Stop Milking Me! - Cow’s Journey To Financial Freedom

I think I am buying a house at the worst time right now. Mortgage rate climbed 6 consecutive weeks and hit the highest level since June 2004. After a 5 year red hot housing booming fueled by the low mortgage rates, the market finally started to cool down. However, the sellers don’t realize that and still listed their homes at the “red-hot” prices. It will take a while for the market to adjust to the “cooling down” price. But for now, it only means tough negotiation since the sellers are still stubbornly believe that their homes will go up 10% a year.

So how am I going to protect my hard earned money from this uncertain market? Here are three tricks I am trying right now and hopefully I can ride through the downturn of the housing market.

Tip 1: Give Seller A Higher Home Price
You might flip: What are you talking about?! Seriously, if you are buying a fairly expensive home, this strategy might make sense.

Here is how it works: instead of bargaining your ass off on the house price, ask for the seller to pay for the closing cost.

I am currently negotiating a deal with the seller. So let’s use my potential home as an example as how much I can save by asking for the closing cost vs. bargaining down the home price.

The numbers:
Home Price: $365,000
Total loan amount (5% downpay): $346,750
Average interest rate: 6.25%

Let’s say that I am trying to cut down the home price by $5000, an average 6.25% mortgage rate translates to
$29 a month savings
$348 total payment savings a year.
$1724 savings on interest over 5 years
$3034 savings on interest over 10 years.
Plus $250 (5% of $5000) down payment saving.

Let’s say instead of slashing $5000 off the entire home price, ask seller to pay for the closing cost not exceeding $5000, which is the same thing for the seller. I can then use that money to buy a much cheaper loan. The following clip shows the differences between high fee loans with low interest rate vs. low fee loans with higher interest (from www.interest.com).

Let’s say I take the 5.75% loan with $6090 fee, I am looking at:

1. $111 savings per month
2. $1338 savings per year
3. $10.415 savings on interest over 5 years
4. $18958 savings on interest over 10 years.

Although I do realize that this method works great if you are borrowing a large sum of money. I guess for a $150K home, it’d be nice to cut down $5000 on the home price then saving it on a loan application.

I will talk about the other two tips in the next couple of days.

I have been doing house hunting like crazy these days. After seeing a few dozen homes, I came across this very unique 2 bed/2baths Penthouse:
Living room:

Fireplace in Master Bedroom

360 degree Deck view of the Colorado mountains

If you are wooing and wowing, that was the exact reaction I had when I saw this place. I have always planned on buying a 3 bedroom single family house with a yard because this is the type of property that holds most of the values. Plus, with basement and yard, you have a lot more livable spaces and it is much easier to turn around and sell it to a family. Just to give you an idea what you can buy with the same amount of money in the same neighborhood, here are a few pictures of a 3bed/2baths place nearby:

But this Penthouse is really one of the kind! So, here is the dilemma: Should I pour my money into a unique property that is a lot smaller and less practice or stick with my original buying principle to get a regular single family home assuming the same price and same neighbourhood? What do ya say?

After being on the road and worked crazy hours for a few years, I finally had a break to chill out at my home office. So I dug out my insurance card and visited a dentist for the very first time in the past 2 years.

Turned out, my gums are all infected and I have lost some bone structures too. Too kill the infection quickly, I have to go through a couple of procedures to get treated with injected antibiotics. Since the insurance doesn’t cover very much for this kind of treatment, I am looking at &750 out of pocket payment. OUCH! Talking about another unexpected expense.

Well, it is actually part of my fault. According to this article and of course, my dentist, this disease can be prevented by just regularly flossing. Although I did a good job not having any cavity lately by brushing my teeth regularly and using mouthwash daily, I am a floss lazy ass. So here I am, a $750 bill + funny looking mouth for many days as the penalty for not flossing regularly.

So do yourself a favor - hit nearby Wal-Mart and get a few flosses. That could save you a lot of money and headache. As a bonus, you will have a full mouth of healthy teeth!

