Enjoy The House’s Money: Practice Taking Profits To Pay For A Better Life

If you are an investor, it's important to practice taking profits to pay for a better life. If you never utilize your gains and die with too much money, you have completely lost the point of investing!

One of my favorite areas to take profits is in the stock market and convert the proceeds into real assets like real estate. This way, I increase the chances that my profits will last and provide utility for a very long time.

I rote this post in 2H2020 when stocks and real estate were climbing hard. And in retrospect, I really do appreciate taking some profits on the way to pay for a better life.

Practice Taking Profits To Live Your Best Life

What's the point of investing money? To pay for a better life. I think many of us forget that investing is just a means to an end.

We set up our automatic bi-weekly investment contributions, come up with a better dollar cost averaging framework, and never touch our money because we want to grow our nest egg as large as possible. But eventually, we must spend, or else there's really no point.

My #1 reason for saving and investing money is so that I never have to work for someone out of necessity ever again. I make this happen by building as many passive income streams as possible.

Can you imagine being in an arranged marriage (check out Indian Matchmaking on Netflix for a clue)? That's kind of what work is like because there are always new people coming in where you had no say in their hiring. You put up with people you don't like because you need the money. Eventually, you'll have enough where you will make a change.

During my first two years of early retirement I was only about 75% sure I had made the right move. Therefore, I continued to live frugally and stayed disciplined with my saving and investing habits. I invested 100% of my severance check in a couple principal protected structured notes so I wouldn't be tempted to spend any of it.

It's been over eight years since I last worked for someone else. During this time, I've come to realize the fear of running out of money in retirement is completely overblown. We are adaptable and stronger than we know. If necessary, there are so many ways to make extra money.

Taking Profits To Pay For A Better Life

With such a massive rebound in the stock market and real estate market in 2020+, I continue to take profits to ensure that all this saving and investing doesn't go to waste. It would be such a shame to lose 30% again like we did in March 2020.

Here's a past example from 2016 where I took profits to pay for a better life. Even though stocks continued to go up since 2016, I'm very happy that I was able to enjoy my investment over the past four years.

Invest severance
Taking profits on a principal protected, DJIA structured note to pay for life.

On May 30, 2012, I invested part of my severance in a 100% principal protected DJIA structured note paying a 0.5% annual yield. Today, this note is worth $202,335, a 35% increase. I didn't invest naked long because I just left my job and the economic environment was still very uncertain after the housing bust. If I did, I'd probably be up closer to 45%.

As a retiree, my annual investment goal is to earn a 4% – 6% return, or 3X the 10-year bond yield. Given this structured note has yielded closer to an 8% annual return since inception, I'm taking profits on 100% of the profits, i.e., selling $52,335 worth of notes and letting the original principal balance of $150,000 ride.

What will I be spending this funny money on? Perhaps on a new mid-life crisis ride I've been writing so much about? Nah.

Taking Profits To Spend On Home Remodeling

I'll be spending it on building a new retaining wall to solidify the foundation of my home, a new 275 sqft deck off the master bedroom, and replacing two, 50 year old cracked aluminum windows with a new 12 foot wide sliding door which will connect the master bedroom onto the deck!

When I bought my fixer upper in early 2014, I imagined all the expansion potential possibilities. But expanding costs money, and it's always a good idea to take your time when making permanent changes. Further, to reduce the pain, it sometimes feels better if spending is spread out over a longer period of time.

Two Phases Of Expansion

In Phase I, I spent roughly $130,000 to redo the entire interior of my house. You get the best bang for your buck expanding bathrooms, remodeling kitchens and doing the necessities, such as updating the electrical. Now it's on to Phase II.

Phase II consists of some superfluous stuff that has a lower return on investment, e.g., landscaping. For the longest time, I've wanted sliding glass doors off my master bedroom that connected to a nice deck that overlooked the ocean. I imagined stepping outside for a morning stretch after a good night's rest. On a warm afternoon, I'd relax in a lounge chair, drinking a Moscow Mule from a chilled copper cup before the sun set.

Having always lived on the eastern side of the city, I never imagined there were homes with ocean views in San Francisco which I could afford. Every other major city in the world with panoramic ocean views trade at unaffordable premiums, so it wasn't until early 2014, when a sizable CD came due, that I ever bothered to look.

Sensing an opportunity, I made the move to on the one hand increase passive income by renting out my old house and on the other purchase my ideal San Francisco home for the second half of my life.

Spending The Profits By Building A Deck

Step 1: Clear The Room

It's a foggy August morning. I spent about 30 minutes covering all my furniture with plastic wrap to prepare for the demolition. You've really got to take your time remodeling because

I spent hours painting the wall and the window trims a couple years ago. If I had planned my remodeling perfectly, I would have installed these doors and built a deck first, and then painted the interior.

