OK, I promised myself that after my March Fools Day joke-with-a-message (you know, the horse racing system one) that I would NOT do an April Fools day post …
… apparently, promises are made to be broken 😛
So, yesterday’s April Fools Day Post was another joke-with-a-message: no matter how much you have, you can always spend more.
Yesterday’s post is actually (slightly) rooted in fact; I have made some errors recently, and the market has turned, so let me come clean:
– We bought our current home for about $1.6 Mill.; naturally, we paid cash.
But, after we cashed out on the second part of our 7m7y journey (the part that I have NOT yet written about on this blog, because it’s a business success story, not a personal finance success story like my 7 million 7 year journey), things took a turn for the ‘worse’:
– We upgraded to a $4.5 mill. home (plus $1 Mill. renovations to come: house/swimming pool/tennis court), and again paid cash … unfortunately, the market correction has probably wiped $500k – $1 mill. of value … but, this is ‘value’ that will only be realized when we sell (hopefully, we’ll be there for at least 10 to 15 years).
– We bought $300k of cars (for cash) but also managed to sell the Maserati
– I did indeed lose $600k in the stock market; this is the ‘cost’ of my experiment in letting somebody else manage a small part of my portfolio for me, and trying to time the market (bad AJC … bad boy!)
– And, I was due to receive a $3 Mill. ‘bonus’ from my ex-employer, that was to be delivered in cash, but ended up being delivered in now-reasonably-worthless stock (that 30 pence to 7 pence slide is real).
The two mistakes that we made were:
– We tried to time the market … however, $1 Mill. represents a small’ish % of our total portfolio
– We spent money on a house that we assumed that we would have, but didn’t get (i.e. the UK cash-to-stock thing).
So, right now, we have broken the 20% Rule … but, I counted cash, and after all of this (including completing the renovations) we still have a LOT of cash in the bank, plus the houses, plus equity in a number of apartments / commercial property, not to mention a ‘passive’ business or two floating around … I won’t have to ‘downgrade’ my $7 million 7 year mantle anytime soon [AJC: because, say, $3 million in 11 years just wouldn’t have the same ring to it, would it?] 🙂
Still, how are we going to ‘correct’? After all, we have broken so many Rules, it hurts me to think …
Well, exactly the same way that you would:
Some of it will come from simply waiting for the market to correct (that $600k stock loss will partially reverse, as will the 30-pence-to-7-pence UK stock slide) … some of it will come from making long-term buy/hold investments in this soft-to-recovering market over the next year or three … some of it will come from applying a large portion of the equity in the home (and selling the old one, when the market recovers) to investments (thus bringing us back within the 20% Rule).
But, the lessons are clear: always obey the Rules … do NOT speculate … and, heed Rick Francis’ Making Money 301 advice:
You really should [not] have to worry about affording needs anymore- you just have to control your wants. Also, you can afford to be more conservative in your investments. Making Money 301 should be a lot less risky as you only need to maintain your principle against your spending and inflation.
Where were you when I needed you, Rick? 😛
PS: In case you didn’t get to see the masthead that went with yesterday’s post, here it is … I’m particularly ‘proud’ of the by-line (something to do with noses, white powder, fast cars/girls) … unfortunately, all-too-true for too many people (but, definitely NOT me! Well, the fast car – singular – maybe). I don’t even know who the photo is of? Do you?
A Man with a plan. I have great confidence you’ll come back from these mistakes.And you have some learned lessons you will carry with you into the future. Great Post.Thanks for sharing.(Salamat) thats thanks in Tagalog. 🙂
Wow ACJ, you opened up and shared a softer side of you. 😉
Actually, that is atrocious of you to break the rules! lol! Glad on my part, to see someone else has weathered the mistakes in hopes that I may learn from it. What do you do with a 4.5-mil dollar house? iHmmmmmm…
>Where were you when I needed you, Rick?
Sorry I didn’t advise you earlier :-), but I actually do have some money saving advice now:
Reevaluate the pool and tennis court-
Consider this- how often are you _REALLY_ going to use them… if it isn’t all the time then does it makes sense to own it instead of renting it?
Why not just join a nice health club? For the cost of the renovations you could pay the membership for years. You leave the maintenance costs and hassles to someone else, and a club should offer a more social environment- and better services.
@ Money Funk – the only ‘softer side’ of me is the gooey stuff between my ears … it didn’t work so well, this time 😛
@ Rick – We did that BEFORE we upgraded 😉
Actually, Rick, we did think about it until we counted pennies and realized that we COULD afford the house IF we did one of the following:
1. Take out a HELOC (or mortgage) on, say, 50% of the house, OR
2. Apply, say, 50% of the equity in the house (remember, we paid cash) to another investment; for example, there is a commercial building that I am looking at … it’s possible that a bank will let me 100% finance, using my house as equity. If not, we simply finance both 50%.
The key here is:
a) Will we then meet the Equity Rule? YES
b) Will w then meet the income Rule? YES
If so, we CAN afford to keep the house …
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Hello there, Happy April Fool’s Day!
This old gal was trying on one of those blouses with a plunging neckline and after looking herself over in the mirror, asked a saleslady if she thought it was too low-cut.
“Do you have hair on your chest?” the saleslady asked.
“No!” she squealed.
“Well then,” the saleslady said, “it’s too low-cut.”
Happy April Fool’s Day!