Posted by Dave on October 26, 2010
There was a comment on my post last week which basically stated that if I retired before my wife, I would be “leeching” off of her work. As the comment was more directed towards Tim than myself, I deferred to him on it, but it did raise an interesting question – what would happen if my wife had no interest in early retirement and preferred to live as a “normal” person rather than saving a significant percentage of her money every month for our combined goal.
Honestly, if tomorrow she told me that she didn’t want to follow our current plan, I would understand – those savings are pretty boring on a month-to-month basis. The money that my wife is saving could easily be turned into new clothes that she may get greater enjoyment from, something she used to do before I met her and was part of the reason how she racked up $20,000 in credit card debt. The problem with a long-term plan is that it is long-term, the results won’t be seen for years, while new clothes can be had today.
My wife and I have our bills together, but apart – everything is split and whatever is left we’re free to spend. If I were retired and she was still working because she had chosen different goals, our finances would not change – I wouldn’t stop paying my half of the bills, all that would change would be the way we would use our time. I would be doing what I wanted to do, while she continued to work.
Outside of finances, I would probably do more housework as I would have more time. I don’t see this outcome as a negative however as I love to cook and as long as I had some help cleaning up my massive stack of dishes I create some nights I’d be fine with this arrangement. I would have time to do all of the things that I wanted to do (which she is generally not all that interested in) such as golfing, reading and other hobbies while she’s at work and if she wanted, we would have plenty of time to do things together.
It would be difficult to explain to our friends and families, with me essentially being a house-husband and my spouse going to work. Generally we’re viewed as oddballs anyways (which I would attribute to my personality) so perhaps this new lifestyle would not cause much of a stir.
In general, I’m glad that my wife and I are on the same page – I think that our marriage will be much happier with us working towards the same goal rather than our own ambitions. Down the road, I think that we’d have much more fun doing things together, rather than spending most of our time apart (which we do now because of work).
Would you go out on your own financially if your spouse didn’t share your goals? Would you retire earlier (perhaps by decades) if your financial plan that your spouse wanted no part of worked out, while they were going off to work? Or perhaps cut the difference and work longer so both of you can retire to a higher spending amount?
Posted by Robert on October 25, 2010
One of the benefits of living in a market-based economy is the ability to freely negotiate purchases and sales at a price that’s impartial. I can choose to sell at whatever price I choose, but buyers can also choose to buy only at a price that’s acceptable to them. However, human beings aren’t necessarily wired for functioning in this way.
People tend to place a higher value on an object that they own than on an identical object that they do not own. Behavioral economists call this the endowment effect. To demonstrate this, a study was done with a coffee mug. A researcher approached a number of people and asked them to estimate the value of his coffee mug. The answers were what you would expect: $2, $3 or even $5. With a separate group, he gave each person a coffee mug. He then asked them what the value of their coffee mug is. The answers were higher this time: $5, $6 or even higher.
Just knowing about the endowment effect doesn’t make a person immune from it. I’m currently trying to sell my house. I think that it’s worth quite a lot. To me, it’s a home, it’s very comfortable and well-maintained. To a potential buyer, however, it’s unfamiliar and in unknown condition. The buyer is not willing to pay for it what I would like to receive for it, except in an especially strong real estate market. Being aware of this, I accepted an offer that was even lower than I was originally willing to consider. However, the buyer still continued tried to find excuses to lower the price. In the end, they didn’t honour their offer.
The same thing happens with shares in a publicly-traded company. All day long, investors enter buy and sell orders and only if those orders happen to match do shares trade. If you have access to Level II reporting from the TSX, you can view all the current orders in the market. You will see that buyers are willing to pay a variety of prices below the market price. You can also see that sellers are willing to accept prices somewhat higher prices than market. However, the majority of those shares won’t trade until either the market moves, or a very large order is entered, in which case the price will move until all the shares are bought or sold.
Being able to negotiate a price that is acceptable for both sides is a skill that makes transactions smoother. In the stock market, there is little negotiating power. Offering a set price, especially with a large order, ensures that the buyer won’t pay more than he or she is willing. Dealers hold presentations to convince brokers of the value of a company, and brokers tell the story to their clients, in order to create an impression of value. With the sale of a house, there are more variables that can be negotiated and more opportunity to have a conversation around the perceived value.
Knowing that people perceive value differently, we can approach transactions, prepared to negotiate. When investing, specifically, it may be helpful to remember that if we’re not rushed to buy or sell, we may be able to get a slightly better price, especially if offering large volume.
Have you had an experience buying or selling something where the price was difficult to agree on? Have you developed negotiating skills that have helped you financially?
Posted by Canadian Dream on October 24, 2010
The winners to the ING event are:
Michael S. (comment #12) and Shaun (comment #15).
Both of you have been sent emails to confirm your name and contact information. Please check your spam folders as these notices can often end up there. You have to confirm your information by Monday morning so I can arrange your tickets with ING.
Thanks for entering everyone and if you didn’t win, best of luck on the next part of the contest which will launch later this week.
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