Double Journey

Living in California, and specifically Los Angeles, I know many people chasing their dreams of being in the entertainment business.  These dreams range from writing, acting, and of course becoming a famous musician.  The odds of becoming successful in any of these endeavors is minuscule but I think many of these people think if someone like Britney Spears can do it, why can’t they?

I had my own dreams growing up.  I wanted to be a professional basketball player.  For me, this dream ended long ago when it was clear I wouldn’t grow past six feet tall.  Needless to say, it has not been something that I have held on to. But for many people they continue to cling to their dreams despite severe financial hardship.  Most of these people cannot make a living chasing their dreams and this puts strains on themselves and their loved ones.

So what advice would you give someone chasing a nearly unobtainable dream?  I am not the type of person who would tell someone to stop chasing their dream.  I believe having dreams and refusing to give up on them are what make some of the greatest people great.  But I am also an extremely rational and practical person who believes at some point you have to take responsibility and get a real job.  In the specific case of my friend who made me think to write this post, he is currently out of work and she does not make enough to support the two of them.

I contrast this to my own current situation.  I have told my wife to go ahead and pursue her dreams.  She is going back to school with the hope of becoming an interior designer.  She will for sure make less money when she finishes school and there is the expense of actually putting her through school. But in the end I want her to do whatever makes her happy even if it doesn’t make any financial sense.  But of course our situation is different than our friend’s.  I make a very good living.  It is more than enough to cover our living expenses.  So her pursuing her dream has no deep financial impact on our family.

In general, I think the rules should be pretty simple.

• When you are single and only responsible for yourself, you can do whatever you want
• When you are in a serious relationship, pursue your dreams so long as it does not cause any financial strain (or resentment) on your relationship
• If children are involved, really time to put away impossible goals and buckle down.  Your children’s dreams are now your responsibility

At the end of the day, it really just boils down to your level of responsibility.  Like most things in life, the less responsibility you have, the more freedom you have to do what you want.  Family always comes first.

What do you think?  When do you stop chasing your dreams?  Have you ever known somebody who chased it too long and what did you do about it?

I’ve written in the past how I think  my generation is getting screwed in a lot of respects.   Seems like I’m not the only one who thinks so.  I found this article on MSN money about why Generation Y might never retire.   The article explores a behavior and attitude that seems to make my generation risk averse.  Given all the things I have written about in the past about the challenges facing my age group, is it any wonder that we are a little bit risk averse.

It seems that a lot of 20 and 30 somethings are stashing their money in banks accounts rather than in the stock market.  The article attributes the behavior to a fear that my generation has after seeing two major bear markets in the last decade.  You throw in scandals like Enron and Madoff and you have a generation that does not have a lot of faith in the financial system.

I have actually seen this first hand.  Clearly it is not true for someone like myself.  I’ve been pretty risk-loving when it comes to my investment decisions as of late.  That being said, I myself have been somewhat guilty of this.  For the longest time, I’ve been very heavy in my cash holdings.  Most of this is because in my investing lifetime I have not been comfortable with where the markets have been.  I only started investing in the last four or five years and it was pretty clear to me back then the market was too high.  Everything was built on the house of cards that was housing and it didn’t make any sense to me how expensive things were. 

Then, the market crashed.  It presents a great buying opportunity so long as you are comfortable with risk.  But imagine you have not been as prudent as I have been and your assets were tied up in your house and in the market.  You have just seen your net worth decrease by 50% in a matter of a few months.  Maybe worse than that if you are now underwater in your house.  Given these beatings, who can blame my generation for wanting to protect the little that we have left?

 I definitely do not agree with all parts of the article.  The second half explains why long term my generation should not be afraid of the market.  It uses the old mantra that the stock market, in the long run, is always a good investment.  While true in the 20th century I am not so sure you can continue to use the past to predict the future.  “Long term” investors in the last decade have gone nowhere. 