Spring is here and it seems that everybody is on the market selling and buying homes these days. Since my schedule unfortunately syncs up with the real estate season (I need to move out of my current apartment in Sept), I have to join the crowd and start looking now.

Location
Like I wrote earlier, I am a strong believer in location. My criteria are actually very simple but rigid:

1. A well known and popular neighborhood that most people would like to live in.
   When I bought my last Chicago area home, I purposely chose Naperville, the town which was rated as number 1 in the nation to raise a family because of its kids friendly environment and extraordinary school system. I sure made money when I sold it. So, this time, there is no exception either. It must be an ideal place that is desirable by a lot of people. The winner? Washington Park, Denver. It is minutes away to Downtown and Cherry Creek shopping; it has a history and this fantastic recreation heaven shown in the above picture. Best of all, you can actually take an easy walk to the park, mom-pop coffee shop or the nearby Gaylord stripe to party till 2am. And school system is fantastic! You can’t go wrong with this place.
2. Location in the neighborhood.
   Even within a neighborhood, there are differences in terms of location. I am staying away from the busy streets or crowded lots. I looked at one of the homes last week. From the backyard, I can see everybody’s back windows and what they were doing. I turned around and ran. I am looking for a cute home situated on one of those quieter streets, not too far from the park, has a private yard and have at least a few feet room from the neighboring houses.
3. School System matters.
   Although most of the residents in this neighborhoods don’t have school children, I am a strong believer that no matter what, the schools in the area can’t suck too bad. There is another neighborhood on my screening list called Highlands. It is a trendy and a fast growing community, but the schools are beyond terrible. I checked the scores on greatschool.net and only a quarter of the 5th graders can read and do math. Unless there are strong evidences to convince me the place has great growth potential, I may not feel comfortable to buy in an area where majority of the kids can’t receive proper education.

Potential to Flip
Given the special circumstances of the communities I am looking at, I may not want a home that needs major repair since most of the homes are built before 1920’s. I read enough books about “knocking down the wall to make the open space” type of theory. I suspect knocking down a wall in a 1980’s home might be fine, but knocking down a wall in a home built in 1895 may sink the entire house. So I am looking for a home that has larger rooms and space and need the following updates:

• upgraded kitchen
• upgraded baths
• need new paint
• Full basement with the potential to finish up
• Need new floor
• An extended sunroom may be added
• Landscape needs to be updated

Since I am a newbie, I don’t want to touch the guts of the home. And for now, I will stay away from my “knocking down the wall” theory until I talk to the professionals.

10 homes were looked at last week. One was perfect but was gone even before we had a chance to make an offer. There are 11 to go this week. We’ll see if there is any sweet deal… Stay tuned…

The trustees of Social Security and Medicare just estimated that the fund will run out of the money sooner than expected. So if you are a Generation Xer or younger and count on Social Security as part of your retirement, you are going to be very disappointed.

By 2017: System is not taking in enough in payroll tax to cover payments
By 2040: Social Security trust fund will be exhausted. The System will only be able to pay 74% of currently promised benefits.
By 2018: Medicare trust fund will be depleted

According to this CNN article, although the debate has been going on for a while as how to fix the system, nothing has been done and the debate itself is currently put on hold and nobody in the White House seems to care about this issue. So mostly likely, the corrective measures will include one of both of the following: tax increases or benefits reduction.

Yes, I am kind of pissed at what I see. I make more than 94K a year, meaning, I pay maximum amount of Social Security and Medicare each year, plus the 7.65% that my employer matches. You are talking about tossing 15.3% of my wage in a basket that is promised to be mine but may not be there in 30 some years.

Most of the Financial Advisers I have encountered suggest me not to include Social Security in my retirement plan. The whole purpose of the program is to pay tax now so we can collect our retirement benefits later. Now, seeing the promised benefits vaporizing little by little because of the government failure, I really feel that I am robbed. What is your take on that? Do you count on or partially count on some payouts from Social Security for your retirement?

