HALF A MILLIONAIRE

On June 14, 2009, I challenged myself to amass $500,000 in cash. My strategy is to “eliminate debt, grow wealth, and control expenses”. I want to make it clear that it is not about money, but, instead, it is about mental toughness. One is born. One lives. One gets sick. One becomes old. And, one dies. We all follow this pattern, and what separates us is the way we choose to live our lives. Everyday, I choose to be happy. And, to be happy, I am willing to take on my earthy responsibilities. In the end, happiness is the ultimate prize in life, not money. However, money can buy me more time to enjoy my life with my loved ones. Therefore, I am going after it. 

Our expenses have remained the same in the last several months. My wife and I have managed to stay within our budget. When we go shopping, we write down what we need to buy and stick with the list. If an item is expensive, we remind each other about saving money by voting “no”. For example, she wants to buy an expensive camera because she believes that it will produce more beautiful pictures. I tell her that we can afford it, but it is not the right time because the current one is still working, and she has been capturing perfect moments of our daughter’s life with the three-year old camera. Also, because we allow our daughter to play with our camera and laptop to stimulate her learning ability, I do not want to overpay these items. However, for the right item, I will not hesitate to buy. For example, when my wife informs me that our dryer is broken, I have it delivered to our house the next day. Of course, I never pick items with the highest price because I have realized that expensive things often require higher maintenance and usually cause more problems when they break. Our goal is to focus on each other, not on materialism, and, so far, we have achieved it.

In the last several months, I have been working about 60 to 70 hours per week because I have realized that cutting expenses alone will not bring me to the finished line. I have to increase my revenues, so I do overtime. I work 12 hours on weekdays and an extra 10 hours on Saturday when I am needed. Again, in life, it is not aways about money, but it is all about time. Because I want to spend the maxium amount of time with my daughter, I go to work very early in the morning while my loved ones are still sleeping. And, because I am an early riser, the working schedule fits me very well. What is the result? I have been able to increase my revenues by 100%. Of course, I know that the overtime will not last forever, but I will take whatever given because I want to win the game. And, to win the game, I must execute my game plan.

What do I do with the extra money? I have been paying down my debts and “cautiously” putting more money in the stock market. However, I have decided to stop buying more shares because the stocks that I own have become more expensive. How do I know? The prices have gone up by 30% compared to last year. I do not have a degree in finance, but I learn from reading and analyzing data on my own. Something is just not right. On one hand, I am trying to cut expenses, grow revenues and eliminate debts. On the other hand, President Obama increases spending, kills the labor market and borrows more money. I know that I can be wrong in my opinion because I do not have all the data, but on the surface that is what I am seeing. Our national debt is $12.8 trillion. I am not interested in hearing President Obama explaining that he and his administration are not responsible for our national debt. He needs to stop blaming the past because the American people needs him to solve problems. Yes, sir, we know that you are facing with difficult challenges. However, we need you to make the right decisions for our nation.

In my humble opinion, America needs more jobs at this very moment. America does not need to show the world her compassion at this very moment. America does not need to make new friends at this very moment because she is angry and not in the mood to hang out. There is nothing wrong with that because she has to focus on taking care of her own children at this very moment. Why does she have to show her compassion to the world at this very moment? She has always done that. Her true friends should understand her. She does not have to bow to anyone to show that she is respectful. She should be herself and others will follow. Her foes will always hate her because they envy her success and compassion. These foes will die because they have to follow the same pattern of life. And, there will be new foes. In the end, America should be herself because I love her just the way she is. I don’t want the government to shackle her because she has given me opportunities to grow in ways that I truly believe I will not be able to do anywhere else on earth.

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.

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.