Saturday, July 15, 2017

Millionaire Next Door: here's a better rule of thumb

One of my favorite personal finance books of all time is the one that was written by the late Thomas J. Stanley, The Millionaire Next Door (published in 1996).


The bestselling book identifies common traits that show up again and again among those who have accumulated wealth. The surprising finding is that most millionaires in America don't really live in mansions, drive luxury cars, or wear expensive watches.

Most millionaires never earn $500,000 in one year. Most never become millionaires until they are fifty years of age or older. Most are frugal-- only a few could have ever supported a high-consumption lifestyle.

The book also offers a simple rule of thumb to determine if you are wealthy...

"Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be."

The problem with the rule of thumb

As a 31-year-old who had just started getting serious about my finances, I remember being outright discouraged by this calculation. I was a UAW, or under accumulator of wealth, according to Dr. Stanley's rule of thumb.

What I didn't realize back then is that I haven't saved long enough to benefit from any compounding of interest whatsoever. So this rule of thumb is not very useful to someone who just started getting the ball rolling, so to speak.

Another issue that I have is that the calculation uses your current realized pre-tax income instead of the average throughout your working years. It doesn't take into account that you've been earning peanuts for many years before you got that big promotion, for example.

Lastly, the calculation does not take into account that I'm Filipino-- I've got multiple families to support (LMAO). Well, seriously I really think that the calculation should take into consideration the number of your dependents. The more dependents you have in the household, the more challenging it will be to accumulate wealth for obvious reasons.

Using Dr. Stanley's rule of thumb, I'm only a little above the averagely wealthy or an AAW-- I'm just an average accumulator of wealth:

46(age)  x 200,000(income)= 920,000(net worth)
10                             

But who wants to be average? Certainly not me. I'd rather be a PAW, or prodigious accumulator of wealth, which is by definition double the recommended net worth of an AAW.

I understand that it's just a rule of thumb. One with a broad application and is not intended to be strictly accurate or reliable for every situation. But there's probably a better calculation that is more suitable for you and me.

The ruler of thumb

A better rule of thumb

Ladies and Gentlemen, may I present to you, the Millionaire Before 50 rule of thumb for evaluating your net worth.

Without further ado (** drum roll **):

"Multiply your age times your average realized pretax annual household income from all sources except inheritances. Divide by ten plus the number of your dependents. This, less any inherited wealth, is what your net worth should be."

Let's recalculate, but this time using our average income throughout our working years as a couple and 5 dependents (my eldest son actually moved out of the house, 2 years ago):

46(age)  x 175,000(avg.)= 536,666(net worth)
15 (10 + 5 dependents)                                           
                                  
Using the above formula, I'm a PAW because my net worth is easily more than twice as much as the above number.

I know this sounds self-serving. But at least my rule of thumb doesn't discourage people from having kids.

Click here to perform your own calculation.

   

Friday, June 30, 2017

Have no fear, market crashes will always be here!



While I don't believe that a bear market is coming, one big lesson from the last two recessions is that it can't hurt to be prepared.

Crashes will always come and go. Whether it's 6 months or 6 years from now, nobody really knows. The prospect of me becoming a thousandaire again is not beyond the bounds of possibility.

As a Generation X-er, I've been at ground zero of 2 big market crashes: the Dotcom Bust of 2002 and the Housing Bust of 2008. Both were followed by deep recessions. The great recession of 2008 was way deeper, but the recession of 2002 could be just as deep-- if you happen to work in the tech industry just like I do.

In the summer of 2000, I left my job in Philly to work for a software company that sells analytical tools to fund managers. The company was headquartered in Research Triangle Park, NC --the tech hub of the south. They collect data from investment companies that manage funds pooled by individual investors (i.e. mutual funds) and translates that into useful information.

Times were pretty darn rosy in that the company even paid for my relocation plus some generous sign-in bonus. There was "irrational exuberance" as massive euphoria was everywhere, investors were buying internet companies left and right that have ridiculous valuations. The NASDAQ index rose from 1,000 to almost 4,000 at its very peak.

But sometime around March that year, it came to a crashing halt. The bubble, which had been building up since I moved to the states, slowly started to pop. People lost faith. Stocks sunk. With less and less money to manage, fund managers who have been buying software licenses from us suddenly had to cut back on their spending causing our sales revenue to plummet. I had a strong inkling of a sinking ship  and boy I was right!

Except for the fact that...

I resigned a few hours before I was supposed to get laid off!


In a bizarre case of bad timing,  I submitted my resignation letter just a few hours before my company announced the massive employee layoff. My immediate boss happened to be on vacation that terrible day (maybe on purpose), so I had to give my two weeks' notice to his boss who happens to have a stake in the company's bottom line-- there's no chance he's going to give me a hall pass on severance pay.

