Investing in a House

A lot of people are questioning the logic of using your house as an investment.  There are a lot of reasons to own a house, but it is pretty unwise to have it as your primary savings method.  House values since the 80s have barely outpaced inflation.  Even when you choose years that they performed fairly well, the returns were less than what you’d get with many government backed bonds.

This isn’t to say you shouldn’t buy a house, but it does mean that you should at least consider renting.  If you do buy, you may be much better off choosing a moderately sized house that puts you well below the maximum mortgage you can afford.  The extra money can be better invested in other areas.

Housing Prices Continue to Fall

The S&P Case-Shiller home price index was released for March and the results don’t look very good for home owners.  House prices continued to drop and are now 19.1% lower than they were 12 months ago.  For people looking to buy a house, things look pretty good.

The problems for buyers is that no one is sure where the bottom is.  Also many sellers still think their house is worth what it was a few years ago.  The best deals may not be had for several month.

Price Perception

Be aware that shrewd retailers will price items in very strategic ways to take advantage of human nature.  For example a retailer with three similar products might price one higher in order to make the other two look like a better deal.

For many people three similar items for $41, $29, & $27 would unconciously cause them to gravitate toward the $29 item because it seems so much like  a better deal and yet it seems a bit better than the $27 dollar option simply because it costs more.  The $42 product may not be significantly better–just a distraction to help make the $29 seem like smaller amount.

Being aware of this can help you better pick products based on their characteristics and your needs–not a retailers attempts to manipulate you.

Recession Bargains

Consumer Reports Money Adviser has a list of 12 big ticket items that you may be able to get a good deal on during a recession.  Here are a few:

1. Television – Televisions aren’t selling particularly well so prices are becoming more competitive.  The suggest using a shopping bot to compare prices from a bunch of places at once.
2. Automobiles – Dealers are trying very very hard to move cars, so now might be a good time to buy. Make sure you do your homework.
3. Homes – Mortgages are still low and there is a $8,000 tax credit courtesy of the US government if you haven’t owned a home in 3 years.
4. Furniture – A lot of retailers have more inventory than normal which means they may be more motivated to lower prices.
5. Fitness equipment – Certain types of equipment dropped in price by 10% last year due to lower sales for the first time in over 15 years.  (Also don’t forget about looking for used equipment.)

The Cost of Your Job

Trent has a nice look at how much it cost him to have a normal job.  While his income went down after he quit, so did his expenses.