HALF A MILLIONAIRE

About a month ago, I turned my house upside down and still could not locate my cell phone. I used my wife’s to call myself in hope that I would hear it ring, but I got the voicemail box, instead. Finally, I found it in my car, out of battery. I had not touched it for more than three weeks. It revealed to me that if I had been able to live without it for almost a month, then, perhaps, I did not really need it. I communicated my discovery to my wife, and she concurred. She suggested that we should switch to a prepay plan to save some money. I researched on the prepay concept. And, together, my wife and I, happily, entered the stone age. 

When I told my friends–lovers of Apple iphone, Palm Pre and BlackBerry–that I had changed my phone plan to prepay, they replied with silence. Then, they all laughed when one said, “you did the right thing because no one was calling you anyway.” They were right. I looked around the cafetaria, and everyone seemed to have a toy in one hand and a fork in the other. Some were checking their stock portfolio. Some were opening emails. Some were reading the news. I felt so insignificant. I felt as though I was the only person who had nothing to worry about. I was just glad that my name was not Fred Flintstone. Did I oversimplify my life?

Prepay Options:

1) Unlimited Calling Plan: This plan charges three dollars (”Daily Access Fee”) when one uses one’s phone. For the entire day, after paying the $3 fee, all domestic calls (including U.S. territories) are free. We do not choose this plan because we are not phone-talkers.

2) Mobile to Mobile Plan: The Daily Access Fee (DAF) is one dollar when one first uses one’s phone. For the entire day, one can make “unlimited” mobile to mobile calls. For example, if we pick this plan, my wife and I can talk to each other on the phone the entire day for free after we have paid the $1 DAF because we both use the same phone company (mobile to mobile). If I call my brother and he uses another phone company (not mobile to mobile), then I will be charged 10 cents per minute (a flat rate). We do not choose this plan because we do not use our phones that much.

3) Simple Rate Plan: This plan does not charge the Daily Access Fee. One pays a flat rate of 25 cents per minute when one uses one’s phone. We pick this plan because it is simple. However, the bad thing about this plan is that if I call my wife on her cell phone, each of us will be charged 25 cents per minute separately. So, instead of talking to each other on our cell phones, our strategy is to use our landline phone as much as we can. Why do we still have a landline phone? We have been using it mostly for international calls.

How much do we save? Each of us fills up our own account with one hundred dollars (good for a year). Let us say that if eleven months have passed and each of us has only spent $80, do we lose $20? The answer is “no”. However, if we want to keep the $20 leftover, we must continue to add more money. Each of us can add $100 more to our respective account, and the total amount will become $120, which will be good for another year. One does not have to add $100 for the whole year. Alternatively, one can choose to add $15 per month, or $75 for nine months, and the key thing to remember is that one must continue adding money to keep the leftover money from the previous period alive. The phone company’s strategy is to force the participants to use up their money as quickly as possible. However, we believe that we can still gain from playing this game because our goal is to only spend a total of $200 in one year. And, if we adhere to our game plan, we can save about $760 per year because our current phone bill is about $80 per month. How much is $760? Annually, we pay approximately the same amount for our electricity. We can use it to invest or pay down debt.

Honestly, I did not want to switch to prepay because I thought that the saving would be minimal. However, my wife was right when she said, “saving is saving no matter how small”. I realized that it is not just about how much one can save, but it is more about building a mentality that focuses on saving. I have a plan to become wealthy, and I must execute it. I have to take small steps in the beginning. And, I believe that the ending of this journey will be much easier. I have so much fun playing this game because I am aware of the fact that I can “never” lose.

According to the Department of Labor’s latest survey, the average U.S. consumer annually spends about $49,638 on housing, transportation, food, healthcare and others (www.visualeconomics.com). On average, his income before taxes is about $63,091. The average federal income tax rate is 17%, so he will pay about $10,725 annually. Because each state has a different income tax rate, ranging from 1-9%, I will use 5% to calculate his state income tax, which is $3154. Let us assume that he does not live in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming where there is no state income tax. His total tax is $13,879. His take home income is $49,212 ($63,091 - $13,879). Therefore, annually, the leftover money is -$426 ($49,212 - $49,638). Where does he find $426 to keep the household afloat?  

We, Americans, love materialism. It is in our blood. We love shopping. And, our excuses are Halloween in October, Thanksgiving in November, Christmas in December, New Year’s Day in January, Valentine’s Day in February, Easter in March and April, Memorial Day in May, Independence Day in July and Labor Day in September. In between, we add Mother’s Day, Father’s Day, birthday and back-to-school day. We also decide among ourselves that Saturday and Sunday are also shopping days because they start with “s”. Our leaders love us, so they always find ways to spoil us. In 2001, after the 9/11 tragedy, President Bush and Alan Greenspan lowered the interest rate to put more money in our hands because they believed that our spending played the key role in economic recovery. As a consequence, we produced one of the most spectacular economic events–the financial crisis.