Financial Samurai Deck 1
Step 2: Remove Windows And Trim

Financial Samurai Deck 2 - taking profits to pay for a deck

Step 3: Remove Sheetrock

It's always fascinating to open up the walls and see what lies beneath. One time I found some old coins from the 1920s and a newspaper article in my old house. The big issue with installing a sliding glass door was figuring out how to install it without the upper floor collapsing due to the removal of the center support column.

Financial Samurai Deck 3 - taking profits to pay for a deck

Step 4: Install Temporary Wall To Support Upstairs

Before removing the center support column between the two windows, my contractor had to build this temporary support wall. He also installed two new support columns to the left and right of the sliding door frame. Temporary problem solved!

Financial Samurai Deck 4 - taking profits to pay for a deck

Step 5: Install Header And Sliding Doors

Financial Samurai Deck - taking profits to pay for a deck
Oh blue waters you delight my eyes.

Notice the massive new support header above the door. For bigger jobs, I highly recommend everyone pay up for a licensed contractor who will get a permit. Safety is paramount. My contractor will not cover up the walls until the inspector gives the OK.

I'm pretty pumped with this project because I've gone from a 9 foot wide viewing area to a 12 foot wide viewing area. The new sliding door has double pane glass for better sound and temperature insulation. The view is what makes this project a home run, and I can't wait to take some pictures on a clear day!

Installing this door and replacing the header took four guys one day to complete: 8am – 6pm. After the inspection, my guys will come back to sheetrock, mud, sand, and paint the inside and outside of the house. They'll also install an electrical outlet for the deck and two LED lamps. Finally, they will install three more support beams below the bedroom. The total cost for the door, labor and permits is about $15,000.

Spending $15,000 on this home improvement project feels so much better than keeping the $15,000 invested in a stock market that provides zero utility. If the stock market goes up another 5% this year, that's an extra $750 return. Whoopdeedoo. If the market declines, then I'm happy I took some profits to enjoy something much more permanent.

Identify what you value and spend your profits accordingly.

Step #6: Enjoy The Sun!

Financial Samurai Deck

Now looking for deck furniture and a hot tub for five. Check out how awesome the deck turned out below. The deck acted like a second backyard for my son when he was young. The easy access from the main bedroom was wonderful. So was watching the sunsets.

Financial Samurai Deck Remodeling
The deck is done! YES!

If you're interest in know about the cost of building a deck, I wrote a new post about it. I ended up building another deck in 2022 for my rental property. I had to change out the foggy window, so I figured I might as well install French doors and build a deck.

It Feels Like Free Money

“I'm always told when to buy, but I'm never told when to sell.” – Anonymous mutual fund manager.

Whenever you're taking profits to pay for something awesome, it feels like free money. After a long enough time passes, the investments you made will start feeling like undeserved, free money. This is especially true if you get a nice severance check for leaving a job you wanted to leave anyway.

It's surreal that you can lock up money and then potentially have a lot more money years later while doing nothing. But that's the power of investing in asset classes that historically go up. It just takes time to play out.

Just be aware that bull markets make us feel invincible. We start thinking we are smarter than we really are. In reality, all we're doing is riding a tram into the sky. We don't know when the tram will stop or break. Nor do we know whether we'll be forced to get off at an inopportune time.

During good times, it's important to tell and ask yourself two things:

1) You are not an investing genius, so stop thinking you are one.

2) How do I make the good times last longer?

Telling yourself you are not an investing genius forces you to have a hard look at your net worth composition and investment asset allocation. The goal is to know your actual risk tolerance and not take outsized risk. When times are good, we tend to overestimate how much risk we can take.

Asking yourself “How do I make the good times last longer?” makes you consider future goals. For example, if your investment proceeds will help put your kid through college for an easier life, you will have made one of the most generous and profitable investments ever!

Contemplate a world where your children have no huge student debt and can pursue their interests instead of a paycheck. Would that make them happy? If your children are happy, would they not love and appreciate what you've done for them? If this were so, as a parent would you not be content?

I'm still waiting for my daughter to be born, so besides writing posts about what I'll teach my daughter in the meantime, I'm going to get the house done up so that mom and dad will have gotten all their projects out of the way so they can focus 100% on being good parents. Besides, this new sliding door and deck has a 20+ year warranty. That's a nice way to make the good times last longer.

Never Forget The Reasons Why You Invest

Unless I was constantly taking profits to spend on necessities and the joys of living, I'll never rank stocks as my favorite asset class to build wealth. For frugal people who tend to live way below their means taking profits to spend is hard to do. The same goes for people who fear missing out on more gains due to greed.

For those of you who are older, have your financial ducks in order, and are getting a little demotivated by the constant investing mantra, I encourage you to utilize some of your paper profits for something more tangible.

