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Is Following Your Passion a Luxury?

This article was written by Flexo in Best Of, Career and Work. 21 comments.

The concept of turning your passion into a vocation, making a living doing something you love, easily generates two opposing viewpoints. I wouldn’t say I’ve had a privileged upbringing, but it depends on the perspective. I had the freedom to explore a variety to activities to help nurture my mind, soul and body. As a kid, I explored computer programming, music performance, acting, summer camp, karate, Little League baseball, and even tennis lessons. This alone is enough to make people less fortunate scoff at the futility of my time while growing up. I could have lived in a developing country where kids have no choice but work so their families could survive day-to-day.

In an effort to develop artists, one recurring theme always present in my activities was the idea that life provided endless opportunities. There was no need to be resigned to an unsatisfying job, working for money rather than soul satisfaction. With enough education and practice, everyone would have a chance to find a way to earn money doing something with passion, an activity that was more than just “work.”

To characterize the two perspective, one would say that everyone, at least those with sufficient resources, can find a way to sustain a family while pursuing a passion completely. The other perspective takes the position that following a passion is a luxury and most people would be better off finding a job that pays the bills right away and looking for passion elsewhere, like with hobbies or family.

I wrote about pursuing my passion six years ago. I mentioned that I was stuck in a rut and was still trying to determine what my “dream job” would be. I went on to spend five more years working for a corporation in a job I had little interest. At the time, I didn’t really consider Consumerism Commentary a business. I didn’t consider it my passion, either. I never desired to be a writer or a publisher, but an interesting theme running through the last twenty years of my life has been building communities, particularly online, and that is a bigger passion for me than writing.

With a less personal approach, I suggested starting the decade off right by doing something you love.

I wouldn’t have been able to pursue Consumerism Commentary if I wasn’t already meeting my baser needs. I started this website after I had already started moving in the right financial direction, with a new income at a corporate job ready to help me pay off my debt and save for the future. If I had been struggling to find affordable shelter and scrounging for food, I’d have greater concerns than finding a web server.

Abraham Maslow's Hierarchy of Needs When considering the idea of following a passion, particularly if that passion doesn’t naturally coincide with a potentially high-paying career like mathematics or engineering, I find that Abraham Maslow’s Hierarchy of Needs is an appropriate metaphor. Following your passion is related most to the top of the pyramid, self-actualization. All the issues pertaining to the levels below self-actualization must be met before a quest to reach one’s full potential can be moderately successful. Because of these pre-requisites, paving one’s own way to create a successful life that doesn’t rely on typical social structures (like corporations) is rare.

Once physiological needs like food, water, and shelter are met, the next needs pertain to safety: having sufficient finances, job security, and health security. A good portion of the middle class doesn’t really get past this stage of needs. Living paycheck-to-paycheck keeps the lower middle class unfulfilled. The upper middle class may not have money that could be used in an emergency other than the wealth locked in the value of their primary residence, or those who do have emergency funds would not be able to live off savings for a year to pursue a financially risky endeavor. The working class relies on employers and rarely sets out to build their own business, again due to risk.

To get past this second stage, you need to be in a position where worrying about finances is unnecessary. When there is little concern about whether you can afford to fail, you have the opportunity to try different approaches to life-sustaining pursuits of your passion.

In my work with non-profit organizations, I noticed that many people involved with activities were not in a financial situation where they needed to worry about finance. If the organization failed to provide a paycheck one week due to the company’s negative cash flow, they didn’t start a riot. If you’re “independently wealthy” the paycheck from one week to another is not the main concern, and you have the ability to take some risk in order to spend the bulk of your waking life working with your passion. If you’ve retired from your former career and just looking for a good way to spend the last few decades of your life doing something meaningful, and if you’re done raising a family and paying for a house, you have the flexibility to work for little or volunteer without concern about moving up the corporate ladder. If your spouse brings in the money and you’re only working to keep yourself from going insane alone in the house, your options are wide open.

When I was working for the non-profit, I was in a significantly different financial position, and this was a message I had some difficulty getting through to the executives. Then again, why should I receive preferential treatment of any sort when the rest of the employees were happy with the poor financial situation within the company. In the end, I made some sacrifices in my living situation and other expenses to make things work a little better, but I was also sacrificing my future financial stability. My following a passion early on in my career, I was skipping over the more basic needs like a safe living environment and financial security while seeking higher-order fulfillment. It didn’t work out so well for me.

