Long, BOLD, post. I have to disagree on Index funds. I’ve never personally beat the stock market and I’ve never seen proof of someone else who could do it consistently. Index funds for me.

I also noticed the lack of a reference to any type of faith. Are you an atheist, by chance, or do you feel that spiritual issues do not merit being mentioned in a lifestyle post?

I wish I would have read this as an impressionable 18 year old…and followed it!!!

I’m with these guys about the index funds. DH didn’t even want to invest in the stock market, let alone risk! Holy cow, we might lose some money. But I bowled him over.

I’ll argue with you on one more point: the foreign languages. I’m not sure if you’re talking about all foreign language or only “weird” ones (not sure what constitutes weird here, since all languages are pretty much different), but foreign language is an excellent skill, especially with our globalizing economy. Maybe you were talking about old, dead languages?

Thanks for all the advice.

Excellent advice. I especially liked the fact that you defined a house as a consumer object. I hate it when people refer to a house as an “investment”.

@ all – everybody seems to love index funds these days which is almost sufficient reason for me not to like them. This probably warrants a separate post.

@ chef – The faith question can best be answered by the first two paragraphs in the education entry (#6).

@ moneymonk – Ah clothes, I wasn’t advocating going shirtless, but the clothing problem can be fixed with a few days of shopping each year. It’s not a ranking priority, but sure it’s more important that the particular kind of flat screen TV that goes on the wall.

@ brooke – English is my second language, so I’d say if it isn’t your first language – learn it. Beyond that it is not something I would use up an entire degree on. For instance, I was educated in science and I probably speak English more and better than my fellow English majors.

@ sjean – I agree that advice often reads like someone’s autobiography. Maybe a better title would have been “how to be successful in the long run” or “how to avoid trouble in the long run”. Of course this would set me up due to different definitions of success and different strategies for avoiding problems. I know a person who thinks that as long as he can postpone impending disaster for another quarter, he’s good, and in principle he is right.

@ beany – an investment is some asset that one intends to make money with. It could be an asset but in many cases it isn’t.

@ heidi – I think it depends on the individual. For instance, in my job I have to move every 2-3 years, so owning is kinda out for me for now. I have a post planned on mobile homes which might solve that problem. I am actually tired of having to move continuously every few years. Maybe I’m getting old.

Thanks for the response to my comment. I think that if i read it as not direct advice but as some specific things that worked really well for you, I get a different perspective.

I think you should write a post on why you don’t like index funds. You’ll be the rebel of the pf blogging community with that one!

It will be great to get more views on the important No; 5, who to marry.

This, if done right, should compensate a number of mistakes we make on index or non index funds.

The rule I like, (actually given by a close friend) was also to search inside and ask ourselves if the intended spouse would make:

a) a good wife/husband
b) a good friend to us
c) a good mother/father
d) a good in law to our brothers and sisters
e) a good daughter in law to our parents
f) a good friend of our friends

What do you think? Can choosing a spouse be like deciding on a fund?

Jacob, you posted to a comment of mine over at The Honest Dollar where the discussion had turned to buying vs. renting your primary residence.

You touch on the subject in this post so allow me to add a few thoughts of my own:

You wrote: A house is a consumer object. It’s used/consumed, wears down and has to be replaced. People only get rich buying and selling houses during good times and they go bankrupt just as often when good times turn bad. Generally nobody can predetermine when good times become bad and vice versa.

Well, that is, indeed, one half of the story. A house is a consumable but it is also a store of value that, in general, appreciates. And people get rich in real estate not just by buying and selling in good times. My brother invested in residential real estate for forty years. His strategy was buy and hold and he weathered at least three down markets.

He passed away on the young side leaving an estate of almost $12,000,000, all of it generated by his RE holdings. And, when he died, his monthly NET income was over $30,000 in rents alone.

And, as you write and just like in the stock market, it is usually not a good idea to try and time the market because no one has ever proven to be able to do so consistently. So we agree, if you stay invested in either the stock or RE market for the long-term, the odds are (based on historical returns) you will prosper.

You wrote: A house is an expensive proposition, so do NOT speculate/gamble on the direction of the house price. In other words, do not take out a loan, hoping that house prices will go up.

