Your Mental Approach to Spending

[NajdorfDefense]

Now. Last year. The year before that. I am assuming OP is a prime-rated borrower, if not, then you will not find investment-grade rated munis that will pay more than your mortgage, after-tax.

A 30-yr last week was 5.83%, if you are paying 35% marginal rate that knocks the after-tax cost down to 3.79%. There are barely any munis that *don't* pay that much interest, if any.

At 30% marginal tax rate you have to beat 4.08%. Again, trivially easy to do. One positive of the muni market is the yield curve is always positively sloped.

AAA-insured bonds pay 4.51%, on average, right now.
Looked at the other way, the grossed-up rate of them at 30% is 6.44% pre-tax. Well above the 5.83% mortgage borrowing rate for people with good credit.
Here's a completely random bond I found on the first page I searched on:
LINCOLN NEB SAN SWR REV 4.375 06/15/2032 4.51% / 4.51%
A Nebraska bond that is paying 4.375% coupon with 4.51% yield, expiring in 25 years.

61 bps arb yield on a $300k mortgage is $1830 per year, for AAA-insured risk, or $55k over the life of the loan. Dropping down the credit curve to AA or A-rated munis will give you an even larger arbitrage.

Paying down your mortgage when you can earn an arbitrage is -EV.

[good2cu]

I play a silly game on my computer and make 500/hr. So I just buy whatever I want whenever I want.

[guids]

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I play a silly game on my computer and make 500/hr. So I just buy whatever I want whenever I want.

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except a decent personality

[frozzor]

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Also consider (if you are 20 years old) that every dollar saved right now is worth about 64 when you are 62 years old.

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This is completely untrue.

Each dollar is worth about a dollar, maybe a little more, when you are 62 years old, provided that you invest in savings/money market etc.

If you take no risk it's hard to beat inflation; After paying state and fed taxes on my interest income(at 5%), i'm making only a little over 3, which is the historical average for inflation. Any time there's high rates, it's also because there's high inflation so in the long run you rarely beat inflation by too much.

[raptor517]

its too late for me to catch up on this thread, but i will tomorrow. as far as my approach to spending.. 3 years ago when i actually worked for 6.50 an hour, i didnt buy much at all. id save up and occasionally buy a video game, or have enough for dinner and a movie with the select girl of the week. looking back on myself 3 years ago is very interesting.

now, i pretty much buy whatever i want. i love going to best buy and just throwing random stuff in a cart. every new dvd, lots of vid games, a tv for every wall, etc. when i had to figure out all my tax stuff a lil bit ago, it put things a tad bit more in perspective. i had to take a lot offline, and put it all in a money market fund, and it made me realize how much money i was actually throwing away, since it was all post tax income. i set up a vanguard account about 5 months ago, and have been pulling out 2500 a week to go into that, and i think it helps me save money better. i dont buy as much random crap as i used to, and im actually selling one of my cars!

also, if i had a really good day online, im much more likely to go do something stupid that night, buy everyone i know drinks, throw a party, etc etc, than if i got dominated and chunked off a lot. i dno why this is, but i guess im in a better mood. im really working on being nittier, i liked zeebos post about supporting his kids and how he doesnt wanna work 50 hrs a week for 40k a year when all this poker business is over just so he can maintain a ridiculous lifestyle. i have pretty much everything i want at the moment, so im spending my time learning how to invest the money i have now and whatever i make in the near future instead of just spending it for the hell of it.

[prohornblower]

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Also consider (if you are 20 years old) that every dollar saved right now is worth about 64 when you are 62 years old.

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This is completely untrue.

Each dollar is worth about a dollar, maybe a little more, when you are 62 years old, provided that you invest in savings/money market etc.

If you take no risk it's hard to beat inflation; After paying state and fed taxes on my interest income(at 5%), i'm making only a little over 3, which is the historical average for inflation. Any time there's high rates, it's also because there's high inflation so in the long run you rarely beat inflation by too much.

