My 1st Million At 33 – yes, you can do it too

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  • Archive for February, 2011

    US housing market has a long L bottom ahead

    Posted by Frugal on 23rd February 2011

    This is just my personal opinion which I have been saying since 2007 housing market peak:
    I am fairly certain that US housing prices will not recover its inflation-adjusted price until 2027 at the earliest. In terms of nominal prices, I am less certain but I also tend to think that housing prices will not recover its nominal prices until the same time-frame. My reasoning is fairly simply. Every financial bubble in human history will NOT repeat itself for at least 20 years. Usually it’s AFTER 20 years have passed that the same asset class can have a new chance to begin to rise in prices.

    The two main negatives that have not been priced in by the current buyers are
    1. Bond bubble bursting causing rise in interest/mortgage rates, AND shortening of the duration of the mortgage term. This will cause the domestic US buyers to decrease their offering prices.
    2. Increasing deficits will most likely result in increase in property taxes. This will increase the holding cost of houses and therefore decrease the home ownership benefits.

    The third negative that has not been priced in by the foreign cash buyers is that the current US housing price can possibly become 50%-off, once US dollar drop another 50% against the stronger Asian(Japan-excluded)/commodity currencies. These buyers will probably not flock into US after 50% off because the relative political/economical stability across regions can change in detriment to US, and that these “savvy” businessman and “corrupted” government officials won’t probably be throwing good money after bad.

    Regardless, if the home ownership cost is way below the current rental cost, it obviously makes sense to buy. You could use my Rent vs Buy calculator to see if it would make sense.

    Posted in Real Estate | Comments Off

    Eleven Tips on Selling on Craiglist

    Posted by Frugal on 21st February 2011

    Craiglist.org is probably the best free site to sell your unwanted items. It’s the internet version of garage sale. The next distant best site is kijiji.com which has been bought out by EBAY as http://www.ebayclassifieds.com/. Throughout Christmas & Valentine’s day, I have been posting some of my extra unwanted items for sale. It takes several postings & transactions to actually learn the art of selling on craiglist.

    Here are some precious lessons that I have learned from my experiences of over 10 successful transactions:

    1. Privacy issues: most people would post their emails and/or contact phone number within the posting. If you care about your own privacy, don’t do that. Potential buyers can always email your registered craiglist email by clicking on your post. Once you post your email and phone numbers, they get copied to so many other craiglist copycat sites. Your posts will expire after 45 days on craiglist, but on other copycat sites, it could be forever. This way it reduce the chance of getting phone & email spams too. If you really have to post a phone number, use a Google Voice phone number.

    2. Do your market research: For every item that you sell, you should always think as the potential buyer, and search briefly on Amazon, craiglist, ebay, Walmart/Target, etc. for the same item. That is the only way to determine your best pricing. A good price will always sell itself. You obviously want to undercut others a little. And you should post a couple of your search result in your own ad too to convince the buyer that indeed they are getting a better price from you.

    3. Pricing: if the absolute price of your item is high, it will really take a bigger effort to sell (unless it’s highly popular like ipad, Wii, etc). You have to know that people who browse & buy from craiglist probably don’t have much spare money to begin with. If they have money, most of them are extreme price bargainers. I didn’t understand this initially, but after awhile, I realize that ALL people who actually buy from craiglist always expect a price cut from your original posting price, even if the posted price is dirt cheap already. To optimize on between getting more interests versus finishing off the transaction, my advice is to post a low enough price to stir interests, and then reserve a 5% to 10% discount for price negotiation. The room should not be more than 10%, or else you may not even get any replies to your post. And give the buyer your final 5% to 10% discount to sweeten the deal or fatten up your profit margin, depending on how things go.

    4. Taking a firm stand on your pricing: If you ever want to be successful in any negotiation, the first thing that you need to understand is that you need to position yourself to walk away from the deal anytime mentally. So unless you simply want to throw away your item for sale, then you need to have an attitude of not being able to sell your item when the price is not right. Why is this even important? Because there are so many craiglist trolls who would low-ball your price extremely to almost insult your common sense. If you get those low-ball offers, just ignore them. And if anybody asks for your lowest price, don’t give away all of your padded 5% to 10% room all at once.