The 'firing' process went something like this. A memo appeared on our inboxes telling us which room to go: room A or room B. I was asked to go to room B. Once there, an HR personnel told us that we're in room B because the people in room A will be given their pink slips.

There was complete silence in the room. We know this will happen but not so soon. There was a sense of relief at first. And then people were in tears, especially the ones that were friends with the people in the other room. I couldn't help but think about the friend of mine who just bought a house. But in retrospect, I felt bad for everyone.

As for me, I literally didn't know whether to laugh or cry...

- The good news was that I already accepted a contract position elsewhere that pays $50 an hour.
- The bad news was that I didn't get my severance pay-- I officially resigned, not laid off.
- The worse news was that  I had to work for 2 more weeks to fulfill my obligations. Ugh!!!

Later that day, the whole office was talking about my good but somewhat bad timing.

How not to fear the next market crash

When crazy things happen, always expect the worst. Companies can layoff people at any time, but it can become the norm during a recession-- hardworking people can lose their jobs. When people lose their jobs, they spend less-- much less. And when they do, companies make less money causing them to layoff more people. It's a vicious cycle.

As an investor, however, you should learn to embrace bear markets-- these are the greatest windows of opportunity in your life to leap frog from where you are to where you want to be. When the market drops 20%, 30% or 50%, then you'd be buying shares at a discount. Think of it this way, if bear markets were IPhones you'd be rushing to the nearest Apple store!

Here are some facts:
  • Bear markets generally occur every 4 to 5 years
  • Every single bear markets are followed by bull markets
  • The worst thing that you can do is stay in cash (read this Charles Schwab study).

Keep your portfolio well-diversified

Diversification essentially means investing in a mix of asset classes to ensure you are not in serious trouble even if you lost a significant amount of money on one of your investments. This is because any losses, incurred on any of your investments, may be offset by gains earned by other assets.

Being diversified can help cushion against losses, and that's a precaution that you can take now. Increasing your allocation in bonds, for example, helps soften the effect of a market crash on your portfolio because they are usually inversely correlated to stocks.

You should rebalance your portfolio like a dentist every 6 months to match your goals.

Stay the course, don't miss out on market rebounds

Many investors sold at the bottom of the bear market in March of 2009, turning temporary paper losses into real, wealth-shattering losses.

According to another Schwab study, if you had invested $100,000 on January 1, 2009, but missed the top 10 trading days, you would have had $43,000 less by the end of the year than if you’d stayed invested the whole time. Your timing might end up much worse than mine!

Make cash an integral part of your portfolio

Cash reserves will come in handy in down markets. With cash, you can buy when prices are relatively low, without having to sell any of your existing positions at a loss. Cash can provide your portfolio with a sense of stability and offers protection against volatility. It helps mitigate downward risk.

In my case, I'm setting aside at least 10% of my portfolio in money market accounts. But that's just me, run your own numbers.

Beef up your emergency fund

In a recession, 3 months won't do. You need at least 6 months worth of expenses. Beefing up your emergency fund helps keep your stress level down. Being prepared gives you the confidence that you need to tackle any of life's unexpected events like a job loss during a recession.

I eventually lost that contract job that paid $50 per hour. The original 6 months was shortened to a few months due to spending cuts. But guess what I did?

Instead of rushing to find another job, I toured the whole continental United States for the next couple of months! All because I had my emergency fund in place.

Have no fear.


Learn how to protect your portfolio in a downturn.
Here's a great book that I recommend.


Wednesday, June 14, 2017

When the lender is a slave to the borrower

You've probably heard Dave Ramsey say this many times before, "The borrower is a slave to the lender." The quote was taken from the scriptures. That's exactly what I had in mind when I decided to lend my sister $14,000 last summer. Finally, I can 'enslave' my annoying sister, who spends most of her free time bashing Obama on Facebook. At least that's what I thought.

She and her husband, Abe were looking to buy a property near Texas Tech University in Lubbock where my nieces currently attend college. By buying the property, they were hoping to save money on room and board costs. But they were short of the 20% down payment required to avoid PMI (private mortgage insurance).

Love-hate relationship with my sister

No, I'm not really a big fan of Obama. I didn't vote for him in 2008. Yet I told her I did, just to piss her off. You see, my sister hates the former president, and she's not shy expressing it on social media. What crosses the line is when she continues to do so, three months into Trump's presidency. That's when I finally unfollowed her.

My sister and I have very little in common. She lives in the heartland, I live on the east coast. She's a republican, I'm a registered democrat. She's also a huge fan of G. W. Bush, which is not surprising because they live in Midland, Texas-- the hometown of the Bushes.

Almost every other summer, our families would meet in Orlando and discussions always end up revolving around politics. The last meet turned ugly when she lost her cool--  I told her that the younger Bush is the worst president the U.S. ever had (again, just to piss her off) and that the only thing that I admire about him is his shoe-dodging skills. That was the day I learned that my shoe dodging skills weren't as good.

