Friday, March 10, 2006

Enjoy yourself!

Back in October, I wrote an article asking why one would want to retire if they love their job. In it, I mentioned that software developers are probably not within the demographic of people that could, as their business moves too fast and there is a point at which experience simply does not compensate for the inability to learn new technologies quickly.

But reading about programmers' dreams of retiring in ten years does bring up an interesting point. All of these plans focus on cutting down your expenses, living at the bare minimum level, and saving money so at some point you could actually go on with the bare minimum level indefinitely without having to work for it.

Is this an existence people really dream about?

Youth is wasted on the young, and I can say that because I'm 21. In the time of your life when you are most capable of enjoying yourself, you do not have the resources to do so. I'm oversimplifying, of course, but one's ability to do new and exciting things is inversely proportional to one's age; there are things you can do at 20 that you can't at 40, and there are things you can do at 35 that you can't at 70, even if you've got plenty of disposable income by that time.

Now, if you're young and fairly successful - meaning that you have a steady job, income that covers your living expenses and leaves a bit of a "fun" budget - you have choices to make regarding things you can do now versus things you can do in the future.

Here is an example, and in best MarkTAW tradition it is one from my real life (although unlike pan Wieczorek I have no numbers to bedazzle you with). My family currently has a piece of property that we have no use for, so we are going to sell it and split the money three ways (me, my dad and my sister). My share will hopefully be enough to put a down payment on an apartment. I don't have any doubts about using it for that, as opposed to spending it on entertaining myself, for two reasons. The first: property is something you accumulate over your lifetime, this large amount of money is something I might not ever get at any single point in my lifetime, so in the spirit of not eating away your primary capital, I am only willing to spend the cash on more property, something that will not lose much value if any; I might not get much profit on this investment, but I won't lose it either. The second: I am currently renting an apartment, so if I buy one on credit, my expenses will not actually increase; but the money I spend will go into equity that I own as opposed to just giving it away to some random dude.

Now here are my choices.

  1. I can buy a cheap apartment outside town, meaning I'd have to commute, but I'd only have to take out a minor loan on it (if my dad helps out, hell, maybe even buy it outright.) The upside is more disposable income, but the downside is a worse living environment.

  2. I can buy a very cheap apartment outside town and renovate it. I could get one for my cash in hand, take out a relatively small loan and have it redone as I like it. The upside is that the economy in Small Country is booming, and this market is only starting to become popular; my property is likely to rise in value a lot over the next ten years or so. The downside is that I don't really want to commute that far, and I lose my backup plan (Tartu is full of students and short of dorm space, so if I ever move away, I can rent out the apartment and use the money to pay off the loan).

  3. I can buy a fairly decent apartment in town. This would require a long-term loan. At the rate I'm paying now, and what I'd need to borrow to get the sort of apartment I'm willing to occupy, it would have to be a 15-20 year loan. Or, and here is where the choices I mentioned come into play, I could get a 30-year loan and decrease my monthly payments a lot.

  4. I can buy a very good apartment in a brand new building, and take out a 30-year loan on it, paying what I pay in rent now.

And here is the big problem. I can invest in my future, spending much of my income today so that I would have more equity and less of a burden in fifteen years. Or I can rely on the fact that my income will keep rising (and since I'm less than a year out of college, it's reasonable to expect that it will) to shift much of the spending to later times.

The choice is whether to spend now, or spend later. And I am not entirely convinced by the MarkTAW concept of working hard now to not work in the future. I can enjoy myself a lot more today; and for the same result, I would have to struggle a lot less then.

Minimizing my investment today to have more cash for entertainment means I won't be able to retire by the time I'm 40. But that doesn't seem like such a daunting prospect, to be entirely honest.

Where do I want to be in the year 2046? On the beach in Aruba, stumbling from my hotel room to the wading pool, wondering if this is what I worked my ass of for all my life? Or at my desk in an office, smiling as I reminisce about all the great things I did in the beginning of the century?

Is youth wasted on old age?


Anonymous said...

Regarding buying outside of town:
1. How far?
2. How long will it take the town to grow out to you?

A common strategy is to buy out in front of growth, anticipating that when the area becomes densely populated, property values will go up.

Plus, as you mentioned, you get more disposable income because you aren't paying rent (which is presumably more than a mortgage would be).

antyx said...

1. Looks like about ten miles. So, an easy commute by car, but a bit of a costly cab ride. Still, there should be some semblance of public transport for when I get wasted in town and have to leave the car at work.

2. No idea. The real estate boom seems to have peaked, but there are still housing estates springing up just outside town.

I wouldn't be paying much less on a mortgage than I'm paying now in rent, mainly because while I'm not entirely against the idea of a 30-year-old mortgage (on a good enough place), I'll make it as short as possible, with payments as big as I can afford.

Unknown said...

It's been a while ...

Tip: If your mortgage does not have a penalty for early payment, the obvious strategy is to get a loan for the longest period you can get, then pay more than required whenever you can. It has a gorgeous motivator for doing it: In the first year, every cent you pay over your obligation multiplies by three over the 30 years. It decreases with time, but remains very attractive at least the first third of the loan period.

Question: What did you end up doing? Or are you still thinking about it?

antyx said...

Door number 4.


| More