Michael asks What was the best financial move you’ve made so far? and then tells this story about his car:
I’ve concluded my best financial move to date has been my decision to keep cars for very long periods of time. I drove my first car for over seven years before it died. My second car just passed 100,000 miles this last weekend and is over nine years old. So, here I am in my late thirties and I’m still on my second car.
Having no car payment during 9 of the last 14 years has allowed me to spend more in other areas of my life where I value such spending while still permitting me to save substantially for my future.
What an excellent question!
I’ll tell you my best financial move, then perhaps you can share yours?
I have a few ‘best financial move’ candidates (including moving to the USA, selling out just before the Great Recession, and others that I will tell you about some other time), but I can pin my ‘best’ financial move – not my biggest, but my best from a pure financial strategy point of view – down to one:
My accountant talked me into buying my own building (I had a small’ish call center operation but was renting office space at the time).
Making the purchase was very tight, financially, as the business wasn’t making a lot of money (there was a bit of juggling to come up with the cash for the deposit and making the monthly payments!). I really sweated as I was making the bids at the onsite auction (that’s how most properties are sold in my home town).
[AJC: Property valuation technique # 1: Q: How did I know how much to pay? A: I didn’t! But, I did know who I was bidding against (very important to know who your ‘opposition’ is) … a property developer. Logic told me that he would not buy for more that true current value, because it would be reasonable to expect him to buy-rehab-sell or buy-rebuild-sell. If – on the other hand – I intended to buy/use/hold, then it stands to reason that I could afford to pay AT LEAST as much as him. So, I just kept bidding until he stopped, and ended up paying just $1,000 more than his highest bid.]
To backtrack a little, I had already decided that I would buy prime real-estate in prime location, instead of buying a cheap building in an industrial area (typical for call centers, to keep costs low).
So, instead of spending, say $500k or so on a cheap industrial-area building, that’s how I found myself spending $1.35 mill up front at that auction and another $500k (100% financed) on the rehab and fitout, once I closed on the deal.
Well, I saw two major benefits:
1. It was a show-case building that I thought would be my ‘shop front’ for our ‘Fortune 500’-type corporate clients, making them think we were bigger (therefore better/safer to deal with than our opposition) than we really were, and
2. I guessed that it would have great resale or redevelopment value down the line.
As things would turn out, this was one of those rare occasions when I was right … on both fronts!
Our business grew substantially in that building with many a deal completed in our own board room.
[AJC: Once the Internet era arrived circa 2000, we created a fully web-enabled system – way ahead of its time – at which point it became advantageous for us to make our sales at our clients own premises. Once they saw the drop-dead gorgeous – by 2000 standards – web-enabled charts and graphs, they virtually signed our standard contract on the spot! Our office could have been in a garbage dump then, and it would no longer have mattered. Oh, good times … good times!]
In doing so, I avoided 5 years of rent, reduced my taxes by $500k (because of the rehab), paid down about $500k of the principal, and eventually sold the building for $2.4 million.
Once business picked up (again, partly because of the marketing / credibility benefits of such a professionally fitted out building in such a prime location) I barely noticed the payments, and probably would simply have raised my personal spending had some of the profits not gone into the mortgage and rehab repayments.
Instead, after 5 years of mostly tax-deductible ‘forced savings’ I walked away with what felt like an extra $1.5 million in my pocket. Not my grandest move, as things would turn out, but certainly my (financially) most astute …
… I encourage every business owner to do the same!
So, what’s your best – not necessarily your grandest – financial move?
It’s hard to pick one. There were a lot of things which went right in a big way and a lot that went wrong as well…but the gains on the things which went right have far far exceeded the losses on the things which went wrong….at least so far.
If I had to pick one thing that had the biggest impact, it would be getting on a plane in 1992 to move to Hong Kong. A much bigger city with more opportunities than my home town. The higher income that came with the move and as a result of subsequent career progression funded a large part of my investment portfolio.
Going to a top business school. Ran the IRR a few years back, and after accounting for opportunity cost, tuition etc came up with a return rate north of 30% for the 8 or so years following graduation.
Would love to find another return like that … and be able to sustain it for such a long time period…
@ Jake – 30% compounded is very nice. Yet, strangely, it becomes a compelling reason to skip college and go straight into business (to gain a 50%+ compounded return) …
… of course, I’m a hypocrite because that’s not what I did, nor what I would encourage my kids to do 😉
I would have to say getting a divorce, lol 😉
Good story. I guess it boils down to: no risk, no reward.
My best financial move was moving to Asia in 2006. I had been working since 1996 and made a total of $1.1 Million USD in salary and bonus from 1996 – 2006. From 2006 – 2010 I have made a total of $2.3 Million USD in salary and bonuses. Over twice the compensation in less than half the time.
Also the first residence I bought was bought in cash before moving out here so a good amount of money in the last 5 years has gone into savings.
Hopefully my best financial move is yet to come!
@ Mike – Good luck with that!
I identified by best financial move thus far. What I meant to say is I hope to top this sometime in the future.
Writing a 7,000 check (to this day the largest check I’ve ever written) to study abroad in Spain. Money spent on other travels has been worth it, too.
This would be a tie between two moves:
1) Dropping out of college (@24 years old). I know, not generally recognized as a “good decision”, but I was too ambitious to wait for opportunities and too annoyed that I was dumping all of my money into school when I felt I could learn more efficiently on my own or on the job. Because I dropped out I was able to actively pursue (and soon find) a satisfying position with decent income. This allowed me to easily save capital for my next item.
2) Buying a house (@26 years old). I bought when rates were very low (3.675% on a 15 year mortgage), and had 4 of my close friends rent rooms in the house. This allowed me to save even more capital over a two year period, and I am currently purchasing other investment properties.
@ Janet – I won’t tell you the amount of the largest check I ever wrote … all I can say is thankfully it wasn’t quite as large as the largest check I ever received! 😉
@ Tyler – Jake says he got a 30% compounded return by staying IN college; but, you have a ‘business case’ for just the opposite.
BTW: does anyone know if Mark Zuckerburg (FaceBook) actually bothered finishing college?
It looks like Mark Zuckerburg put in 2 years at Harvard then took off to Palo Alto to try and grow the company.
It’s not stated explicitly but it appears that he did not get his degree.
I’m sure he can get an honorary degree later (after donating $50 million to the school).
There is a mention that he didn’t finish University:
Zuckerberg voiced himself on an episode of The Simpsons, “Loan-a Lisa”, which first aired on October 3, 2010. In the episode, Lisa Simpson and her friend Nelson encounter Zuckerberg at an entrepreneurs’ convention. Zuckerberg tells Lisa that you don’t need to graduate from college to be wildly successful referencing Bill Gates and Richard Branson as examples.
@ Mike – Thanks. I’m sure his IRR (by not completing school) was MUCH greater than Jake’s very respectable 30% compounded 🙂