So, it came as a surprise when I received a phone call from her, last summer, asking if she could borrow money.

How she negotiated the deal

The conversation went something like this (names were changed to protect those involved):

Sister: "Mark, can I ask you something? We are planning to buy a house in Lubbock and we're looking to put down $30,000, which is 20% down.  Your nieces will both attend college there. But I'm not really borrowing the whole amount."

Me: "Umm.. how much are you borrowing then?"

Sister: "Maybe, $10,000? Abe was thinking of applying for a personal loan but the 7 percent interest is too steep. Instead of paying enormous interest, we can just pay you more than the borrowed money. I really hate using our credit. Our three rental houses are paid off, though our residential house, not yet fully paid but interest rate on that house was less than 3 percent. "

At this point, I was thinking that investing in real-estate supposed to provide you with increased cash flow. It's clearly not the case for them.

The bright side is that they must have an excellent FICO score judging from the interest rate on their existing mortgage.

Sister: "The dormitory is so small plus they will have to share with other kids.  School officials don't  want them to rent outside, other than if we have our own house there. Abe thinks it is not wise to throw $9,000 away."

Apparently, she thinks it's wiser to borrow from me, her brother 8 years her junior. Perhaps she's right because I end up lending her the money anyway, without publishing her real name in this blog for the whole world to see.

The conversation continued partly in Taglish, which is a mixture of Tagalog (Filipino) and English languages:

Sister: "Baka naman, may extra ka diyan? I'll make a promissory note. I'm sorry that I'm asking you. We have not found a house yet but every time we buy a house, we put at least 20 percent down."

Sister: "I will pay in full within one year and may give extra for interest."

Me: "OK, call me again later tonight."

I end up writing her a $14,000 check. That's the maximum amount that you can give to an individual in one year without having to pay a gift tax. Except that this is not exactly a gift, she offered to pay me $500 in interest or about 3.5%. In contrast, my savings account is offering next to zero.

Her promissory note

Loaning money to family or friends is often a bad idea

I was reluctant to lend her the money at first, not because I didn't like her or because we disagreed over politics. Lending to family or friends is never a good idea. The relationship almost always ends up strained, or worst, destroyed. But when the one who is asking is your beloved sister, it is easier said than done.

Almost all of us have had bad experiences with loaning people we have good relationships with at some point in our lives. When I was 19,  I sold my Hypercolor T-shirt to someone whom I thought was my friend. He promised to pay me back on payday. Payday came, and went, he was nowhere to be found. It became clear that he has been avoiding me. I'm glad I lost that %$#%# friend of mine, but I regret losing my shirt, literally speaking.

In the end, I've set the bad experience aside and relented to her request for the following reasons: (1) that's what my late mom would do, (2) she's my sister-- blood is thicker than water, (3) I have extra cash sitting in the bank.

One year later, when the loan matures

She called me up with a barrage of excuses, which I'm sure was genuine. But this time, the conversation was one-way. I barely said anything.

Sister: "Mark, I'm sorry I can't pay you in full. We have so many expenses. We just had our air-conditioner unit system changed last September. One of our rentals got vacant for 5 months. We have so many expenses. We're scared we may not have enough money to pay for 5 property taxes. We were planning to take a loan to pay you immediately 'coz we said we pay it all this June. Kaya lang baka malaki yung interest."

Me (thinking): I'd sell all your rentals, if I were you.

Sister: "But if you need it quick tell us. I really appreciate your understanding. We have money in stocks and retirement. But we don't want to take it out because of the huge penalty."


Me (thinking): Yeah right, like I didn't know.

Sister: "Instead, I will send the $5,000 tomorrow. I'll send another $5,000 in 3 months. And $4,500 before the end of the year."

Me: "That's fine. I understand." (hanged-up the phone)


Now she's dictating the terms of the loan. I stayed quiet. I was disappointed that she didn't keep her word. But I wasn't in the mood to negotiate. I don't need the money yet anyway.
What am I supposed to do, sue my own sister? Easier said than done.

I'd rather obey the new contract and be her slave.


Wednesday, May 31, 2017

Thoughts about Bitcoin

I've recently started a Facebook group for this blog where members are encouraged to ask any question about money. Out of the blue, one member asked about Bitcoin. In an effort not to monopolize the forum, I waited several hours. But nobody was keen on answering the question.

I eventually end up writing a brief but very informative answer only to see the post mysteriously deleted (ugh!). I'm writing this to preserve what I wrote and to expound on the topic a bit while the upfront research is still fresh in my mind.

