The Financial Considerations of Moving

Although Mrs. Mase and I currently have no plans to move from the Midwest, there have been a few situations over the years where that almost seemed like a possibility. A few of my college buddies have reached out and offered to put in a good word for me at their companies, and I have done the same for them.

These two friends in particular that I’m thinking about live on the East and West coasts, respectively. The cities they live in is massively more expensive than St. Louis. However, the companies they work for are cool, innovative, and generally do things that engineers get pretty excited about. Just recently, a job posting opened up at one of their companies that, on the surface, seemed like it might be a good fit for me.

Here’s here how I think about the situation purely from a financial perspective: first off, the salary must be comparable, and adjusted for the cost of living in the new area. Honestly, I feel pretty blessed to live in a low cost area country, while most of my friends from college live in much more expensive cities. On the flipside, they have access to much more things then I do, such as developed train systems, a more diverse population, overall stronger economies, etc.

When adjusting the salary for the cost of living, I usually do a quick Duck Duck Go search for a good calculator that does it automatically, such as the one on CNN Money. In order to do a more in depth analysis, I’d have to look at specific costs that my family would not have to pay anymore by moving from City A to City B (such as the personal property tax in Missouri that most other states do not have), and I’d also have to look at the additional costs that would be incurring by moving.

These costs include a change in the state income tax rate (for better or worse – Missouri tax law is average in this regard), different costs for commodities and other consumer goods and services (groceries, gas, costs for getting a haircut, etc.), and the big one – housing.

Housing tends to be one of the biggest considerations for my wife and I. We love our current home. We also love the fact that we got it for relatively cheap (you should have heard my east coast friends curse me out when they came to visit because you could never get anything comparable where they lived unless you paid 5 or 6 times as much). Housing in St. Louis is pretty darn affordable, with the average rent at around $850 for a one bedroom. A college kid or recent graduate could split that with a roommate and be saving a ton of cash. Also, the average price of homes sold at $137,000 (versus the median number for all of the US, at $175,000).

Not only must the salary be comparable though, it really needs to include a 10% or so premium for making the leap from one job to another. Moving jobs and getting a pay raise to compensate for the change in cost of living is essentially the same as making an internal transfer to another department in a large company, minus moving costs. To me it would never make sense to make a transition like that unless there were other strong forces at work drawing me to that particular opportunity (closer to family, bad current work culture or schedule, better weather, etc.).  The premium is like a dividend raise on the stock that is your career – it provides incentive to try something new and to take a risk.

Personally, I think there has to be a lot more than just the financial side that has to be considered for moving to a job anywhere. If you’re married, you have to deeply consider the needs and desires of your spouse. Also, consider other non-financial motivations for why you would want to move anywhere.

The financial criteria above is a bare minimum for Mrs. Mase and I – under normal circumstances, never consider moving from one job to the next unless the new job compensates at least 10% higher on a cost of living adjusted basis. Other considerations might come close to or trump this (like family considerations), but not many. It does not make financial sense to uproot your life from one place to another and make your household poorer in the process.

Mental Models in Purchasing a New Home

I admit, watching and discussing shows about houses is one of my guilty pleasures. I love the HGTV channel. Even though we don’t have cable, we watch some of the shows through Netflix and Hulu Plus. The designs of the homes, the architectural styles, the furnishings, the deal negotiations – it’s all really cool to me. In another life I probably could have been a residential architect – that might be a fun job!

One of the things Mrs. Mase and I laugh about when we watch these shows is the hilarity of the couples that are looking for a prospective home. The irrationality is sometimes amazing. People get so wrapped up in their desire for the “perfect house” that they pass up otherwise good opportunities and go for homes that really aren’t right for them, one way or another.

I’ve been slowly working my way through Charlie Munger’s Poor Charlie’s Almanac, which is compilation of speeches and various pieces of wisdom from the famous Berkshire Hathaway chairman. One of the big takeaways from the book is the idea that all complex problems have complex causes formed by a variety of variables, and that the best rational way to view these problems is through the lens of mental models.

A mental model is a principle or a framework for viewing a situation. Munger says that there is a latticework of about 100 main mental models that intertwine with each other, spanning the disciplines of biology, psychology, physics, engineering, math, etc.

Sometimes when I watch these house shows, I can’t help but think about how some of these models apply to people’s psyche as they go through the home-buying process. As someone who’s gone through the process myself, I can more clearly see why it’s so easy to make irrational home buying decisions, now that me and my wife are on the other side of it. Here are some examples of what I’m talking about:

“We should jump on this house because someone else will take it.”

This is the concept of scarcity. Couples love to egg each other on when they see a beautiful house, say, at an open house, and see other people eyeing the property as well. The thing is, scarcity is completely perceived. What people who say this should do is first look at the amount of time the home has been on the market. If it hasn’t been bought for over 60 days, well guess what – people haven’t bought it yet so what’s the rush?

“This house is perfect. We shouldn’t put in an offer though because it’s just the first one we’ve seen. Let’s go look at more houses.”

I admit I’m prey to this logical fallacy myself. Here is the mental model of Reactance, which is in this context is the motivational reaction to an offer for a perfect home due to a perceived lack of control and choice. Even if a home is the right fit right off the bat and is priced well, people often want to keep looking simply for the fact that they know there could be other possibilities out there; therefore they do not want to limit their potential choices even though they have no knowledge of what they will actually be once they start looking.

