Money threshold Trigger Action Patterns

You know, people keep suggesting that housecleaning is something that's cheap to outsource, but when I look at cleaning services, they always seem quite expensive. Several hundred a month if you want it done regularly. I normally clean my apartment once a week.

I'm not sure if this is just my area or what. [Edit: It also seems ridiculously hard to get an actual price off of any cleaning service's website, even a ballpark figure, which is annoying as hell.]

Most finance advice I've seen (and I've spent a good bit of time in the finance blogosphere) starts by saying that you should track what your expenses are for precisely this reason.

So I agree 100% with 1 and 3, primarily because the profit margins on those insurances are huge, and the losses are so small.

Renters insurance and homeowners insurance on the other hand is quite inexpensive relative to what they cover, and the typical loss rates for insurers are a high percentage of premiums + float, what you are paying in premiums beyond your expected loss rate is very small but reduces the potential volatility of your wealth dramatically.

I guess it depends on what you mean by "rich", if you mean merely "financially independent" and not having wealth far beyond your lifestyle requirements, I'd still generally decide to carry home/renters/health insurance, and most wealthy people do. Note that these cover more than simply your stuff/home, they also have liability clauses that protect your from various claims including personal injury, which can be very expensive and have little or nothing to do with your residence. If you have wealth, it's actually a good idea to carry higher limit car insurance and a personal umbrella to protect your legal liability exposure.

I used to analyze insurance using a pure linear EV with catastrophic check. i.e. always better to self insure, as long as the worst case scenario isn't a financial catastrophe.

Now I think of it more like portfolio balance. It makes sense to do things which give up a little bit of expectation in order to reduce the overall volatility of your net worth. Having exposure to a huge risk like your home being destroyed and you having to rebuild it adds a lot of volatility. And you can insure against it for a very small amount relative to your exposure. Also note that the actual linear -EV from buying most common insurance is a relatively small percentage of the premium cost. For typical home/auto/life/health insurance, the expected loss rate is 80-90% of the premiums.

Compare to electronics insurance or travel insurance, or credit card life insurance, where you are typically paying 5-10 (sometimes 100) times the actual expected loss rate.

I'm not sure what you mean by cryonics insurance, but if you mean life insurance to fund a cryonics contract, I don't see how you can avoid it until you have enough assets to cover the cost. I can see possibly recommending term + aggressive savings over various kinds of permanent life insurance, but there are some significant tax advantages and creditor protections to permanent life insurance that may tip the scale.

Disclaimer: I am licensed to sell life and health insurance in MI and CT, but nothing said here should be construed as a particular recommendation of any kind of insurance -- everyone's individual needs are different.

At least in California, you're nominally allowed to self-insure your car, but it's rare and not an especially good deal: your options are traditional insurance, a large cash deposit (in the tens of kilobucks) with the DMV, or a self-insurance certificate that's usually only given out if you're managing a large fleet of vehicles. There's also the option of a surety bond underwritten by a non-insurance company; how good a deal that is depends on who you're negotiating with and I don't know what your options are.

House cleaner: starts being plausible at approximately "$100k/year and really busy". Depends a lot on family circumstances (e.g., two parents working full-time with two children versus childless couple one of whom doesn't have a paid job).

Disagree with this one. Even at a low income I found that having someone come in once a month was definitely worth it. Depends how much you value having a neat house/how much you disvalue cleaning.

• Health Insurance: Shouldn't insurance go down as you get richer, since you'll be more able to absorb risk? I suppose you might want more health coverage, but you'd also have a higher deductible so it's not clear if it would be more expensive. Doesn't your work usually pay for health insurance though? I was under the impression that they had to do stuff like that to avoid the problem of only high-risk people getting health insurance.

• Virtual Assistant: From what I can gather, that's a voice with an internet connection (Warning: TV Tropes). Want!

On personal assistant, I think the 3% of wealth value will not transfer to different people simply.

For many people, the value of a personal assistant is that they can accomplish so much more with their own time. I know a number of people who have taken this approach and report that it was an investment that paid off financially for them.

If you think of it as a pure cost, then yes, you would try to pay 30k ish and not be interested until you had a very large income.

For those people I know who actually use this, they employ people who are quite skilled and may command 50-60k/year or more, and who produce economic value in excess of their paycheck.

The key determinant seems to be the point at which your marginal ability to earn more money per hour from time saved is about 2-3 times what you have to pay your PA per hour. If you are in the right kind of job (sales, business owner), the threshold is probably somewhere around 150k/year. If you are in the wrong kind of job, it probably never makes sense until you are wildly rich.

Driver does work similarly, but again, the threshold is much lower if you need to drive around, but can profitably use time in the car to accomplish work that pays you more than you are paying your driver.

