Category Archives: Personal Finance

Raising Good and Responsible Next Generation

This subject is always up for debate and there are no right or wrong answers. Only bad ones. I have always stick to certain values when I start raising my kids and there are certain times I doubt if I’m doing the right things.

I am Asian born and raised in South East Asia. Hence, there are certain values instilled in me growing up by my parents and what I observed. These values are filtered and now build within my wife and me. Obviously these values are being passed down to my kids, of whom my eldest son is now considered an adult as he will be hitting the major milestone.

It is very difficult to compare and contrast one tradition over another. I can’t say Asian culture is better than Western culture or vise versa. All I can say is when we raise good responsible generation we need to use common sense.

I had good feedback over the weekend from my son when I was giving him a haircut. After this year he will graduate from Rutgers and get ready to head out on his own. Prior to that he will be heading to the West at Seatle for his internship. He told me that what I have telling him over the last years were really good suggestions and he thanked me for everything I taught him.

Being Financial Responsible

I’ve been teaching my kids of being financial responsible. While our family never shy away on spending money but we never spend lavishly. For example, we don’t rush out to but the newest gadgets or the newest cars. We spend what we can afford. And we don’t consider brand name items as must have – we go to WalMart when we can because we now we usually get good deals. Two months ago my son told me that he wanted to buy the latest BMW once he got a job. However, he told me that he no longer consider that option because he realized that the monthly car payment of $1,000 per month is too much and the money can be well spend on other important things.

Take Ownership of Self

When my kids were growing up my wife and I would check on their well beings every moment. As they grow older around middle school we started to relax a bit. As my son started to attend Rutgers I told him that I will no longer check on his education. In those years I been telling them that if they don’t take charge of their future, the only option for them to support themselves is by working McDonald’s. Having worked at a fast food restaurant during high school, my son had the experience that working in this industry is not sustainable. Now he aspires to be a software engineer and work for Amazon (he will be an intern at Amazon in Seatle).

Education is Important

Both my wife and I are not the typical Asians who want perfect grades. We let our kids experience the American values as much as we could by letting them have freedom on how they study. At the same time, we stress the importance of having good education as we believe this is the only way to get good job and may lead to good life. While some may debate that this is the wrong message to send, it is still unfortunately very true today. My son noticed this too as he found better opportunity while studying at Rutgers. He realized that some of his friends from high school who are not doing well at school are struggling – one of his friends even drop out of college and joined the Navy because he was just doing badly at the local college.

Don’t Spoon Feed – Use Force Feed

I remember the time when my son asked me to buy him a car when he turned 18. Obviously, I refused. He said he needed a car to travel to Rutgers for his education. I told him that he would be using my wife’s car but he was not allowed to use the car for hanging out with his friends. While that seems excessive he agreed to it. The only way for him to be able to use the car hanging out is to buy his own car. And that goes back to being financial responsible – because of the added pressure of financing and insurance he realized the stress of being able to afford for the car. I was surprised that he thanked me – he told me that if I’ve given his the car when the turned 18 he would not be where he is today. He has seen some of his friends who received a car for their birthdays turn out to be losers today as they have no concept of value and what is right or wrong.

Family Values

Our family of five has been very close. Whenever possible we always do things together and celebrate all milestones together. For this reason we never fight. Some may argue that some arguments or disagreements are healthy; I personally disagree. Arguments can escalate quickly and not everyone can forgive and forget easily. Our family likes to joke around and even when we have disagreements they tend to go away really quickly because we downplay them through laughter. As an example, my oldest son will be 21 this summer and all the years with his younger brother who is 3 years apart only had a verbal spat once. All my kids have strong bonds and continue to have good relationship with each other.

Every parent always worries what is the right thing to do or how to raise kids. While there are help books or various advice you could seek from friends or relatives every situation and every family is different. For me having hearing from my son that I’ve been doing things right is a good pat on the back and that I’ve done what I set out to do – by being a good parent and raise good and responsible kids.

Side-Hustle De-bunked!

Leave a reply

Over the past few years I have been trying to get a side-hustle to supplement my income. Not that I need it but I find that a second stream of income appealing and after reading so many great “success” stories I say to myself “why not?”