So I’m not so sure what my generation really should even do right here.  At these levels, I don’t think stocks are a bad buy but I hesitate to say they are a good buy either.  I could easily see us stay flat from here for the next decade as we work through the excesses we have enjoyed over the last five years.  If we really do stay flat from here, that will make twenty years of no growth right in the prime earning years of my generation.  How is that for screwed?

I find today’s Dilbert to be particularly relevant to something I’ve been wanting to write about.   Life is wavy.  There are going to be ups and downs.  The hope for most is that the up times are bigger and lasts longer than the down times.  I have found that the people who are generally the happiest in life are those who do not let their mood deviate too far from their average levels.  That is, people who do not get too happy when times are too good or too sad when times are bad.

I am someone who is really happy with his life.  A lot of this has to do with the fact that I never let the bad times dictate my outlook on life.  In fact, I make sure to look for the hidden opportunities.  I did so recently when my company had its last round of layoffs.  While times may have seemed bleak because it was our second round of layoffs in about six months, it was a great opportunity for me personally to rally the team together and demonstrate how execution was more important now than ever.  Similar things happened to me two jobs ago when I was able to translate the layoff of my entire division into a me acquiring new responsibilities and opportunities to growth.  This lead to my eventual promotion to development manager and the created the launching point for my career growth.

I view the same thing with the current economic crisis.  While I am not using it to try and attract women (I already took care of that one), I am using my relative financial strength to take once in a lifetime opportunities.  While I remain bearish on the overall market,  I do think people need to be looking for pockets of strength that still exists.  There are always bright sides to any crisis, and this one is no different.

Just look at this rally we are experiencing right now.  I do not think it will last but if you got in at the right time, you would have seen a 25% rise in your portfolio in the matter of a few weeks.  In normal markets, gains like this could take years.  It is impossible to time the market perfectly, but even if you only got part of these gains, you would be set for the year.  I have one position that has doubled during this rally.  Do you realize how crazy it is to get a double in a few weeks?

So whatever your personal situation is, find a way to take advantage when others are panicking.  You will find that the times that make the biggest difference in your life will be when you keep a level head when others do not.

What is the right amount of sympathy to give to people who are down and out because of this economy?  Over the last several weeks, there have been numerous stories in the various outlets about people losing their job and now having to scrape by to make things work.  Most of the stories go a little bit something like this.

John Doe used to live the good life.  He used to make $150,000 a year selling mortgages to people.  He would take trips to Hawaii every few months, bought a big house, drove a BMW, and never worried about what something cost or if he should be saving money.  He was honest but he got caught up in corporate greed and was forced to make loans to people who could not afford it.  When all of those loans dried up, so did his job.  That was 8 months ago and he has not been able to find work since.   His house is now in foreclosure and his wife has left him along with their 5 year old son. 

How sorry should I feel for these people?  The capitalist in me of course says I should not care at all.  People should always be thinking about the future and be prudent with their money.  In almost all cases, you could point to these people living extravagant lifestyles and not saving enough money for the eventual rainy day.  A day which came sooner than they expected.  Then again, it always does.  I look at my own situation and I can only say to myself, “What are these people thinking.”.  I too make a good salary.  I have better reason to believe it will continue to go on than most others do since my success is not sudden and is not nearly as tied to a booming irrational sector like so many other people’s careers have been over the last few years.  But I save, and I save like crazy.  People who follow this blog know that I tightly control both my discretionary and my non-discretionary spending.  In a worse case scenario, I could probably survive several years of unemployment.  I would have to make sacrifices of course, but I do not believe I would experience quite the same life crisis these people have.

But of course there is the part of me that does not want to take the “I told you so” and “Holier than thou” attitude that so many others have.  While I think many of these people caused many of their own issues, I do not wish to dance around and make light of their situation.  These are of course real people with real suffering.  They are not blameless in their plight but that also does not mean they are not worthy of a little sympathy.  I emphasize “little” because some of these people just really do not seem to get it.  My favorite (although I cannot seem to find the article now) was one man who was living large in the Los Angeles area on $70,000 a year.  Seriously folks, that is not a lot of money.  The article talked about how he spent all of his money on trips and a nice house, all of which is gone now.  But if you think you have the right to live a lavish lifestyle when you only make $70,000 in Southern California, how is anyone supposed to feel bad about that?

