HALF A MILLIONAIRE

My personal challenge is to amass $500,000 in cash, and I call it “the game” (please read the June 14, 2009 article: “The origin: A game within the game”). Although it has been only three months, I feel as though it has been three years because I have financially scrutinized myself. It has been very difficult, but I am determined to win it because I know that the greatest reward is waiting for me at the end of the rainbow.

My Expenses

Overall, everything has stayed the same except for one unexpected event that occurred in July when our air conditioner broke down on a Saturday. I was charged a total of $300 ($125 for emergency service and $175 for labor and parts). The technician advised me to trim the bushy shrubs surrounding the external unit because they were blocking airflow. The obstruction forced the unit to work harder and ultimately caused it to crash. 

My wife understands the reason why I am saving money, and she is very supportive. However, because she is a serious believer of branded products and organic food, it is very difficult for me to convince her to go with the cheaper ones. For example, we buy organic milk, eggs and cheese that cost twice as much compared to the regular products. I disagree, but I am willing to compromise because I simply believe that nothing in life is more satisfying than knowing that my wife and daughter are happy. I just have to find other ways to increase my take-home money.

My Income

About a month ago, I accepted a new position that would allow me to pocket $1200 more per month. The bad thing about this new job is that every morning I have to drive 25 miles to go to work (50 miles both ways). Usually, it takes me about 35 to 45 minutes depending on daily traffic, and I don’t drive fast at all. So far, I am happy with my decision because the new working environment is very good, and the company’s benefit is more lucrative. Also, I have a chance to see a larger and more technologically sophisticated operation that will definitely broaden my experience.

To create more money, I continue to invest in dividend-paying stocks because I believe that the stock market will bring me home in the long run. Currently, the total number of shares is 1505 compared to 1192 in June, 2009. My goal is to reach 2000 shares by the end of 2009, and I am waiting for the market to correct itself in the coming months.

On the other hand, my rental unit has been vacant for about two months. Basically, I am giving back the profit that I have collected when it is occupied. My goal is to hang on to it for five more years, and I will sell it. One can make money in this business, but it requires that one must take control of it and devote one’s time to it. And, time is what I don’t have because I am holding a full-time job. I believe that if one has money and wants to invest in real estate, now is the time.

My Debt

In June of 2009, the total debt was $365,485, and as of today it is $361,657, a 1% decrease. I know that I must be more aggressive in paying down my debt because it eats up a big chunk of my income. However, currently, I am favoring the stock market, so I am keeping my cash and waiting for the right moment to pull the trigger. Although I don’t believe in ”good debt”, I understand that it is alright to carry the debt because it is tax-deductible.

My Self-evaluation

Progress is slow, but I am getting closer to the finish line. I must keep on fighting to win, and I know that I will continue to fight because it has been fun for me. In the end, it is my game, and my enemy is myself.

A farmer lost a white mare, so he put on a sad face wherever he went. His neighbors comforted him with nice comments when he complained about his bad luck. A few months passed by, and the man seemed to have forgotten about his misfortune. Amazingly, one morning, while feeding his cattle, he heard horses neighing. He quickly ran to the front gate, and his white mare was standing next to a black stallion. Apparently, the lost horse had brought home a boyfriend. The farmer felt blessed, so he shared his fortune with his neighbors. Some were happy for him, but a few of them were jealous. His son loved the black stallion and begged him for it. The happy father gave his only son the black stallion and instructed him to take good care of the animal. One afternoon, neighbors knocked on the farmer’s door and told him that his son had broken a leg because he fell off the black stallion. The farmer became sad and started to complain about the misfortune that the black stallion had brought to his family. A few years later, a war broke out in the region, and the farmer’s son was exempt from the draft because he had a broken leg. The farmer was joyful, so he shared the good news to everyone.

The above story teaches us a few financial lessons. For example, when one invests in the stock market, one must have the determination to cut losses and move on. Learn from mistakes, but don’t dwell on them. Do not complain about one’s misfortune, but do something to change the situation. Do not tell your neighbors everything about your life because some can become jealous.