    5. Price negotiation techniques: Because Craiglist is like a silent invisible auction, there is no way for the buyer to know how many people are bidding and at what price. In a way, it’s like selling/buying a home with a given listed price. Therefore, what you need to do is to guess the buyer’s willingness and create the image of invisible bidding frenzy if possible. So if you have only one offer, you may still want to state to that only buyer that you cannot give more discount to this only buyer because “the other buyer” has given you this price already. You could risk losing out this only buyer, but it would preserve your little amount of price margins.

    6. Art of advertisement: Photos are a must. Always emphasize the good points, and disclose any necessary defects that the buyer should know in the ad. Your advertisement must be honest (so that you don’t waste your time & buyers’ time besides all the legal issues). And during the entire sale process, never tell your buyers anything that could discourage the sale. I was selling a big CRT TV with HD-input at a cheap price. Because of the low price & the HD confusion with the LCD, I got more than 10 inquiries. I was over-confident and told all of the buyers as my disclosure that if they get hurt in moving the 150+ pounds of CRT, I cannot be responsible. Well, that did it, and scared away ALL buyers. I actually needed to repost my ad to sell the TV. At the end, I was still able to sell my 30+ inch CRT for about $30.

    7. Prompt response: especially if your item is hard to sell. The buyer sometimes has a sudden compulsive urge. And if you don’t continue this purchasing process promptly along with him or her, the deal will simply not go through once the buying urge is gone. So in the email exchanges, not only you should be prompt, but also you would recreate buyer’s urge repeatedly by how much you cherish this item of yours but only selling it because of …(some “unfortunate” or inconvenient reasons).

    8. A Big handshake to finish off: In whatever business negotiations, you should learn that only by making your customers happy, then it’s a good business. I had repeat business on Craiglist from a customer because I made him “happy” in terms of quality and pricing. I didn’t need to negotiate much at all for the second & third time because he knows that I had already “given” him the best possible price. Well, of course, I was still making a tiny amount of money (even though he still thinks that he is getting the best possible deal from me).

    9. Post at the optimal time: Based on my personal experiences, I think posting on Friday and Sunday/Monday night or Saturday and Monday/Tuesday early morning should be the best. Monday & Tuesday internet traffics are always the heaviest for almost all sites. However, since it’s an internet garage sale, I usually prefer posting for the weekend on Friday. Quite often, the sale is all done before Monday, if you have priced your item correctly.

    10. Don’t post too often too fast: this is just a special “feature” on craiglist. If you post too frequently (like more than 2 posts in an hour), your account can be suspended, and/or your posts will never appear. Stick to craiglist rules carefully, and don’t re-post the same item. Otherwise, you may need to find a new IP address and create a new account to continue selling. I actually found that it was quite easy to trip on craiglist’s watch for spammers.

    11. Xmas season helps A LOT: one third or more of the total retail sales happens from Thanksgiving to New Year. Be part of it and go with the flow. Your asking prices can also be higher during this time (simply due to more buyers).

    I learned so much from selling on craiglist that I sort of went from being a total nerd to a semi-savvy salesman. The lessons were worth so much more than any amount of money that I was making on craiglist. When my kids grow bigger, I also want them to learn these invaluable lessons firsthand by selling on craiglist. It really takes practices to be a good negotiator, and selling on craiglist is the best prep for that.

    So what did I sell on craiglist? I sold PSP, Nintendo DS, baby crib, Legos, TV, several baby & kid’s toys such as tricycles. If the items were new, I made 3% to 15%. If the items were used, I recovered 40% to 100% of the original price that I paid (except the TV of course). I would say that it was a pretty darn good record.

    Posted in Business, Frugal Ways | Comments Off

    Silver at a fresh new high, and in backwardation – COMEX default?

    Posted by Frugal on 18th February 2011

    Check out the two articles:

    http://www.zerohedge.com/article/if-cme-hikes-gold-and-silver-margins-50-and-nobody-cared-did-tree-fall-central-banking-pm-pr

    http://tfmetalsreport.blogspot.com/2011/02/wow.html

    50% raise in margin requirement, and silver broke new high?!!