If Social Security reform does happen, I would opt for privatizing the funds. Give me that 15.3% and I will invest the money myself. That’s like another 401K! It means a $50K salary can generate $7500+ additional savings each year! And I am sure a lot of us are capable of managing the money ourselves and do a whole lot better job than the govoernment.

Two Personal Finance Bloggers are talking about making more money vs controlling more spending, which one is better in terms of achieving financial freedom?

It’s very interesting to read the differences from their opinions while comparing their backgrounds.

Blogger A is a 37 year old lawyer. Based on the comments he left on other blogs, this guys’s networth is too large to be disclosed. And I assume he owns or jointly owns a law firm (just my guess).

Blogger B is a young software engineer who works for a company, just like majority of us out there.

Blogger A says:

What is your most valuable asset? You may be surprised. It isn’t your house, or your 401k, or even your 6-figure balance at Ameritrade (if you’re lucky enough to have one). It is your ability to earn an income. Over the course of your working life, your ability to generate income that can be saved and invested, will determine when you are able to retire, and what the financial quality of your life will be in retirement. No other factor even comes close.

If you want to get rich, focus on increasing your top-line.

Living Within Your Means is Important, but Won’t Make You Rich. Don’t get me wrong: keeping your spending under control is important. I have a number of friends who make several hundred thousand dollars per year, but who somehow manage to go through all of their income, and consequently have no net worth. However by and large, picking up nickels here and there by squeezing your cost structure it isn’t going to make you rich. Instead, controlling your spending is just what keeps you out of the poorhouse.

Even though compound interest is a powerful thing, if you only have a small asset base to begin with, it will only grow into a small number by retirement. The juice that really drives asset appreciation is the ability to invest a large sum of money. And the way you get a large sum of money, is by having a strong income (while controlling your expenses).

Here is the link to the entire article.

Blogger B says:

These posts state that many of us are concentrating too much on finding ways to save more money instead of finding ways to make more money. While I agree that increasing your in flow will impact your bottom line more than decreasing your out flow, I think they’ve tried to oversimplify things.

Sure, getting a 5% raise is much better than most every way to save more money in our daily lives. But the reality of it is, how often do you get a chance to get a raise or a boost in your income. My company gives raises once a year, so I have one opportunity to increase my income. Yes, I know, each work day is a chance to increase my income, but I strive to produce my best work every day anyway. That’s a given.

Just the other day, several people told me how excited one of our customers was after the demo of the new feature I put in our software. One person told me I needed to ask my boss for a raise. Is it that simple? I just consider it doing my job. It really ticked me off at my last company when employees would get recognized for doing something that they should be doing anyway.

[back on topic, please]
My wife is a teacher. Her salary is set by the county. She could be the best teacher in the county or the worst teacher in the county; her salary would still be the same. She doesn’t get merit raises either. They just don’t do that for teachers. So how can she increase her income?

It seems to me there are many more ways to decrease spending than there are to increase income. That’s why we all focus on decreasing spending. So, keep on saving money. And when your chance to increase your income comes around, be sure to get it for all it’s worth.

Here is the link to the original post.

Cow says (well, that will be me if you are not familiar with this blog):
I am not going to comment on both bloggers’ opinions. I just want to get back to the original topic about top line vs bottom line in a mathematical way:

Let’s say you make $50,000 a year. What is the max of the bottom line? Yep, $50,000 assuming you will eat snow, sleep on the streets and hide income from Uncle Sam. Bottom line must be less than your income. It’s common sense. What is the max of topline? Hmm, I don’t think there is a limit. It can be $80 above your income right now, like what I made so far from eBay and online Ads. Or it can be $5 million if I create a successful business.

I agree with both Bloggers, increasing topline is way harder than controlling the bottom line. And that’s probably why majority of the people are struggling with the bottom line while only those who dare to challenge the top line let the bottom line to take care of itself.