Go through an exercise of saying, “My investment in X paid for Y.”

Here are some examples:

My investment in Google paid for my daughter's education.

My investment in GE paid for my compact car.

My investment in the S&P 500 index paid for my kitchen.

My investment in an Apple structured note paid for the downpayment on my house.

My investment in VNQ, a Vanguard REIT, paid for my parents' two week cruise.

My investment in Hawaiian Airlines bought 10 round-trip San Francisco-Honolulu plane tickets.

My investment in VYM is paying monthly dividends, which pays for my gym membership.

My investment in Netflix enabled me to retire early.

If you find yourself going through the exercise and realizing your investments haven't paid for anything, you've got some work to do! You're either not investing enough or you've forgotten your purpose for investing. Taking profits will help fulfill your investing purpose.

The goal is to always tether your investments to real things. As soon as you identify what your investments have bought or will buy, you'll be much happier.

As we've all discovered during this global pandemic, life is not certain. Therefore, why not use some of our money to pay for some uncertainty. We certainly are!

Invest In Real Estate More Strategically

Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile. 

The combination of rising rents and rising real estate prices builds tremendous wealth over the long term. Meanwhile, there are more ways to invest in areas of the country where valuations are lower and net rental yields are higher thanks to crowdfunding. 

Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. The real estate platform has over 300,000 investors and manages over $3 billion. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.

I've personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000. 

Best Wealth Management Software

The best way to build wealth is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts on their Dashboard so you can see where you can optimize.

Before Personal Capital, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to track my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing, how my net worth is progressing, and where my spending is going. You also get your net worth amount sent to your inbox weekly.

One of their best tools is the 401K Fee Analyzer which has helped me save over $1,700 in annual portfolio fees I had no idea I was paying. You just click on the Investment Tab and run your portfolio through their fee analyzer with one click of the button.

They've also come out with their incredible Retirement Planning Calculator that uses your linked accounts to run a Monte Carlo simulation to figure out your financial future. You can input various income and expense variables to see the outcomes. Definitely check to see how your finances are shaping up as it's free.

Retirement Planning Calculator

74 thoughts on “Enjoy The House’s Money: Practice Taking Profits To Pay For A Better Life”

  1. Steve Sheets

    Thanks – just pre-ordered the babolat pure aero 2019…umm, paid for with the losses I avoided this week by being only 60% in stocks instead of 65%??

  2. If the purpose of investing money is to pay for a better life, is the purpose of throwing money down a rent hole to pay for a worse life?

    (Remember, every income property is someone else’s outgo property.)

  3. Sam,
    The arranged Marriage stuff made me smile. I married my husband through arranged Marriage and we are very happily married but I know its not always the case. I know arranged marriages are not common here so it interesting to know how other view them :)

    I do agree it is easier to spend profits than savings. I also like to bucket savings/profits for different expenses.

  4. Sam, with Vancouver property softening I remembered your prediction wrt 2017/2018. BTW what do you expect the decline in % terms to be in SF and what would be the neighborhoods offering the most value? Fun post for sure!

    1. I expect to see a 10-15% decline by 2017/2018. Nothing huge like the 2008/2009 crisis. Just a normal correction from clearly overheated bidding wars in places like SF, Manhattan, and Vancouver.

      The $2M house can be had for $1.8M. The $3M house might need to accept only $2.65M. The $1.5M house might only command $1.3M, etc. Still expensive, but saving a couple hundred thousand is significant.

  5. Finance Solver

    Look at the view on the new doors, looks really good! I would never be able to figure out what to spend the money on because I’m not that creative when it comes to spending money. I usually put it in my savings/invest it and never think about it.. Hopefully when I get older I will get wiser to know how I should spend my money.

    I’ve had a hard time figuring out when to sell like the mutual fund manager. I’ve thought of thinking it as “my investment paid for this” but for some reason that never seemed to make sense to me. I don’t know why, but maybe I just might change my mindset to see if that will change my perspective or behavior.

    1. Just list out your wants and things you value for a nicer life in a spreadsheet. I’m sure you’ll find more stuff. How old are you now?

      I’ve found I like to spend lots more money on convenience and experiences, which includes being able to walk out of my master bedroom onto a deck to breath in the fresh misty air in SF.

    2. Please don’t make the mistake of telling someone in real life you don’t know what to spend your money on. You’ll end up with a lot of volunteers (including me :D).

      As Sam says, figure out your dreams and desires for your life, for bettering your life and put the money there. Money is a tool for you to improve your circumstances.

  6. That is awesome. I feel like we are still in the profit generating stage so we dont spend much at this point. However, are current priorities are funding kids college, investing, and paying off our mortgage early. Oh yeah, and travelling internationally every two years. Next trip, Thailand!