    Why shouldn’t silver/gold be in backwardation? The reason is very simple (but many people don’t understand and deny it). The fact is both gold & silver have always been real MONEY in human history. Why would ever $10K cash up-front more expensive than $10K cash three or six months later from now, considering these kind of “cash” will never yield interest money? Three or six months from now, the same cold metals will stay as the same amount of cold metals. The only possible way for silver/gold to trade in backwardation in futures market is that they (COMEX) just DON’T have all the “cash” on hand.

    There are about 60,000 open contracts into the March delivery date, and that is about 3X of the COMEX inventory on-hand.

    Somebody will milk COMEX for extra premium in rolling over to the next delivery date, and I bet COMEX will demand a non-disclosure statement, but they won’t be able to get that from Sprott for sure.

    Posted in Gold/Silver | Comments Off

    One of the best charity: Blood donation

    Posted by Frugal on 16th February 2011

    I used to donate blood before I have children. With small children in the family, my life is always extremely busy and circles around children. This year however I finally made a vow to donate blood as often as I can. What made me a little sad is that because of all the constraints & regulation, even if I donate at maximum possible frequency which is every 56 days, or about 6 times a year, there is only so much blood that I can give (1 pint per visit). Human lifetime is so limited, and we can only give so much. I was going to fill up my office wall with Red Cross stickers. I guess I won’t be able to do that.

    Even though I’m often so busy that I don’t even have 1 hour to spare for blood donation, that one hour is probably the best relaxation time for me for months. I lie there, staring at the fluorescent lights, imagining how helpless the sick people must have been at the hospitals lying on the same beds. And I always make a prayer during the blood donation that whoever receives my blood can recover as soon as possible with God’s granted grace. Yeah, sometimes the donated blood won’t get used in the allowable time, but that is just part of the business.

    To be able to donate blood, one obviously must be healthy. The last time I donated blood, Red Cross told me that if my diastolic blood pressure is more than 100, I won’t be able to continue to donate blood. I measured 100 exactly. She advised me to start taking my blood pressure medicine, and don’t delay anymore. When I came home, my 4 year old kept staring at the bandage around my elbow. Finally, his curiosity overcame him. He asked me what happened to me. I told him that I gave blood. And he couldn’t understand. Then I showed him a youtube on blood donation. He was a little scared, a little amazed, and somewhat confused. I hope one day when he grows up, he will understand and also donate blood for good.

    I have always made it imperative to teach my children about charity. I want them to understand that how lucky they are to enjoy all the material things around them, and that if ever we own anything, it is given by God. We all come to this world with nothing, and we will leave this world with nothing. I am not sure if my kids will understand all of these one day, but I have great faith & hopes just by looking into their innocent eyes.

    Posted in Estate & gift, Uncategorized | Comments Off

    Revising household budget for 2011 – Savings drop again

    Posted by Frugal on 14th February 2011

    I’m revising my last budget made in 2008 due to inflation and various changes in spending patterns. A household budget always needs to reflect the reality. Otherwise it loses its purpose.
    A budget shows where the family finance situates and allows future financial planning to be possible. If you don’t even know where the money is going out, you cannot possibly know where your finance will be 5 or 10 years from now.

    item

    amount

    comment

    Mortgage

    2500

    This is not the true value that I pay, but only serves as what I should be paying in terms of interest cost due to carrying a mortgage, or the equivalent rent that I should be paying.

    Homeowner due

    205

    Includes the insurance for the condo.

    Electricity & Gas

    100

    I have over-budgeted last time (in 2008)

    Water

    38

    Both water usage & cost has definitely increased.

    Trash

    15

    Local Phone

    20

    Cell Phone

    9

    There has been some increase due to usage, but here is how I get it so low.

    Long Distance Phone

    14

    Mostly it’s international calling cards. Over-budget in 2008

    Cable/Satellite/Internet

    15

    I became the “cord-cutter” without any cable/satellite service. The HD signal receptions are way better than SD. I only pay $15 for my DSL internet service.

    Medical Insurance + Out-of-pocket expenses

    154 + 42

    Covered thru my employer. This amount is what I need to pay, and it went up due to inflation. And I have more out-of-pocket expenses for the last few years.

    Car Insurance

    61

    Only pay about $730 a year for liability only on 1 car and comprehensive+collision on another 2007 car . I should probably drop the extra $14/month collision coverage on my 2007, which is getting old. Note that I sold an old unused car since 2008.