This morning I wrote a short post titled “Budgeting For Golf Clubs, Bridesmaid Dress, GPS and Bras”, I got the following interesting comment:

“How is it possible to spend $600 on bras? Not to be overly judgmental, but I find this expenditure ridiculous. Since I am not familiar with your blog, I went back and checked some of your earlier entries, including the one from March in which you wrote that “[a]fter working 10 years, I finally hit the moment that I can’t even pay my bills. … I had about four hundred bucks in my saving’s account.” If these are your financials, may I suggest that your spending habits are a tad bit out of control? “

Besides the fact that the person missed a lot of my posts and the facts that I save 45% of my paycheck, I own rental and commercial properties and I do have more than 400 bucks (they are just not cash I can use right away), he does have a good point: The 600 dollar bras does sound like ridiculous.

Yes, as frugal as I am, I would throw down 45 bucks on a piece of bra. But when it comes to a pair of nice shoes, I can easily pass and move on (Yep, not all women are crazy about shoes). My friend Paco who gave me his set of golf clubs is a very frugal person. He saves even more than I do. But these clubs are Taylor Made that probably cost him about a thousand bucks! And I am sure there are a lot of people out there who would spend hours cutting the coupons to save a few dollars but spend 50 bucks on a piece of whatever because it is important to them. You start to question what is frugality?

I don’t think there is a right or wrong answer out there. But I do believe that being selective frugal is probably the way to go. Like what I answered in my comment to that guy,

“As why I would spend 600 bucks on bras,.. I think as much frugal as we want to be, certain life quality we enjoy should not be compromised. My bra is one example…”

So if this is something you can live without, then go cheap and save the money. But if this is something that will make a significant impact to the quality of our lives such as the quality sexy bras or the recreation gear (such as Paco’s golf clubs and my rock climbing and snowboarding gear), then budget it and get it. After all, it’s all about how important that “stuff” means to us.

Have you ever had a financial madness month that you have to deal with a number of unexpected expenses and totally screw up your budget? Well, this month is my financial madness month.

After switching my job role recently from an on-the-road consultant to an office lady, my boss told me that I have to learn how to play golf. Apparently, the people I work with constantly work at the golf courses; discuss business strategies while taking a few swings. I was very reluctant to take on a golf club and secretly planned to ignore my boss. But after visiting a driving range, I actually like the sport quite a lot. So I decided to put my boss’s assignment back on agenda. The problem? Cheapest golf clubs cost a few hundred dollars!! Ouch!!

Not to mention that I still have to squeeze money to solve my bra problems and pay for the $230 bridesmaid dress for my best friend’s wedding. And that Garmin Streetpilot i5 GPS has been on my “most wanted” list for a while since I constantly got lost while navigating in the town due to my lack of sense of directions.

If I buy everything right now, I am looking at $500 for golfing equipment, $600 for my bras ( I did buy 3 VS bras since I wrote my last Bra Emergency post), $230 dress money I own to the credit card, and at least $350 for the GPS I want. Total price tag: $1650. My current month budget allowance: $650.

Well, I can certainly charge everything on my credit card and worry about the balance later. But I don’t want to do that. That’s how I got into credit card debt situation when I was younger.

So here is my plan to deal with the problem:

1. Golf Clubs: Found some used clubs for 24 bucks a set earlier, thanks to my expert golfer friend. When I got home today, I received a package. It was a whole set of top brand golf clubs from my buddy Paco! Holy Cow!! I was very surprised. Yes, I was helping him with his career earlier but not in my wildest dream that he would actually give me his favorite set of golf clubs!!! He could sell them on eBay for a handsome profit! So thanks to both guys for helping me out!
2. Bridesmaid dress is a done deal. That’s for my best friend’s wedding. So I am paying whatever it takes to look good.
3. GPS: Although I am still suffering from the frustrations of getting lost constantly, I think I can wait till the next month and budget that expense into my “toy” and “recreation” categories. For now, I just need to be very friendly with mapquest.com
4. Bras.. hmm.. bras… Like I said earlier, it is hard to give up your favorite brand. But I am going to give Target Generic brand a shot. Buy a couple of $13 ones and see how they fit. If they feel nice, I will mix a few more of them into my VS collection.