    1. Lots of upcoming expenses! I hear you. I’ve put money aside for college and have a mortgage payoff plan too. Enjoy Thailand. Was in Cambodia and Malaysia last year. Such good food, sites, and diving.

  7. Hi Sam,

    Great work in progress….please share the final pics with us! A couple years ago, I too had a 10X10 Trex deck w/ a sliding door built off our MBR which backs into the woods (put a bistro table and chairs on it). It’s very nice in the autumn months and and during snowfall . But now more often than not, I just look through the sliding door, lol. As a result, my wife hasn’t been on it and thinks it was a waste.

    I guess I’ve come to realize that buying/building things for you and your family and friends will yield the most enjoyment.

    1. Will do! I’m going with the top of the line Trex Transcend line in Island Mist. I hear you on NOT using a deck as much as you imagine. I have a feeling that’s pretty common place. But I do solemnly swear I will spend time on the deck each sunny day it’s above 68 degrees!

      My friend, who has a view, told me he got tired of the view after a year. But I really, really love my view. Every sunset, I pause what I’m doing to watch the sun go into the ocean. Every day I open the draps in my living room, I either voice out loud or tell myself, “Wow, this view is amazing.” It’s just what I value. Everybody is different.

      I need to get some nice deck furniture to make the deck more inviting!

  8. Middle Class Millionaire

    Loved this post Sam…. especially the part on your improvements to your home… what a great idea by the way! A buddy of mine added an entire loft/upper floor extension to his home. All in all it cost him about $25,000 to have it done, but it added almost 800 square feet to his home. His home was originally about 3,200 square feet to start off with, but with the addition it became about 4,000 square feet. Just a couple months ago he sold his home for $790,000 (or almost $197/square foot). One two months before he sold his house, the neighbors down the street with the same home sold theirs for $675,000. So with all else equal, he assumed that he gained somewhere in the ball park of $115,000 in equity from his $25,000 project. Man I love the power of real estate!

    Also I love the concept of playing with house money. Most of us have heard the term “pay yourself first.” Once you have invested your own money and you start to generate a return, using the profits to reinvest is probably the best thing you could do to really start to boost your wealth.

    I like to use the analogy of a seed. Every dollar is a seed. If you plant a seed, eventually a money tree will start to grow. Most people, if they even get this far, are quick to eat the fruit of their new money tree. The smart investor will take the new seeds from the money tree and continue to plant more trees. Over time, eventually the investor will have a full blown money tree orchard with more fruit being harvested every year than he can possibly know what to do with. Plant that seed and have enough discipline to continue planting the new seeds so you can eventually have a money tree orchard of your own!

    1. Man, only $25,000 to expand 800 square feet?? Where does your buddy live and how much are the materials and hourly wage? That’s incredible!

      If I wanted to expand 800 square feet by creating a room down below with an extension, bathroom, roof, ceiling, walls, plumbing, electrical… I swear it would cost about $200,000 – $250,000 here in SF. The upside is that at a $900/sqft selling price, I could gain an extra $700,000+ when I sell. So I guess the numbers are just larger her ein SF.

      Expanding really is the way to go to make money in real estate. https://www.financialsamurai.com/how-to-make-lots-of-money-in-real-estate/

  9. Ten Factorial Rocks

    Good thinking Sam. The only problem I have with selling equities is that I have no way of knowing whether this is close to the peak or not, and also, when to get back in. So, we have to be right twice. I am thinking a strategy focused on dividends would serve better, as even if some dividends get cut, the rest may stay or increase, so, at portfolio level, there is good cash flow. I target to have dividends cover 150% of expenses as my safety cushion for the dependency of dividends in equity markets. I wish I had your kind of interest or experience in real estate, I prefer to remain untethered to ‘brick and mortar’, so capital markets are what I depend on.

    1. Isn’t taking profit to pay for something you want not a 100% guaranteed return? It is to me, because I invest for a purpose.

      Dividends covering expenses is a great goal to have.

  10. Congratulations on the renovation Sam! That’s a beautiful view especially with the mist rolling over.

    I’m glad to see I’m not the only one that does the “My investment in A pays for X.” It helps put things in perspective.

    1. Thanks! Not done yet. Inspector just gave the OK to cover, so the guys will come back tomorrow to sheetrock and stucco. Then it takes a couple days to dry, then sanding, and painting. Another week of work!

  11. So far, my investments have just purchased me more clarity in my job and business. I know what I’m putting up with the arranged marriage for and can see the happy divorce in the distant horizon.

  12. Before I started my business I worked in healthcare and it was hard work. Finally I started the business slowing phasing out W2 time clock income. Then my driving force was… ok, I jumped ship and never, ever!! want to go back to that and that really kept me going during the harder times. Always having the fear that if this doesn’t work I’ll have to go back so instead of spending I saved and invested, building my second cheese (Who Ate My Cheese).

