HALF A MILLIONAIRE

Several years ago, I met an insurance agent at a friend’s party. He was my friend’s cousin. He introduced his products to me and convinced me to purchase a whole life policy. I had to pay $300 per month for a coverage of $500,000. He explained to me that only about $35-50 would be used to pay for the insurance policy. The rest would be invested in stocks and bonds, and I would be able to take it out in the future. Although I was single, I thought it would be nice to leave something to my family if I died, so I bought the policy. At the time, I was clueless about personal finance. Also, the monthly premium did not affect my budget because I was bringing home a sizable amount of money. However, about 18 months later, while planning for our wedding, I began to look at my personal expenses because I wanted to gather up some money. After researching and reading about life insurance online, I realized that the $300 monthly premium was a waste of money because I was healthy and in my late 20’s, so I did not have to buy a whole life policy. Therefore, I immediately cancelled it. When the agent and his boss asked me for the reason why, I told them that “it is not financially smart to carry a whole life policy in my situation”. However, I knew that I needed to have life insurance because I was starting a family. Therefore, I purchased a 30-year term life insurance for about $50 per month. And, I decided to use the same agent because, in my view, he did not do anything wrong. I was just financially uninformed. After the incidence, my interest in personal finance grew because I learned that knowledge saves money. Although I only got about $800 of the $5400 total premium back, I knew that cancellation was the right thing to do. I lost $4600, but I will be saving about $90,000 in my lifetime ($250 per month x 12 months per year x 30 years). I am aware that my term life insurance will end after 30 years, but I am confident that I will have more than $500,000 when I am 60 years old because I am taking control of my money, now.

In order to control one’s money, one must learn about money. I have been educating myself about finance by reading about and paying attention to financial news. The 2008 financial crisis teaches me so much about how the economy as a whole works, and I have become more knowledgeable about the game and its players. Interestingly, it was a man-made event. In summary, to get the American economy going after 9/11, Alan Greenspan lowered the interest rate to encourage people to buy houses. when home building was strong, jobs were created. When demand for houses increased, the housing price went up. People became elated, so they took out money from their home equity by refinancing their loans to remodel their houses or to pay their credit card debts. In other words, people were on a spending spree. Also, people were flipping houses to make quick money. Mortgage loan officers approved anything and everything to earn a commission fee. Investment banks became creative. They bought these mortgages, good and bad, and bundled them together to create “investment securities or products”. These packages were sealed with a “healthy and good” stamp by financial rating companies based on a mathematical formula that assumed “the housing price will never fall” and then sold to investors, domestic and abroad. Eventually, when the subprime or bad-credit borrowers failed to make their monthly mortgage payment, the domino effect began. Most interestingly, no one questioned Alan Greenspan’s interest rate cut policy in 2001 because everyone just followed. 

Millions of American lost their houses because, in my opinion, they were just financially uninformed. They jumped into the game without understanding its rules and players. Probably, some of them are still hoping that the government will come up with a plan to save them. My advice for them is “cut your loss and learn to question everything in the future”. When someone says something is good, it does not mean that it is really good. Let us use the well-known investment vehicle, 401(k), as an example. It gives one a chance to save money for one’s retirement. One can get some free money from his company’s match. The annual contribution amount lowers one’s taxable income. What are the bad things about 401(k)? Is it a perfect way to secure one’s retirement? I do not have answers to these questions because I am not a financial expert. However, I am mindful enough to ask these questions. One thing that I don’t like about 401(k) is that I am not allowed to take out the money until I am 59.5 years old. Many things can happen in the next three decades. Why should I trust the manager who takes care of my money? What if I can keep the money and invest on my own and make more money now? I ask these questions because I want to find other ways to grow my money and play the game on my own terms. Personally, I do make 401(k) contributions, but I only put in enough to get the company’s match because at the moment I want to keep cash in my hands for other opportunities. I believe that if one wants to invest in the stock market, the time is now. The Dow is at 9000, but I am not excited because I want it to go down to 4000, so I can buy some more. Many are afraid of the bear market, but I see it as an opportunity because I am more knowledgeable about the investments that I want to put my money in.  

In life, sometimes, it is very difficult for one to take the less traveled road. However, when one arms oneself with knowledge, one will have the confidence to do it. In the end, money is just money. For me, it is a game. To win this game, I must amass $500,000 in cash.

