From Tragedy to Triumph
The day of the fire, when the contractor came to board up the house he was very sympathetic and told us that, although it was hard to imagine now, weíd enjoy the process of rebuilding. He was right, it was indeed hard to imagine such a thing at that moment but he was also right that we did enjoy the rebuilding process since we designed the new house and had complete control over how it would look.
Again if you read the insurance post (which I think you should but I guess Iím a bit biased) then you know that when you suffer such a loss there are two payments made by the insurance company. The first payment is for the contents, the items you lost and the second is to rebuild the structure.
Iíll begin with the first check for the contents because that was were we saw the most benefit. We were paid the full limit of our coverage which meant we were done with the contents and the money was ours to do with what we pleased. Since the new house wouldnít be finished for quite a while, there was no need for us to rush out and buy big ticket items like furniture (I owned a townhouse and the future Mrs. Obscure moved in with me).
We now had over $100,000 in the bank and no plans to spend it. Itís also important to point out that not only would we not be able to replace everything that was lost, there were some things we simply didnít want to replace. We all have junk in the house that we refuse to throw away or sell and wouldnít necessarily buy again. So what would you do with all that money?
In the bank it doesnít earn that much in interest. CDs are a better choice but again how much of a return will you get? How about bonds? Well Iím a pretty good investor who has done well so far but bonds confuse me and again the return isnít spectacular. That leaves what you probably thought of right away, the stock market. But how much do you invest? The whole thing? Half? Something in between?
The future Mrs. Obscure was working for a company that had recently been purchased and the new owners issued privately held stock. Privately held stock is stock that only employees of that particular company can trade. The concept was a bit odd to me but the system seemed very well put together. The company also seemed to be quite strong financially and therefore felt like a safe investment.
The future Mrs. Obscure wanted to put the entire amount into the stock but I was adamantly opposed. Seeing as it was her house that burned down and we werenít married yet, I didnít have much of a choice but, to her credit, she wanted my opinion.
In the end we decided that $50,000 seemed like an aggressive yet reasonable amount. This was 1998 and the stock market was moving forward at full speed. It turned out to be a great move because by the time she left the company in 2000 (and was forced to sell all her stock since she no longer worked for the company) it had doubled in value. Thatís a 100% return on her investment.
Who says you canít time the market? Me thatís who. While it looks like we did a great job buying when the momentum was up and selling just before the bubble burst it was pure accident. Had Mrs. Obscure not left the company when she did the stock price would have fallen (not as much as the tech stocks but still). Had the fire happened just a bit later we wouldnít have had as long a run of rising prices.
To be sure, this was a dangerous move but risk is one way to get rich. We did everything we could to make sure that we knew as much as possible about the stock and were comfortable with the decision. Once we were confident enough to follow through, we purchased the stock. Iím not afraid of risk I just want to be sure that I know whatever is knowable.
Once the house was built and we were ready to begin furnishing it, we had $150,000 instead of the original $100,000. So did we go all out and get the big screen TV, leather furniture and fine art? Of course not, that is not how you keep the momentum moving forward, that is not how you get rich.
We did something that was a risk (are you seeing a trend here?) but that through our careful investigation was not risky. We joined a shopping club which shall remain nameless (although they are advertising on infomercials now), paying what seemed like a large amount of money ($2,400 Ė itís much higher now) to join, in order to buy direct from the manufacturer just as the stores do.
This was a wise decision since we were in the unique situation of basically needing to furnish an entire house. We now needed a dining room set, something we never had room for before. Shopping at the various furniture stores, we were either disappointed with the quality or unwilling to pay the prices for better quality. But we knew that we would pay the same thing that the stores paid.
We found a set we liked at a high end store which included a table, 6 chairs and a china/hutch for just over $10,000. Buying direct from the same manufacturer, however, we paid only $3,800 and got 2 additional chairs and a marble inlaid server. In that one purchase we saved much more than the $2,400 fee to join the shopping club.
Does this last example mean that joining this club and paying the high fee is a good way to save money and get rich? No, not for everyone in every situation. What works for one person may not work for another.
The next place our research and diligence paid off was when we finally settled with the insurance company for a price to rebuild the house. Once the check is paid you are free to do what you want. While they paid you to rebuild the exact house you insured, you are free to build a different house and even add your own money to increase the size or build a smaller house and keep the difference.
The fact that we designed the house ourselves saved us when it came time to hire an architect since he only had to take our plans and make blueprints rather than design the house from scratch.
Next we went shopping for contractors finding one willing to build the house for much less than the others we had considered. There is a risk there (thereís that word again) that the lowest price contractor would skimp on quality to save money. This is why we made it clear in the contract, as much as we could, exactly what materials would be used. The more you spell out in the contract the less room the contractor has to cut corners.
Another place we saved money was by having my father, a heating contractor, do the heating and air conditioning at cost. I paid the actual cost for materials and labor but nothing else saving us thousands of dollars. We were fortunate that we had someone in the family who could help out in such a big way but when those advantages exist, youíd be stupid not to use them.
We were able to build a much bigger house with upgraded materials throughout without spending more than we had. The fire was definitely tragic and has changed us in substantial ways but we turned that around and made the best of it. If only we could all do that every time weíre faced with adversity.