I'm no crypto-currency expert and never owned Bitcoins, but I'm probably more qualified to write about the technological aspects of Bitcoin than most bloggers out there given my experience:

  • spent almost 20 of my working years developing a Foreign Exchange trading system
  • led the development of an FX order management system used by broker dealers
  • implemented a web-based payment system used by various regional banks
  • architected my company's web security infrastructure.

In other words, I used to eat currencies, payments and digital certificates for breakfast. However, I'm going to spare you from hearing about the technical intricacies, so you don't fall asleep.

Without further ado:

What is Bitcoin?

Bitcoin is a type of digital currency with a built-in payment network. The exchange rate as of this writing is $2,236.02 per BTC or Bitcoin currency. As recent as one year ago, it was worth about $500 apiece. That's more than 400% return!

Hold your horses, before you invest speculate. I wouldn't recommend anyone to invest in Bitcoin because of the wild swings in prices. There are legal and regulatory issues that need to be addressed that affects its volatility. 

For one thing, Bitcoin is not legal tender. It's  not recognized by law as a medium of payment that can meet a financial obligation. This means that you cannot require your landlord to accept your Bitcoins as late payment for your rent-- he can still legally kick you out so you fall flat on your face.

Should you do decide to gamble, make sure it's a small portion of your portfolio or be prepared to lose your shirt (along with your underwear).

The idea behind Bitcoin is that there's no central regulatory bank that can control the supply of money. Governments like that of China or the U.S., for example, can simply print money to devalue its currency to make exports more competitive-- which often causes inflation. Not so with Bitcoin, there's a special algorithm to prevent that from happening.

Just like gold, Bitcoins can be mined albeit electronically-- anyone with specialized equipment, software and knowhow can become a miner. The mining process involves the use of high-powered computers to solve mathematical puzzles as controlled by a special algorithm. Miners are issued a certain number of Bitcoins in exchange for the work done. It is this same process of solving mathematical problems that make the payment network more stable and secure.


Bitcoin peer-to-peer network

The Napster of money

Do you remember Napster? It was the music service that first popularized peer-to-peer file sharing protocol. Between 1999 and 2001, pretty much anyone can download MP3 music files for free. And millions did so, including myself who acted like a kid in a 24-7 candy store. The fun didn't last a long time as it was eventually shutdown after the company was sued by Metallica and Dr. Dre.

Unlike traditional client-server network architecture, peer-to-peer networks don't use centralized servers to host the resources. Instead, pretty much any node in the network can allocate resources to other nodes. For Bitcoin, there are many advantages to this setup, among them:
  • no central point of failure
  • no third-party involvement
  • minimal transaction fees.
It's no surprise that this is the network architecture of choice for Bitcoin given its decentralized nature. This means that a merchant in the U.S. doesn't have to deal with a shady bank in Somalia to accept payments from Somalis. No third-party involvement means that the transaction can occur instantaneously with minimal transaction fees.

Built-in payment network

What makes Bitcoin revolutionary is that it's both a currency and a payment network. Never in the history of mankind had a currency been interwoven with a payment network. A dollar or a peso is a currency, but neither are payment networks. Paypal and Visa are both payment networks, but neither are currencies.

Software that runs Bitcoin protocol is called a wallet (you can download an app for your smartphone). It allows the holder to move Bitcoins from one wallet to another instantaneously without the involvement of a third party. This essentially makes users to effectively become their own bank.

Other interesting facts

Bitcoin was supposedly designed by a certain Satoshi Nakamoto-- a man born on 5 April 1975 (which coincides with my wife's birthday).  Many believe this is just a pseudonym for a person or group of people who developed the protocol.

Bitcoin protocol is open source. Much like Wikipedia, anyone can view and modify the code. Subject to review by a panel of people, of course.

The first Bitcoin transaction was made in 2010. Somebody from the U.K. purchased 2 Papa John's pizzas for 10,000 BTC. If that person kept the coins, it would have been worth around $22,000,000 today!


Would you invest in Bitcoin? Please comment below.
Want to learn more about Bitcoin? Here's a very good book that I recommend.




Sunday, May 14, 2017

Rich Mom, Poor Dad: a tribute to my mom who saved us all

My mom came from a rich family in the northern Philippine town of Batac, Ilocos Norte. The same town where the late dictator Ferdinand Marcos, known for looting the country of billions of dollars, grew up. In fact, they were contemporaries. My mom told me stories about how Ferdinand's father, Mariano Marcos-- a budding candidate for the country's National Assembly, use to borrow money from my grandfather who was a U.S. Navy veteran with 'boatloads' of money that can potentially finance his campaign.