I grew up in a poor family. At meal times, each of us was given a bowl of rice and a few pieces of pork. Our mother was very skillful with the knife, so they all came in one size: thin and small. She loved salt, so she always added some extra. Sometimes I thought that she could have mistaken the salt for sugar because I drank water like a camel preparing for a long trip over the Sahara after a few bites. To finish my meals, I always ate the rice first because I was afraid that I would run out of the meat. After years of training, I became very good at eating only rice, and I saved the meat for last. One day, my older sister caught me eating meat by itself, so she complained to my mother that I was given more meat. I diplomatically explained to her that the reason why I had meat left was because I saved it until the end. And, while I was talking, she snatched the meat from my bowl and ate it as she was running away. We fought. And, we both got spanked by our mother. After the incidence, I always watched my meat. I ate it right away when I felt that my sister’s eyes were on it. Over the years, it has become a habit because at present time my wife sometimes asks me why I always leave the good food in my bowl at the end of a meal. My answer to her is: It is a survival instinct from my childhood.

Now, I do not have to save food anymore when I eat. However, the saving mentality has become very beneficial to me because it reminds me of “saving” when I make financial decisions. For example, after I finished my schooling, I had to make a choice between living in California and moving to another state. I chose to leave the Golden State because I did not want to purchase a house and then spend my whole life working to pay it off. Despite what my friends told me–”once you leave California, you will never be able to come back because the housing price will keep going up”–I left California. I left, not because I was able to foresee the current financial crisis, but because my survival instinct told me that “something is not right financially if I stay”. Had I stayed in California, I would not have had any extra money to save or invest for the future because most of my take-home money would have gone to the mortgage lender’s pocket. I wanted to protect my meat. Six years later, I realized that it was one of the best decisions I have made. Let us compare the two scenarios:

California Scenario: Mortgage Amount = $500,000, Mortgage Term = 30 years, Interest = 6.25. My monthly payment is $3078.

Current Scenario: Mortgage Amount = $150,000, Mortgage Term = 30 years, Interest = 6.25. My monthly payment is $923.

Based on the above calculations, I have been saving about $2000 per month in the last six years. The total saving is $144,000 ($2000 per month x 12 months per year x 6 years).

Poverty taught me to prepare for the worst. However, for many, it is not a good way to live one’s life because according to them one must enjoy life now because no one knows what is going to happen tomorrow. In my view, these people do not know how to control their lives, so they adopt the easy way out: “no one can control life’s unpredictability, so why do I have to try?” We all know that things happen in life and that no one can predict the future, but we must be responsible for our actions. For example, one must know that it is wrong to spend money that does not belong to himself. If one takes out money from one’s home equity to finance one’s lavish lifestyle, then one must know that it is irresponsible. Hopefully, the current recession has forced us to re-learn the evolutionary survival instinct: We must save our resources for rainy days.

Although I am not a fan of bicycling, Lance Armstrong’s performance has recently captured my attention. He is a seven-time, Tour de France champion. Even more impressively, he won the title seven consecutive years from 1999 to 2005. He took a four-year break. And, currently, in the 2009 Tour de France, he is third overall and only eight seconds behind the leader (www.versus.com). Lance’s performance shows that if one is prepared physically and mentally, one will reach one’s goal. Many question his integrity, but I don’t because I can imagine him fighting the mental demons who tell him to give up as he climbs the mountains. To me, he is a fellow human being who is testing his limit. As a competitive person, I want to see him win it again. However, the other part of me feels that it is more glorious that he does not win because he has already won it all.

I am not a professional athlete, but I do understand what it takes to overcome my fears and weaknesses. When I was in college, I used to run five miles everyday to maintain a strong body and a fresh mind. However, it was not easy in the beginning because I did not have the stamina to finish five miles. First, I ran two laps. Then, after several days, I added an extra lap when I felt that I could do more. As I was running, I realized that mental toughness was the key to finishing my twenty laps. For example, sometimes, I did want to give up after the fifteenth lap because my legs were heavy and I was out of breath. My mind wandered off with excuses. And, I did stop a few times. However, I kept on fighting the next days. Eventually, I achieved my target of twenty laps.

