Since starting Financial Samurai in 2009, I’ve been making better financial decisions. The reason is because before each big decision, I always spend at least a couple hours analyzing each situation through a post. The dilemmas I have are very similar to the dilemmas many of you have, will have, or have experienced. As a result, after each publication there’s plenty of great feedback from the community.
Before 2009, I had several financial blowups. One mistake was buying a Lake Tahoe vacation property for $710,000 in 2007 and watching its value sink to below $400,000 within three years as the financial crisis unfolded. I thought I was getting a good deal because the sellers had purchased the property for $785,000 just the year before. But the tidal wave of foreclosures was just too strong.
If Financial Samurai had existed back then, I’d like to think I would have held off on my purchase or bargained much harder because at the time, I foolishly thought my income would continue to go higher seven years after the dotcom meltdown. We're once again seven years into a real estate and stock market recovery. Please be very careful!
Examples Of Solving Big Decisions With Writing
Writing is thinking. Let me share some examples of how writing posts helped me make better decisions.
Big decision #1: At age 34, I wondered whether I should leave a 13 year banking career and make no money as a writer for an unknown period of time. It sounded like a crazy thing to do so I wrote: The Dark Side Of Early Retirement. The post made me face all the pitfalls of leaving the rat race so soon. Everyone who is planning on pulling the plug early should read this post.
Because of the post, I was able to formulate a severance negotiation strategy a full year before actually leaving. Because I knew with 80% certainty I was leaving, I was able to take it much easier my last year of work while still getting paid. Because I no longer cared as much about rankings and revenue, much of the work pressure dissipated. Instead, I took six weeks of vacation for the last three years and and spent lots of time writing during my free time.
When it was time to sign the severance documents, I had already run every possible scenario. Thus, it was with great anticipation rather than immense consternation that I signed the documents to move on to the next chapter of my life.
Big decision #2: After leaving Corporate America, I still felt a little vulnerable. I was used to a significant monthly paycheck and now I earned zilch. To feel rich again, I was thinking of selling my primary residence and renting a two bedroom, one bathroom apartment for half the cost of owning my home. If I sold my house, I would have netted roughly $500,000 after taxes and fees. Not great since I had owned the home for seven years by then and put $325,000 down.
Back then, selling was super tempting, so I wrote: Should I Sell My House Now That Facebook IPOed? We had gone through the worst of the financial crisis, and I felt lucky to still have all my wherewithals. Time to sell everything before we return to the abyss!
After writing the post, I decided it was not the time to sell because it appeared we were just at the beginning of a real estate recovery. I received a couple low ball offers which I declined after listing my house for 29 days. In my gut I felt that if I sold, I'd regret that decision 10 years later. Since 2012, SF real estate prices are supposedly 50%+ higher. Because of leverage and four additional years of principal payments, my equity has grown from $500,000 to ~$1,500,000. That is some serious money made with much less disruption thanks to thinking things through with a post!
Big decision #3: Roughly $420,000 in CD money was coming due in early 2014 and I wasn’t sure how to reinvest the money because I usually invest only $5,000 – $20,000 at a time. I loved the CD because it was earning a a risk-free 4.1% a year. If I could earn a guaranteed 4% a year for the rest of my life, I would invest my entire net worth in such an asset.
The two most obvious asset classes to consider were stocks and real estate. As a result, I wrote: Which Is A Better Investment: Stocks Or Real Estate? The post evaluates all the pros and cons of each asset class. In the end, I realized I didn’t feel comfortable investing more than $150,000 into the stock market at the time and also didn’t want to hold so much cash earning nothing. The post reminded me that I don’t like being a minority shareholder with no control over anything. Further, compared to SF real estate, I didn’t like the volatility of the stock market.
As I'd been wanting a smaller house with panoramic ocean views in a new neighborhood, I decided to use $250,000 as a downpayment on a fixer upper, and earmarked another $120,000 to do a gut remodel. The remodeling is done, except for a ~$20,000 deck addition off the master bedroom once my contractor stops ducking my calls. Meanwhile, my previous house is rented to five people. As only three people lived in the house before, this helps ameliorate the SF housing shortage. The move also pushed me ~$50,000 closer to my $200,000/year passive income goal.
Perhaps it's too soon to tell whether I made the right financial move because I'm forecasting a decline in property values over the next couple of years. But I do know that I'm very happy with this house so far and am extracting full value from the earlier house. According to comps in the Golden Gate Heights neighborhood, prices are up about 15% since 2014 while the stock market is flat.
Big decision #4: After successfully supporting myself without a job for three and a half years, I started getting fearful and restless in 2H2015. My economic outlook for 2016 and 2017 wasn't that great, and I thought it would be wise to get a job before job opportunities became scarce. As a result, I wrote, Time To Go Back To Work Full-Time Again?
Of course you know by now I haven't gone back to work, thank goodness, and have just maintained one or two corporate consulting clients to keep me engaged with the real world. I was so close to accepting a really shitty job at this fintech lending company 30 minutes south for low pay just because I wanted security and camaraderie. Then I almost stepped over the ledge by returning to my old industry with a tier 3 bank that just announced they are laying off 20% – 30% of their North America employees! Yes, the pay would have been at least $250,000, but for how long as a last-in employee?
Going through the process of finding full-time work again reminded me of the awkwardness of pretending to want to do something I don't want to do. I'm so happy I didn't go back to work full-time because I would have stayed for at least a year, no matter how bad things got.
Make A Convincing Written Argument
If you can’t convince me, the FS community, a close family member or a friend why you should part with your cash, then sit on your money until you do. The same thing goes for making any big decisions in life. We all have blind spots that need illuminating. The question is whether you will have the patience and honesty to hear what other people have to say.
Writing is a very purposeful action that makes you think much deeper. If you're unwilling to start your own website, then at least type your argument out in private. Upon reflection, it looks like not only has Financial Samurai allowed me to break free from Corporate America, it has also saved me a ton of heartache over the past seven years!
Recommendation To Build Wealth
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