First up was this comment from an Icelander who did not get caught up in the excess;
“I thought there was something wrong with me because I wasn’t taking millions in loans,” he admitted. “Everyone had brand-new cars and built big summer homes and boats. You felt like a loser or something if you didn’t have it. This is the feeling that many regular people felt if they weren’t making trillions, but maybe we weren’t so stupid.”
When Joellyn and I went in 2006 I noted how many young people there were driving very expensive cars. As seen in real time this was either evidence of success or excess and given all the cranes we saw on the way in from the airport it certainly seemed like prosperity and one way to look at it was that this was somewhere on the spectrum of success building to excess.
The Icelander quoted above managed to not get caught up in what was going on, was content with what he had and so survived it better than most. People in the US with enough common sense to not buy a house by borrowing 120% of the price going in or take on four flips at once also fared better than most (one would hope anyway).
A number of people suggested to me (the author of the article) that the nation, as a whole, was going through a period of intense introspection and that the consensus seemed to be that Icelanders needed to return to their roots.
Introspection and self-awareness are important traits to have and while that seems like an obvious statement I do think it is collectively lacking. I don't know if collectively the US' roots can be one of living below our means, saving a lot of money relative to what we make and trying to make our lives simpler but this can occur on an individual level and while that may not solve what needs solving at the societal level this realization will help some people.
“I analyzed the two other Icelandic banks, but I was unable to analyze my own bank,” he (former analyst at Kaupthing) confessed. “I was psychologically unable to admit that we were doomed.”
Maybe he was psychologically unable but part of the equation for success in financial matters is the introspection to understand your blindspots (we all have them) and if possible figure out how to mitigate some of them. There are countless books on these various biases, fallacies and other human defects that do in many people in terms of investing and spending.
I write about this stuff often for two reasons. One is that I find this sort of human condition stuff to be fascinating and the other is that when people make progress toward figuring this out for themselves they then can invest in a more suitable manner. When someone realizes that a $700,000 nest egg does not afford a $100,000 lifestyle they can then invest with a more suitable allocation, with a more suitable time horizon and probably reduce their financial stress.Personally speaking I want no financial stress and the easiest way to avoid stress is to act on what you can control like savings rate and spending. Our income is not necessarily in our control in that if we work for a company we could get let go for some reason or if we are self-employed, business could dry up one way or another. The crisis in 2008 did not take down everyone in the country, and if there is somehow another leg to this that doesn't have to take down everyone either.
13 comments:
Much good advice here as always. I would like to add the following to your statement:
... what you can control like savings rate and spending....
There is another element you can control or at least attempt to control and that is income. I realized early on that expenses "rise to meet income" so deliberately set a course to continue to raise income. When I was young, I worked nights and weekends as well and later had two jobs and later still took extra courses in school and landed better jobs. My expenses did rise but my income kept ahead. It is another way of living "below your means". Simply put, just another life choice available to all.
the society loves debt, lies about debt, takes on excessive levels of debt. Good luck fixing our society.
On an individual level some can choose to live below their means and become debt free and enjoy life.
Second jobs are a necessity when debt is excessive IMO. Not truly the way to learn live below your means.
"There are countless books on these various biases, fallacies and other human defects that do in many people in terms of investing and spending."
And I would argue that studying these topics is every bit as important as learning the basics of mathematics, physical sciences, time value of money, simple stochastics etc.
Unfortunately, it took me many years, many mistakes, and many painful lessons to learn this. That kind of thinking just never seemed to fit into a hard science background.
I suggest Benjamin Franklin's autobiography as an interesting way to begin exploring the topic, espcially vis-a-vis human defects.
Roger, good stuff today.
Actually you are all wrong. THE ways to success in America today are:
Reality TV Star:
Jersey Shore, Real Housewives, etc. etc.
No education or real world experience needed. No real downside save for loss of personal pride, humility, decency. Seen what those people are making?
Pundit:
Can't get enough of these on TV and radio apparently. Must love to spin any and all data, cherrypick facts, lie, and pretend to have all the answers. Must write 1 book a year.
Seen what these people make?
Politician. Well, enough said. Seen what these people are worth?
thanks WH, this really is an enjoyable topic to write about so I will continue.
anon 6:25, wow dark comment. I prefer to focus on more people at the individual level as it seems like a much smaller hill to hike up.
10:10 your sarcasm aside the context of success as I mean it is success as viewed from within not viewed by other people. Chances are a person with no debt and a decent income has fewer things to worry about and that sounds pretty good to me.
Well I'm only 1/2 sarcastic on that post...have you seen what those people earn?
This is a big idea for you. There has not been a RIA /dog rescuer reality series that I have seen. Now you will have to shave your head and get "inked" with each dog you have saved.
Your wife will need to get some crystals from Sedona, change her hair and clothing, and predict peoples futures but so be it.
You will need to "create" an evil nemesis, perhaps Caesar Milan, as well a frequent CNBC guest. Call them out often and hard. Soon you'll be in the Octobox frequently.
Media catches on and you'll be hawking coffee, beer, laundry detergent, acne cream, and dog leashes within a year. $10m minimum.
too funny, we've joked about a reality show but decided against it because of the high divorce/separation rate that ensues; John & Kate and the Roloffs
The endorses the not-too-difficult investment scheme of having multiple income streams from varied sources and living beneath one's income without fail.
T
"People in the US with enough common sense to not buy a house by borrowing 120% of the price going in or take on four flips at once also fared better than most (one would hope anyway)."
Ya, you'd think. This was me. I'm the only guy I know who did a cash-IN refi during the real estate boom! (I refinanced to a 5.0% fixed and put more money in). This resulted in a nice low payment, but I'd have been much better off leveraging to the hilt and flipping a house or too. I could have "afforded" a house 6-8 TIMES the one I bought. Being responsible did NOTHING for me.
if you were the type of risk-taker you describe then you would have taken that risk, so that must not be who you are
Just another anecdotal example, but we bought a house in a good, established American neighborhood in 1999, before the bubble, with a 30 percent down payment and a monthly payment that was 15 percent of income, with "solid" jobs and excellent reviews for our work. Now the employers are throwing us under the bus, the house is worth less than we paid, and we are effectively immobilized at the same time job we desperately need mobility. I'm not going to stop trying to be responsible, but I'm not really feeling like it's done much for us.
your house is worth less than it was in 1999? i don't think i've heard that anywhere before.
are you also saying you are underwater? that would seem impossible with 30% down and 12 years of payments.
I'm not underwater on the mortgage, but yes, if you take the midpoint of Zillow's range and corroborate it with other trends from my area in the Midwest I wouldn't match my purchase price if I tried to sell it now. I do think we need to leave the area for better employment prospects so I'm faced with that loss and less equity to put in somewhere else.
Maybe I'm overreacting to a housing market blip but I didn't believe our job situation could deteriorate this much or stay bad this long and it has. Maybe this new situational awareness about housing is a warning sign for the next recession. I know I'm not out there invigorating the economy with my dollars.
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