While it’s good to persuade young students to follow their passion — and this is a great topic for motivational speakers for adults as well — it’s more important to look at any particular individual before condoning leaving reason behind to search out a living following a passion. For some, the risk of financial failure could be a good motivational tool for bringing about success while following a passion, but for others, it’s nothing more than false hope and results in a delay in building a solid financial foundation.

Abraham Maslow

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When People Get Rich Quickly: Lessons from Michael Vick’s Bankruptcy

This article was written by Flexo in Wealth and Affluence. 16 comments.

A typical professional athlete may be a prime example of the situation in which an individual might find himself suddenly wealthy. The idea that a person could consider himself middle class or lower one day and wealthy the next is a recipe for financial disaster. It’s easy to look at athletes because their trials and tribulations are often front page news. Michael Vick had some problems with the law, but now he’s dealing with financial fall-out. He has declared bankruptcy, and for the first time, the public is getting to see the choices he made with his money.

Vick listened to the wrong people and was perhaps a little gullible and trusting. His seemingly unlimited income gave him the opportunity to spend with zeal. He paid $223,000 a year for dubious financial advice, $78,000 a year for allowances for his family members, and an extra sum of $209,000 for his mother. His obligations included various house payments for his family in addition to the allowances, salaries for his entourage, $10,000 per month on jewelry for a period of 20 months, payments for his own houses (four), boats (five), cars (eight), and horses (unknown).

Gold Bars Money And then he wasted his money on failed business ventures for which his friends and advisers convinced him to part with more of his money, like a rental car franchise, janitorial operations, a restaurant, and of course the issue that eventually landed him in jail, the dog fighting ring.

The result of all his money missteps was bankruptcy, with a variety of companies staking claim to his future earnings. At least in Vick’s case, he is getting a second chance. With his new contract, and with a new approach to managing his money, he should be able to meet all his financial obligations.

The thought of having a sudden influx of cash, particularly if it puts you in a significantly different financial situation that those who are closest to you, is frightening. Suddenly, friends and strangers might approach you with investment ideas or pleas for help. Many suddenly wealthy individuals are grateful for their situation and want to help others, but responding to these requests can be a quick road to losing everything.

Ron Lieber, columnist for the New York Times, offers a three-pronged approach for people, not just professional athletes, whose financial situation changes significantly, quickly: slow, small, and scrutiny.

Slow

Don’t make decisions right away, and keep the money invested safely in cash or bonds from the outset. Don’t give in to the immediate pressure you may receive from friends, family, and strangers looking for investment capital or financial help, even though you may strongly desire to help those closest to you. Decisions made quickly could end up hurting your financial security later, so slow down your approach and resist the temptation to immediately go after investments that promise to pay off handsomely. It’s true that the wealthier you are, the more access you have to potentially lucrative, but complicated, investments, but keeping money invested safely for a while helps you wait until you can make more rational decisions.

Small

The good-hearted among us will want to use newly-acquired wealth, particularly if there is more money available that any one family could use in a lifetime, to make grand gestures with large amounts of money, making the world a better place. The adviser quoted in Lieber’s article points out that many athletes invest in a city only to find out they would be traded to another city the next year. Keeping gestures small would make more sense.

Additionally, if we’ve seen anything from celebrities in Hollywood, there’s often a temptation to use wealth to buy a massive house. Many people, even the wealthy, aren’t prepared for the expenses involved with maintaining a house, particularly if that house is large. There’s always a chance that it proves to be a good investment, if another celebrity makes the risky decision to buy the mansion at a higher price down the road, but there are never any guarantees. In the case of athletes, many become wealthy at a very young age — and they may have never even lived on their own before. The article suggests buying a small home to start, perhaps even a condo.

Scrutiny

Shady advisers appear out of the woodwork when there’s money to be made. The article says it’s a good idea to have an adviser, but be very selective. I’ve written a series about selecting and working with financial planners, and weather you’re suddenly wealthy or looking to build wealth over time, the same concepts apply. The most important factor is finding a fee-only financial planner to serve as a fiduciary, which means they are bound to advise in your best interests only. Even this doesn’t prevent an adviser from taking advantage of a client, though.

