Provocative: Your Home

Often I will hear people associated with real estate talk about someone’s most important asset being their home. For the sake of argument, let us forget the importance of health and the ability to work which I hope can easily be argued are more important than one’s home.

I will say this: if your home remains your most important asset, chances are that you will never become wealthy. Let me reiterate, if your home remains your most important asset, chances are that you will never become wealthy.

For some people this may come as a shock. After all, we have been taught about the importance of having a home and not flushing down money with rent. There is a certain degree of truth to this. I will even suggest that there is a large degree of truth to this if we are comparing similar spaces. The problem lies in that the average owned home is not similar to the average rental. They tend to be substantially larger, nicer and more expensive.

This may not in and of itself be a problem, but for the average American what value does a home provide other than a place to live? I will suggest not much. If you are skilled at restoring and fixing up houses in order to flip them, you may be an exception to this rule. If you rent out rooms of your place so that it is actually generating money for you, then definitely consider yourself an exception as well. For many, however their home is a box where they live that is taxed, subject to utilities, and serves as a storehouse for their stuff. If all you do is keep on upgrading to a larger and fancier box, and get used to a more expensive lifestyle correspondingly, you may be setting yourself up for failure.

The problem is simply this, for most people, one’s home does not serve as a source of generating wealth. It tends to rather be a means of forced savings assuming that one does not continually take out money in the forms of lines of credit, etc.

In order to become wealthy, you need to have assets that either grow or produce income in some fashion. This could be through a variety of means whether through the rental of real estate, a successful small business, or through the growth of securities in a portfolio. It is unlikely that this will occur

Please send your questions and comments to info@objectiveplanningllc.com.

Provocative: Hoarding or Just Too Much Stuff

It is Black Friday of 2011, tomorrow will be Small Business Saturday, and soon it will be Cyber Monday. People will be purchasing stuff for others and perhaps themselves over the next week. When I moved from Seattle to Nashville, I was able to hold most of my worldly possessions in my car as I traveled cross country. I still have worldly possessions that I have not touched in over a year from that trip. These worldly possessions realistically have little use to me since I have not touched them in over a year’s time.

Hopefully this will not get me into trouble with internet gambling laws, but I am willing to wager most of this excess stuff that you have a fair amount of stuff that you have not used in over a year as well.

Items wear out, and occasionally need to be replaced.  I understand this. Technology, even if it functions, can become so out of date that it is actually more trouble to maintain it than buy a replacement. I understand this as well.

What makes little to no sense to me is this, according to the National Association of Home Builders, the average home built was 983 square feet in 1950. The average home built today is a little over 2300 square feet (this represents a decline from 2700 square feet in 2009). Meanwhile, according to the US Census Bureau, the average household size has decreased from 3.38 in 1950 to 2.58 in 2010. This represents a change in 291 square feet per person in 1950 to 1046 square feet per person in 2010.

Judged alone, one perhaps could give the defense that a new fashion has arrived in that we live in a time where we prefer to have larger spaces with our rooms with less and less items cluttering our lives. I would suggest that though this may explain part of the issue, that it probably does not explain the majority. As Americans, we like our stuff and we like to have more stuff. Some people even have storage lockers for their stuff. Could it be that if our past selves were to somehow able to take a look at our present selves, they would say that we are guilty of hoarding? Would they suggest to us that one of the main reasons we have larger and larger places is not that we actually need the space, but that we need a socially acceptable way to store our ever-growing pile of stuff?

But what happens when we have these larger spaces for this stuff? We tend to spend more on property taxes or on rentals. We probably pay more for utilities. And if it turns out that we live in a society that prefers more stuff rather than uncluttered space, we may even seek out more stuff to fill our larger houses.

If you live in a larger house and have a storage locker with stuff you have not used for over a year that you are not holding for investment purposes, please allow me to suggest to you that you have too much stuff. Before you go out and purchase another thing for yourself this holiday season, let me suggest a beneficial holiday present to yourself. Sell the excess stuff you have, get out of your storage locker and pocket the savings.

Please feel free to send any comments or questions to info@objectiveplanningllc.com

Provocative: On Private Education

The other day I was eating lunch, and I overheard a number of people talking about private school education. I, myself, went to private school for secondary education and even went to a private liberal arts college in New England. Judging from the amount of resources that my parents spent in order to provide for this education, I am left with one extremely important question: “Was it worth it?”

I could speak anecdotally regarding my experience or on observations that I could make on former classmates as opposed to others I have known. However, I am going to speak from a value standpoint. When asked, “Why do you want to send your children to private school?” many of my clients state that they want to help insure that their children are more successful in life. When further pressed on why education is so important, most state that it is so that their children will have a better career and a better income. Many are also quick to say that we live in a tough economy. The question that I have is this, given the cost of private secondary and higher education and the opportunity costs of not investing that tuition money, would the child not be better off with a trust fund of that money to help navigate life?

It is acknowledged that there are a wide range of costs depending on the private school one attends, and that financial concerns are not the only value. I have even heard it pointed out by parents that private schooling is not so much about education as a means that those of a certain socio-economic class could mingle with those of like class. There may be a substantial value in that for some people. Nonetheless, I do strongly believe that the opportunity cost of private school education needs to be rigorously examined. Looking at the tuition costs of my alma maters (almae matres for all of you Latin fanatics), I know that I feel any progeny that I may have probably would be better off with a million dollars in a trust fund when they turn 25 or 30 than they would be duplicating my private school education experience.

What are your feelings on the value of private school education? Please write:

info@objectiveplanningllc.com