Undeniably, the world’s economy depends on our spending. We buy products made in China. We buy cars from Japan and Germany. We buy oil from the Middle Eastern countries. In return, they buy computers, air planes, and many other goods from us. Therefore, our leaders always ask us to spend more of our money to keep the economy going and ultimately to create more jobs. When we have jobs, we will make more money. And, when we have more money, we will spend more. In 2008, President Bush publicly asked us to be patriotic by spending the extra tax return money to stimulate the economy. In 2009, President Obama put some money in our pockets by increasing our take home money per paycheck in hope that we would spend it to revive our economy. 

Obviously, no one can totally escape the current system because we all belong to the human society. Therefore, we must play the game, regardless if we want to or not, because we all need food, clothes and shelter. I am not asking you to stop spending completely because it is impossible. However, I am asking you to be mindful of the game. To win it, you must have the courage to swim against the current. When others are being patriotic, you choose to be unpatriotic. When they spend, you save. And, when they spend, you find ways to make money off of their spending. In other words, instead of following them, you define patriotism on your own terms.

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.

About three summers ago, our backyard was blackened by a grass fire because it was very hot and dry. The firefighting captain concluded that the fire was probably started by a live cigarette butt tossed by a careless stranger. He also pointed out that there was a great amount of dead grass on the yard providing fuel for the fire to spread so fast. Because we were deeply traumatized by it, we could not stay in the house. Therefore, we moved in with our relatives for several days to avoid the messy and depressive scene. We slowly regained our sense of reality by talking about how lucky we were for being home on that day. We felt thankful for our neighbors’ warning and assistance. Our spirit was broken but not dead. A few months later, the grass grew back, but the memory of the horrific experience was indelible. We had to find a way to prevent it from happening again.

I began to study about grass fires. I learned that the common cause was the accumulation of foliage. Then, I read about lawn care and maintenance. Finally, I realized that the man whom I hired to take care of my yard used a lawn mower without mulching capability. Therefore, dead grass had been piling up on my yard for about two years. I fired him and took the matter in my own hands. I purchased a Yard Machine mower ($180) and a Homelite trimmer ($80). With the help of my father-in-law, I scalped away the debris on the lawn, allowing new grass to bud.

I am living in a rich neighborhood, where everyone pays for lawn service. My next door neighbor was surprised when he saw me cutting the grass for the first time. He warned me that it would be very tiring when the heat intensifies during the summer. Also, I did not know how to use the gas trimmer because it was very difficult to start. I thought about paying someone to do it for me, but I chose to keep on trying because I believed that I would get better at it. I kept telling myself that I had always been able to solve every problem in my life. Mowing the lawn should not be that hard. I was right. I have become a pro. For example, I have learned after many trials that to start the trimmer, I have to feel the tightness in the cord when I pull it, and I must squeeze the trigger all the way. To have a straight edge, it requires coordination among eyes, arms and feet: concentrate on the lawn’s edge, hold trimmer with steady arms and take small steps. When it gets hot, I do the outside half on Saturday and finish up the other on Sunday. Lawn mowing has become another fun game for me.

Strategically, I like to make “a game” out of everything that I do. For lawn mowing, I keep scores by adding up the amount of money that I save. I used to pay $35 per week or $140 per month for lawn care. I use the money to buy shares of a boring, dividend-paying stock. If the annual rate of return is 5 percent over 10 years, I will earn about $22,000 (minus the cost of equipments). I am also aware of the fact that I spend on average about two hours per week to take care of the yard. Someone can argue that if I can earn more than $35 in two hours from doing something else, then cutting grass is not financially smart. However, I like to look at it from a different angle. I do enjoy lawn mowing. For me, it is like playing golf. Besides being a physical exercise, lawn mowing is an activity that allows me to spend my alone time. Believe it or not, for me, it is like meditation. The concentration that I use to keep the mower on a straight line keeps my mind away form other issues for two hours. The morning air and the smell of freshly cut grass often remind me of my home town where I grew up. I used to play in wheat fields with my childhood friends. For me, it is a mental challenge: It is hot and tiring, but I will not give up. So far, three years have passed.

The hardest game in life is the one in which one’s opponent is oneself. To win, one needs to train oneself daily by approaching hardship or challenges with a positive attitude: I can do it. Although we all have heard the phrase before, only mentally strong individuals can actually do it. The trick is to challenge ourselves with simple goals. Slowly, our confidence will grow, and we will believe that no goal is impossible to reach. And, time will be the only uncontrollable constraint because it never waits for us. I am winning the lawn mowing game. Therefore, I will also be the victor of this game when I have $500,000.