If you are reading this you are probably questioning the success rate of a side-hustle or you are interested in jumping on the bandwagon. Who is not interested in earning extra cash beside their full-time jobs? Well, today I’m going to tell you that not all side-hustle are successful. Some people were able to make a good amount of money from side-hustles and I do not question the validity of these claims.

A few months ago I read this article that claims some side gigs can make you richer than a full-time job. I immediately click on the link and start reading every words. As I was reading the first job it listed, I started to question if the writer who wrote this was insane.

I work professionally in a bank and I can tell you that the article would not apply to me because no matter which side-hustle that I want to do would not make me richer than my current full-time job. Let’s de-bunk some of the claims.

Time Commitment

The definition of a side-hustle refers to a job that you take on on the side. Usually it is for full-timers already have a job and is interested in doing extra work to earn extra income. Unfortunately there are only so many hours in a day and usually the work hours are in the day. So for full-timers like me in order to have a side gig I have to commit to a second job after 5 PM. That is not going to happen because by the end of the day after by banking job I get too tired to do anything else. As a husband and a father, I would rather use the free time to connect with my family than strangers.

Building Clientele

Understandably that people may have been more successful than others when it comes to second gig. However, in order to be successful you need to have enough clients to make the extra income. Let use online tutor as an example, you will need to have enough students to attend your class in order for you to be successful. That is easier to say than to actually make it happen. If you are thinking about that job, there are already hundreds of people in front of you already doing the same thing.

Subject Matter Expertise (SME)

If you read the article that I refer to some of the jobs require certain expertise in order to earn that rate. Let’s take one of the jobs listed as an example, a bookkeeper or an online instructor, how many of us can claim that we are a bookkeeper or great online instructor? We can fake it but sooner or later we would get caught and lose the credibility. I am quite handy when it comes to fixing certain things around my house; however, I will never be able to claim that I am a certified plumber or electrician.

Who wouldn’t want to be rich one day. Unfortunately, all the side-hustles that the internet is listing may never lead to immediate wealth. We need to take all these advise as a grain of salt because while some jobs may help some gain some extra income but I can tell you that for the majority of us they are just wishful thinking.

Investing – To Hold or Follow the Crowd?

Leave a reply

The last few months had been a huge roller coaster ride when it comes to investing in stock markets. The increase in Covid-19 infection rate together with the economic conditions have such profound effect on the stock market that making a profit is a hit or miss.

Investing in stock market has its own inherent risk. One one hand you can earn some great money if you made the right choice. On another hand you can easily lose everything if you made the wrong choice.

If you follow my earlier posts, my investment strategy is a mix. I have a diversified portfolio to reduce the risk of losing all my investment. Besides investing in well known stable companies, I also invest in bonds and stocks. I only invest less than 30% of my assets in volatile stocks.

Here is what I noticed on my portfolio for the last 2 months. The stable companies such as Microsoft or Apple continue to do well. Stocks that pay dividends are also stable and had very little volatility. In fact I did not lose any values on these stocks, bonds and ETFs.

On the other hand, the stocks that go up and down the most are those that do not fall into any of the categories I noted above. Stocks such as meme stocks or those that do not pay dividends. Some of the stocks that I own are Pinterests, Snapchat and pharmaceutical companies. These stocks continue to lose value as more investors continue to buy and sell at higher volume. In total, my portfolio for this portion of the stocks did not do as well as I hope.

Luckily I diversified my portfolio that the risk for it to lose is minimal. In fact, I learned that by holding onto the stable stocks, I continue to make capital gain on them. Unfortunately, some of the value was negated by the volatile stocks.

Here is what I learned since I started investing actively. Sometimes it is safer and more profitable if you just invest in stable stocks and hold them forever. The value of these stocks continue to increase while stocks that are being bought and sold tend to lose value at a higher rate.

If you are interested in investing stock market, I highly recommend that you do some research on the stock market and the companies that you plan to invest in. Do diversify your portfolio to minimize the risks and finally if you want to “follow the crowd” do put only a small percentage of your portfolio on risky stocks.

Should You Pay Off the Car Loan Early?