No, my mom didn't get rich because my grandfather stole from the U.S. Navy. Nor did she become rich because she happens to date a future billionaire dictator when they were younger. Ferdie wasn't her type anyway. For one thing, he was 13 years her senior. Another thing is that he was an accused murderer. In 1935, young Ferdie was charged with murder. He was accused of personally pulling the trigger that killed his father's political rival, Julio Nalundasan. The murder happened just a few days after his father lost the election to the latter. A charge that he was initially convicted of. But it was somehow overturned by the country's Supreme Court. Marcos was subsequently acquitted and eventually rose to power to rule the country for 21 years. He was eventually deposed but only after leading the nation to economic peril.

Her rich upbringing

Note that being rich is a relative term. When you can barely eat 3 square meals a day, like most poor Filipinos struggle to do, and then you suddenly find a large elaborately prepared food on the table, then that can instantly make you feel rich. My mom's family weren't filthy rich, but they were probably in the top 5% of the society that they lived in. In that sense of the word, she grew up rich.

My mom and her siblings weren't raised in a mansion, neither were they fed with a silver spoon, but they lived a very comfortable life. My grandpa who had thriving real-estate investments chose to continue to live modestly. After World War II was over, he was able to send all his 5 children to study in Manila when the dust finally settled. Three of her siblings eventually became physicians. Two eventually made their way to the states to practice lucrative careers. My mom learned her very first lessons in frugality from my grandfather.

My mother told me that her household was the first one in town to ever buy a refrigerator. A very expensive luxury at the time. Her 'rich' neighbors initially made fun of them thinking that it would be impractical to use one as they hardly have reliable electricity in the neighborhood. Soon enough when everything stabilized, they started buying their own to keep up with the Joneses. Back in the day, people get by without refrigerators by preserving meat by traditional methods-- removing the fat, applying salt, and letting it cure under the sun.

Grandpa's U.S. Navy stint

As a young lad, my grandpa was a U.S. Navy sailor. He was honorably discharged shortly after World War I. His total pay per month while in service was $17. At the time of his discharge, he was paid $145 in full and $38 per month in benefits, thereafter. If you factor in inflation, his veteran benefits would have been equivalent to a one-time payment of $2,300 and $600 monthly in today's money. I've found out about all these numbers by obtaining a copy of his service records from the National Personnel Records Center archives. If you earn that kind of money as a 26-year-old, you are considered rich.

(  For readers out there who think that first generation immigrants like me are just here in the states to enrich ourselves at the expense of robbing natural-born Americans of their jobs. Please be aware that some of us are descendants of people who actually fought for your freedom. Admittedly, losing WWI probably would not have cost you your freedom, but you get the point  ;)

Meeting my poor dad

Mom may have lived a very comfortable upbringing, but like everything else, it didn't last a very long time. At age 24, she was swept off her feet by my father, a struggling law student. They fell in love and got married, after a brief engagement. Dad eventually ended up impregnating her, not once but nine times! By the time the last baby came out of her womb, everything was 'perfect'-- it was me that came out last.

My father grew up as the only child of a widowed mother who barely graduated from elementary school. His sister met an unfortunate accident when she fell down the stairs and died later of a brain hemorrhage when they were both very young. He often recalls attending his elementary graduation wearing a girl's shoe as at the time he had no more workable good shoes but merely sandals. It was this lonely and miserable upbringing that my poor dad experienced that I believe led to his unstoppable desire to procreate.


Thriving careers

He managed to support himself first by doing the household chores for relatives in exchange for a meager salary. Eventually, he landed a job in Manila as a typist, messenger, and janitor for his congressman, Don Quintin Paredes, who ended up becoming the 5th Senate President of the Philippines. My father's employ in the law office paid off. He started obtaining his law degree. Over time, through sheer hard work and determination, he passed the bar exams, and he eventually became an associate lawyer in the firm.

Meanwhile, my mother became a government employee in the Manila Central Post Office (one of the heavily bombed buildings in the Battle of Manila during World War II) after a brief teaching sprint. There she worked for 4 decades, working her way through the ranks until she became the head of the registry section supervising close to a hundred employees.

They both may have had very good jobs, but those were not enough to support a fast growing family, especially if you're married to a womanizer. Not to discount my dad who is a great provider, but it was my mom who made the wise financial decisions.Without my mom, we would not have survived financially. Sadly, my poor dad's idea of investing is buying lotto tickets.

The real head of the household

It was the wisdom of my rich mom who had the foresight to invest in real-estate. It was her that pushed my dad to save up. It was her who pushed for paying for everything in cash even if it meant literally eating rice and beans for dinner. Mom and Dad bought rental properties in various places in Manila to the point that they had over 9 fully paid rental properties in their portfolio, including our primary residence, which was also partly rented out. Each property probably had 4 to 8 rental units for somewhere around 50 units in total. It was the income from these rentals that fed us. It was the income that paid our tuition fees.