    Now I am mortgage free, no debt but still wanting to save and invest more. If my company all came crashing down tomorrow I’d live the life I lived when I was punching a time clock (which means enough to live on but a struggle) so I have to keep going.

    I hope to get to your point of comfort someday. I enjoyed this article a lot!

    1. Hi Elizabeth,

      Sounds like you are already there! For the first 3 years of running FS full-time from 2012-2015, I was super motivated just like you to ensure I wouldn’t have to go back to work again. I made myself poor by investing 100% of my severance as mentioned in this post and just keeping the bank account razor thin.

      You will naturally continue to hustle and work harder if you feel you need more money. So many opportunities nowadays thanks to the internet!

      Best of luck.

  13. I’m doing something very similar now – I’ve sold off some of my equity positions to raise cash. I’m going to use some of this cash to pay down some of my mortgages to reduce my leverage. I’m a big believer that you should increase leverage when the market is below its long term averages and reduce leverage when the market is up.

    By paying down some mortgages I’ll free up monthly cash flow, which then reduces my dependance on my current (or any!) job.

    1. Very logical. I’ve been doing the exact same thing. Unfortunately, you’ve got to pay off 100% of your mortgage to get any of that extra cash flow. Otherwise it’s just an increase in the percentage of payment to principal, which is nice.

  14. So would your advice extend to paying down a mortgage balance and recasting what remains? The market has been on quite an upward ride and the thought has crossed my mind that paying down a big chunk of the mortage balance and recasting would be a smart way to provide some downside risk to a portfolio that favors equities… for someone mid 40’s and ~3 years from retiring. Thoughts?

    1. Have you refinanced over the past 12 months? If not, I highly recommend you do so, especially if you have an ARM.

      In terms of paying down your mortgage. I’m an advocate, but it also depends on your cash flow generation status and liquidity needs.

      If you need to pay down a mortgage in order to refinance, that’s not a bad idea right now either.

      Why I’m Paying Down My Mortgage And Why You Should Too
      Your ARM Probably Needs To Be Refinanced

      Always Refinance BEFORE Leaving Your Job

      1. Any guidance you could provide on going about how to assessing the cash flow generation and liquidity needs against the value of paying down/off the mortgage?

        The part I struggle with is that ultimately the mortgage constitutes leverage whose value works for me if the market appreciates (woohoo the money I didn’t pay the mortgage off with appreciates in the market), and against me if the market declines (aww shucks – the money I didn’t pay the mortage off with is worth less now cause the market is down). As the result when I look at monte carlo analysis I see notable improvments in the models outcomes in scenerios where the mortgage is payed off – more certainty and less leverage.

        I have to say the idea of how to handle the mortgage (when to pay it off) has caused me more considerations and internal back and forth than any other part of managing my finances. At this point I am feeling fairly strongly that I should pay the mortgage off before retirment to reduce leverage and thereby variability in retirement.

        1. I did just that – paid off the mortgage – when the rest of my asset situation was in the area where things felt right. it was wholly psychological. I just didn’t see the need to pay all that interest when I had the cash. I do know the reason why (write offs etc) but I did what I wanted to do. I sleep nicely at night in a house that’s all mine.

          My current total asset allocation roughly tracks Sam’s “best case” model, using home value + reits to get to my ~25% real estate allocation.

          I am FI but work because I’m not sure what I want to do with myself and the job is fine.

  15. I dig the new doors and the deck! Wow, what a transformation. There’s something about sliding doors to a deck off the master bedroom that just make it feel like a big step up in terms of having a nice living space. Can’t wait to see the finished product.

    It’s so hard to pull the trigger on big remodeling expenses like that, but it’s so awesome when it’s done and you get to really start enjoying that part of your house. When I bought my house as a short sale in 2008, I specifically chose it because I could envision what I wanted to do with the upstairs to turn it from a funky floorplan to a kick-ass master suite, complete with sliding doors onto the deck outside. It took until 2014 before I had the balls to pull the trigger on it, but afterward it just completely changed the living experience at my house. I finally felt like a grown-up, somehow, instead of a cheapo kid living in semi-squalor to save a few bucks. Congrats, Sam!

    1. It really has been a dream of mine. I had a deck off my kitchen in my old house, but it’s not the same as having sliding doors off a master bedroom. I’m a big fan of indoor/outdoor living, probably b/c Hawaii life is all about that. I’m trying to recreate the Hawaiian lifestyle in SF. Now just need to figure out how to make the temperature 15-20 degrees hotter all year :)

      You should post some pics of the before and after master suite. I LOVE before and after remodeling projects. So satisfying!

  16. Good post! You don’t see enough articles about the money-spending side of things and that’s just as important as the investing side!

    That project looks awesome – having a deck like that overlooking things is going to be revitalizing. Love it!

