, doing those same things today would likely be a waste. In my creaky old retirement years, I'm learning about companion planting, herbal medicine, the value of community, and what to do when TSHTF.

flowerseverywhere
2-29-12, 9:18am
it's the new normal you have to deal with. I agree with Jemima about college degrees, but not all of them. Around my area teachers cannot get a job, but nurses can get any job and get paid to start at over $50,000. Engineers are still in demand. People still need to get cars fixed and their hair cut. The population is aging to if you can gear into a health career that serves old people you have an excellent chance of your education paying off, but you have to research the job market carefully. If you major in English or woman's studies then the job outlook is not good here. You would be better off walking dogs or doing day care. Investing hundreds of thousands of dollars in becoming a physician? I am not sure in today's climate you will ever get your investment back you start out so far behind but for some it is a true labor of love.

Don't get discouraged. I still think the best investment ever for us was a paid for house, but like many others said, a good emergency fund can save you if the worst does happen.
And if you do get laid off, you get unemployment which if you are super frugal can help keep you afloat and really extend an emergency fund's life.

True, the days of double digit investment returns may be over but slow and steady wins the race.

cattledog
2-29-12, 11:36am
Do you know any instances where you may be putting in a lot for a perceived future reward? Will it actually pay off? Have you had it pay off or got burned before?

Sort of. I went back to school to get my accounting degree (already had a BA, this was a second degree). I used to be in IT, but I wanted to get into non-profit accounting or maybe corporate accounting, if NP accounting wasn't viable. It cost me thousands (no loans, but I spent thousands). I started the program at 32 and finished when I was 35. Fortunately, I graduated before the economy tanked, but I was still unable to find an accounting job. I graduated with a 3.9 GPA, but I think I was considered too old to be hired by one of the big firms. It wouldn't have been practical anyway. I thought I would never have children (fertility issues), but I ended up pregnant in my late-30's.

Also, little did I know that non-profit jobs were very hard to come by. I talked to a CFO of a big non-profit and he said that most of the positions were filled by people who came from the corporate world. OK, so I thought I'd try to find work in corporate accounting. Not a nibble! I think because I didn't have any corporate accounting experience. Or maybe my age? I dunno. I ended up going back to the IT field. Fortunately, I found a job that was about 10K higher in salary. I worked that job for five years, so at least I made up for the money I spent.

I'm now a SAHM. If I could do it over again, I'm not sure I'd go back to school. I think it might have paid off more if I didn't have a newborn right after I graduated. Maybe I could have interned or something.

cx3
3-2-12, 8:48am
Heydude,I hear ya.Check out a site called Early Retirement Extreme(ERE).This blogger stopped posting a whike back,but forums still active.
Yes,I also have been concerned about paying extra torwards our mortgage and then suffering a job loss.I think I will eliminate all other debt and have a sizeable emergency fund before I start paying extra on mortgage.
I'll throw another concern out there. How about talk of the govt. siezing retirement funds and replacing them with IOU's.As remote as this possibility seems,I still will not put more into my 401k than the company match.

ApatheticNoMore
3-3-12, 4:13am
How about talk of the govt. siezing retirement funds and replacing them with IOU's.As remote as this possibility seems,I still will not put more into my 401k than the company match.

I hear this and I've never understood the reasoning behind it. Is this some actual law? If not, what makes you think the government is any more likely to seize retirement accounts than non-retirement accounts? Because the government knows about your retirement accounts? Right it does, and if you have non-retirement investments the government gets 1099s and stuff on them every year, so it knows about all of those too! I guess you could try to argue some kind of class angle, that the government (aka the ruling class) won't seize investments in general because too many rich people have them or something ... but I don't know. On that reasoning the government won't seize retirement accounts as long as they are sucessful vehicles for funneling money to Wall Street (and they are).

catherine
3-3-12, 9:11am
lhamo, your post reads like a guest post for getrichslowly.org--really, you should think about submitting it! Great points.

I think overall, if you approach life with an attitude of prudence and gratitude, hopefully you'll never get to the point at which you feel like you've wasted your time chasing a stick that evaporates. I definitely consider myself an ant rather than grasshopper (DH is definitely the grasshopper in the family), but I also don't believe in working toward a future at the expense of a fulfulling life.

Bronxboy
3-3-12, 9:04pm
A lot of "perceived future rewards" are no longer coming true.

Plunge in to debt for a college degree thinking you'll get a high paying job. Not so much the case anymore.

Dumping thousands in to your mortgage hoping to get it paid off. Only to loose your job and be out everything.
I'm not convinced that a college degree has lost his value. It has never been worth putting oneself or one's parents $150,000 in debt to get one, but the right school and major can provide value independent of the ability to get a desk job with it.

While I can easily imagine having worked my career in a hands on field not requiring college, I can't imagine not having gone. Several of the most successful and happiest people I know work in blue-collar fields as college graduates.

As for houses, it was never realistic to expect a sole investment to secure one's retirement or to buy without regard to what the same property would rent for. There have been serious mistakes in planning and zoning in suburbia, as well as aging of cheaply built, too-large houses. These factors mean that large areas are not just in a cyclical downturn, they are obsolete. Unless your job is in a lead smelter or a hazardous waste landfill, long distances between jobs, home, and shopping were never a good idea.

Painful if you're caught up in such a situation, but it doesn't change the overall merit of locking in major parts of one's housing costs by owning the property.