What motivates me after tenure

I was just at a conference where I get to hang out with lots of my friends.  Some of us got to talking.  They’re generally at better schools than I am and have longer and better CVs than I do.  But I’ve got tenure and they don’t have it yet.  And we were talking about trying to get stuff published and trying to find time for work… and they asked me why I care where I publish or about how much work I do because I’ve got tenure.  My school doesn’t expect as much as theirs does.  (And I have a higher teaching load and more service and a smaller salary…)

But I was never really motivated by the tenure expectations in my department.  I placed lower on the job market than most folks in my cohort, and I’ve always thought that if I did what I want and then didn’t get tenure then I’d finally be able to move to Northern California and at least live someplace nice.  I’ve always figured that if I stopped liking it, I could just leave.  If I’d gotten an offer at one of these better schools maybe I would have been more nervous, I don’t know.  (And, since getting here, the school has made a lot of really good hires, including mid-level hires with amazing CVs, and I am no longer under-placed.  I’m placed!)

What motivates me:

1.  I want to do good work.  I answer interesting (to me) questions.  I tell good (theoretical) stories with (empirical) evidence.  My work is important and it’s fascinating.

2.  People are doing things wrong and I want the profession to do things right!  Efficiently!

3.  It is a crime that nobody is answering these important questions.

4.  I kinda do like the fame and fortune aspect.  Gotta admit it.  And they give me just enough of a taste of it to make me crave more.  More.

5.  I like to watch things grow.  I want my department to do well, my school to do well, my little corner of academic research to do well.

6.  Ambition.

7.  And maybe just a bit the fact that I may need to be mobile some day, for example, if DH’s job situation changes.  And I kind of like being able to occasionally get grants to pay for RA work and summer salary.  And if they ever cross a line, I can walk and I’ll be in demand somewhere.

I used to be more motivated by being under-placed.  Sort of an, “I’ll show them!”  But I’ve kind of shown them, and, like I said, I’m no longer underplaced.  So #4 has replaced that entirely.  I probably worked a little harder when I was rage-researching, but it’s much more fulfilling to be love-researching instead.

#2 and #3 above bring me more self-confidence.  They help me talk up my work in ways that #1 doesn’t.  More of that contrarian aspect to my personality showing through.  #4 and #6 sometimes give me less self-confidence.

 

The answers of #2 revolve around research.  And then quitting.

What motivates you to work hard?

529 plans and astonishment at compounding

Club thrifty had a post recently about funding her kids’ college education, which caused me to take a look at how my kids’ 529 plans are doing.  We’ve been putting in $500/mo since each of them was born.  At the time of writing this (though not the time of posting), DC1 is 7.5 years old.

So if we’d just put $500/mo away in our mattress, we’d have $45,000.  That’s a lot of money, and would currently fund in-state tuition for four years at many state schools without any aid.

That’s not how much my 7.5 year old has in hir 529.  How much is in there, do you ask?  $69,874.56.

Let me say that again.

$69,874.56

That means the stock market and compounding has added something like $25,000!

~$25,000 just because we put $500/mo in the stock market instead of in a mattress (or instead of spending it!)

Doing this exercise has given me a few scattered thoughts.

1.  Compound interest from stocks over a long period of time is AMAZING. It’s just in one of the Vanguard target date funds from the Utah system, so we’re really just matching the market with a little bit of adjusting to bonds as ze gets older.

2.  This kind of thing is how the rich get richer.  The best truly passive income is reaping profits from the sweat of the proletariat.   Rent-seeking is where it’s at.  Getting those returns to capital.  The poor get poorer by comparison because they have to spend their money to live and can’t have their money make money.  It’s terrible.  At the same time, as a member of the upper middle class, it’s something we need to do to keep from sliding down the income/wealth scale.  Because if you only have a choice between rich and poor, it’s better to be rich.  We need major political change in this country.  Yes, charitable donations are nice, but the entire system needs a new Great Society overhaul.