    — Jim

    1. Thanks Jim. I’m pumped! The SF summer starts September through November, so I’ll be ready to do some heavy blog writing on the deck for inspiration.

      Spending the profits is easier versus spending one’s savings!

  17. just a thought

    I think this is a great post and reminds people to develop an exit strategy before they create their entry strategy.

    There are too many horror stories of people hanging on for a 1, 2, 5, 10 bagger when making 50% in 6 months for no known reason (markets are funny sometimes) is a phenomenal return.

    In hindsight, I have sold assets that would have resulted in 5 and 10 baggers, but when I hit my sell criteria, I sell unless some major fundamental has changed. This looooong bull market has made lots of people feel smart and invincible.

    1. The common story is the startup employee who hits it big after IPO but never sells. She has to pay taxes on gains that have now shrunk or disappeared.

      Folks should practice always buying AND selling, when it comes to their company-specific stock options.

      You can also sell, and just sit in cash. There’s nothing wrong with having lots of cash at the top of the market.

  18. Stefan - The Millennial Budget

    Great reminder about the true purpose of investing Sam, and perfect timing with this irrational market! I recently sold my position in one of my stocks to pay for my new apartments rent down payment.

    What do you recommend for us younger guys though who are now starting out? Should we be taking profits when we are up a bit and either holding onto the dry gunpowder with the hopes of a drop (Something I personally do not plan on doing as nobody knows where the market will go) or should we cycle through our gains into cyclical industries that may be struggling at the moment?

    1. For young guns, it’s about saving and investing as much as possible for as long a period of time as possible until you have some type of specific desire or need.

      For many younger folks, coming up with a downpayment is quite common. If you don’t need the money, then just keep on investing.

      I guess I don’t need the money, but I like to take profits on winners and “sell too soon” so I can parlay the proceeds into something I can physically enjoy.

  19. Fiscally Free

    I agree it is good to enjoy the fruits of your investments and relate them to something tangible.

    Your renovation looks great! We just finished updating our bathrooms and have now started tearing our kitchen out of the 70s. We are doing most of the work ourselves to save money and get the biggest return on our investment. It’s a lot of effort, but the results are well worth it.

    1. Wow. Respect to you guys for doing the bathrooms and kitchen yourself! Did you have to get permits? In SF, we have to get an OTC permit. But I don’t know how to do the electrical or plumbing properly. Do you guys?

      I’m too afraid to do something wrong, so I hire a professional. Because if I do something wrong, I gotta rip some walls up!

  20. We continue to invest in ourselves through experiences. Although we have ratcheted up our savings rate considerably, we draw the line at not being able to enjoy travel and vacations. Yet smart use of travel hacking can offset any excessive vacation budget.

    For example, we have planned trips to Quebec City in late December and skiing in Jackson Hole in February. QC with four nights free accommodation at Chateau Frontenac and for Jackson Hole, 4 free airline tickets for family with United miles.

    The extreme nature of many who pursue financial freedom is a bit scary without some balance of living for now. In my mind, neither the extreme of excessive frugality nor the splurging and spending mentality can work well.

    1. Let me know how Jackson Hole is! Never been, but I do like the no state income taxes in Wyoming :)

      I’ve stuck to Tahoe and Vail mostly. Got my season pass at Squaw given my place is there. But I do want to explore new ski places more now that the vacation rental income covers the expenses.

      1. It’s fantastic. This is our ninth trip. Four with kids.
        The terrain is kick butt material in many places and deadly in other places.
        The Mountain Collective pass had a great offer running a couple of months ago that Mrs. PIE snagged. We got an awesome reduced rate on lift tickets for the whole family.

  21. FinanciaLibre

    Congrats on the nice remodel, Sam, and thanks for the post.

    As you suggest, it’s much “cheaper” to spend money after big market gains than it is after big market losses (i.e., investment gains are available to be spent when things have appreciated).

    Which jives with Rothschild’s claim that his fortune grew because he “always sold too soon.”

    Now you can enjoy the views no matter how low the next market bottom is…!

    Nice work, and thanks.

    1. Never heard of Rothschild’s claim. Pretty logical and brilliant. Thanks for sharing.

      I’m not done w/ the remodel yet, but perhaps by September 5 all will be good. And then, it will be time to publish a new post about the experience and key takeaways to help other folks considering remodeling. Damn I love to blog :)

      Let’s hope the market does not collapse. But if it does, oh well! Turn those phantom profits into something that lasts longer folks.

    1. In a future post on remodeling advice, I definitely will! This is real time work in action here. Inspection is on Thursday before cover up. I’ve found that blogging is a great way to keep record of various projects.