Personally, I once acted like the farmer. It was raining cats and dogs, and I decided to drive home after a long day because I did not live very far from work. Unfortunately, my car dipped in a pool of water on the road, and the engine was dead. I quickly escaped as the water rushed in from the engine compartment. It was dark, and I was soaked. I spent a few hours working with Geico to report the claim and to direct him to where he should tow my brand-new car. I was very angry, so I cursed at my stupidity for leaving work in the rain. I blamed every single drop of rain in the sky. Financially, I knew I was in trouble because I still owed money on the car. A month later, the insurance company gave me a check for about $10,000. It was a total loss. I had to finance $24,000 to buy the car in the beginning. I had sent in my car payments for more than two years, so I owed about $12,000. The estimated value of my car at the moment of the accident was about $22,000 because the traveled milage was about 30,000 miles. I knew that I had lost money, but the situation was not so bad. I told the sky that I was sorry for having pointed “the finger” at it. I had to find a way to take advantage of the situation. What should I do with the money?

I spent several days contemplating the problem. I decided that I would not buy an expensive car, and my first choice was Honda Civic because it would burn less gas and was known for durability. I went for a brand-new Civic because a used one was only a couple of thousands cheaper. I paid about $14,000 for it because I bought it from an online fleet. I financed the entire amount at 3%. For my previous car, I had to pay $450 per month, but for the new one my monthly payment was just above $300. I saved about $150 per month, and I had a vehicle to move around. I was elated.

I did think about using the entire ten thousand dollars to pay for the new car, but I felt that I needed to invest it in something. And, I did. I used it as a downpayment for my first rental property. I bought a small, but brand-new house located in an expanding city where there are two large universities and new business developments. It generates about $200 per month when it is occupied. However, because the renting market has become very competitive, I am just making even in the past several years. Although it brings in $2400 per year when rented out, a few months of vacancy will drain all of the profit. My plan is to hold on to it for about ten years, and then I will sell it. Sometimes, I thought if I had made a mistake by investing in real estate when at the time I did not know much about the industry. I have learned so much since then, but this current financial crisis has taught me the most valuable lesson of all, “don’t be too greedy”. I felt lucky because I bought the house in an area where the housing market had bottomed. The price could not go lower than what I paid for.

Regardless, I feel that I have become a smarter investor, who researches before investing. I feel that I am able to take any monetary loss because I have found the source of happiness, which is hidden within life itself. We all carry boulders of burden in life. The secret is to identify and to let go, and life will become more simple and beautiful. When one is truly happy, a million or half-a-million, it does not matter anymore. For the game at hand, my target is $500,000.

The current economy pushes the poor back while for the rich it is a great chance to get richer. The poor man has to worry about food, rent and healthcare cost while the rich sits silently and waits for the right moment to snatch the first opportunity of making a profit. In America, that is how the game is played. The poor man can: 1) complain about his fate, or 2) find a way to become rich. My choice is obvious.

When one is at the bottom of society, education is the only lifeline. My strategy is to study something that I enjoy and at the same time make enough money to support my life. No one wants to work for someone else, but sometimes one needs to take this necessary step to strengthen one’s financial position before venturing entrepreneurship. In other words, I must, first, build myself to become a cash machine because no one will hand me a house or money. I believe that investing in oneself is the best investment because the rate of return is infinite. Besides the money that I make, education has expanded my knowledge of life. I am able to understand its value and beauty.

Although we have some extra money left over after having paid our bills every month, saving it will take decades to reach half-a-million. If I am to put $1000 per month in a box, I will win this game in about 42 years. If I put the same monthly amount in a saving account with an initial amount of one dollar that offers a 2% annual compounded interest rate, it will take 30 years to reach $486,818 (based on simple savings calculator at http://www.bankrate.com). If I invest $1000 per month in the stock market and ”assume” a 5% rate of return, I will earn approximately $400,000 in 20 years (initial amount: $1). I don’t see myself opening a business in the near future. Therefore, I am going to invest in the stock market despite its volatility.

My plan is to invest in dividend-paying stocks. I will focus on consumer staples, healthcare and energy sectors because I believe that people will continue to use gasoline, drink, smoke, eat, brush their teeth and take medications regardless of what condition the economy is in. Therefore, I believe that these three sectors are good for my long-term investing style. I can be a short-term investor at anytime. However, to achieve my objective, I want to put my money in the game as soon as possible because I have to rely on the power of compounding. These boring, dividend-paying stocks will become my cash machines. Currently, I own 1192 shares, which will produce about $1000 per year in dividends (see below table).

Real estate is good investment, but it requires much more energy input. It can generate a lot of positive cash flow if one knows how to do it. At the moment, I am not ready to undertake the risk of real estate investment although I have a rental property, which I use as learning experience. However, in the future, it is a good place to build new cash machines that will propel me closer to my financial goal.

Death is inevitable. I choose to be rich, not because of the money, but to show myself that I have the courage to play the game. You have the right to choose to stay poor for whatever reasons. As a reminder, this financial game is just a game within the game.