With this plan and my friends’ help and generosity, I am only spending around $450! I still got money left to drink a few more White Chocolate Mocha and treat my friends with some magaritas!

I attended an official eBay Univeristy’s “Advanced Selling For Serious Seller” course this past Saturday. Although the presenter was very good at telling real life eBay stories, I felt that majority of the stuff can be found on the web and other free sources. If you have already opened up a store or having been selling for a while, this course isn’t going to be advanced at all for you. So spend your 60 bucks elsewhere.

The only good thing about that course is the small booklet we received as part of the cource offering. Although they didn’t put a lot of juicy selling secrets in the booklet, it is a pretty comprehensive guide to teach you a structured way to sell, package, avoid negative feedbacks, dealing with unpaid buyers, etc…

A few tips I learned from the course that I didn’t know before:

1. Hot list. You can download ebay’s hottest sales each month via pages.ebay.com/sellercentral/hotitems.pdf
2. You can sell marked tome stones, but you can’t dig a stone out of a grave yard and sell it.
3. How to use second chance offer to the lower bidders since they are your potential serious buyers.
4. Combine shipping is the best discount/promotion you can give to the buyers if selling multiple items.
5. Some sellers actually put the following sentence in every listing :” Do not bid on my items unless you understand my strick policies.” Nothing turns away bidders faster than using phrases such as “Do not bid”
6. Don’t list the same item at the same time unless you expect to sell multiple at the sametime. Why competing with yourself?
7. Buy It Now is a good feature to have. It encourages buyers to bid. But use it only when you are absolutely sure about the price and add a couple of dollars to the usual price
8. Items with Reserve price tend to turn away buyers
9. Have a return policy and charge 15% or higher restocking fee.
10. You can sell Harrison Ford’s autograph, but you can’t sell his canceled check with his signature on it. You need Harrison’s permission to do that.

I don’t really know how much I save since I deduct or withdraw everything out of my paycheck automatically each month. I only use the left over money. Out of curiosity, I looked at my last paycheck and did a quick calculation to see how much I save each month. Wow! I put away almost half of my paycheck each month! I used to distribute the money in 401K, Roth IRA (mainly Growth funds), cash savings and non-retirement stock and bond funds. Since I am saving money to buy a house, other than the 401K contribution, everything else goes to my online saving’s account these days.

So to give you an idea of what saving half of the paycheck feels like, here is a summary of my life style and spending habits comparing with those of my co-workers who make the same amount of money:

Cars:
Co-workers: Bimmer 3-series is normal. Many own Mercedes or large SUVs

Me: Toyota RAV4

Homes
Co-workers; 400K – 500K is normal for my co-workers. Many have vacation homes too.

Me: Bought a home for my parents for 245K. I still rent and live in a one bedroom apartment. I am about to buy a home in 4 months.

Family
Co-workers: married with kids
Me: single and no baggage

Vacations:
Co-workers: Cruises, Hawaii, Europe, Carribean vacation experiences are constantly brought up in our weekly status calls.

Me: I can only spell “C-r-u-i-s-e”. Ok, I do hop on the planes a lot to see friends and families. Matter of fact, majority of my monthly spending is related to travel.

Nail caring
One of my female coworkers have in-house manicure and pedicure service every week.

Me:
Buy some nice bottles and do-it-yourself.

Here is a post about my spending habits and my budget.

Ok, I admit that my income is probably in the top 10%. I just try not to spend what I make. The fact that I am single with no kids also helps a lot. I guess right now is the golden years to save before the little ones come out to empty my piggy bank.