Money Grubbing Lawyer

Lies, Damn Lies, and Formulas

MoneyGrubbingLawyer — Wed, 29 Jul 2009 17:40:27 +0000

I witnessed a mini-scandal recently when a recently-divorced 34 year old colleague brought his new 23 year old girlfriend to an event. He thought it was fine- they were both adults and she had just graduated from university. Others disagreed, arguing that it was a clear violation of the undisputed rule of inter-age dating, the “Half Plus Seven” rule. Under this clever formula, the youngest permissible age to date is half your own age plus seven, meaning that he couldn’t date anyone younger 24. For you Excel geeks out there, the rule is if(partner age<((your age/2)+7), gross, cool).

In the world of personal finance there are all sorts of similar formulas, ranging from useful rules of thumb to iron clad metrics. For example, there are standard formulas used by banks when you go looking for a mortgage- usually they say that your monthly mortgage payment shouldn’t exceed 28% of your gross monthly pay, and your total debt payments should not exceed 36%. Sounds simple, right? It is, but it’s also pretty generous, as 28/36% of your your gross income could easily translate into 46/60 of your net income, leaving you with not a lot of money to spend on necessities like food and high definition cable channels. It also fails to account for the total debt load, focusing instead on monthly payments. You can spread just about any debt out over a long enough period to fall within this guide (see the number of 30, 35, and even 40 year mortgages), but that doesn’t mean it’s a particularly good or financially responsible idea.

Rather than focus on monthly payments, I’ve heard some folks use annual income as a benchmark for how much one should plan spend on big ticket items. I once heard a real estate agent suggest that 2x gross annual income was a reasonable amount to spend on a house, but I’ve also heard numbers ranging from 1x on the conservative side to 3-4x (!!) on the more generous side. There’s no real science or reason to these numbers beyond social expectations and fuzzy logic, but they sure do get bounced around a lot.

Things are equally divergent when it comes to spending money on a car. In a recent post about purchasing a car, a commenter suggested to Frugal Trader that he should spend no more than 10% of his gross annual pay on a car- that is, if he makes $50,000 a year, he shouldn’t drop more than $5k on a car. Similar formulas popped up in two other blog posts last week- Stephanie from Poorer Than You mentioned 10% of gross as a guide for monthly car expenses in her post about how much you should spend on a car, while Tomasz Gorecki took the idea further in response, suggesting buying a car worth no more than 10% of your gross. This was the first time I had heard this particular rule, and suddenly it seemed to be everywhere I turned. It’s a figure that is as valid as any other, I suppose, but I haven’t been able to find any real basis for it. In my circle of gearheads, the numbers I’ve heard kicked around are significantly higher, with some people saying to spend up to an amount equal to your annual salary on a car. If you plan to sleep in it that might be okay, but otherwise I can’t help but think it’s more than a bit of a stretch.

The problem with any sort of formula like this is that it looks at only two factors to make a determination- your income, and either the overall cost of the asset or the monthly payments, and in doing so misses the many other variables that come into play, including your net worth, other assets, other debts, and in the case of monthly payments, the total obligation. Some who owns his own home and has ample savings may be able to reasonably spend 1x or more of his annual income on a new car without feeling any pinch; similarly, for someone with significant debts and no assets, even 10% on a car could be a strain. Such formulas also assume income as a measure of financial means, although this is not always the case. A diligent saver has much more flexibility than someone living beyond his or her means- both may make $50,000, but that doesn’t mean that both are in a good position to buy a $30,000 car or a $200,000 house.

My purpose in this post isn’t to promote or dissect these formulas. Instead, I’m interested in hearing what other type calculations or guides are out there. Do you have any rough guidelines that you use when purchasing big ticket items? What are the best and worst financial formulas you’ve ever heard?

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Beware the Renovation Butterfly Effect

MoneyGrubbingLawyer — Wed, 22 Jul 2009 13:58:49 +0000

It’s fortunate that I had the good sense to marry an engineer. If I hadn’t, I would almost certainly be broke, homeless, and unable to calculate a bending moment. Perhaps her greatest contribution to my life has been her religious insistence on seeing a full budget prior to my starting any major renovation project. She’s smart enough not to accept “Uh, it’ll cost about $250, honey,” either- a detailed breakdown and project plan is required, complete with multiple estimates and gantt charts. When you’ve got a lawyer doing gantt charts, you know things are serious.

As a result of her diligence, my track record with renovations is pretty good. Most of my project finish with cost overruns of 10-15%, and about a month behind schedule. It may not sound that impressive, but anyone who has undertaken a major project knows that this is actually pretty darn amazing. But there’s one force that all the engineers in the world can’t calculate- the power of what I call the Renovation Butterfly Effect*. I’m not referring to the costs of a single project growing and changing- that’s somewhat expected and can be planned for. What I’m talking about are the unintended impacts that a project can have on the perception of its surroundings. In other words, how gussying up one spot can make the surrounding areas and items look embarrassingly bad.