Leave a reply

My son recently bought a car of his own so he can use it when he goes to Rutgers University. The journey began earlier in the summer when he starts hunting for his perfect car. But I brought him down to earth by explaining the process especially applying for an auto loan.

So he started applying for a pre-approval loan through several banks and he was rejected because of his lack of credit history. One bank approved a loan under pre-condition with high interest rate. He was shocked of how difficult it was to buy a car.

I stepped in and helped him to get the loan from the car manufacturer using co-signing. We were able to get the loan with low interest rate. We were quite happy with the loan condition because of low monthly payment and there is no penalty for paying off early. The car dealership finance manager asked if we plan to pay the loan off early. That is a very good question of which I’ve thought of when I had two car loans prior to this.

There are pros and cons when it comes to paying off loan early. The obvious pro is that you get to be debt free early. This is especially true for someone who hates to carry a debt. But that does not mean that you will be totally debt free because everyone carries other debts (i.e. mortgages, credit cards etc.). Another benefit of paying off the car early is that you get to own the car early and you are not required to have a comprehensive full insurance coverage, which is an added saving.

Other Obligations

Let’s address the elephant in the room. The car payment is big chunk of anyone’s budget. Besides our daily obligations such as grocery bill and fixed cost, car payments can be a big portion ofour our monthly expenses because of the condition of the loan. Unlike a mortgage which could be 15 to 30 years loan, auto loan is usually 5 or 6 years loan. That means that monthly payment could be high depending on how much you are borrowing.

You can opt to pay more every month so you can pay off the loan early. A mortgage will reduce its monthly payment when you pay more upfront. BuyAuto loan is fixed every month regardless how much you pay more. The only benefit is that it will reduce the period of repayment by several months. So paying more every month will not likely to make a dent on your monthly obligations.

Affordability

Before going through this point, everyone should ask the question why would they need to have a new car on their driveways. Cars today rarely break down. The quality of the cars have improved dramatically that most will last 10 years before breaking down. Are you ready to absorb another cost when the benefits of owning a car rarely outweighs the costs?

If you can afford to pay for the car then the answer to paying off early makes sense. It is highly recommended that you make a proper budget to ensure you can afford the car payment. Once you are aware that you can afford an extra payment, paying more on the principal will help. However, as I alluded to above it will hardly make a difference in the long run unless you pay extra every month.

The Return

My son was able to get a good rate on the car loan. After paying off the loan in 72 months, it will only cost him $1,500 for the entire loan. If he pays off the loan early, it may lower the cost by a few hundred of dollars. However, he could repurpose the money for something more beneficial. For example, if he invest the $7,200 (assuming that he pays $300 every month for the next 2 years) with an average monthly return of 12%, he would have made a profit of about $2,000 by the end of second year. Obviously this is being optimistic but history shows that it is possible to obtain 10% return annually based on conservative stocks. Keeping the money in investment will continue to grow year on year.

However, if you have a high interest auto loan then it may makes sense to pay off the loan early. This should only be done if you can actually afford to forgo the money otherwise that you can use it for something else. Another option to minimize the cost of the loan is by taking a personal loan from a bank with lower interest rates.

Everyone’s financial situation is different. Paying off the auto loan early may make sense if you have a large outstanding debt or if you have the means to do so. It is important to consider if paying off would benefit in the long run. The best way to manage any auto loan is simply not to have it. If you can continue to use your existing car for a few more years there is no reason to obtain a shiny new car with a large price tag.

Why Cryptocurrency Should be Killed

Leave a reply

If you are following the financial markets, I’m very sure you have seen or read about cryptocurrency. It is a digital currency that was created and became public available in 2009. The value of cryptocurrency is volatile and has gone up and down within a very short time period.

I’m not going to try to explain what it is because I do not have the necessary understanding how it works other than that it requires a huge amount of computing power to solve a mathematical problem. Even if I could, I would not be able to explain it in this post. For a full definition, please refer to Wikipedia on Cryptocurrency.

My career has always in banking and that means traditional ways of managing value of money. Cryptocurrency is on the other side of money where there is no value but entirely speculative. There continues to be a lot of arguments cryptocurrency is the way of future. I don’t disagree with new technology and new methods and valuing certain materials, but I do not agree with cryptocurrency and I believe it should be killed.