Before people get worried, no, I  do not have to figure out this scenario.  I usually browse the top headlines available to the right just to see what’s going on in the world.  Often times something catches my eyes and I like to comment on it.  Today, there was an article about people who have had to learn to live after they have lost their six-figure jobs.  I am certain that all over the country, people are starting to learn to live with this reality.  A six figure job is a sort of status symbol.  It is for many, the pinnacle of achievement.  For most Americans, the belief is that your life will become much better and much easier if you can grab this brass ring.  People feel they have “made it” if they can do this, and they start living a much better lifestyle.

However, this is probably just a mirage for most people.  I can tell you from experience that your life does not just become magically better because you start making more money.  Many many people in the coming years are going to find themselves in this predicament because the jobs that are disappearing are not coming back.  There was definitely a bubble out there, and it will take years for us to recover.  Having been unemployed for months, many of these people have had to accept jobs that pay significantly less, often times as much as 70% less.  That requires a drastic change in lifestyle, or does it …

The article got me thinking what I would have to do if I all of a sudden lost my job and had to take a much lower paying job.  In these tough times, it is not out of the realm of possibility.  So how would my life change if I had to accept say a 50% pay cut?

Well not much.  This is because I control two sides of my financial equation.  I control both the income side and more importantly, I control the cost side.   If you count the income of my fiance now, I have about quadrupled my income in the last 8 years of my life.  Have I quadrupled the cost side?  Not even close.  I might have increased my total cost by about double, but that’s about it.  And that’s a double from the meager livings of a recent college grad.  I could in fact live the exact same lifestyle I do today, cutting no cost, and probably live that way almost indefinitely.  I could take my own income to zero (leaving the fiance’s there), and live off my savings for at least five years.  That’s without scaling back.

However, I could just as easily scale back.  The biggest cost is easily the apartment.  I am now on a month to month lease, so if I reduced that cost by about 40%, which I could easily do, and got rid of one of the cars, which would be no problem since we only use one now anyway and I do not have a job to drive to in this scenario, I think we could actually live quite comfortably for quite a long time.  After I got over the initial shock and fear of losing my job, I am sure I could even turn the whole thing into a positive as it would give me time to pursue other things I’m really interested in.

So why have I done this?  Who in their right mind would prepare so well for a disaster scenario that is (hopefully) unlikely to happen?  Well, it comes down to the fact that I am by my very nature conservative and not willing to put my own fate in the hands of others, namely my employer or the economy.  It is just upbringing really as I saw first hand my family go from upper middle-class to barely scraping by.  You should never believe that disaster is not just one accident or one pink slip away.

Wow, that was kind of a downer to bring in the new year huh?  OK, got to write something much more upbeat next.  Probably will not be posting until next week, but I hope everyone had a great New Year!

I often think that my generation is getting the very short end of the stick.  I’m sure lots of people feel that way about their respective lives, but it is an odd thing for me.  You see, I’ve always done very well, but I think I’ve done very well despite some pretty big obstacles put in front of people my age, 30.  Here is the quick list of what 30 year olds today have a right to gripe about