The reality of this effect was brought home to me by my recent basement renovation. I decided to tear out the hideous pink carpet and stucco ceilings to create a sleek entertainment and games room. My budget for the actual renovation project was among my best- I came in a little late, but actually under budget. Every nail, every inch of flooring, every piece of trim had been accounted for. I even included the cost of the fancy new television that had been a condition precedent to my starting this project. It made me believe for a fleeting second that I could actually succeed as a project manager if this whole law fad ever fades.

But when it came time to put everything back together, our tattered old hand-me-down sofa and chair looked quite out of place, and the entertainment center we had been using was also looking in need of replacement. The new TV was having unintended consequences as well, as the crystal clear picture on theHD plasma screen made the shortcomings of my much-loved but already strained homemade PVR even more noticeable. And suddenly, the neighboring rooms were showing their age much more than they had before the renovation, and it was hard to figure out where the fancy new trim should stop and where the tired old stuff should take over. The few dollars I had left over in my initial budget were blown hundreds of times over to try to achieve that “finished” feel.

No element of your house exists in a vacuum (well, excepting the things inside your vacuum). A new sink makes the old counter top look dated. New paint the hallway shows up the old and worn paint in the bedrooms. New flooring in the living room means that you need new draperies and rugs. Have you ever heard the expression about curtains and carpet not matching? Well, it works as more than just a lascivious metaphor.

So how can you deal with this Effect? They key lies in planning and thinking things through. Don’t just plan for what a project will require, plan for the broader impacts of the project on the things around you. Try to visualize the finished product and how it interacts with other rooms and all your other stuff. If you’re good with design, try sketching a full model or doing amock-up in a program like Google Sketchup, as this will force you to consider even the tiny aspects of the job. Doing so will help you stay on time, on budget, and on the good side of the engineer in your life.

* Yes, I realize that my application of the Butterfly Effect and Chaos Theory is flawed, and that my understanding of these theories is based onWikipedia and episodes of The Simpsons. I still think the name is catchy.

Image by The Bartender 007.

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Staycations, Labradoodles, and other Mythical Creatures

MoneyGrubbingLawyer — Mon, 20 Jul 2009 13:57:37 +0000

I’m well accustomed to bureaucratic doublespeak- competencies, synergies, stakeholders, and so forth. It’s almost comforting to hear this nonsense coming from our officials. If a government worker actually responded to a question in a coherent manner I’d assume that he or she was either on the take or about to go nuts with a deer rifle. But when crazy-person jargon makes its way into the mainstream, it’s much less comforting and in many cases is downright infuriating.

Take, for example, a phenomenon I’ve noticed among pet lovers- a crossbreed or mutt (and I use those terms with affection, having owned and loved a number of mutts) is no longer called as such. Instead, it’s given a cutesy name like Labradoodle, or Cockapoo, or Pitbudoodle. Blerg. Similarly, there’s an emerging trend of people referring to their “staycation”, especially in the world of personal finance. They didn’t travel or go somewhere exotic; instead, they chose to “staycation” this year. With all due respect, you didn’t take a “staycation”- you stayed at home. That’s okay, even admirable. I’ve long been a proponent of exploring your own backyard, especially if you live in a place as spectacularly beautiful as I do. There’s no shame in it. But you don’t need a “staycation” to enjoy those things- a sunny Saturday or Wednesday afternoon will do just fine. Don’t try to turn it into something that it’s not. You’re not fooling anyone.

So what’s the harm in calling it a Labradoodle or a staycation? Some would say not much- it’s just a fun way to describe something. There’s some logic to this, I suppose- similarly, I can call my cat a domesticated Peruvian jaguar, I can call my canoe a 16 foot hybrid-powered luxury lake cruiser, I can call my Subaru a Fishplant Ferrari. No harm, no foul, right? Well, not quite. Putting fancy labels on things to make them sound, well, fancy, tells me that many people still don’t get it. I’ve been optimistic that there’s a silver lining to be found on the cloud of the current economic collapse as people begin to reevaluate and reject materialism, one-upmanship, and keeping up with those dastardly Joneses. You don’t need a vacation on the French Riviera or a safari in Kenya to feel good about yourself, nor do you need a $3500 purebred pooch. But you also don’t need to call going to the local museum a staycation- by doing so, you’re just replacing one silly social status symbol (bonus points for alliteration!) with another. And that’s not cool.

What say you? Are you going to staycation this year in the Paris of the Prairies with your Pitbudoodle, or do you think that’s just crazy talk?

Image by Martyne.

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Would You Narc On Your Neighbour?

MoneyGrubbingLawyer — Wed, 15 Jul 2009 17:04:29 +0000

Our city currently has a water use ban in place- no watering of lawns or flowers, no car washing, and so forth. We’ve had a dry few months and water levels are low, so it’s a move that makes a lot of sense, even if it means that my opium poppies pansies are dying and my car looks like it belongs in a Jeep commercial. But not everybody likes to abide by the ban- I’ve seen more than one resident on my street whipping out their hoses when they shouldn’t be. Health and security of the communal water supply be damned, they’re determined to have a green lawn and a clean driveway.