  22. Could not agree more, but there is a balance for sure. I am sailboat shopping now with profits from a real estate investment I’ve taken off the table, its funny because it is easy to get caught up in the super nice stuff! I’ve reigned myself back in though to keep it simple a couple of times now.

      1. LOL, yes I have heard that saying many times…mostly by people who would prefer to wake up and live the same year over and over for 75-80 years then croak and call it a life. The same people who say “renting is throwing money away” and “we can’t do it that way because we have always done it this way”.

        I jest but in general I agree, most people shouldn’t purchase boats because its not in their blood, but hands down without question if I look at what has been my best $ per smile purchases it has been boats. I honestly wondered what other people are doing on all of these beautiful days when they could be out on the water exploring new places vs. doing the same old stuff over and over again. To me the idea of going to the same ski resort to snowboard over and over again (as awesome as it might be) just does not compute, or to go to the same park to play tennis with the same people would drive me crazy, but for others its their nirvana and that’s cool…that’s what makes life interesting is people like different stuff.

        It is important though that this “fancy” boat doesn’t break my personal rule of the sum of my depreciating assets making up no greater than 5% of my net worth. Luckily for me that will still allow me something that floats! Personally I’m glad more people don’t get it or do but don’t care for it, because it would be a hell of a lot more crowded out there. Catching your own tuna for sushi dinner then watching a captivating sunset without power lines and civilization in the way isn’t for everybody for sure.

        Today I’ll be wakesurfing in the 90 degree sunshine behind my silly expensive boat that has very little purpose other than pure fun, then hanging with friends on the beautiful sandbar…all this while other toil away at work. It will be a very sad day when I hand over the keys indeed, but I would not trade the memories for any amount of dollars.

        1. We have a ski boat and had great times with DH and friends. I miss those days. I don’t know why people say that the best time is when it’s sold. I’ll have lots of good memories.

  23. The new doors looks great. It expanded the view so much. I like the way you think about your investment gains. We are still frugal and I’m hesitant to spend on unnecessary stuff. Life is good right now, though.
    When we move into our rental house in a few, we’d have to spend a bunch of money on remodeling. The place really needs a kitchen remodeling. Hopefully, at that time I’d be more comfortable with spending.

    1. Ah yes, great Portland investment you made years ago. Not only the kitchen, but the basement too right? I’d definitely tether your investment gains for those impending expenses. Once that place is done up you’ll love it!

  24. This piece was just what I needed to read this morning, Sam. Last night, my wife and I had a long discussion about our somewhat oppositional views on investing. She believes our current savings rate is far too high and would rather spend more of our discretionary income on improving our present situation (i.e. an extra vacation, pushing up our planned basement remodel). I was struggling to find a rationale for investing that clicked with her, but I think the concept of tethering investments to future goals and accomplishments might just be the ticket. I’m embarrassed I didn’t think of it myself, but that’s why I read your site nearly every day – I always pick up something new.

  25. Frugal Familia

    Like the old saying goes, you can’t take it with you so you might as well spend it. As your ‘fear of running out of money in retirement is completely overblown’ article points out, many people are unable to properly figure out how much money they actually need. I am still in the building wealth phase but I feel pretty confident in my ‘number’ and once I hit it, my focus will shift.

  26. The Green Swan

    Our solar panel purchase/investment was a good example of this. I took full advantage of great tax benefits, but also have a hefty sum to pay out. Thanks for sharing the window transformation pictures. It brings the post and explanation to life. But I have one question…what if I am an investing genius????

  27. A little side-step here, regarding children: In order to raise emotionally secure and financially responsible children, be very careful about what financial help you give to them. Here’s a response I left on a recent blog post about parents’ helping adult children financially ( https://theoldmoneybook.com/2016/07/14/the-down-payment-dont-give-it/ ):

    Don’t “give” to children OR grandchildren. When children are infants (and don’t have more children than you can do this for) they should be told frequently until they graduate from high school: when you graduate from high school we will have $50,000 set aside for your college education or to start your own business; however, to have access to that money you must have personally raised $10,000 by the end of high school in order to have the money for college, or you must have personally raised $15,000 by the end of high school in order to have the money to start a business. Then children should be given–not an allowance–a certain amount of money for each task they do around the house from the age of four, and should also be shown at that age how to open a checking account, how to save, and how to invest. By age seven each child should be looking for work outside the house, whether delivering papers, mowing lawns, working from the bottom up in the family business, etc. Children should be shown how to achieve financial independence by the time they are in their 30’s. Children should be encouraged to think about how to create jobs for themselves and possibly their siblings and friends. Children should also be encouraged to think about what kind of work they would love to do for all their lives, even after, and especially after, they achieve financial independence.