Before you jump on my throat in defending the existence of cryptocurrency, please consider my points below. After reading them I hope you agree with me that cryptocurrency is not an optimum solution.

Value

Cryptocurrency such as Bitcoin does not hold any value and it is entirely speculative. The value exists when the traders buy or sell at an expected value. I understand that today’s money such as US dollars no longer pegged to gold, but the value of a single dollar can be pegged to other currencies and allow each currency to be exchange with one another. If you watch the value of Bitcoin in the last several years you will notice that its “value” swing wildly. As an example, if a dealership is willing to accept a Bitcoin and sell a car that costs $20,000. The same Bitcoin coin could worth $50,000 or $50 the next day.

Lack of Regulation

The regulators are slow in catching up with cryptocurrency. It is not because they do not understand or know of its existence. It is because they are no able to regulate it when its value lives in the cloud on a database. Additionally, now almost everyone can create their own currency have it publicly traded. We all know about Bitcoin. Now there is Ethereum, created by a teen as a hobby and Dogecoin as a joke. Additionally, cryptocurrency is preferred payment in the darkweb where online crimes take place.

The End of the World

Yes, you read the title right. Cryptocurrency could mean the end of the world. No, I’m not referring to how one could use Bitcoin to buy a nuclear bomb. I’m referring to how cryptocurrency could plunder the world into darkness because of the resources it uses to operate. For example, Bitcoin uses 13GW (gigawatt) of energy per year. It is as much as the entire country of Netherlands uses in a year. With the continuous stream of people jumping on the bandwagon to mine the coins, its use of energy will continue to go up to the point that it will overwhelm the power grid. The natural resources around the world are finite which makes mining of Bitcoin unsustainable in the long run.

Shortage of rare earth minerals is another concern as computers components are being gobbled up by the miners. Mining cryptocurrency requires a huge amount of computing power to solve the mathematical equation and to do that miners are using computer graphic cards to do the heavy lifting. There is a shortage of microchips and graphic cards worldwide today. This resulted in artificial increase in prices of these components. The downstream effect is a lot of consumers are having difficulty getting these items. It could mean life or death to some if the supplies of this commodity dries out.

Another shocker that I read recently of a new cryptocurrency on the block. Chia (no, not the chia pet) is a new publicly traded cryptocurrency. This currency can fill up over 3.6 EB (exabytes) of hard drive in just a few weeks. For illustration purpose, personal computers 30 years ago used to come with a 40 MB (megabytes) hard drive. It took that long for personal computers to come with 2 TB (terabytes) of hard drive today. Network servers usually contain petabyte of hard drives. Now imagine just a week to fill up 1 EB of hard drive.

I understand that how one would be interested in cryptocurrency because of its potential wealth that it could generate. However, I truly believe that cryptocurrency could be the downfall of modern society. The harm that it causes the environment alone should be the reason why cryptocurrency should be outlawed.

Anyone who is into cryptocurrency should heed the old saying that “If it is not broken don’t fix it”. Cryptocurrency is not revolution but it is a fix that no one asked for. Albert Einstein regretted his decision when he discovered nuclear energy because of its risk posed to the world. The creator of cryptocurrency, Satoshi Nakamoto, is claimed to have disappeared after he release his white paper. As of today, his identity remains unknow. Perhaps he felt the same as Albert Einstein.

How Do You Become Debt Free from Credit Cards

Leave a reply

Getting in debt is as common as getting a cup of coffee in today’s modern world. The debt that most people incur continue to be increase at a faster rate that the money that they can bring it. The end results is personal bankruptcy is on the rise, especially in difficult times like these as more people are borrowing more on credit.

Increase in debt can be attributed to several factors. If we dig deeper we can all point out to the creation of credit cards as the major factor. Credit cards was introduced by Diners’ Club in the 1950. The premise of credit card is it allows consumers to purchase items by borrowing short term from the issuer of the cards with the agreement to repay back in the near future.

