The market has been on a tear lately. The DOW Jones Industrial average is close to new highs as well as the S&P 500. As most of my readers know, I have a lot of money tied to the market. Most are in retirement accounts, but some are in investment accounts. My net worth has grown significantly over the past several months. Because of that, I have noticed that I tend to not care so much about spending. This is a negative consequence to an otherwise positive stock market.
We recently shopped at Target. I used to hesitate spending more than $100, but now it doesn’t faze me. We recently shopped for clothes online and spent a few hundred there. Additionally, we spent thousands on some furniture and other home accents. It didn’t bother me. Five years ago, all of these expenses would’ve made me cringe.
Here is the problem with the way I am currently managing my money. My money is unrealized. It is money that is tied to the market in the form of a mutual fund or in real estate. Unless I sell my investments for actual dollars, they will continue to fluctuate in value. What is worse is if and when the market tanks again. When that does happen, I know I’m going to reign in the spending. I’ve seen it time and time again in my situation, but I’ve also seen it in others. When real estate was hot, everyone was refinancing their homes to pay for cars and vacations. When the tech rally occurred in the late 90’s, I had friends sell stock to purchase jewelry. It’s human nature to spend more than we should when we are under the illusion that we have money, but it’s just that…an illusion. You actually don’t have the money until you sell your investment.
I realize my own problem and continue to struggle with trying to correct it, but it’s challenging. When you look at my own net worth, it’s hard not to think you have money, but in actuality, it’s not real. Most of that net worth could be erased in a single day or week with a weak economy.
Do you tend to not look at money differently when you think you have more of it?
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{ 7 comments… read them below or add one }
Of course I like it when the market goes up and me along with it. Who wouldn’t? It is when there is a correction or another aberration that seems to affect my mood for a short while. I try to keep a reasonable asset allocation so there are not too many lows though.
krantcents recently posted..Rich Man, Poor Man
I know we’re not quite where you’re at, but from my perspective, I want the market to drop. I’ve got our IRA money that I was hoping for a solid fiscal cliff drop for to plop in, and instead this. I tend to look only at our cash balances when thinking about how much money we have…
Mrs. Pop @ Planting Our Pennies recently posted..He Said She Said: A Team of Professionals
I hear ya, Mrs. !
I took money out back in October/November, as I started to see gains in funds I wanted to get out of. I left about 13% of my portfolio in one fund that was at a loss of 12%. I figured that if the market went up, then I could still share in that excitement.
Now it’s down to a loss of 8% and once it hits positive territory, I’m selling on the next down day!
It’s still nice to have something to look forward to no matter which way the market goes.
For the record, I think it will be heading south in the next few months as realization sinks in that the economy is very close to, if not in, another recession and all this current exuberance gives way to the crisis du jour. That’s just my .02 cents.
Joe Morgan recently posted..Is Retirement Trader .COM a Scam or What?
I guess because I grew up without a lot of money I always tend to remind myself that it could all be gone tomorrow. I’m probably a little more conservative in my investments then I should be because of that.
KK @ Student Debt Survivor recently posted..Personal Finance is Personal-Butt Out
Ha! You can’t fool me – I know you 1%-ers don’t shop at places like Target! You guys are rolling in so much money you probably have personal tailors for that kind of thing!
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jk. You make an excellent point about the “unrealized” gains screwing up your money. It happened with the stock bubble in the late 90′s and real estate in the mid 00′s… paper gains go to people’s heads!
Joe Morgan recently posted..Is Retirement Trader .COM a Scam or What?
Frankly, I’m a little surprised by your admission…That seems like a “personal finance 101″ lesson! My exposure to the stock market is very limited (we have a small mutual fund holding, which always seems like an utter waste as I believe it’s at about the same value today as the amount my wife put in to set it up 8 or so years ago before we were married). But regardless, though I do watch the ups and downs of the account, I would never consider an increase in that account as a reason to spend more freely. Similarly, if the value of our rental homes were to suddenly double, well, so what? It’s unrealized.
That said, if the value of our rentals DID double I suppose I’d try to do a cash-out refinance on at least one of them and use the cash to buy some more property.
When I was trading the euro I use to view my current account balance as if it were real money. In hindsight I definitely made purchases that I normally wouldn’t have made.