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Completely untrue? OK, so I'm negating taxes. I'll give you that, but still, it's totally acceptable to expect 10% returns on your money for 42 years by playing mutual funds. Of course you are taking risk. But for those who make less, there will be those who make more. And investing in your future is far less risky than buying a $4 Espresso, when a $1 bottle of water will suffice.

Each disposable dollar will double over about 6 times in that span. 1 ---> 64

Note, I said it is worth 64 "when you are 62". Not 64 "in today's terms, when you are 62." Nowhere did I imply that inflation doesn't exist. I just threw out absolute terms, instead of relative terms. I didn't talk about taxes and capital gains.

BUT, if you are eligible for the Roth IRA, each dollar you dispose of when you are 20 would be worth 64 (absolute value) when you are about 62.

So, I don't see how what I said could be construed as "completely untrue."

[ChipStorm]

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Chipstorm, I see what you are getting at here, but what else would you be doing with that time? It's not like you'd be working, and earning a higher rate, would you?

For instance, say you want to purchase a $100 item, but can shop around for 2 hours to find it at $80. You've saved $10/hr. Say your earning power is $15/hr. It's not like you can say "well, let me buy the shirt at $100, and go work for two hours, instead of shopping, and make $30" (which is $10 more than the other scenario.

I remember asking a friend if he'd ever learn to change his own oil (to save like $35), and he said that it wouldn't be worth his time because his hourly salary is higer than that, but I kept telling him that he'd still be saving money, becasue otherwise he'd be sitting at home watching TV or whatever. He just kept saying "no". I thought that was weird. If you are not otherwise working, and earning, I think it's OK to do things yourself and save money.

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blower, I agree that there's little point in being rigid about "pricing" your time. If you like changing your oil, do it. It doesn't have to be an economic decision. Then you can think of it as part leisure time, as well as being a money-saver. And for me at least, leisure time at least in part means not having to think about ANYTHING, including the price of my time. [img]/images/graemlins/smile.gif[/img]

It's more of a frame-of-mind thing, desiring to have your time available, to do with it whatever you choose. I find that, as busy as I am, I never worry about not having enough time, because I'm always subconsciously valuing the time I spend on things. That's the trick of a market-clearing price, right? At the price where supply equals demand, everyone's happy.

Conversely, I see people like my wife (not to pick on her, lots of people are like this). She consistently fails to value or undervalues her time. She won't hesitate to take an hour out of her day to drive 20 miles and return a $6 item. That's fine for a joyride, but let's face it, there's no net dollar savings in making such a trip. Is it any wonder, then, that she says she always has a million things to do and no time in which to get it all done? Do you think anyone who thinks like this could ever grow wealthy on their own?

[KJS]

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Conversely, I see people like my wife (not to pick on her, lots of people are like this). She consistently fails to value or undervalues her time. She won't hesitate to take an hour out of her day to drive 20 miles and return a $6 item. That's fine for a joyride, but let's face it, there's no net dollar savings in making such a trip. Is it any wonder, then, that she says she always has a million things to do and no time in which to get it all done? Do you think anyone who thinks like this could ever grow wealthy on their own?

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The joy of just being in a store is enough for most women. When my wife talks about driving 4 miles to save $.05/gallon on gas I get really worried. Uh, that is .60 savings per tankful honey. But she grew up hand-to-mouth so it is her mindset to save money whenever possible.

KJS

[suzzer99]

I've always lived beyond my means, no matter how much I made. The key is just to keep increasing your salary, like a one-person pyramid scheme. So far so good...

[suzzer99]

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The joy of just being in a store is enough for most women. When my wife talks about driving 4 miles to save $.05/gallon on gas I get really worried. Uh, that is .60 savings per tankful honey. But she grew up hand-to-mouth so it is her mindset to save money whenever possible.

KJS

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One thing I find interesting is that even as gas gets over $3.50 in CA, the difference between the octane grades is still 10 cents. Which is such a small % of the price - that if there is ANY benefit to premium it really makes sense to get it. But there are soooo many people out there who see it the exact opposite. They figure since gas is so ridiculous now you would have to be a complete maniac to consider shelling out $4 more per tankful, once a week or so.

But they have no problem ponying up $6 every morning at Starbucks.