•  Tech Bust of 2000 -  Right before I graduated college and was about to enter the working world, the tech bubble was in full swing.  the Dot Coms of the world were producing millionaires for people with my exact skill set.  Of course, right when I graduated, tech mania subsided, the bubble burst, and lots of my peers lost their jobs.  I even technically lost my job.   So right when it was most important to have a job, since few, if any, of my peers had a safety net, we were losing our first jobs.  The jobs that would set a foundation for the things to come.
• 9/11 - One short year after I graduated, we had 9/11.  This changed the face of the United States and brought on an even wider economic slowdown than the tech bubble bursting.  Our lives became a little more frightening and a lot more inconvenient.  It brought changes to our government and our lifestyles which I frankly don’t really care for.  A few years down the road it even helped re-elect one of the biggest idiots we have ever had as President ….
• George Bush - Can you believe that this has been the man who has been President of the United States my entire adult life?  If that doesn’t show you how screwed my generation is, I don’t know what does
• The Housing Bubble - This one might just be the worse one of all.  My combined household income would, according to wikipedia, qualify me to easily be in the top 5% of households in the United States.  If we took into account how much I have in savings …  Well let’s just say I’m not doing half bad.  Yet I don’t own a home.  I don’t because ever since I was able to afford it, it hasn’t made any economic sense to buy.  Prices were just too high.  Most people my age probably could not even really afford it until about 2005, but by then housing prices had skyrocketed to unprecedented levels.  To make matters worse, many of my peers bought anyway!  So now, they are losing their shirts as home prices fall.  Since they just bought, they have no equity.  Many of them will be foreclosed on, ruining their credit for years to come.
• The end of Pensions and the Collapse of Social Security - Pensions as we know it are done.  My generation now faces the very daunting taks of an unsecure retirement.  Many of our parents have guaranteed income the rest of their life thanks to generous pension benefits.  My mom retired in her early 50’s and has a pension that will pay her 1/2 her salary for the rest of her life.  No such luck for me.  I’ll be saving for retirement by myself with no such guarantees.    To make mattes worse, my generation will be the one to have to deal with the Social Security mess.  Fantastic!
• Inflation - I’ve written before and I’ll say it again.  Inflation is very, very bad.  It has been dormant for almost my entire lifetime.  But right when it matters most, when people my age should be starting to accumulate wealth for retirement, it springs back to life.

I could go on and on.  These problems aren’t like the Great Depression or a World War (although we have had to deal with a very long, protracted war even though we reached “Mission Accomplished” years ago) but still.  While these problems haven’t really affected me personally, I’ve seen their effect on my friends.  It makes me think that things are even worse for us than I believe since I myself have never felt the pain first hand.  What do you think?  Am I part of generation screwed or am I making a bigger deal about this than it really is?

It seems like I’ve been without Internet forever, when in reality it has only been a few days.  Even when I was on the cusp of getting it, wouldn’t you know it almost didn’t happen.  I was explaining to my friend Sandy one time how nothing ever comes easy for me.  I’m not sure why that is the case, but it’s true.  So when the cable guy came to install everything, he couldn’t find the closet where he needed to make the connection.  After much searching, and finally asking a neighbor, we found it.  But wouldn’t you know it, it was locked.  As the cable guy came late (which was annoying in itself) there was nobody in the office to actually let him in to turn the cable on.  Lucky for me, there happened to be one maintenance guy still around after hours because he was putting together some new gym equipment.  He was kind enough to let us in.

So I thought we were finally close, he would find the right cable, plug it in, and we would be on our way.  Of course, like I said, nothing comes easy.  He goes back and forth trying to get a signal, but just can’t find one.  After many attempts, we discover a cable that is not plugged in on the patio.  So we go through the whole exercise again.  Still nothing.  So we take the cover off the wall, and discover a mess of other cables.  So we try a few of those.  Finally a signal!  Two hours later, and I’m back online.  Have a lot to say, but at this point I’m tired, and going to call it a night.  I’ll resume my regular posting schedule shortly.

Today, I found out that one of my coworkers is doing what I did, quitting without another job lined up. He is about my age, maybe a little bit younger, but he just didn’t feel that the opportunity was right at our company and has decided to go and try it on his own. He doesn’t have a real plan but knew that he had to move on. I know a few more people who have done this or are planning to do it. Most of them are younger without a lot of obligations. Most of them however have really good paying jobs. Free Money Finance just recently had a post on whether or not you should quit your job without another one lined up. He came down on the side of you should definitely not.