“The carpet is ugly and this house has wallpaper. What a terrible house.”

Of course, carpet can be replaced, and so can wallpaper. However, it is the mere sight of them existing in the house that turns people off to buying it. This is a great example of the horns effect (opposite of the halo effect). This states that because something is not desired, everything in close association with that something is also not desired. It is a negative disposition by association.

Although a house may be structurally sound, well built, and have an excellent curb appeal, an ugly interior can kill the deal for a prospective buyer. This is simply because people, especially those who are looking for modern and new homes, will have a strong negative association with the house because of the things undesirable things they noticed.

Old furniture in a house with ugly carpet and wallpaper signals, “this house is old and out of date”, even though it is really just those items that need replacement. After a couple leaves and goes home to think about the homes they saw, they will likely refer to this house as “the one with the ugly carpets”.

“We’re having our first baby. We need at least 2000 square feet for our growing family.”

This is an example of social proof, and is probably one of the more common home-purchasing biases in American culture today. Everybody thinks they need significantly more space than they currently have because a baby is on the way. Now, if you’re a family of four living in 700 square feet and you’ve got another kid on the way, then this is understandable because your living space naturally feels cramped already.

However, a two person family that is about to become a three person family does not need to upgrade from a 1000 square foot home to a 2000 square foot home. It might be a nice upgrade, if it is affordable, but it is not a need.

By upgrading to a larger dwelling though, John and Jane Homebuyer are subconsciously looking to increase their social prestige. To them, it is a symbol of a greater level of success than their peers who do not have houses as large. It is also the fallacy that, because there is more space for little junior to crawl around in, they are therefore better parents because they provided that extra space.

There are even more mental models that come into play that I did not mention. In all, there are a lot of psychological and social forces at work that ultimately guide decision making, especially home buying.

A good course of action, I have found, is to keep a detailed (though necessarily subjective) list with all of the things you want in your next home. Then look for homes that fit all or most of those characteristics. Rank each characteristic with a certain amount of weight relative to a baseline.

This is a technique used in engineering called a Pugh chart – it helps compare alternatives to a baseline given a set amount of characteristics or traits. Each trait is weighted according to how much a person values that trait over another. For example, I might value having hardwood floors over having a large kitchen with an island. A home with hardwood floors and no large kitchen might therefore rank higher in my list than one with the opposite attributes.

Anyway, everyone has his or her own preferences. However, I think it is wise to look at big decisions like this as rationally as possible. Also, be honest with yourself – if you know you’re really not going to be happy unless a new home has X feature or characteristic, then don’t settle until you find that home at a fair price.

Habits = Results

It was the great Greek philosopher Aristotle who once wrote,

“We are what we repeatedly do. Excellence then, is not an act, but a habit.”

It is as much an inspirational statement as it is an instructional one. We can’t get the results we want out of our life if we don’t consistently take actions that move us in that direction. It’s that simple. No one bumbles through life and happens to end up healthy, wealthy and wise without some sense of intentionality.

I wrote recently about reviewing my life plan.  Constantly reviewing that document and looking over what I care most about helps me focus, but I must admit that last year I didn’t crack open the life plan probably more than once to review it. That doesn’t exactly help with moving toward those priorities.

One thing I have decided to start this year is to have an explicitly designed morning routine. I realized that most of my waking hours are spent between four things: commuting, working at my job, spending time with my wife, and going to school at night/working on schoolwork. Everything else, like this blog, gets relegated to “whenever I can do it” mode, which never proves to be productive. After all, what doesn’t get scheduled (at least for me) has a low probability of getting done.

So, I decided to come up with a morning routine that gives me time to do self-development or side projects while still providing enough time and energy to prioritize the other things in my life, like working and dates with Mrs. Mase. The morning is perfect because I’m the only one up, it is quiet, and because I just woke up I am at my most refreshed mentally and physically. OK, so here’s the routine:

5:00: wake up

5:01 – 5:30: shower, shave, pray, dress

5:31 – 5:40: review 1000% formula

5:41 – 5:45: review plans for the rest of the day

5:46 – 6:30: ruthlessly work on one goal that helps fulfill a major life goal

6:31 – 7:00: pray with Mrs. Mase and say goodbye, commute to work

By waking up two hours before I have to be anywhere, I can truly allow myself time to think, reflect, and work on things that are important to me. Getting up this morning was definitely not the easiest thing in the world, but as I have started doing this, it is becoming easier. If I can make this schedule a habit, I can’t imagine how much more focused my entire schedule will be become. In turn, higher productivity means actually moving toward my goals for the year, which in turn help me move toward fulfilling what I actually want out of life 🙂

A note about the 1000% formula – I recommend you check it out. It’s a list of steps created by self-help/motivational guru Brian Tracy. He espouses that if you do that list of steps, over a ten year period you will increase your income by 1000%. This equates to productivity gains of 0.2% per day, or something like that. Part of the inspiration for the morning regimen came from this list. I figure if I can even increase my income by 100%, it would be worth the effort!

Aside from increasing income though, having a set time in the morning to write, reflect, and work on something that I chose to do is ultimately helping me lead a happier life. I’m an introspective guy, so having this quiet time is important to me.

What about you? Do you have a morning routine? What does it look like for you?