3.  Sacrificing early and starting early with savings is the way to go.  We never really felt the $500/mo cut to our income because it coincided with our employment.  We made our decisions based on a smaller income.  When you get a new job, if you can max out your retirement funding before you get used to the higher paycheck, that’s definitely the way to go.  (Of course, high interest debt is also worth paying off– the trick is not to get used to a higher level of spending that you then cut down.)

4.  I don’t think it’s time to stop contributing yet.  We suspect DC1 will end up going to a private school (or, less likely, an out of state public that costs just as much).  Right now with both of us employed we’re in the middle area of whether or not we’d be considered for any financial aid at all, and there’s that hope that by the time DC1 gets to college we’ll be in the “no financial aid based on income alone” bracket (we can dream, right?).  If not, we still have time between our two kids to adjust based on what kind of aid the eldest gets or doesn’t get.  If DC1 gets aid, then we simply stop contributing to DC2’s plan at that point.

5.  Because of the way that financial aid is calculated, most people should max out their retirement savings before contributing to a 529.  We’re doing that now, but we weren’t doing that this entire time because we had *too* much room for retirement and didn’t realize that DH would be getting a better job that paid more, so we didn’t put away all 72K/year that we could have, figuring we’d need some of that money to pay for college! [Note:  For those who haven't been following our finances for the past few years, DH no longer works for the government so we can no longer put away anywhere near 72K for retirement because he no longer has a 457 option or a second 403b option, just a really lousy 401K with high fees and a lousy match.]  Yes, you can withdraw ROTH contributions to pay for college, but it would probably not be enough.  The 529 is still a much better place for your child’s money than a savings account in your child’s name, for financial aid purposes.  That’s because the 529 in your name counts as your savings whereas any savings in your child’s name is expected to go 100% to college, which cuts down financial aid from the school.

6.  Regular savings that you don’t miss because you’re used to that money not hitting your checking account really add up.  However, if you can’t afford auto-deducting any of your paycheck (though automatic retirement savings should be a priority), 529s are a great place for monetary gifts for your kids to go.  A little bit early on really does go a long way.

What are your thoughts on retirement and 529s and compounding stealth saving?  Also, how often do you look at your accounts?

September Mortgage update and long-distance landlording

Last month (August):
Balance: $46,373.71
Years left: 3.5
P =$1,018.90, I =$195.50, Escrow =788.73

This month (September):
Balance:$43,346.00
Years left: 3.25
P =$1,030.84, I =$183.56, Escrow =788.73

One month’s prepayment savings: $7.90

Disclaimer: We have ZERO desire to get into the landlording business. None. But #1 is tired of talking about her personal finances (as they relate to mortgages) for the nonce so you’re getting a post about housing instead. For newer readers, these housing posts on Mortgage day used to be more common before DH decided to quit his TT job, be unemployed, and get a new job. There will probably be more in the future as things get boring and settled again monetarily in the #1 household. But we’ll see, maybe we’ll actually do some home improvements some day (maybe by the time this posts, Home Depot will have found the vinyl flooring they ordered for us and it will actually get installed update:nope).

A recent working paper by Alex Chinco and Christopher Mayer suggests that investing in the market you live in is more profitable than swooping in from out of town to pick up “bargains” in another market.