Buying a house is only expensive if your purchase is not accomplished in a fiscally prudent manner such as buying more house than you can afford, more than you need, or using some funky financing scheme. And, besides, owning a home is as much a lifestyle choice as it is a financial one: Surveys and statistics show that homeowners are generally happier and wealthier than renters.

And even in the hyper-markets it is almost always possible to find something that makes sense to buy. Now, should you speculate in housing? That depends on your level of expertise and financial resources. A blanket statement that one should never speculate in RE will not apply in every situation.

You wrote: Historically, house prices rise with inflation (at 3-4% a year) and not the 15-20% we have seen during the past few years. In addition, historically what goes up must come down. Things revert to their normal. Otherwise there would be no normal.

Historically, housing price appreciation has exceeded the rate of inflation by a point or two; and sometimes it will blow the rate out of the water (both ways). And what is “normal” is that markets go up and down on an incline (stocks and RE, in particular).

My parents bought their home in San Diego for $11,000. Since then the value has gone up and down but it will never be sold for $11,000 again, ever! And, presently, it would sell for $350,000 or so (down from over $400,000). And five years from now it will probably sell for over $400,000 again.

You wrote: Approach house buying as if you were investing for the long term. The NAV formula can be used. With the current numbers, if the house price is lower than 110 times the monthly rent for a similar house (look around), you should be buying the house. If the house price is higher than 110 monthly rents, you should be renting. Currently, the most financially sound strategy in the US is generally to rent.

Real estate prices and NOI rates, in general, are local and specific to the market and the deal. And even in markets where NAV applies, there will still be homes available in that market where buying still makes sense.

According to NAV one could conclude, “Do not buy in San Francisco.” But why not, if you can afford it, plan to be there for the long-term, and you prefer to live in a home of your own and can accept any additional expense (above the cost of renting) as an acceptable cost of living the kind of life you want to live?

You have posted about the difference between rich and wealthy; IMO, owning a home of your own is part of a rich life and we here in the US should be profoundly grateful that you still don’t need to be wealthy to own a home of your own.

You wrote: Currently, the most financially sound strategy in the US is generally to rent.

Another blanket statement that is difficult to support with the facts. For some people, this is a great time to buy; a down market will always present opportunities. That is the basis of the concept behind dollar-cost averaging in the stock market.

I just bought a house for $95,000 that had originally listed for $178,900. The sellers were happy to get rid of it and I was happy to help them. Going into the deal, I made more money than the average US household will earn by working all year!

Enjoy reading your posts. Thanks.

You are like the Tyler Durden of personal finance. I absolute LOVE it! I’m 21 yrs old and majoring in business-accounting. I grew up in the foster care system, so upon my 18th b-day, I found myself homeless. Quite a shock. After living in temporary shelters for about a year, I finally earned a scholarship to a local state school and am in my third year.

I can’t thank you enough for keeping this blog. My traumatic early experiences with money (or the lack thereof) have made me really think about finance in philosophical/functional terms. I believe financial independence tends to be the goal for very precocious, “think outside the box” independent types. Once again, please keep up this blog… it’s amazing the things I have been learning. Your philosophy and outlook on simplifying, using the system (not letting it use you) to take control over one’s life and finances, and the no-bullshit pragmatic “be time rich, not consumer-goods-rich” perfectly meshes with my quality over quantity perspective on life.

Thanks again!

~ poor college student

“If this is your first time at Early Retirement Extrem, you *must* retire early.”

I must start exercising again. Must…feel…sexy!

I’m not sure if I missed this post the first time around, or if it just didn’t really sink in until now. Either way this a great post and should be bumped way more often than once every 2 years!!!

[…] How to Be Happy in the Long Run […]

@AJ – The former—you’d have to be quite successful to get rid of that stigma. There’s not much actual education going on in high school. Dropping out or not going to college is somewhat more accepted for those who don’t want/need to go there. I’m sacrificing a principle for expediency here.

@whoa – I actually wrote this one a year before I started this blog for another blog, so that explains it 🙂

I think Priorities and Health combined is a great one. We NEED to prioritize our health perhaps above all else because even if the rest of our lives are amazing (lots of money, family, children, friends), what good is it if we’re not healthy enough to enjoy it?