Most adult consumers today have at least 3 or more credit cards. If each card carries a credit limit of $5,000, a person can easily be in $15,000 debt or more easily in a very short time. The major problem with credit cards are that they allow the borrowers to carry forward the balance to future dates as long as the borrower continue to pay a minimum balance every month. The interests that credit card carry is usually high and the more the person borrow the more the person will have to pay in the future due to compounding interests.

As more and more adults continue to borrow from credit cards, the likelihood for the borrowers to pay off the debt becomes more and more difficult. This post is to touch on several strategies on how to become debt free. There are a lot of articles out there describing how one can be completely debt free in a very short time. However, I can tell you from first hand experience that this is close to impossible unless you are very discipline in your expenses.

I remember when my son was growing up he told me that we will never borrow money from the banks and will be debt free forever. In an ideal world this is possible. However, in today’s modern world, being totally debt free is a dream. Regardless how well we plan our finance, carrying certain debt is unavoidable. The question is how do we control our debt before it becomes out of control.

Get to Know Your Own Finance

Before we incur any debt, you need to be aware of your current finance. That includes if you have any outstanding debt, your current income and if you have any disposable income. Based on you current asset, you can easily determine if you are able to purchase the shiny new car you always dream off or if you can treat yourself to a vacation in the Caribbean. One way to find out if you can afford to make such purchase is by doing a detail monthly budget. Keep in mind that it is a budget and it should be used as a guide. My past experience showed that budgeting rarely work because there is always unforeseen circumstances that make sticking to the budget impossible.

Pay Off Credit Card First

Credit card debt is considered short term debt; mortgages and car payments are considered long term debt. Long term debt must always be paid off first; any leftover money that you have should go to credit card debt because they have high interest rates. The longer the debt the more expensive it is. To prevent from incurring any more debt, I recommend that you place the credit card with the highest balance in the drawer so you are not tempted to use it again. Once you finish paying off one card, continue paying off another card using the same strategy.

Consolidate Balance

One other option to managing paying off credit card is by consolidating the balances of the credit cards into one. You may consider using some of the debt consolidation services available online. Some do carry some fees so it is important to do some research and try to understand the terms and conditions. Consolidating the debt in one account allow paying off the credit card manageable. Some services allow you to negotiate a lower interest rates depending on your credit history. This will allow you to save thousands of dollars in the long run.

Use Cash Only

Credit cards are necessary evil. They are convenient especially for emergency use or if you need to purchase something very expensive. However, more and more people use credit cards to make all purchases; carrying cash around is no longer a practice. Using cash allow us to limit our purchase because we can tell how much cash we have and if we are able to afford the purchase.

Cancel the Credit Cards

Don’t be tempted by all the freebies or low interest rates that credit cards offer. They are designed to entice consumers to open an account. Instead of opening more credit card accounts, you should close or cancel the accounts as soon as you pay off the debt. Keep only one or two the most for any purchase that require a credit card. The added benefit is it allows managing monthly payment easier too.

There are a lot of apps out there which will help you manage your finance and expenses. However, I find that most require personal information and require a considerable amount of time to manage all the inputs. While they may help, I believe the time investment is too high to worth the effort.

There is no real magic bullets when it comes to managing finance. Reducing debt simply falls into two main categories, avoid temptation and be discipline in paying any outstanding debt as soon as possible.

The Difference Between Saving and Investing

Leave a reply

All of us want to grow our hard earned money. So at early age we were taught that the only way is to open a savings account and save everything in the savings because it will grow. However, as finance continue to progress, this advice no longer applies. For one, the interest rates are so low and the rate of return is so minuscule that it defeats the purpose of saving money in a savings account.

Don’t get me wrong. Saving money in a savings account has its benefit too. For example, it is usually the source where you can use to pay for your daily expense or your “rainy day” funds. What you should not do is to use your savings account as your retirement income. Another other option to grow your money is to put the money in an investment account. History facts indicate that the money in investment account grow at a faster rate that what you have in the savings.

I’m not going to defend one over the other because both have its pros and cons. The better strategy is to have both. The question is how much you put in both. There is no right or wrong answer because it depends on personal lifestyle and your current condition. For example, if you are now in dire situation where you may not be able to afford food on the table, putting money in the a investment account is not advisable. However, if you have sufficiently money saved to last 6 months should you lose your job, then you should consider move some of the funds to an investment account.