    Gasoline

    250

    My round trip work commute is 24 miles. My commute car has about 25 miles/gallon (better than 2008). And I have more short-trips now for kids’ outing. Better mileage seems to have offset the increase due to more driven miles and gasoline price increase.

    Car Maintenance

    60

    Oil changes + prorate for changing brake + 30K/60K miles service + new tires. Adjusted slightly upward for inflation, and I forgot to account for new tires in 2008.

    Travel/Vacation

    450

    Annual of $5400, mainly for flying (internationally) back home to visit parents. Adjusting for inflation.

    Food

    600

    Does not include dining out. We are definitely buying more nutritious food now with kids growing up. And it also shows in the reduction of dining out expenses that my wife is cooking more often for better food for kids.

    Dining out

    220

    Reduced from 2008. It definitely appears that my wife is cooking more often now.

    Toys/Books for children

    150

    My kids buy A LOT of legos, and they are quite expensive.

    Other extra-curricular educational expenses

    230

    Still expect increases as time goes on.

    Wife’s & kids’ allowance

    360

    Wife’s & family’s happiness is of the most importance.

    Cash Usage

    0

    I think I have a better control over misc cash that is going out. So I’m reducing it to $0 from $100.

    Charity

    375

    Increase again due to my increase of charity contribution. The actual figure is usually higher (when my other sources of income are there).

    Miscellaneous/Clothing/Electronics/etc.

    450

    About $100 extra padding..

    Federal Tax

    2000

    My real amount of tax is higher than this, due to other capital gain income/etc. Same for CA tax. I’m changing the way that I account for the tax here. $2000 is still low for me, but it could be on the high side for anyone who earns similar income that was used in this budget calculation. Obviously, one cannot make a budget containing any projection for capital income/loss (from stocks) which I’m not including it here.

    State tax

    650

    Includes SDI unemployment tax in CA.

    City tax

    28

    Adjusting for inflation. Don’t you hate all the taxes that one needs to pay?

    Social security tax

    552

    I’m paying maximum of social security tax every year now

    Medicare tax

    163

    Property tax

    500

    401k

    1375

    Annual limit is $16500, maxing out.

    Spousal IRA

    0

    I’m not allowed to contribute to this due to my high tax bracket.

    ESPP

    1688

    Employee stock purchase plan.

    Reviewing the differences between the current budget versus my 2008 budget, there are several categories that have gone up. The income in this budget has increased by $25K, but I’m budgeting a lot taxes now to reflect the fact that my marginal bracket is basically 45% to 50% (even back in 2008). The other increases are the new $230 extra-curricular lessons for my sons and $140 extra in food & dining, and about $300 extra spending for my wife & kids on toys/clothes/electronics/etc. My charity contribution has increased by about 30% too. And traveling back home & vacation has gone up too by almost $800 a year.

    Looking at this budget and the corresponding increases from 2008, I can identify that my kids are not frugal at all. They are basically getting every new lego boxes out there, and lots of Wii games too. I think it is time to put up some constraints. That is probably the only item that I can cut down because all other increases are due to inflation or are necessary. Looking forward, children’s educational cost will continue to go up as kids grow up.

    From above, my total expenses (in white) are $6318, and my total taxes (in red) are $3893, and the savings (in green) are $3063. Assuming a household income of about $135K, or a monthly wage of $11250, my cashflow after deducting all the above items is negative $2024, which needs to be deducted from the above savings number. Please note that the above taxes are just the taxes that one might be paying at such income level. My marginal bracket is at about 50%, instead of just 24% from the above.

    My net saving has dropped (again) from $45000 to $30400 in 2008 to now at about $16000 in 2011. This is after I account for the 15% discount in share purchases of my company ESPP plan. Unfortunately, I expect my saving levels to continue to dwindle, due to the increase in the child expenses going forward. My annual cashflow now is negative $24300 from above, and that is very observable in my bank’s balance. I need to constantly infuse more cash into my regular checking account to just pay all the expenses.