I however, having done it, really do see both sides of this argument. It really just depends. Most people are probably unhappy with their job in one form or another, especially younger people. I think my generation more so than any other before take job satisfaction to be very important. Our parents understood that a job was just that, a job. You didn’t like your job, you did it to put food on the table. But somewhere along the way that changed. A job became who you were, it defined you. We constantly heard our parents tell us, “Do what you love” and we took it to heart. That has caused my generation to job hop until we find something that really makes us happy. The problem is that it is always still a job, and many people don’t ever come to realize that. They jump from job to job always hoping to find something better. I know very few people my age that haven’t had at least two different jobs. I myself am on my fourth while only being out of college for a little under eight years.

I disagree with the conventional wisdom for a few reasons.

1. You can be doing a lot of other things besides a 9-5 job to earn money - This didn’t use to be the case, but you can spend your time coming up with alternative ways to earn income. In the end, this might actually be smarter if you can make it passive, and then return to the work force. You will have double income!
2. It really depends on your financial situation - If you are like me with no obligations or debt, and could survive years unemployed, than you have little to worry about. Believe me, the fear is bigger than the reality most of the time. This is where living frugally really pays off.
3. Depends how much you make and how in demand your skills are - I make a lot of money. There aren’t a lot of jobs that pay what I make now. It isn’t easy for me to just find a job that will pay me what I want to make. However, I have the advantage of having skills highly in demand, so most of the time I have very little trouble finding a new job when I really want one.
4. Money isn’t everything - Coming from a guy who highly values money, this may be shocking, but it’s true. I would rather have a job I liked and get paid less for it than a job I hated and got paid more for. So I would be willing to take a job that paid me less if I ever got so desperate. That being said, a lot of people are miserable no matter how much they get paid, so this makes the argument that perhaps you should just stick it out. Might as well get more money than less money for the same level of misery!

So what do you think? How bad of an idea is it to quit a job without another one? Do you think it really is an epidemic among the younger generation?

Is it worth it to move to California? I’m in California now, ready to start my new job on Monday. Pretty excited about it. One of the things I struggled with was whether or not to leave Seattle and come back to California. I obviously made the decision to do it but how did I come to that conclusion? Is it really worth it?

Taxes

I’m going to start with this one because taxes is one of my favorite topics. According to one survey, California and Washington state have a tax burden of 11.5% and 11.1% respectively. This is a virtual wash. However, they go about how they collect their taxes very differently. California income tax is pretty high reaching 9.3% at the top,They also have a pretty high sales tax which can reach upwards of 8.75%. California also has fuel tax ,property tax, and a cigarette tax.

Washington also has a pretty high tax burden, but structures it very differently. Washington has NO income tax. Seattle has a sales tax of 8.8% and a Restaurant tax of 9.3%. This is of course higher than in most places in CA. They too have a property tax, and derive 30% of all revenue this way. They have a fuel tax, but it is lower than California’s. They too have a Cigarette tax which is MUCH higher than in California. I don’t smoke, so this doesn’t affect me.

In the end, most of the taxes are a wash. BUT the fact that I don’t smoke, don’t own property, I earn a high income, and I don’t spend very much, Washington is the clear winner.I estimate that I probably pay about 5% more in total taxes in California than I do in Washington. Winner: Washington

Housing

I rent. So I’ll start there.

This really depends on where you live in each area. So for sake of comparison I will use the two places I have lived, Pasadena and Redmond. Pasadena is much more “urban” which means that rents are going to be slightly more. When I left Redmond, they were about to raise the rent on my apartment to $1300 for a one bedroom apartment that was a little over 700 sq. feet. That was probably a little higher than the average, but it was close. So I would say market rate for this place was right around $1200. A similar place in Pasadena right now would probably be about $1400 right now. However, if you were to live in say Santa Clarita, a city closer to the type of town Redmond is, rents would probably be about the same.