Risk

Investing in stocks (or any financial instruments) carry a higher risks than saving your money in a savings account. The major risk is a potential loss in value. On the other hand, the money you save in savings account will not lose value unless there is hyper-inflation in the economy. While the risks in investment exist, the pros sometime may surpass the cons. The best strategy is to invest only the money that you are willing to loose. You should never borrow money to invest and never invest your entire life savings in any investment account.

Rate of Return

Banks usually guarantee a return on the money you save in the savings account. These are called interests. However, the rate of return depends on the interest rate controlled by the Federal Reserve Bank. The interest rate today is at 0% because the Fed is trying to stimulate the economy by making borrowing money cheaper. On the flip side banks are offering less interests for existing savings account and that means the rate of return for the money you save is also less.

The rate of return on investments continue to on an upward trend despite the negative trend on the economy. As an example, a $6,000 dollars that I invested in a traditional IRA account in early March has a balance of $6,400 today (early June). Assuming that there rate of return is the same for the remainder of the year, that is equal to almost 20%.

Liquidity

Money saved in a savings account is considered a liquid asset. That means that it can be easily changed into cash and be used immediately. Depends on the type of investments, some assets are not easily converted into liquid asset. Examples such as retirement accounts (i.e. 401K and IRAs). Withdrawing money from these accounts could involve penalties and high tax rate. Money invested in stocks can be converted to cash but usually take several days depends on the banks or brokerage firms. If you are in an emergency, it could mean life or death.

It is important that everyone of us should consider these factors and understand one’s financial condition to determine what is the right mix when it comes to putting money in savings account and investment account. Both accounts have pros and cons. If you are interested in growing your hard earned money, putting the money in investment accounts is a “no brainer”. However, if you want to have a peace of mind and willing to forgo the potential income that investment accounts may bring, savings account is your only choice.

Stocks Buyer / Seller Remorse

2 Replies

A Wall Street sign is pictured outside the New York Stock Exchange in the Manhattan borough of New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri – RC2HAJ9BI6XP

If you have been following the stock market, it has been swinging wildly from one end to another end. All of us who are in stock investing obviously want to make money by buying low and sell high. However, for the past several weeks it has been a lot more difficult. Looking at my portfolio, most of my stocks (particularly in the equity) are on the negative side.

The question that I am trying to answer today is when do you actually buy or sell the stocks. It is very difficult to predict what the market would do consider because of my factors. Even though some of the businesses are doing well, their stocks are not. While some stocks continue to do well even the market condition says otherwise.

If you follow my blog, I put a majority of my investment in safe stocks such as Microsoft and Apple. The other holdings that I have are ETFs which are relatively safe. One third of the rest of my assets are in stocks that swing wildly; these are the stocks that I am willing to buy and sell and these are the stocks that I plan to make most money from.

The past several weeks have been difficult because majority of the stocks that I plan to sell are being depressed. Not only I am not making the money, if I sell them today I would incur some loss. What strategy should we use when it comes to these holdings?

There were a few times when I realized that some stocks I bought went up enough to make enough profit. Immediately after I sold the stock, the stock continue to climb. Conversely, there were some stocks went up to a level that I thought it was worth to buy. Instead, those stocks continue to come down to a level that I’ve ever seen before. Is that what we call buying / selling remorse? All I know is I feel like kicking myself on the behind.

I don’t think there is one way to deal with the fluctuations. Some would argue that you need to study the company, understand its market share and consider its prospect. Unfortunately, not all of us have the time to really study each indices. Even if you spent those time studying them there are not always spot on. One good example is the NIO, the electric auto company from China. For the past several years NIO was a good buy because of its prospect. Its stock price went up as high as $63. The first quarter of 2021 showed increased sales and that’s good news. Instead of expecting the stock price to climb up it continues to drop.

The strategy that I continue to follow is quite simple: Hold. The portfolio that I have continue to include companies that are more stable. Some companies such as those in the pharmacy are not as stable but they make up a small percentage of my holdings. The risks of my portfolio are considered low. My only option is to continue to hold these holdings and hope they will go up.

I would love to hear your strategy when it comes to dealing such uncertain market conditions.

