Saturday, August 31, 2013

Money

Over beer, chips and guacamole, some coworkers and I were talking about the cost of attending my college reunion.  The cost of admission to reunion events is just short of $400.  That seems like a lot.  Especially to those that followed their passion into low-paying fields.  Even on a big law salary, factoring in airfare, car rental, hotel and other costs, the total spend has me feeling wary.

My coworkers laughed at this.  "It's a drop in the bucket," they said.  Looking at it from a Tokyo associate's point of view, this is particularly true.  In addition to our big law base salary, we receive a $75 per day cost of living adjustment and a free place to live.  It's a generous compensation package and leaves us with enough money to pay down debt, save, and spend somewhat freely.  This is why my coworkers were shaking their heads at me.

Why are our perspectives on money so different?  First, my time on the generous expat compensation package is quickly coming to an end.  Second, I've seen too many other associates spend their money mindlessly and then deeply regret it when they are laid off or move to a much lower paying job to preserve their marriage or their sanity while still burdened with a substantial student loan balance.  I do not want to find myself in those circumstances.

When I started out as an associate, I decided I would try to live on an amount of money that equaled my pre-law school after-tax income and use the difference between my pre- and post-law school after-tax incomes to pay down debt or save.  I have stuck to that plan for almost three years and am just starting to really appreciate the results.

Has it involved a lot of sacrifice?  It hasn't felt like it.  That's not to say that I haven't felt jealous of my brother who makes roughly the same income and has bought a big house, sporty luxury car, spendy engagement ring, European vacation and numerous weekend getaways over the same period of time.  (It's the house and European vacation that I covet!)

Nonetheless, as I'm coming up on my 33rd birthday, I'm tiring of the discipline.  (Here I'd like to acknowledge that a frugal person would have curtailed spending more than I have.)  This is mainly manifesting itself in my apartment search.  It looks like a one-bedroom apartment in a safe location near my office is going to cost me $2,000/month including pet rent and parking.  I am incredibly frustrated by the idea of spending so much to live in 600-700 sq. ft. in a neighborhood I don't love.  As of today, I'm considering a 550 sq. ft. studio for $1,800/month including pet rent and parking to save some money.

I'd really like to buy a place of my own and build some equity, but even after being careful with my money in recent years it still feels like this is out of reach.  First, because most people say you shouldn't buy unless you plan to stay in the same place for at least five years and I hope to get out of LA sooner than that.  This obstacle could be overcome by buying a place that can become a rental when I'm ready to move on.  Second, as Ben harshly pointed out, I "have no job security."  This could be said of many people.  If I could find a small enough place that the mortgage payment equaled monthly apartment rent (and that's a big if in my future neighborhood assuming you want a place in good repair) and stuck to the idea of selecting a place that can become a rental unit, is this point really a deal breaker?

While playing it safe hasn't felt like a bummer before, it does now.  Years ago, when I decided to go to law school, one of the major motivating factors was the idea that it would put home ownership within reach.  (I had recently seen some small Charleston-style townhouses that I adored, but would never be able to buy on my paralegal salary.)  It's a disappointment that I still don't seem to be ready to have my own place.  At least this is something that I can work towards.  With each passing year, home ownership should become more plausible.

What do you think?  Am I being too conservative?  Doing a terrible job of finding a good deal on an apartment?

6 comments:

Elizabeth said...

I was in a similar situation to you a few years ago. I was working as an attorney in the Bay Area, trying to save money for a house, feeling like I had no job security. I moved to Utah to start a new job in part because I could afford a house there. Now I have a house but I feel stuck in a small market and I worry about how I should have stayed in California.

I've been really impressed with your choices. I would have been too scared of change to move to Japan for a year.

And as someone who has paid off all my loans except the 3-4% interest ones, it's really worth it to sacrifice for that peace of mind. Before I paid off those loans the minimum payment on my loans was $1000/month. Now it's $300 and there's a lot of freedom that comes with that.

Metal said...

If I were in your shoes, I'd have certainly bought a place of my own..in a city where I'd have loved to stay for a few yrs and which offered good professional opportunities. I can't put into words how strong the urge has been in me to buy a house, but because I'm on a work visa its far too complicated to buy one. I do not agree with you not having any job security..there may be a few hiccups here and there but in the long run you will be employed for most of your life....and ...your brother is very lucky to be in Texas ;P

Brittany said...

I would love to own a house. I feel really unsuccessful/insecure during conversations with my friends where they talk about their mortgages. But at the same time, I'm single and they are not. I also prioritize other expenses (and don't have a huge salary).

I think home ownership is nice, but I agree about how long you want to live there. With how much you don't want to be in LA I'd stick with an apartment. It's worth it to keep focusing on your debt repayment and worry about buying a house when you're happy with your location. I know we all feel a lot of pressure to look like other people our age, but stay true to yourself and your goals so far. You've done an amazing thing to get where you are financially. Keep it up!

Brittany said...

(PS. Your alumni events have admission charges?!?!? What the heck!?!)

TP said...

Ownership runs deep in our culture, no doubt. But in your case, to what extent is ownership a proxy for other cultural goals you haven't yet achieved (marriage, family)?

Your desire to own sounds a bit like a broader yearning for stability that has thus far been hard to find. This isn't an argument against ownership, but rather a concern that buying a place won't necessarily give you the satisfaction you're looking for.

Don't get me wrong--equity is nice. But maintenance gets old, and owning tends to impair how nimbly one can respond to life changes.

That said, looking at housing from a purely investment perspective, including future rental prospects, may make sense for you. Unlike most, you actually have the tools to run the numbers and see what scenarios make economic sense. Just don't underestimate the burdens of being a landlord, particularly an absentee one.

Ben Stewart said...

"most people say you shouldn't buy unless you plan to stay in the same place for at least five years"

That's a pretty conservative viewpoint. For people with a family, 5 years makes sense, but if you're single, I'd say 2 years.