What’s the appropriate reaction in these type situations? Do you turn a blind eye to their actions and leave it to somebody else to play the role of McGruff the Crime Dog? Maybe strike up a neighbourly conversation and casually mention that you think they’re worse than Hitler? Do you take a more confrontational approach and make grandiose threats? Or do you call up city inspectors to rat out your neighbour and let the long arm of the law lay the smack down, and begin laughing uncontrollably when the SWAT team shows up?

If I know the offender and am on good terms with him or her, I might mention it in a joking way and hope that they get the message. But if the water hogger is a stranger or enemy / frenemy, my approach is most likely to be a neat little variant of the first option- not actually doing anything, but glaring as I drive past and muttering things that make me feel superior. I’ll admit that on one occasion a few winters back, I called in a complaint about a neighbour who was regularly shoveling snow into the street and interfering with traffic, but only after I tried other methods before escalating it to that level.

So, what do you do with bad boy neighbours? Or are you a bad boy neighbour yourself?

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I’ve Been Cellphone Free for 7 Months!

MoneyGrubbingLawyer — Mon, 13 Jul 2009 16:35:56 +0000

Could you survive without your cellphone?

If you had asked me this one year ago, I would have answered with a resounding “No!”. My addiction to mobile technology ran deep. I was a relatively early adopter of cellphone technology- my first phone was a odd little Fujitsu model with mediocre reception, a ridiculously short battery life, and a fake dial tone when you flipped it open. Long before texting, long before MY5, I had a bulky, static-y cellphone that made me feel like Zack Morris and look like a drug dealer.

It took about ten years before I made the leap to my first true smart phone, a fancy little work-issued Blackberry that ensured I was plugged in and available any time, day or night. It was love at first buzz- I could keep on top of work and stay in touch even when I was away from my desk, and quickly became a master at BrickBreaker. While some people feel enslaved by the Blackberry, my initial feelings were those of freedom- I didn’t have to rush home from a movie or a box social to check my email, I was always in the loop and didn’t have that heavy feeling in my chest every time I sat down at my computer after an absence, wondering what disaster was waiting for me. Call it Stockholm Syndrome if you like, but I felt a noticeable drop in my stress levels as long as my little buddy was chained to my belt.

But then the unthinkable happened- I found myself without a phone. When I changed employers last January, my Blackberry didn’t follow me and I was too cheap/frugal to pay for one myself. I felt like a 2 year old who had just had his beloved pacifier ripped from his mouth. What if someone had a question for me outside of regular business hours? What if the boss needed me while I was at an outside meeting? How could I check the market in the back of a taxi? What if my wife needed me to pick up milk on the way home? You can’t have cereal without milk- would I never have a healthy breakfast again?!?

Much to my surprise, the loss of 24 hour connectedness didn’t result in a series of work disasters and personal catastrophes. With the exception of once buying tomatoes at the market when we already had a bunch at home (and I couldn’t call home to check), things continued pretty much as normal. I had always found my Blackberry to be a bit of a stress reliever, as I stopped worrying about what I may be missing when I was away from a computer for more than 6 minutes. I quickly came to realize that it hadn’t actually been relieving stress at all- it was just a way of masking it. I had been incapable of leaving the office at the office, but my Blackberry served a convenient coping mechanism. It was a crutch that allowed me to carry on like a real human boy without having to find effective and constructive ways of dealing with my lawyerliness. A junkie who wears long sleeve shirts to hide his track marks is still a junkie. Being Blackberry-free quickly forced me to address the underlying and problem and find real ways of dealing with stress, like relaxing walks, yoga, and binge eating.

There was one curious side effect to my cold turkey cellphone recovery. Occasionally, while sitting at the dinner table or enjoying a movie, I would feel that familiar tingle on my hip, those two gentle prods that had become a part of my physiology. Like Pavlov’s dog, I would instinctively reach for my hip to find… nothing. I suppose it was like a much kinder, gentler version of phantom limb syndrome- I call it Phantom Blackberry Disorder, or PBD. Thankfully, my PBD more or less disappeared after 3 months, but every now and then I’ll still feel a little twinge on my belt and let out a nostalgic sigh. But perhaps the biggest adjustment has been to losing immediate access to the boundless knowledge of the internet. Like so many others, I had become accustomed to turning to Google or Wikipedia to answer every query and settle every dispute. With my Blackberry gone, I can no longer avail of the collective wisdom of cyberspace. But I’ve found a way to adjust- now, instead of reaching out for Google when somebody wants to know something, I just do what I had done for years prior to internet-in-your-pants- I make something up and say it with enough confidence that nobody will question me. What’s the capital of El Salvador? Why it’s St. Mangoes, of course. How many feet in a furlong? 800. Is Ann Coulter actually a robot? Of course she is. It’s nice to return to a world where the winner of an argument is not determined by “facts”, but by who can most confidently argue that which he knows nothing about. It’s like the whole world is a courtroom!

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