Do These 5 Things with Your Money Now!

Leave a reply

We are a spend culture where we tend to buy things we don’t need to satisfy our “wants” but we rarely think if they meet our “needs”. Obviously the money and our available disposable income is finite. Once you spend it, there is no buyer’s remorse. Some things you can return but often than not they come with a cost.

Today I’m not going to talk about what we can spend because that defeats the purpose of my blog, which is to plan for retirement. My goal as a financially responsible person is to be able to save enough so I can retire comfortably. That is easier to say than actually doing it. The best advise I can give is to start small and hopefully you will get a snowball effect whereby the money you save will continue to grow exponentially.

You are reading this probably you are very interested in investing your money or how to plan for retirement. Trust me it is never too early when it comes to these two subjects. I wished someone told me earlier or I could have been a millionaire (on paper) today.

Retirement Plan Contribution

Without a doubt, investing in retirement plan such as 401K plan or IRAs is the most important thing that any of us should do. The retirement plan will be your only source of income when you retire. If you still believe that Social Security benefits will be available by the time we retire, you will be in for a big surprise. The last time I read that Social Security Administration will be bankrupt by 2030 – that means all the contribution that we gave to SSA from our paychecks will disappear.

The retirement plans are what I consider out-of-sight/out-of-mind. Contributing to these funds is so seamless that you would hardly notice that it was taken out of your paycheck. The real benefit is the retirement plans are tied to stock market and historically it has been going up since the stock market was tracked. Naturally the amount you invested in the retirement plans will only go up. To give you a perspective, the average price Dow Jones index increased by a whopping 13,484% since 1930.

Investing in Stock Market

With the interest so low I’m not going to recommend saving your money in a high yield savings account. In the last several years, my combined savings in PMMA and CD of nearly $70 thousand only earned less than $200 annually. The money I invested in stock markets for the last 3 years in Robinhood has grown in value by almost 45%.

Investing in stock market has its risk but if history tells us anything, the risk can be mitigated if we understand it well. Additionally, my portfolio is telling me that the benefits outweigh the risk. So don’t wait. The earlier you invest the likelihood the value will increase is high. Before jumping head first, do read some of my posts earlier on how to mitigate the risks and what new investor should do.

Save in College Savings Plan

This is extremely helpful for anyone who have children. The college savings plan, also known as 529 account allows investor to invest in certain fixed funds and allow it to grow in value. When you need to pay for higher education, you can withdraw it without penalty tax free, as long as it is used to pay for education purpose.

The great thing about the 529 account is you can set it as recurring investment every month, again another out-of-sight/out-of-mind investment vehicle. My son started going to Rutgers University and I can tell you what a life saving the 529 account is. I believe the fund for my son account grown at least by 40% since I started investing 10 years ago.

Pay Off Credit Card Debt

Paying off debt is always the first advise any financial planner will tell you and it is no brainer. Debt, particularly credit cards, has interest rates that are usually high. This kind of debt eat in your disposable income by making the loan more expensive. For illustration purpose, the expensive handbag you purchase may have cost $4,000. By not paying the credit card in full, the cost of the handbag could become $6,000 depending on when you pay the debt off.

The biggest downside of not paying off credit card debt is the lost of income. Instead of paying off the interest on the credit cards, you could have used the money and invest in Apple stocks. Imagine the amount of money you could have made by investing in Apple stock 20 years ago. I did a quick calculation and its stock went up by about 3,900%.

Shop Smartly

This goes to back to my opening remarks, the “want” and the “need”. We all need a car for transportation purpose. However, do we need a car for convenient purpose or for self-image purpose? For example, a small SUV cost about $30,000 in today’s market while a Tesla Model X costs up to $90,000. The difference in $60,000 could be invested in stock market and let it group. There are just too many consumers who all into the “image” trap and never thought of their own personal finance. Most did not consider the additional cost of insurance and maintenance when it comes to expensive cars like the Tesla.

Understandably that purchasing something we don’t need gives us a sudden satisfaction. However, the feeling will go away very quickly and we are stuck with a huge debt that will need to be repaid.