Building wealth is much more difficult than running laps because it takes decades for one to reach the finish line. At the moment, I am feeling discouraged because the goal seems so far away. I feel that I am running a marathon backward. In this “financial” marathon I should expect to feel tired in the beginning and that the end will be easier. I must stay with my plan which is to “grow money, eliminate debts and control expenses”. In the past month, I could not do anything to my expenses because they were very fixed. However, I did deploy $2150 to the stock market to work for me. The market has been heading south in the last four weeks, so I am happy because it is a good opportunity for me to buy more shares. Again, strategically, I have chosen to invest in the stock market because it is one of the necessary routes that will lead me to my financial goal. In terms of reducing debts, I paid $300 extra toward the principal of my home mortgage. Although I felt that the amount was like “a raindrop in the Pacific ocean”, I wanted to pay because it brought me an inch closer to my finish line.

Lance won Tour de France because he prepared himself. He won because he had a game plan and followed through with it. He won because he enjoyed defeating his demons. He won because he was able to free himself from winning. He won because he understood that there was no one left to defeat but his weak self. I have not reached the same level of self-confidence in finance as Lance has in his bicycling career, but I know that I eventually will. In the meantime, I am enjoying my time with my loved ones.

In college, I had three roommates. We shared a studio-loft apartment. We put two standard bunk beds in the upstair loft, and we used the downstair studio for studying. They often went home during weekends because their parents lived in nearby cities. Sometimes, they teased me by demanding that I should pay higher rent because I used the unit more than they did. One weekend, I had the flu. I was very tired, so I immediately went to bed after having taken some Theraflu. I woke up on Saturday and felt better symptomatically, but I knew that I was still sick. Without an appetite, I stumbled to the kitchen and filled up my stomach with a bowl of instant noodles and went back to bed. I woke up and fell back to sleep several times without eating anything because I was too weak to get out of bed. When I saw sunlight again, I knew that it was Sunday. I allowed my lifeless body to slide off the top bed and onto the floor. I began to crawl down the stairs. As I was lying on the floor of the studio, the front door opened. Vince, one of my roommates, came back to campus early because he wanted to catch up with his reading assignments. I told him that I was hungry and asked him to make a glass of milk for me by mixing condensed milk with boiled water. He did. A couple of weeks later, I recovered fully. And, a decade later, I am still talking about my friend.

The foundation of our society is individualism. Each of us has the right to “life, liberty, and the pursuit of happiness”. We have the freedom to express our own individuality. We have conservatives and liberals. We have the rich and the poor. I will never trade our system for anything because it is an accurate representation of life. Only through struggles and competition we can grow and improve. Personally, I believe that the purpose of my life is to fight and thrive because I do not want to waste the chance that America has given me. In other words, I do not want to lose. And, unfortunately, in this fight, there is no tie. Some complain that the system is unfair. Some gripe about being born at the bottom of chain. And, perhaps, there is some truth in these cries. However, life is more interesting when we accept its challenges. We shall not rely on the government to solve our problems for us because it cannot even take care of itself.

As of July 4th, 2009, our national debt is approximately $11.4 trillions (U.S. National Debt Clock). Many financial experts argue that it is not a big problem because we are still capable of paying the annual interest of about $450 billions. We scold our uninformed Americans for taking out interest-only mortgages, but we have been allowing the Federal government to do it for more than two centuries. Personally, I don’t think the politicians know how to solve the problem because it has ballooned so quickly. And, none of “the patriots” is willing to take a political risk. Tomorrow, President Obama will whisper sweet birthday-wishing words into our Mother’s ears. He will retell us the stories about how our great founding fathers defeated a powerful king 233 years ago and how we freed slaves. And, we will applaud with our wrists and ankles shackled by debts.

Tomorrow, I will celebrate the 4th of July with my family because to me it symbolizes freedom. I am free to express my individuality. I am free to take care of myself first. However, besides freedom, individualism requires compassion to flourish. I do not want to credit our founding fathers for having created one of the most compassionate country in the world, but it seems that they did everything right. They did not ask us to be compassionate. They only gave us freedom, and, somehow, when we all strive to search for our own “individuals”, and when we truly understand the meaning of individualism, we automatically become a compassionate people. Perhaps, during the fight to become who we are, we discover the tasteful fruit of compassion. Personally, I think that individualism has pushed me to become more compassionate. For example, I want to help others understand the meaning of individualism, too. It is not selfishness. It is self-improvement. When one is independent, one feels empowered. And, when one is powerful, one will offer others “a glass of hot milk”.