It was the wisdom of my mom who pushed my father to start his own law practice. In the early 80s, my father was at the point of his career where he had most of the connections needed to start his own law firm. Working as an attorney in a lucrative patent and trademark industry, most of his clients were big companies from all over the world. So he rarely had to meet clients in person. At the peak of his career, he was making tens of thousands of U.S. dollars while living in a relatively low cost-of-living city of Manila. With the real-estate income already in place,  the income from the firm was used mainly for travel related expenses to different countries to attend related industry seminars and conventions.

On her deathbed

My mom died in 2007 of liver cancer. On her deathbed, my father tearfully confessed that he fathered another child out of wedlock, a 15-year-old boy. This was in addition to 2 other siblings we've all known, cared for, and accepted as part of this ever growing family of ours. Not sure if she felt any emotional pain at that point, she may have very well been desensitized to revelations such as this. One thing for sure, she will always have a special place in my heart.


Happy Mother's Day!



Wednesday, April 26, 2017

Awesome credit-- you must have it!



You've probably heard this line a hundred times at the cash register before, "Would you like to apply for a store credit card? You'll save 10 percent on today's purchase".

That was the offer that I accepted from a BestBuy store clerk sometime in the late 90s, just a few months after I started working here in the states. I remember walking out of the store smiling. It was the first time I've ever brought something out of a store without having to pay in cash.

I probably saved about $4 as the purchase was less than 50 bucks. But since the item was not of significant value, I totally forgot about the purchase; more so, paying the credit card bill. It was a bizarre case of amnesia, reminiscent of Jason Bourne but minus the fast-paced action and bone-breaking stunts.

What turned out to be thrilling was the part where I eye-balled my credit report, one year later. By then, it was too late. My FICO score plummeted to the 500-600 range, which was poor by any standard-- all due to that single transaction.

Fortunately, I wasn't really in need of any loan at the time. I already took out a loan for my car and was years away from buying a house. Otherwise, I would have been hit by a significantly higher than average interest rates that could have amounted to tens of thousands of dollars.

I was young, fresh off the boat, and stupid.

If you're a 20 something millionaire-wanna-be who wants to avoid the costly mistakes that I've made about money; give your future-self a favor--- subscribe to this blog by entering your email above.

Thank goodness, we have FICO scores

FICO stands for Fair Isaac Corporation-- the company that buddies Bill Fair and Earl Isaac founded in 1956. Now, it is the most widely accepted measure of creditworthiness.

The score range from 300 to 850. A score of 760 or higher usually gets you the best deal on interest rates. Conversely, a lower score will make it harder for you to get a loan, land a job or qualify for the best terms on a wide variety of consumer contracts.

American creditors and consumers have no idea how lucky (or unlucky) they are that they have no less than 3 credit bureaus keeping a tally of credit scores: TransUnion, Equifax, and Experian. Each of these agencies is required by law to provide consumers with a free copy of their credit report at least once a year.

Where I grew up, credit investigations go something like this.  First, you apply for a loan in person at a local bank. The next day, the bank sends a 6' tall hulking guy with 17" arms (intimidating by Filipino standards) in a motorcycle to your neighborhood. He knocks on your door, all smiles, so you don't have any choice but to send him in. You engage in small talk, as he scans the surroundings of your home for potential collateral targets (ala Ah'nold 'The Terminator' style). If you don't happen to be there that day, he'll talk to your next door neighbor. The next thing your know, everybody in the neighborhood knows that you're trying to finance a brand-new Toyota Corolla.



What affects your credit score

According to Equifax, here are the factors that affect your scores. Some will affect your score much seriously than others.


High impact


Credit Card Usage shows how much you spend on your credit cards as a percentage of your total available balances (your credit limits) for all of your credit cards. A high percentage could indicate that you don’t have your spending under control and could be a greater risk for defaulting on your payments. Try to keep your credit card usage under 30%.

Payment History plays a critical part in determining your score. Making your payments on time shows potential lenders how reliable you are in paying back what you owe. Be sure to make all of your payments on time (even if it’s just the minimum payment due), and remember that other types of credit payments such as those for student loans and auto loans affect your score.

Derogatory Marks are indications of poor behavior in the past when it comes to being responsible about credit. These include accounts in collection, liens, and bankruptcies—things potential creditors are definitely wary about. Sometimes things like this happen and they’re beyond your control but if you can, by all means do your best to keep these things from happening. No matter the reason, these negative marks will likely stay on your credit report for seven years or more.

Medium impact


Age of Credit is the average amount of time you’ve had all of your open credit accounts. It measures the longevity of your credit history. Opening several accounts in a short period of time may indicate a great level of risk, so avoid opening lots of credit accounts unless you really need them. Be sure, also, to keep your old accounts open with a good payment history for each.

Low impact


Total Accounts is the number of accounts you have, which may be an indicator of how credit worthy lenders think you are. Don’t go crazy and open a lot of accounts, though, because the average age of credit is more significant than number of accounts when calculating your credit score.