    It should be made very clear to the child repeatedly from birth that other than the $50,000 on high school graduation, parents will always and only be there for advice and guidance on how to handle finances and life as an adult. Oh, yes, and also the parents should give and read with the child a copy of “The Old Money Guide to Marriage: Getting It Right, Making It Last”. Parents should have already agreed by the time they marry that they themselves will have achieved financial independence by the time they are in their 30’s, and will be an example for their children. This can and should be achieved no matter how much or how little money a couple starts out with.

    Buying a house to live in can be part of the family’s assets, but should never, ever be a family’s primary investment. Old Money knows this…

    1. Jack Catchem

      I loved the point of not “giving” Glenda! In 2000 as I graduated high school I paid 2k for a 4K 1984 GMC Sonoma in great condition. I loved that car and cherished it. While I was at the USMC School of Infantry my parents “gave” it’s use to my younger sister.

      She was in THREE separate collisions over the course of the six months I was gone. She was unhurt, but the car was totaled by the third collision.

      I asked her about it and she said, “Come on, Jack, it was a piece of —-”

      So…”skin in the game” is a concept that really resonates with me.

      1. Thanks for the link, Financial Samurai. I have a lot of your older posts to catch up on, and this was one of them–great satire, too, by the way!

    2. Hi Glenda,

      I totally agree with you. I grew up poor and had to pay for everything I ever owned. I hated it with a passion!! I do realize though that my upbringing is a big reason I’m financially independent today.

      I’ve taken a different direction with my daughter. If she wants a new phone, or computer, or whatever, she has to pay for it just like I did. The difference is I use my money to pay for the item and I take her money that she earned and put it into an IRA for her. This way we both get the satisfaction. She gets the satisfaction of working for her stuff and I get the satisfaction of helping her out.

      At 16 years old she has little appreciation for this and that’s fine with me. My guess is that when she’s older she will appreciate this way more than anything I could buy her now.

      Thanks, Bill

  28. Nuclear Real Estate

    Exactly how I think about my rental properties.

    Cash flow from rental property X pays for 529 contributions

    Cash flow from rental property Y pays off wife’s student debt

    Cash flow from rental property Z pays for car payment


  29. The arranged marriage is a fantastic analogy to working out of necessity.

    When you think about your “put profits into improved quality of life (via home improvements)” it’s really similar to what people think of as “traditional retirement,” when you work until you 65. Why defer daily enjoyment for this idea of utopia many years into the future? Take a little now (the profits from the investment) and enjoy it now. You’ll enjoy the deck for years and years starting now, vs. a couple years when you’ve “retired.”

  30. Apathy Ends

    We are building our investments still, but I always feel like I should be doing more.

    I do wonder what emotions or thoughts go through people’s heads when they have to start taking from the pile they worked so hard to build. I don’t like selling any of my shares, even to move them to another asset class. Would rather just work/find a way to invest additional money.

    1. It’s actually easier to spend your stock PROFITS versus spending your SAVINGS. The reason being that the profits feel more like funny money. They are one derivative away from working hard for your savings. Spending your savings reminds you that you need to work hard to replenish. But if you made profits from your investments when you didn’t do anything after the initial invest, it’s so much easier.

      Hence, in order to have profits, once must invest and invest for the long term.

      1. Keep in mind that spending profits often triggers a taxable event. So even though my profits are “fun” money I am keenly aware they are taxed at 15%. Not that I necessarily oppose sharing my largess with the government BUT 15% off the top is a consideration before I sell and spend.

  31. one thing you haven’t mentioned with great detail is non-correlated funds. i’m actually not sure where to post this comment, but seeing as this is the most recent blog post, i think this spot might be a good start. i’ve looked for quite some time and finally found a financial planner that is 100% “non market” (i.e. non-correlated investments). yes, i know you talk about real estate, but i’m talking about more than just buying properties and renting them out. thoughts?

  32. Carpentry is a moderately easy skill to learn if one needs to save some $$ . And alot of fun too.

    It all boils down to measure, draw, cut and screw.
    Although it looked so much more complex and confusing before I started.
    If you start with the small stuff (not a 5000 sq feet house ;) ), you can grow your skillset pretty easily.

    There is a fine show teaching you the basics in small scale carpendry called “WoodWorkingForMereMortals”.

    1. I’m just afraid to slice off a finger during woodwprk. That would ruin my tennis game, which I cherish. Therefore, I’d rather leave carpentry to the experts. Besides, it took four guys to carry that header, but good point about being able to learn new things to save money.

      1. DIY work can also be about hobbies and interests, and part of learning to do handyman work is to learn safety. Somehow I’d feel added invincibility on my tennis game after spending 2 days building that pergola for my deck!

  33. Sam, this is a good thought starter. So far, my job has paid for everything – including two college funds. My investments are still compounding. My hope is that at some point in the near future, my investments will be funding an early retirement, but only time will tell.

    I like your point about not confusing a bull market with genius, so easy to do and so deadly!

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