Buying is a different matter. Despite the fact that housing prices are coming down in LA and are staying relatively flat in Seattle, buying a house is still more expensive in LA than it is in Seattle. I would estimate that buying in LA is still probably about 15-20% more expensive right now. But I expect this to correct itself in the coming year. Winner: Washington

Weather

As I type this, it is about 68 degrees in L.A right now and is very sunny. It is 43 degrees in Redmond and cloudy. I’m actually not a person who is affected that greatly by weather, but having left it and come back, I can say that it does make a difference in more ways than is obvious. First off, I don’t have to plan around weather. In Seattle, I often have to change my plans or not make them at all because of the rain or cold. I have found myself reluctant to leave the house because it was so cold.

If you are a guy, a side benefit of the nice weather are the short skirts. I also contend, that the women are just better looking in CA than in other parts of the country. Sure, it may be fake, but what does it matter if you are only looking anyway

The one advantage Seattle has here is that it is not quite as hot in the Summer. There is a week where the heat might be really uncomfortable, where LA probably has about a month of that. But hey, isn’t that why they invented Air Conditioning?

This is one thing money just can’t buy. No matter how much money you throw at it, you aren’t going to be able to make it sunny or warm outside. Winner: California, by a lot

Cost of Living

I’ve already gone over housing, so I won’t factor that in here. A common thing you hear about living in California is that your salary will be adjusted because of the higher cost of living. I can tell you right now it’s a big lie. I am going to be making more money here than I was in Washington but that is because I’m taking a better job. I had similar offers and positions in Washington that I was considering, and I can tell you that the salaries can’t adjust for the fact that it is just plain more expensive to live in CA than in WA.

At my last job in CA, my company was acquired by a company based in Ohio. I was talking to the head of the CA operations who had moved from OH and we were talking about salaries. I asked him if he was interested in moving more of the engineering jobs from CA to OH to save on the salaries. He let me know that he wasn’t because, much to his surprise, the salaries weren’t all that different. In the end, CA loses because it is more expensive to live here but you won’t get compensated for it.

Other than that, goods cost the same. Food and other items are a push. Gas is slightly more expensive in CA by a couple of cents. Winner: Washington

Jobs

If you are looking for a tech job, California wins here hands down. Seattle tech jobs are dominated by Microsoft and Amazon. Google is also starting to make strides in the area. But if you decide, like I did, that you don’t want to work for one of these firms, you are going to be out of luck. You could take a tech job in a company like Boeing, Washington Mutual or Starbucks but if you are like me you want to work for a tech company, not do tech work at a company.

The Southern California job market is just much more diverse. No one employer dominates the area. This hold true outside the tech industry as well. If you are looking for jobs in Entertainment, defense, finance, bio-tech, or any number of other industries you will have better luck here. If you are like me, and your partner is not in the tech industry, this becomes a crucial fact because your partner has to be able to find a job too. Winner: California

Things To Do

This is barely even worth talking about. Southern California just has more to do. Almost anything you can find in Seattle, you can find in Southern California, but the reverse is just not true. Seattle has some great outdoor activities, but so does California, and in California they are accessible year round. California has better arts and entertainment, museums, beaches, shopping, restaurants and attractions. Winner: California

Traffic

However much Seattlites like to complain about the traffic, California is worse. If you don’t like traffic, if it grates on your nerves, then LA might not be the place for you. I try to live close to work to minimize this effect, but the fact remains. Traffic is a bitch in L.A. Winner: Washington

Bottom Line

There can be many factors which way in on your decision to move. The above are mine. I also have family in the L.A. area which is a factor. I also grew up with the smog, so it doesn’t bother me at all. I figure it is probably about 8%-10% more expensive to live in California than Seattle. If you make six-figures like I do, that can be more than $10,000. For that money, you get the nicer weather, more things to do, more job choices, and of course, the short skirts.

What’s that worth to you?