    I’m drawing exactly the same conclusion as in my 2008 budget:

    What’s the lesson here? I’m not becoming much less frugal, but my saving drops. Inflation accounts partially for the drop, but the main reason is as stages in life progress, your saving (if it is still positive) will be dropping to its LOWEST when your children start going to college. I’ve written an entire post (boring, but truth that you don’t want to hear) on this point to advise anyone out there to start SAVING NOW. The best time to accumulate your savings is before having any kids, especially before getting married (and after you just started working). The next best time to accumulate your savings is when your kids finish college, and before you retire. The rest of the time, one should consider oneself lucky to scrap away something left after all expenses are paid. If you have any doubts about my drawn conclusion, simply ask your parents.

    Posted in Frugal Ways | Comments Off

    $888 cash back reward from my credit cards in 2010

    Posted by Frugal on 8th February 2011

    I’ve always chosen cashback instead of air mileages for my credit card reward. The reason is cashback goes into your pocket directly, and unlike air mileages or point systems, it is not subject to the conversion factor change in the future.

    I have arranged my spending on credit cards as follows:
    1. Grocery, drugstore, and any gasoline purchases not at Costco for a flat 5% cashback on HSBC Platinum Cashback Card.
    2. Restaurants for 3% cashback and travel related stuffs for 2% cashback on True Earnings American Express card.
    3. Essentially 2% cashback on Citi’s Driver’s Edge Option credit card for everything else. It’s 1% + 1% via submitting mileage record. I just submit it for every oil change that I need to do for my car. On this card, it’s actually by point system. I only buy $100 Macy’s gift card using 10000 Thank You points so that I can get a conversion factor of 1 point for 1 cent. Unfortunately, this program is going away now.

    I have searched on the internet for a better deal to replace the Citi’s Driver’s Edge card, but I can’t find anything. EmigrantDirect had a 1.4% cashback on everything but it’s gone too. The best thing that I could find is the 2% cashback on Fidelity Rewards American Express card, but the credits go into your Fidelity brokerage account.

    I will need to think about this deal, since I’m a little wary of opening another brokerage account just for that. I have consolidated most of my accounts at WellsFargo (where I trade free through PMA account) and InteractiveBroker (for cheap options). I definitely don’t want to have my cash simply sitting in the Fidelity brokerage account doing nothing. Based on my past spending pattern, I can get about $275 just from 2% Citi Driver’s edge card. If I move that spending to any of my existing 1% cashback card, I would throw away $125 per year. Hmm. Something to think about.

    In any case, if you don’t use any of the cashback credit card, you are definitely missing out BIG time. I got $362 back on my HSBC, $276 on my Citi Driver’s Edge, $250 on my True Earning AMEX for a total spending of about $34700 on these three cards. That’s $888 that you may be missing.

    At the minimum, you should get yourself the True Earning AMEX (assuming you buy stuffs at Costco) and Chase Freedom card for basic 1% cashback & 5% cashback on rotating categories. That’s just a little effort to “earn” while you spend. It really adds up!

    Frugal at 1stMillionAt33.com

    Posted in Credit Cards | 1 Comment »

    Outlook for precious metals

    Posted by Frugal on 7th February 2011

    My best guess is that precious metals have made a short term bottom. But I can be wrong. Intermediate term however I am still wary of a mid-year dip. A bull market often tries to shake off as many people before embarking a big advance.

    Both gold & silver have made the MACD bullish crossover on the daily chart. GDX & GDXJ have both made the crossover by just about a couple of days earlier. The upturn has been quite sharp, and is subjected to sharp pullback. It’s going to take a lot more work to get this market back to bullish stand.

    Based on my reading of the Elliot Wave Theory applying to gold & mining stocks, I believe that we should definitely be in major wave 3. Initially, I thought the 5 of 1 of 3rd major wave would be here. After the recent correction, I’m not sure if 2 of the 3rd major wave has begun. The second wave down is usually the most painful. GDX correct some 70% in its 2nd major wave in 2008/2009. Therefore, I would be cautious about the 2nd wave of the 3rd major Elliot wave too. The other disturbing trend for mining stocks is that oil prices are going up fast if not faster than gold. The gold to oil ratio must be carefully watched to decide on whether to over-weigh precious metal mining or oil drilling stocks.

    I have been extremely busy with my day job & investment for the last month. Inevitably my blog suffers. After all, I’ve got only 24 hours a day. I’m going to make an effort to blog more regularly. Hope that my work schedule won’t get overwhelmingly busy again.

    Posted in Gold/Silver | Comments Off