@MossySF – Isn’t 21% substantial? Subtracting insiders and pension funds (who in the aggregate might as well be an index fund), how much is really left?

Well … I know indexes are on a sliding scale and that indexes are composed different—for example, the 20 biggest companies in the S&P500 comprise a very hefty portion of the market. When I say index funds I have meant broad market funds, not sector or subsector funds. I shall henceforth refer to them as broad market funds. What really matters is the amount of correlation/coupling their usage builds into the market. Diversifying with index funds means decoupling from individual stocks but coupling to other index funds. I submit there’s some delusion going on … or at least the systemic consequences are not fully realized.

Really glad to have found your blog Jacob, it’s great (MossySF mentioned it on the Bogleheads forums). Reading some of your posts you sound a lot like me (except I like index funds 🙂 ). I’m a graduate PhD student in physics at Berkeley towards the end of the program. I’m hoping to stay in the field and work but at the same time I save as much as I can so that if things don’t work out as planned I can retire early, as my happiness is much more derived from being able to do what I want to do (which at the moment is mostly things like cycling, weight lifting, cooking, playing with POVRAY, etc.) and I don’t care much about “keeping up with the Joneses”. I look forward to reading more of your posts.

Best,
GP

@deegee–I agree with you (and chef) that religion and spirituality don’t quite fit in another section. I guess I’d add a section (#1A?) to discover/decide what your beliefs and values are. They might change over time, but if a person takes the time to learn more about themselves first, they’ll produce a more honest and sustainable plan during the following steps.

Archaeologists are actually more employable than you may think. Thanks to the National Historic Preservation Act, any construction which requires a Federal (or in some cases, state) permit requires an archaeological survey. My company consults for utilities and they hire us for archaeology studies all of the time.

Jacob, could you write more about the reasons why “accounting” would be a good course to take?

BTW: Originally posted 2008-01-30 07:20:50.

I am glad I have a Toyotta Corolla. No problems at all the last 3 years, another 12 to go; however, by then I may be backpacking/train-riding European/World Coastlines with my Wife, looking for great spots to rest for a month or so.
For a year or two. Then we will want be out of that phase and go back to America’s Lands…

This was very clearly “how I am happy in the long run”.

Um, re the kids, your advice is amusing because it is obvious you don’t have any (yet). But it is similar to what I thought before I became a parent.

First, you are going to be stuck with them for much longer than 18 years! Of course, eventually, they will be stuck with you!

Second, parenting is not a “job”, although it can seem like it sometimes. Its more of a lifestyle, experience or process. It will change you and your spouse as much as it does your children, and hopefully for the better.

Third, despite your best efforts (or worst), your children may turn out much better or worse than you expect. There is a great deal of risk and unpredictability that most new parents have a hard time accepting — hence, the large and ridiculous market for “baby educating” devices.

And nature plays just as big a role as nurture. It is amusing seeing your spouse’s worst foibles in your kids, but not so much your own. And they may remind you of a sibling or a parent or aunt or uncle sometimes. Or they may have an outstanding talent or personality trait that you can’t comprehend. Or a disability that you could not have anticipated.

P.S. — they don’t always believe what you tell them. In fact, sometimes they refuse to believe anything you tell them and need to learn things through experience. Allowing them to fail is often as important as guiding them to succeed.

Very interesting, but troubling in some ways. I recognize that this a financial site but still it seems to overstate the case that happiness is a financial matter. Other than a rather utilitarian approach to choosing a mate, the advice seems to be little interested in community, family, and home. A rural existence seems to be out of the question. Children are seen as a lengthy drain on one’s resources. There seems to be no value placed on proximity to other family members and neighbors. Home is seen as either an asset or liability but not as a site of living. One’s faith and one’s intellectual interests seem to be written off in favor of lucrative branches of “rocket science.” Am I missing something?

Nice post! I have not read you book yet, but I would imagine that a lot of this is already in there or the makings of a new book! I especially agree with your sections on health, marriage (and family), etc. The goal of financial independence is not to buy more, but to be able to take care of yourself and those you love.