Credit Inquiries is a count of all hard credit inquiries placed on your credit report. What makes an inquiry “hard” is when you authorize a lender to get your credit report for their benefit, so they can evaluate you when you apply for a credit card, a loan, or other form of credit. If you get your credit report yourself or go through an agent such as Turbo to get it for you on your behalf, it’s called a soft inquiry and it does not affect your credit score.

How I repaired my credit

First, I contacted the collection agency in the report and paid off the balance. I wish I could dispute it, but I really owed the money. I had to pay Caesar what is due Caesar. That's what my bible tells me.

Secondly, I took out a secured credit card with First Premier Bank. With secured credit cards, I had to put up a $500 security deposit in order to open an account. The amount served as a collateral for my credit limit. I used the card regularly and paid it off  in full. I used it solely for my gasoline purchases because the cost is very predictable. In this way, the credit is not fully utilized.

Once my credit improved, I've applied for a real credit card--- it was a Bank of America credit card with no annual fee. I've been using the same card ever since.

Five years later, I opened 2 additional cards. It was with American Express and Chase. I used both regularly but I never exceeded more than 30% of the limit.

I paid my bills on time. I paid my bills in full every time.


Now, I have exceptional credit scores. The results can speak for themselves:





_________________________________________________







Readers, what is your FICO score?
Write your comment below.


Friday, April 14, 2017

What if you didn't have to pay taxes?

"None of us want to pay taxes again, ever."-- this was last of the many demands Harry Stamper (played by Bruce Willis) and the rest of his oil-drilling crew had against the U.S. federal government in the movie Armageddon.

Armageddon


The 1998 science-fiction film was about a giant asteroid whose collision course will crash the Earth. The scientists at NASA plan to detonate a nuclear bomb, which must be buried 800 feet under the asteroid's surface in order to break it apart, causing it to miss the collision with the Earth.

The government officials had no choice but to agree to their demands. He's the best oil driller on the planet. They simply don't want to take any chances.

As incredibly risky the job is, it's nevertheless one of the sweetest deal one could ever wish for: a chance to ride a shuttle to get into space, become an international hero by saving the planet, and if they happen to survive, not pay any taxes for the rest of their lives!!!

Be careful what you wish for

Do you find yourself constantly daydreaming of not paying taxes? Be careful what you wish for when you rub that magic lamp.




Or you might end up like the 60 year old husband who instantly turned 90 after wishing for a much younger wife!

According to the Tax Policy Center (TPC), a D.C.-based firm that provides tax research and estimates, 44.5% of American households will pay zero or negative federal income tax --- roughly 76.6 million households -- for the 2016 calendar year.

Roughly half of this number pay no income tax because they have no taxable income. The not so recent news about Trump's tax returns or billionaire practice of paying themselves $1 probably comes into your mind, but they are just a drop in the bucket.

They are mostly comprised of low-income households that do not pay federal income taxes. Their incomes are lower than the combination of their allowed standard deduction and exemptions, or because they receive tax credits.

Worst comes to worst, the genie might end up magically causing your present and prospective employers lay you off permanently. In this way, you don't have to pay taxes again, ever (not even sales tax because you'd be dirt poor).

Aim to minimize taxes instead

When I say aim to minimize taxes, I didn't mean that you should aim to get a bigger tax refund. A sizable tax refund only means that you're loaning the government money for free.

If so, file a new W-4 form with your employer. Try this IRS withholding calculator directly from the agency itself.

15 years ago, I started preparing my own taxes. That was the last time that I aimed for a big tax refund. I got audited by the IRS instead. I was young, dumb and stupid. Now I use TurboTax and you should too. Always, I'll say it again, always use reliable software when filing your taxes.

Be honest with your taxes. You need to obey the taxing authority. Don't be a crook. Crooks don't get rich. Maybe sometimes they do, but they don't stay wealthy. People eventually discover that they are crooks and start not to trust 'em. That's the start of their downfall.


Minimize income taxes

Your most powerful wealth-building arsenal is your income. I know he's our uncle, but don't let Sam grab a bigger slice of your earnings pie.

The following are very basic general information but I couldn't emphasize more, tax planning is very important to conserve wealth. You need to avoid unnecessary taxes.

Lower your taxable income

Money contributed to an employer-sponsored retirement plan, such as a traditional 401(K) or Canadian RRSP is not included in your taxable income. For the former, you can contribute up to $18,000 or $24,000 if you're 50 years old or older.

If you don't have an employer-sponsored plan, you can open a traditional IRA account and contribute up to a maximum of $5,500 this year ($6,500 if you're 50 or older).

ROTH 401K or ROTH IRAs don't have this upfront tax break because withdrawals are tax-free in retirement.