Owning cars only makes sense if you are willing to drive an older model and/or like to tinker

Interesting point of view. I'd have said that leasing only makes sense if you care about having a newer model.

as for the concept of ownership in general, it almost never makes sense unless you love both the concept of owning something and the thing you own.

I disagree. I think that ownership provides a number of significant benefits not all of which can be straightforwardly converted to money. One benefit, for example, is control over your property and the associated freedom to do with it what you want. Another benefit is reduction of risk in uncertain and turbulent times.

Agreed on several of these, but not the car one. Cars are non-optional in most of the U.S. The value of having a paid-off one that you won't lose if you find yourself unemployed for an extended time is considerable.

Owning a car can have a large advantage over leasing, if you are likely to keep the car a long time. An owned car can also become a second backup car, that it's no big deal if it breaks down) if you get a newer one. Leasing two cars at once is a big waste of money.

Owning versus renting a home is not clear cut at all. Renting a house is a huge money pit unless you are frequently moving, and renting an apartment vs. owning a house is often not comparable in lifestyle. Owning a house gives you the property and flexibility, and can result in longer-term wealth building.

I don't think there is much reason to lie. You would expect that people would be willing to pay based on how much they value their friendship and how much they value money. Thus, rich people who value the marginal dollar less would pay more. There's something else going on here.

Two possibilities I came up with are that people are signalling that they are capable of taking care of themselves and don't need charity, and people are signaling that their friendship is genuine and they're not in it for the money.

I feel like the second one is kind of silly. Friends help each other out. If you try to signal that you're friendship is genuine by not accepting any kind of help from each other, then you've removed the entire point of friendship.

I think it is partly about mixup, and partly because many people don't think clearly about their financial planning until forced to. If someone who makes 100k+ and spends most of it wants to retire in the same style they are used to living, they may well need 2-4M to do so comfortably and safely if retiring early. Social security is progressive, the max you can get as a single person is around 42,000/year. To get that, you must work for 35 years at a high income level and wait to draw your check until age 70. Then you still need to produce another 58,000 somehow from your own assets, which at current recommended withdrawal rates requires almost exactly 2M to do and maintain your wealth. Now, you could purchase an annuity for much less, but few people are comfortable dumping all their money into such vehicles. At current life income annuity rates, that would be a bit less than 1M$ to provide 58,000/year to a 70 yo. So you only need about 900K, but what if you want to retire at 65, or 60, or 55? Then you need to take less SS, or live off assets until age 70, or maybe you can't take it at all yet, and must live off assets alone. Whether you need 2M or 4M or more depends on when you retire, and how much risk of breaking your plan you are willing to take.

It's my job to model this for people. Most are surprised that they don't need 2 million or more, because their needs are more modest than above, and they don't plan to retire very early. That said it's different for everyone, and when younger people talk about stopping/reevaluating their career because they have enough money to retire, they usually mean in middle age not at normal retirement ages. At 40, unless your lifestyle is very frugal by the standards of people who are able to save 2-4M in that time frame (generally 100k+ earners), you probably do need that much to retire comfortably.

It also depends a lot on how you feel about your work. Most higher income earners have found a niche where they feel reasonably good about what they do (it's hard to create a lot of value when you feel like a cog or a moocher), and enjoy at least big parts of their jobs. In that case, why would you retire before you had plenty? OTOH, if you are burned out and it's a struggle to go to work every day, you might be willing to live on a lot less if you knew you could quit now, or soon.

Note: I know very few people who actually live like they are poor today in order to have great wealth tomorrow. Those who are very frugal while working, either are hugely committed to earning to give, or intend to retire or do something risky or different at a very young age, and don't ever intend to not live relatively frugally. Certainly they intend to either give away or enjoy the fruits of their industry long before a typical retirement age.

Another factor -- I don't eat out because it is too expensive. But not because I couldn't afford the difference cost of 5 dollars per meal; I certainly could. But the additional utility of eating out is less than $5 -- in some cases, the utility is actually negative (that is, there are cases in which I would spend more money to make my own meal than to have to go out; I have certainly turned down free meals!) I really like having control over what I eat, and I don't like a lot of things that restaurants think I should like. I hate waiting around for food; if I must wait, I'd prefer to spend that time cooking. I do not enjoy the environment of most restaurants.

Whether or not this sort of thing is what your friends mean when they say it's too expensive, I don't know. But it's hard to believe that it is not at least part of what they mean; after all, most of us can identify a simple way to save $5 that we don't take, so we must be weighing the value of the goods and services differently. It is also worth noting that it is not uncommon for people to consider going out to eat, but find that they are not particularly motivated by any of the choices -- a clear indicator that the value of going out (in those cases) is not that they are motivated by the food served.

Also related, also not to the point:
http://lesswrong.com/lw/hfw/why_is_it_rational_to_invest_in_retirement_i_dont/