I have just a few best friends. I only told my IT friend about my blog because I needed several helps on the repeated hackers’ attack on my site. On mother’s day, my buddy and I talked almost 3 hours about his personal finance, answering every conceivable questions that he had (not that this is the first time). Kind of reminded me that I should not tell anyone else,
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My IT friend is basically at the same age as I am. But in terms of accumulated assets, he is quite behind me (not that I’m trying to brag, my friend). He is one of the few people who I would call innately smart. And I have always encouraged him to go further beyond what he can achieve because he really can. He started out inherently behind me because he helped paying his brother’s college education. This is probably unheard of in a western American society, but we Asians would do that for our family members. Sometimes, an entire family would work together (financially) towards one goal, sending just a person for higher education, and then in term, this person would give back once he is able to lift up his financial and professional status.
In any case, my IT friend is buying a house, and has been asking me lots of questions even before our 3-hour talk. I directed him to my rent-vs-buy financial calculator. We worked through all the numbers together. Besides the tax benefit that was not very clear initially, I think everything else was straightforward. On the “tax benefit average rate on property tax+interest”, one needs to account for the standard tax deduction (now at $11400 for federal tax) to calculate the tax benefits from itemized deduction of property tax and mortgage interest. It’s often A LOT less than one’s marginal tax bracket, on the contrary to the realtors’ claims. At his particular city and state, buying a home makes good sense because using conservative assumptions such as 0% appreciation rate for home, he can still break even in about 4 to 6 years. But that is with an implicit assumption of upgrading his lifestyle (for his anticipated family need) to a bigger home, paying a higher equivalent rent of $1900 instead of his current $1500. Most people buy home, thinking that house is an asset. But no, the home is only an asset, unless buying is better than renting. Otherwise, it’s a liability that bleeds your pocket. And buying a bigger home than what you need is NOT investment. Do not justify your ego’s need with the illicit logic of making a good investment. One way or the other you will ALWAYS pay for the expanded space with your own pocket.
Besides the home, I also advised him to read through “My Advice” page. Summarizing for him, to get to millionaire status, it’s basically
1. Acquiring skills/network (for an income source).
2. Relentless savings for accumulation.
3. Proper investing for preservation.
I tried to emphasize to him that the 3 best time to save (in the right order) is
1. Right out-of-school, and before getting married.
2. Before having kids.
3. After kids finish college.
Unfortunately, most of the American young generation either take up too much college debt, or frivol through their best years to save. Those early years obviously make a huge difference in the long run.
Then I also strongly encouraged him that it’s never too late to save, and he still has a real chance of making into millionaire club. Why? His current household income is even higher than my 2007 base salary (or my household income for that matter since my wife doesn’t work). On my job(s), I’ve “slaved” through almost 7 years at a way-below average household in my area, accepting a 35% salary cut, and yet I was able to make into the club. If I could do it, then he or anybody CAN do it too. The key is obviously to somehow maintain your (hopefully significant amount of) saving within your own acceptable living style. I advised him multiple times to go through his own credit statements. Pulled out the last 3 months. Have a monthly budget and compare to what really happens. Re-visit after 6 or 12 months. Monitor spending until it’s within budgeted expectation. The budget needs to be realistic to reflect the spending. It’s the guide of how far your saving effort would go. Budgeting is a personal experience, and it’s where your emotionally material desires fight with your goal-oriented mind.
He has not got into many needed investing side of personal finance yet. But again, it’s very important, since the only way to get into the club is
1. First, you must have it (through earning & saving).
2. Second, you must preserve it (through investing).
I encouraged him that after 15 years to come back to my blog to write about his becoming millionaire experience. As the second part of the title of my site states, “Yes, you can do it too”. That is REALLY true for MANY of the people out there. But if you just started saving at 50, then I’m sorry that I’m not going to be like all those authors writing “feel-good” personal finance books out there, and tell you that “yes, you can do it too”. But the whole point is not to become just another millionaire. What your financial security (whether it’s $400K or $700K) gives you is a peace of mind. It’s when you walk into a car dealership to buy a car, pay cash to buy the car, and you don’t even need to fidget about whether you can make the next month mortgage or car payment. It’s if your family member gets terribly sick, and requires $100K medical treatment beyond insurance, and you don’t even need to worry about sky collapsing on you, or selling the house to pay for it. It’s when your kid goes to college, and you don’t need to say to him or her, that “sorry, you really have to pay for yourself”, or that “sorry, you can only go to state universities.”
Striving towards wealth is truly about personal financial responsibility, and not about millionaire bragging rights. It’s about taking care of oneself, one’s family, and hopefully extending the helping hands to so many needy people out there. That’s what my site wants to convey to everyone of you out there (even when I just get to sleep 4 or 5 hours a day). “My 1st million, and YES, you can do it too”. In fact, “YES, you should try to do it too.”
Here is one of my favorite quote from my favorite books, “Karma Yoga” by Swami/Yogi Vivekanada (p.27):
A householder (as opposed to a monk) who does not struggle to get wealth is immoral. If he is lazy and content to lead an idle life, he is immoral, because upon him depend hundreds. If he gets riches, hundreds of others will be thereby supported.