I’ve always felt that investing is like a bar of soap. The more you handle it, the smaller it gets.

Attributed to Darcy Howe, a VP with Merrill Lynch

Buraun, Kiisu. “Investing Is Like A Bar Of Soap.” Seeking Alpha. Seeking Alpha, August 10, 2015. https://seekingalpha.com/article/3425216-investing-is-like-a-bar-of-soap.

Staying put usually refers to staying in your current place of residence but the financial benefit principals apply to many situations.

Let’s compare the lives of the Doolittles and  Movealots families to illustrate.

The Doolittles are creatures of habits and tend to only make changes when its make a lot of sense to do so. The Movealots are all about improvements – upgrading and updating for the latest benefit.

suburb showing many houses in a orderly row

By IDuke (this edited version: Sting) – Edited version (sharpness, contrast and saturation) of File:Markham-suburbs_id.jpg, CC BY-SA 2.5, https://commons.wikimedia.org/w/index.php?curid=2944375

In 2010 the Doolittles and the Movealots both purchased a $300,000 house.  A few years later the Movealots had some equity and some raises and went ahead an upgraded to a $450,000 house. Around that same time both families bought a new car for $30,000.  Oh, and the Movealots just replaced their car with a new ride this past year with a new and improved $40,000 ride.

How did it work out?

Year Doolittles Movealots Average cost of that item at that time
1  Purchased a home $300,000 $300,000 $272,900  
2 Purchased car $30,000 $30,000  $29,217  
5 Upgrade home! Nope $450,000 $315,000
9 New car! Nope $40,000 $36,718

First Order Effects

At first glance it would appear that the Movealots spent $190,000 more in the same time period. Is that right? After all, even though they now have a higher mortgage, they don’t have to pay it back right away. True – but you still have to pay it back at some point. And that is money that could have been used to offset other future costs.  Let us assume only half of those expenses hit them during the time they are saving for or paying tuition. That is still $80,000 which is quite a bit of tuition costs in almost any school.

Second Order Effects

What we didn’t talk about yet are the second order effects – the tax, tags and dealer fees on new car, the realtor and moving fees.  This are substantial but nowhere near the hit of a third order maintenance fees.

Third Order Effects

That fancy car new car needs fancy new insurance. That upgraded and presumably larger home will need more care and feeding – from HOA fees, lawn, heating and cooling. These bump ups are bad – but not as bad as the fourth order costs.

Fourth Order Effects – The Big One

All items have a useful life, parts wear out and need to be replaced. And these occasional fourth order costs are the gotchas and they occur because when we replace an item it is almost always with a better more complex (and often bigger) item. Here is a real life example from our own lives. Our postage stamp sized house had to have the roof replaced. This set us back a mean $3000.  Our friendly neighbors who moved up on up had the same task in the new and larger home. Although the current cost estimate for our friends is well over $20,000.

That single fourth order effect – a random plus up costs of $17,000 is huge. Just a few of those will pay for tuition. Got a double oven? Double trouble! Dual zone heat? – Twice the replacement costs!

So if you are going to be a Movealot family – fine – but avoid  being an Upgradealot family so you don’t get hit with huge fourth order costs. Do you make more money then you did ten years ago? Great – keep it. Use it to go on vacation instead. Just kidding – vacations are for wimps.

Consider These Four Factors Before Making a Big Move

So before making a big move consider these four factors

  1. The up front cost difference
  2. The transaction fees and taxes
  3. The regular maintenance costs
  4. The rare but large one time expense differences

By doing so you will have at least compared the costs to see if the move is about the same much more or even saves you money for private school costs.