Misinformed Speculators and Mispricing in the Housing Market

Abstract:  This paper uses transactions-level deeds records to examine how out-of-town second house buyers contributed to mispricing in the housing market. We document that out-of-town second house buyers behaved like misinformed speculators and drove up both house price and implied-to-actual rent ratio (IAR) appreciation rates in cities like Phoenix, Las Vegas, and Miami in the mid 2000s. Our analysis has 3 parts. First, we give evidence that out-of-town second house buyers behaved like misinformed speculators. Compared to local second house buyers, out- of-town second house buyers had worse exit timing (i.e., were likely misinformed) and were also less able to consume the dividend from their purchase (i.e., were likely speculators). Second, we show that increases in out-of-town second house buyer demand predict increases in future house price appreciation rates and IAR appreciation rates. A 10%pt increase in the fraction of sales made to out-of-town second house buyers is associated with a 6%pt increase in house price appreciation rates and a 9%pt increase in IAR appreciation rates over the course of the next year in that city. Third, we address the issue of reverse causality using a novel econometric strategy. The key insight is that an increase in the fundamental value of owning a second house in Phoenix is a common shock to the investment opportunity set of all potential second house buyers. If changes to fundamentals were driving both price dynamics as well as out-of-town second house buyer demand, we would expect to see large jumps in house price and IAR appreciation rates preceded by increases in out-of-town second house buyer demand from across the country. The data do not display this symmetric response, and are thus inconsistent with reverse causality. We conclude by discussing both the economic magnitudes of out-of-town second house buyer flows and the broader applicability of our econometric approach.

In short:  Out of town investors don’t know the market, so they make mistakes in purchasing and selling.  Additionally, out-of-town investors drive up prices within a town.  Bottom line– even though there’s diversification risk in one market, there are benefits to sticking with what you know.

What do you think about landlording/flipping houses locally vs. long-distance?

 

Ask the grumpies: How to best use credit card rewards?

CPP asks:

What is best to do with accumulated credit card reward points? The fact that AmEx keeps nudging me to use them to pay my bill makes me think that is the worst thing I could do with them.

That’s probably a better question for Holly at Club Thrifty.

I’m seriously lame with my CC points and don’t try to maximize them in any way.  I just take the cash back option, and not even the “correct” cash back option since I’d get more cash back if I switched to a card for “high spenders” rather than the citicard I have that limits to $300 cash back/year.  I like our citicards because they don’t have the ridiculous points system, they just give 1% cash back.  It’s easy with the lowest mental load.  Because really, my time is worth more doing real work than it is chasing the optimal credit rewards (which always eventually disapparate and then you have to chase the newest optimal system).

I have heard that the best use of points is usually for travel, but that’s going to depend a lot on your card’s specific situation.  You’ll need to sit down and see how much of a return they give you for points for each of the different options they provide you.  Cash back should be your baseline and then you should see if there’s an amount of travel that you prefer to same number of points for cash back, or whatever your other options are (do you get a bonus for applying the cash back to your bill rather than to them cutting a check?).

So, that’s really a non answer from us.  However, we know that some our readers must know better than we do.

What should CPP do with his AmEx CC rewards?

Deaccessioning: A sad post

… Not actually that sad.

Last night we laid out the space and we estimate that between the two of us we can fit in about 11 bookcases in the new apartment.

Currently we have 16 bookcases and 2 built-ins.

Oops.

We’re still working on deaccessioning the relatively easy stuff. I’m down under 1300 books, from a high well over 1500.  My partner has at least that many, too!

We’re going through by areas of the house. Some bookshelves are just full of stuff that can’t go. Others are full of chaff. So we start with the chaff.

Gonna be a lean mean LIVING IN PARADISE machine.

I discovered there are some books I was keeping out of guilt, and now I feel great about letting go of them.  I have some “I’m never going to read this” and “I read this but don’t ever ever want to read again” and “why do I have this?”  (note that it took YEARS into our relationship before I EVER felt ok about getting rid of a book he’d given me as a gift.  But now I know we just have love and a stable relationship, and there will be more gifts.)  There are also books that I realized I can get rid of because I’ve internalized the knowledge that I need from them after many years.

At some point we’re going to end up having to make hard choices. Probably what will happen is we’ll bring way too many books anyway and have to deal with it there in some way.  I’m totes gonna overfill the bookcases we have with double-stacking and all. It gonna be all jenga up inside.  And then who knows?

We could add something moralistic about minimalism or money spent or what have you, but that would just be patronizing, so we won’t bore you with that.  I HAVE NO REGRETS.  Except the regret that downsizing comes with deaccessioning, but sacrifices must be made, and there’s a good library in walking distance to our new apartment.  In the meantime, onto the next quadrant!

