Monday, September 24, 2007

Lucky moves or smart choices?

DH and I have often been envied by friends because we to have our financial lives mapped out. Another blogger asked me how did I afford to buy a house in CA making less than the median US salary? And how did we get so lucky to be financial pretty secure in our 20s?

Were these all lucky moves or was it smart planning on our part?

I know luck played a huge part in our finances. But honestly smart moves also played a role. We are scientists by nature and we calculated the odds of every financial move we made. When we first bought a condo in CA, we thought the market's peaked if it drops what will we do? We decided it doesn't matter, it costs as much as renting. Let's do it.

We decided we could easily afford to hang onto the home during a downturn. Plus because we were so young, we decided we could only afford a 1 bedroom though the bank said easily 2 bedrooms. Most of our friends said we were stupid buying a 1 bedroom because they are harder to sell. Also we bought in a lesser location because we could not afford to live close to work, and not in a good school district. We compromised and weighed all these factors and still chose the area because it worked for us. We also decided that we would take all of our savings and buy a home. The market looked terrible and we didn't have the time to research our portfolio's like we had in the past.

So was it really luck or a smart choice? How many people are willing to live in a tiny one bedroom as a couple? And how many are willing to drive a bit further to afford to buy? These are choices we made that contributed to our financial security.

Then we moved cross country and bought another place. We again decided against a house again. This time we could have bought a single family home, much farther out. But as we were not having children for at least 3-4 years, we decided a townhouse would be a perfect compromise. We would be able to live closer and thus saving a lot of time on our commute. Sure we paid a premium for a great location, but the commute turned into a blessing.

With DH working full time and school part-time, our time together is limited. By saving on commuting, he is able to focus on finishing school faster and thus increasing our income. We wisely decided to buy a townhouse which has space for us to have 2 children. Though we planned on only one child before moving. We also considered that our townhouse is large enough for our parents to live with us and provide childcare for an extended period of time if necessary.

But because of the location both of our parents feel comfortable living with us and not driving, while not being isolated in the suburbs. Instead they would be able to walk and ride the bus into the city, shop, and occupy their time easily. They are very happy with our choice, the only problem is that we lack a full bath on the first floor, something which we had been searching for when buying a townhouse. This was to accommodate our elderly visitors.

So financially our townhouse has been a great investment. We pay about the same as renting a townhouse. But of course our neighbors do leave a lot to be desired. Thus our sacrifice of having neighbors, while I question it, probably is smarter financially than a single family home.

But at our current ages 28 and almost 30, most of our contemporaries are struggling to afford single family homes. They feel a townhouse is beneath them. That it's not the right place to raise a family. They are saving to get into a home. But we've already gotten ourselves used to owning, building equity, and we understand this is a temporary choice until we can finally afford a home we love. But how many people again are willing to make this sacrifice? So smart move or luck?

Third, we've just about saved $75k in retirement savings in a little less than 2 years. All through hardwork and sacrifice. During our "leaner" years I told DH when we make "real" money our lifestyle will not change until our retirement options are maxed out. We won't build up to it, we'll take it off the top before taxes, rent/mortgage, everything. It was to be a non-negotiable, budgeted line item. We did exactly that and it's been a painless transition. Now our raises/bonuses go to school tuition (an unexpected expense because we didn't know it would be so expensive). But our lifestyle is still pretty cushy.

Finally, we own two newer cars that while are not fancy, are workable. They do not match our "income" and they do not always fit our needs. But how often do we need larger/fancier cars? We can rent or drive both cars if necessary. We were forced to buy 2 newer cars starting out because unlike many of our contemporaries, our parents never gifted us with an older, used car. More than a few people were given their parents older car as a first car. So did we get lucky, or was it a smart choice? Luck would have been getting a free car, smart was sticking with our cheaper cars even though we make a lot more.

So has all these financial decisions been smart or lucky? I have to explain a bit because people always ask how do we manage? Not easily and everything we've done has required sacrifice. We've chosen not to buy new cars, have children, or shop all the time because we're trying to build our financial foundation now. But everything comes with a price tag. If you review your own purchases, did you make the decision consciously or not? Were the choices you made lucky or smart?


frugal zeitgeist said...

I'm kind of sidestepping the question, but my answer is that most of the time, we (generic we) make our own luck.

I'm Grace. said...

A large part of "luck" is knowing what opportunities to take and which ones to pass by, at least for the time being.

You folks are doing well, and at your age, you should be very proud of yourselves.

EDW said...

It's an interesting question, luck or smarts. I understand what you are saying, to some extent. I bought my first house at 25. It was the same cost as renting, but it felt very risky, even though it turned out to be the most sound financial decision we could have made. As a result, in four short years, at 29, our first house had doubled in price, allowing us to buy a second home, on an acre of property in a desirable area of the country. We went with an older home which was expensive but again, on an acre in a beautiful neighborhood just minutes from two major transportation options to work. We bought the smallest house we could afford knowing we could do all the updating and expanding we needed to, cheaply, and we have. We also bought into a much nicer neighborhood than we could afford if we were buying now. Smart, not lucky, right?

ut let's go back to luck. How did we buy that first house? Well, we had savings. How did we have those savings? For one, at 25 neither of us had college loans. Was this smart or luck? I say luck, since it was our parents that avoided that for us by paying for our college educations and taking loans in their own names. Also, we had no major medical problems that would cost us money or bills. Again, to me this is luck. So I have to say our firm foundation was luck, and what we did with it was smarts.

Living Almost Large said...

Well I had college loans but I lived cheap to pay them off fast. DH had a car loan because he moved internationaly for college. He also spend a year during college working full time and saved nearly his whole salary by living in a cheap rented room. That salary $20k paid for a car and for DP on our house.

So were we lucky? Or did we make some of our luck? We both didn't leave college scot free.

EDW said...

My comment wasn't a challenge to you - just a comment. As for your question, I think there's a difference between luck and making good decisions. I don't subscribe to this "make your own luck" theory, because that's just an incorrect term. You're talking about making good financial decisions and people tell you that you're lucky, it's just a word people use incorrectly. I don't think all of them actually mean luck and I don't think they mean to be flip about whatever work it took to get you to where you are.

However, I think I was both lucky and made good decisions - that was my point in my comment. I can't comment on what you are, obviously! :-)

Living Almost Large said...

I think in one major way I am LUCKY. How so? I found a soul mate early in life who is very compatible with me.

That is super lucky because I have TON of single friends. It's impossible in some ways to catch up because they are constantly dating and looking for a soulmate. After all it takes a lot of luck to meet the right person.

Otherwise I think we made some right moves.

Moneymonk said...

"most of our contemporaries are struggling to afford single family homes"

smart choice you guys made! You must sacrifice little things now in order to enjoy your lives later.

Your friends did just the opposite, enjoy life now

It will all show as you get older, you guys will be financiall free and they will still be struggling check to check

rob said...

Game 14- Lucky

kentuckyliz said...

I don't think you're in a position to evaluate how wise the purchase of the current place is, because you'll only know that when you sell.

I made some smart moves that were partly mentor-wisdom and part luck; and other moves that were stupid; but the stupid moves were never high-stakes, and the wise moves have always been high return. A person can do well despite imperfection, and yea, even bad luck along the way.

(I was laid off in an early 90s downturn and was unemployed and underemployed for 14 months before finding the next professional job; I've had three primary cancers. These bad luck things didn't really derail the big picture plan because of good non-retirement savings and good health insurance. Bad luck doesn't have to be devastating.)

Came here from March Madness!