I would also argue that a good, solid education about basic money management can go a long way in reducing the need for outside “expert” opinions about how to hold or invest your money.

An athlete signing a professional contract, a lucky individual who wins the lottery, or an entrepreneur selling his company to Apple all might have to deal with a sudden influx of wealth. Keep cool and don’t make any sudden moves. Wait before offering any financial help or investment capital to friends, family, and advisers. From a practical point of view, these are likely to be good priorities:

Pay any taxes due.
Put aside a year’s worth of expenses in a liquid investment like a money market account or a high-yield savings account.
Pay off any debt.
Update or create a will.
Determine how your wealth can help you reach your non-financial life goals and plan accordingly.

ESPN, New York Times

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U.S. Will Sue Major Banks Over Mortgages

This article was written by Flexo in Economy, Real Estate and Home. 19 comments.

Imagine you’re shopping for a new high-definition television. You’re looking around the store for the television with the best picture from a brand you trust. You pick the one you like, not the least expensive model but not the most expensive, either. You take it home, plug it in, and all the television can display is an image that’s been painted on. You open a panel in the bank, and where you expected to see electronics, there’s only crumpled-up newspapers. You were sold a dud, and didn’t know it until you had taken the “television” home. Furthermore, there’s no return policy.

No one should allow a company to sell a product whose components are drastically different than what’s advertised, particularly if the opportunity to evaluate the components doesn’t rise until after the product is sold. This is similar to the reason the Federal Housing Finance Agency is suing Bank of America, JP Morgan Chase, Goldman Sachs, Deutsche Bank, and other banks. The products were mortgage-backed securities. Banks sold these securities to investors as if they were low-risk investments. For a while, there wasn’t a problem. Eventually, the banks had trouble finding qualified borrowers to bundle into securities and extended loans to riskier home buyers.

Foreclosure Selling the mortgages as securities meant that every investment would be somewhat diversified across a wide selection of mortgages, and this diversification should have kept risk low, but the banks — and most likely the investors, as well — continued these transactions because everyone was profiting.

The banks were complicit in making the mortgages appear better by falsifying borrower income statements. Perhaps other parties were aware that the securities were riskier than advertised, but no company, not the investors nor the companies providing insurance for these investments, stepped in to bring attention to the risk. Every company was making too much money to stop and consider the downstream effects.

The FHFA is making the allegations and will file a suit in federal court within the next few days, according to the New York Times and the Wall Street Journal. The banking industry’s position is that a downturn in the economy caused the loss of value on mortgage-backed securities, not that mortgages offered to people who couldn’t afford them caused the downturn in the economy. Now the industry is concerned that a suit in which banks are required to buy back the investments would put the economy back on this ice.

For many years, the government (and the real estate industry and the banking industry) promoted home ownership in the United States. Owning a home became the new definition of the “American Dream.” Owning your own property is the only way to be free, and this philosophy stemmed from feudalism in England. Those who owned land ruled over others. It’s not quite the same in the United States; homeowners are still subject to their local governments, but the feeling of freedom that accompanies home ownership has persisted. Land ownership in feudalism was for the aristocracy, and unlike feudal times when there was little socioeconomic mobility, the promise of America meant that anyone could be a land owner — anyone could be in the upper class.

This drive to live a better life and increase social status led to the market finding ways for more people to afford to be homeowners, from the proliferation and expectation of bank-financed purchases through mortgages to creative ways for increasing supply like condominiums, home ownership without land. The business of home ownership is profitable, so there was no need to slow down. With incentives from the government and a stigma attached to renting, potential homeowners would do anything to qualify for mortgages so they could buy a home quickly rather than saving money first, and potential lenders would do anything to find more borrowers, bundle the mortgages into securities somewhat masking the risk, and sell them to investors.

Now society is paying the price. The economy crashed after the housing bubble became uncontrollable. Homeowners lost their homes. Investors in the mortgage-backed securities and the banks that sold them are jockeying for who will be held responsible. Should the banks be required to buy back the mortgage-backed securities?

Photo: taberandrew
New York Times

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The Benefits of Owning a Condo

This article was written by Flexo in Real Estate and Home. 22 comments.