Do These 5 Things to Ensure You Don’t Get into Debt

Leave a reply

For the last several decades the rates of Americans become more in debt have increased dramatically. With the creation of plastic money (credit cards) the debt ratio continue to climb higher year on year. The pandemic also accelerated a lot of consumers who continue to spend on credit to seek relief from the unfortunate worldwide event.

I remembered one proverb that my mom told me when I was in my teens. I’m not sure if this is a Chinese proverb but it definitely applies to getting into debt and how to get rid of debt. It goes like this: “It takes 3 days to learn bad behavior but it takes 3 years to learn how not to be bad.” Debt is very similar – it takes a very short while to spend money and get into debt, but it takes years to pay it off.

No one likes to get into debt but there are certain circumstances that force us to assume the debt. As an example, no one has the upfront money to buy a car or a house. Naturally we take out a loan or a mortgage so we can afford the shiny new car or the big house. Some of these debts are perfect rationale, but there are others that you should always avoid.

I’m going to list several ways on how to avoid getting into too deep of the debt. However, I’m not going to provide you the magic bullet on how to get out of debt as this is a different subject altogether.

Check Your Credit Annually

At a minimum you should check your credit score annually. Credit score (or FICO score) is what creditors such as banks use to make sure you are a reliable and trustworthy borrower. Additionally, the credit score also measure if you have the means to pay off any debt by checking if you have any revolving credit – the more revolving credit you have the riskier you are. Checking the score is important because it could put you in the “risky” bracket which makes borrowing money from banks or lenders more expensive. The costs of borrowing that money could be thousands to tens of thousands depends on the amount that you need to borrow. As an example, when I bought my first car I did not check my credit score. Unbeknownst to me my credit score was terrible because of a store credit that I opened hand the wrong address. Because of the non-payment of $200 that I put on credit, I was put in the “bad credit” group and received a high interest rate. A $200 dollar purchase ended costing me almost $7,000 in extra interest that I have to pay.

Pay Off Balance

Always pay off any balance on the credit cards. Believe it or not credit cards carry the highest interest rate of any borrowing. If you have a balance on your credit cards, never pay the minimum. The interest from the credit card will continue to compound and the ending balance will continue to go up. Paying off the credit cards not only help your credit score, it also builds good habit of controlling your spending, which brings up the third point.

Buy Only What You Can Afford

We should only be buying things that we can afford. Never buy anything that is beyond your means. For example, if you work in retail store and make only less than $30,000 a year it would be a bad idea to purchase a car. Not only a car will need to be paid monthly, you have also need to consider the cost of the insurance and regular maintenance of the car. The total cost will exceed what you could afford based on your annual income. A good example is my neighbor who bought a Mercedes SMG seven years ago. The price of the car was $150,000. My neighborhood is the regular suburb and no one was a millionaire. His Mercedes started to have problems and was always in a shop. He sold the car 5 years later. And two years ago he was found guilty of failing to file $600,000 in income. He drives an 8 year old used sedan today.

Save First Spend Later

I can’t stress this enough. The money you earn every month is not free money and it is not bottomless. Once it is used up, it is gone forever. To ensure you do not get into debt, I highly recommend that you “pay yourself” by saving it in a high yield savings account or investing it in reputable stocks that pay dividend. Once you have those money saved, they are out of sight and out of mind, which creates a mindset that you no longer have those disposable income available to spend and thus creating less debt.

Don’t Treat Yourself

This is very different from “paying yourself”. I’m referring to spending unnecessary because you feel you deserve it. I’ve heard and read of how one spends lavishly on a vacation or buys a brand name handbag because he believes he earns it after working hard for the past year. I’ve even heard this from my younger sister when she said she wants to treat herself well. Well enough that she got herself into $40,000 in debt. It took her almost 10 years to pay off the debt. In the same 10 years if she invested the same $40,000 in Apple stock 20 years ago, she would be a millionaire today.

Debt is a good thing if it is being handled correctly. For example, without carrying a debt you won’t be able to build your credit score to demonstrate that you are trustworthy among the creditors eyes. However, if you start building too much debt that you can’t afford to pay off the consequences could be harsh. Not only you will not longer able to borrow the money that you desperately need you could lose everything that you own today.