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Alright, let's do an important investment and career lesson. Opportunity cost.
This is factoring the cost of not doing something in your total loss.
Trust me, you're going to look at money differently after this.
It's also why I don't like real estate as an investment.
This is factoring the cost of not doing something in your total loss.
Trust me, you're going to look at money differently after this.
It's also why I don't like real estate as an investment.
2/ Basically, you're not just including any money spent – you're also including money not made.
Let's say you're a student, and you get free tickets to a concert. These tickets are normally $50, so it's like you just got free money.
Unfortunately, you work that day...
Let's say you're a student, and you get free tickets to a concert. These tickets are normally $50, so it's like you just got free money.
Unfortunately, you work that day...
3/ So you give your shift to a co-worker, and skip out on a 4 hour shift you normally work.
Most people would think, "I just went to a concert for free, yo. I only spent $50 on drinks!"
True. You only spent $50. Unfortunately, you didn't make $80 at work that day.
Most people would think, "I just went to a concert for free, yo. I only spent $50 on drinks!"
True. You only spent $50. Unfortunately, you didn't make $80 at work that day.
4/ In other words, your loss is $50 spent, and $80 missed in wages. Total economic losses are $130, 160% higher than you thought.
Now I know a lot of people that rent, despite being able to afford it. Some make a house per week in wages.
Why not? Got it. Opportunity cost.
Now I know a lot of people that rent, despite being able to afford it. Some make a house per week in wages.
Why not? Got it. Opportunity cost.
5/ Most of the people in this demographic fall into two categories – professional investors, and entrepreneurs.
Both are people that very clearly understand the value of money.
Let's run the numbers on why these folks don't have houses, and rent.
Both are people that very clearly understand the value of money.
Let's run the numbers on why these folks don't have houses, and rent.
6/ Assume they bought a benchmark (typical) detached home in Toronto for $1,163,300 in January.
They put 33% down, @ 2%. By October, they would have made $103,900 in price gains (unusual year), and paid $12,880 in interest.
Gains = $91,020 = ~23%.
Sounds good, right?
They put 33% down, @ 2%. By October, they would have made $103,900 in price gains (unusual year), and paid $12,880 in interest.
Gains = $91,020 = ~23%.
Sounds good, right?
7/ These folks are investors though. So the other option is they spend that downpayment on equities.
NASDAQ year to date performance is 32.57%.
Let's say they take the same downpayment, and pull a margin at 3x paying the same interest.
NASDAQ year to date performance is 32.57%.
Let's say they take the same downpayment, and pull a margin at 3x paying the same interest.
8/ That same $387,379 calculations.
Interest at 1%: -$7,759.21
Gross Return: $378,886
Net return: $371,126, or 97.80%
"But they pay rent, so it's even!"
Not even close, sometimes.
Let's say they spent $50k ($5k/month), they'd be left with $328,886 or 84.90% return.
Interest at 1%: -$7,759.21
Gross Return: $378,886
Net return: $371,126, or 97.80%
"But they pay rent, so it's even!"
Not even close, sometimes.
Let's say they spent $50k ($5k/month), they'd be left with $328,886 or 84.90% return.
9/ Here's the key difference between rich people and middle class people though.
Middle class dude with a house thinks he made $91,020.
Investor that rents thinks buddy with the house didn't do so hot. His opportunity cost was $237,866.
Not including agent commissions.
Middle class dude with a house thinks he made $91,020.
Investor that rents thinks buddy with the house didn't do so hot. His opportunity cost was $237,866.
Not including agent commissions.
10/ Now this applies to every fucking thing in your life.
Let's say you make $60,000/year, and it adjusts with inflation. Call it Job A.
Let's say you can find a job that makes $80k/year, but you would lose a year of work, and $20k in tuition. Call it job B.
Let's say you make $60,000/year, and it adjusts with inflation. Call it Job A.
Let's say you can find a job that makes $80k/year, but you would lose a year of work, and $20k in tuition. Call it job B.
11/ The next 10 years of your life at both jobs.
Job A = $60k * 10 years = $600,000.
Job B = ($80k * 9 years) - ($20k) = $700,000
You think it costs $80k to do the training.
It really cost $100k to not.
After that, the gap keeps getting bigger.
Job A = $60k * 10 years = $600,000.
Job B = ($80k * 9 years) - ($20k) = $700,000
You think it costs $80k to do the training.
It really cost $100k to not.
After that, the gap keeps getting bigger.
btw.
I also did a rant on the value of time, and why eating out isn’t always a waste of time.
Same energy. https://twitter.com/StephenPunwasi/status/1305711143521079296
I also did a rant on the value of time, and why eating out isn’t always a waste of time.
Same energy. https://twitter.com/StephenPunwasi/status/1305711143521079296
12/ Oh, I should also mention – sometimes it's totally worth it to take the loss.
The concert in the example above? I totally would have done it as a kid, knowing the economic losses.
The point is, thinking this way helps you understand understand how *you* value your time.
The concert in the example above? I totally would have done it as a kid, knowing the economic losses.
The point is, thinking this way helps you understand understand how *you* value your time.