#2 notes that they have 13 bookcases, including built-ins, but that’s only because her partner tends to get rid of books after reading them rather than holding on to them.  (Sometimes he’ll be halfway through a new book he just bought and realize he bought it, read it, and got rid of it years ago.)  Also most of her newly purchased romance novels are on kindle.

Bibliophiles, how do you deal with not having enough space for books?

Before and after: Housing edition

Before:  big, cheap, stupid, and located in hell

After:  small, expensive, smart, nice and in walking distance to everything– restaurants, parks, shopping, grocery stores, public transportation, THE LIBRARY

I think Imma need these.  You put them under your bed frame legs to get your bed up higher so you can store more stuff under there.   I have some plastic drawers that I can stick under there.  I might get some cardboard ones for sweaters (so they can breathe). or I might put books under there. Or general stuffas! I feel like “random crap” should maybe go in there rather than valuable shelving. Good times, good times

Downsizing sucks.  It’s work. Boring and tedious.

That’s it.

I refuse to talk anymore about apartments. You don’t even know how burned out I am.  It’s MY apartment and even I’m tired of it.

I have one.  It’s nice.  Though I won’t really know how nice it is until we’ve lived there for a while.

The end.

Next up:   I refuse to talk about moving.

Why not just live large while in debt?

Vanessa asks on a GRS post:

I always thought the first rule to getting out of debt was to stop digging, but maybe not? And aside from a few bagels, it doesn’t seem like Honey’s lifestyle has been too compromised. Makes me wonder why I budget so strictly, when I could have a little debt and perhaps be a lot happier.

Kasia adds:

Why are people so negative and critical about someone else’s progress? Consumer debt and mortgage debt are completely different. You have to live somewhere and owning your own home even if you’re paying off a mortgage means you have an asset to your name, renting just means you can be kicked out at any time by a temperamental landlord. Either way you’re paying to live there so why not pay off your own home instead of someone else’s if you have that opportunity?

 

It’s about managing risk. A house can trap you unless you’re willing to foreclose on it. If you already have a good portion of your income stuck in debt-servicing you’re in a very vulnerable state when there’s a job loss or relocation.

In addition, Kasia shows a fundamental misunderstanding of the housing market.  Purchased houses also have a part you’re “throwing away”– mortgage interest, taxes, insurance, and maintenance. In our case, the taxes and insurance alone is 1/3 of our mortgage payment, and of course the interest part is the bulk of the payment when you start with a new mortgage.  On top of that, houses tend to create lots of regular “emergency” expenses (pipes break, trees fall, water-heaters die etc.) that the landlord takes care of when you’re renting.

When you have lots of consumer debt that you’re servicing, a house can add enormously to your risk because it’s a large required monthly expense whether you’re living there or not.  Things may be fine if you can just sell the house when times are bad, but bad times often mean it’s difficult to unload your house, even at a loss.

Living beyond your means is a precarious balancing act. Everything is fine until an emergency that’s too big happens and/or you run out of credit, and then you’re trapped. But if you’re ok with foreclosure and bankruptcy, then well, sure, why not live on the edge? Of course, if you’re high income, you may only be able to restructure debt in bankruptcy, not completely discharge it.

So to all those who are thinking, “why am I making sacrifices when I could just live like ‘Honey Smith’ and be happy?” It is an alluring thought, it really is. And there’s some probability that they’ll make it ok without bankruptcy or foreclosure. But the majority of people who try this are going to end up in bad shape.

So Vanessa– don’t give up.  Being able to spend like ‘Honey’ does without debt and with an emergency fund and with savings feels great (even if you don’t actually do the spending, the ability alone is nice), and it’s worth the sacrifice.  The sooner you start, the smaller the sacrifice you have to make and the quicker you end up with financial freedom.

And Kasia, ‘Honey Smith’ is not a good person to look to for financial advice.

Follow

Get every new post delivered to your Inbox.

Join 234 other followers