A few years ago, I declared I would (probably) never buy a condominium. I still believe this to be true. All my adult life, I’ve lived in rented apartments. Some have been nice, some have been not so nice. My least favorite living arrangement was a railroad apartment in Jersey City, New Jersey. It was a great deal in a great location, but a grocery store on the ground floor attracted a variety of critters and my roommate needed to walk through my bedroom in order to get in and out of hers.

Condo ownership brings with it some of the benefits of owning a home, some of the benefits of renting an apartment, but many of the drawbacks of both.

Proximity to neighbors who may by inhospitable. I may not always be the first person to meet and greet the neighbors, but I try to be friendly and courteous. In my first apartment out of college, I lived on the ground floor. The ceilings were thin, so every night I endured the romantic sounds from above. In another apartment, I lived above a one-bedroom unit which was considered a home for somewhere between ten and fifteen loud residents. While condos are generally occupied by more serious, more mature residents, and the neighbors would tend to be less transient, in good rental markets, or in areas where condominiums are viewed as a good investment, the units are more frequently rented out.
Condos generally appreciate slower than comparable single-family homes. While there are always exceptions, condos are worse investments than houses, and houses aren’t good investments to begin with.
Fees and rules govern condos. While this may be true of single-family homes as well in some cases, there’s even less you can do with condos. Ownership associations limit your ability to personalize your front-facing living space, but you are often generally free to arrange the interior as you see fit, unlike apartments. Association rules can often work in your favor. Some rules can help prevent the property values from decreasing by requiring a standard of upkeep within the units, and fees often cover services like lawn care.
Less work for the owner. Like apartments, regular maintenance and repair are the responsibilities of the owners. Condo owners do not need to mow lawns or fix pipes. Less time and money maintaining the operation of the household can result in more time and money for other concerns, like family, friends, and income-generating work. This is a trade-off; you will pay more in fees so that you need to do less work on the property.
Condos are less expensive than comparable houses. You can find condos for less money than comparable single-family homes. The prices are lower for a variety of reasons, including the fact that you don’t own the land on which the condo sits. Condos can be ideal first homes simply because it’s more affordable. Many of my friends, some with the help of their parents, bought condos not long after graduating college.

A condominium can be the right choice for a family. A friend of mine considers himself a real estate broker, and one of his homes is a condo in an upscale neighborhood in New Jersey, very convenient to Manhattan. He showed me around a few empty units in his building, featuring thick enough walls to prevent disturbance from neighbors, a wide open floor plan, and amazing views of the New York City skyline. Even with a door man, a pool, and a parking garage, the condos were relatively affordable. Nevertheless, it felt like an apartment. When I’m ready to find a place to spend the bulk of the remainder of my life, I still believe I’d prefer a house with a yard, a garage, a basement, and a quiet street.

Do you live in a condo? Why did you choose a condominium rather than a single-family house?

Photo: Bitman

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How to Get Audited By the IRS

by Flexo

If you have an adventurous, thrill-seeking personality, your life may never be complete until you’ve solicited an income tax audit from the Internal Revenue Service. There is good news and bad news for you. The good news is that audits have been more frequent in past years, so the chance of being audited has increased. ... Continue reading this article…

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Podcast 94: The Ten Commandments of Money, Liz Weston

by Flexo

Today’s guest on the Consumerism Commentary Podcast is Liz Weston, author of The 10 Commandments of Money: Survive and Thrive in the New Economy, and the most-read personal finance columnist on the Internet. Liz, Flexo and Bryan discuss each of the ten commandments in the book. The 10 Commandments of Money is available in the ... Continue reading this article…

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Why You Should Care About Your Wallet and Your Waistline

by Philip Taylor

This is a guest article by Philip Taylor, the owner of the blog PT Money. Philip created PT Money to share his own experiences with successfully managing his money. It’s no secret that our money and our health are connected. More people want to excel with these two things for their lives more than any ... Continue reading this article…

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When She No Longer Supports You

by Financial Samurai

This is a guest article by Sam, the author of the blog Financial Samurai and the founder of the Yakezie Challenge and Network. He writes a column for Consumerism Commentary every other Tuesday. Patrick is one of the most ambitious people you’ll ever meet. After graduating summa cum laude, Patrick joined Morgan Stanley and made ... Continue reading this article…

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