Maximize your deductions

Many of your everyday expenses can be itemized as deductions on your income tax return, saving you lots of money at tax time. However, unless you have a large amount of qualifying expenses, you might be better off taking the standard deduction, as most taxpayers do. Since you can decide every year whether you want to take the standard deduction or not, careful tax planning can help you maximize your deductions in years you itemize.

Should you decide to itemize here's some information on how to maximize them, courtesy of TurboTax



Be charitable

It also pays to be charitable. Donations to charity are tax deductible expenses and can reduce your taxable income. Here you can find information about charitable contribution deductions.

Minimize investment taxes

Choose the right bucket to hold your investments

Use tax-sheltered accounts such as IRAs and workplace retirement plans for individual stocks you plan to hold for less than one year or actively managed funds that generate short-term capital gains. Taxable bonds and funds that invest in these types of bonds.

Taxable brokerage accounts are suitable for tax-free municipal bonds for obvious reasons. I'd also hold non-dividend paying speculative stocks in it. In this way, you can take advantage of tax-loss harvesting strategy, which you simply cannot do on a tax-sheltered account.

Avoid high-turnover funds or stick to index funds

Turnover means transactions, and transactions are taxable events. Unlike actively managed funds, index funds only turn over their portfolios when the companies that comprise their indexes change.

In the case of the S&P 500, a very small percentage of the companies that belong to the index changes each year. This results in a very low turnover rate that translates to almost no capital gains tax.

Invest for the long haul, get long-term capital gains rate

A long-term capital gain or loss applies to certain investments that were owned for longer than 12 months before it was sold. Long-term capital gains are assigned a lower tax rate than short-term capital gains.

I don't consider my home as an investment, but if you recently sold your home, be aware that you may exclude up to $250,000 gain ($500,000 if married filing jointly) if you stayed in it for at least 2 of the last 5 years before the date of sale. In most cases, that's zero capital gains tax!

Tax-loss harvesting

Do you have an investment that is losing capital? Selling these securities at a loss can offset capital gains tax liability. Of course, I prefer that you do not lose investment capital at all. Hold speculative individual stock investments in a taxable brokerage account.



Saturday, March 25, 2017

Why I'm switching to an HSA account

Do you know what's the biggest expense that you will incur in your lifetime?

Nope. It's not your home.

I remember my hands were shaking when I handed my agent a $43,000 cashier's check as down payment for our house, 13 years ago. But like I said, it's not the house. Not even close.

Our modest house being built in 2004, isn't she pretty?

Your house may very well be your single biggest purchase, but it's not the biggest expense that you will INCUR IN YOUR LIFETIME.

Guess again...

Nope. It's not cable (geez.. Are you really spending that much on entertainment?).


Here's a clue:





You guessed it right this time. It's TAXES!

Of course, this largely depends upon your tax rate. With a progressive tax system, the higher your income, the higher taxes are imposed. Here's a link to 2017 tax brackets courtesy of Bankrate.

Assuming you're in the 25% tax bracket, like my wife and I filing jointly do, you might be looking at paying a million-dollar tax bill over the course of your lifetime. And this doesn't include sales and property taxes.

Now, how about the second biggest expense ???

Stop bringing up the house again.

Try again...



Nope. It's not your car, unless you're driving a really fancy one like this Lamborghini.

Student loans? Nope, unless you're a broke doctor or a lawyer.


Here's another clue:






You are absolutely correct. It's HEALTHCARE!

According to a 2010 Prudential study, a typical 65yo married couple free of chronic disease, can expect to spend $197,000 on remaining lifetime health care costs-- excluding nursing home care and there is 5% probability that these costs will exceed $311,000.

Note that these numbers don't include expenses that you have already incurred on healthcare before age 65!

So it's TAXES and HEALTHCARE-- two of the biggest expenditures that we will incur in our lifetime.

Wouldn't it be great to be able to save money on both?


Health Savings Account (HSA) to the rescue

A health savings account is a tax-advantaged plan that is available to people with a high-deductible health insurance. The idea is that when people use their own savings for healthcare, they are likely to shop around for the best deal, which helps control health care costs.

Although HSAs have been around for more than 13 years, it was only a couple of years ago when it was actually offered by my company's healthcare plan. Even then, I didn't pay much attention to it because I'm already maxing out my ROTH IRA in addition to my company-sponsored retirement plan.

This year, I decided to switch. This is because my employer appears to be in the process of getting-rid of the 401(K) company match. I figured that since I am likely to spend a ton of money on healthcare when I get old anyway, why not max-out my HSA contributions first?

By maximizing the tax savings, I will, in effect, free up more resources for other expenditures like home renovations, vacations, and other fun stuff in retirement.

Note that this plan is not for everyone. It is particularly beneficial for people who are savers and are in excellent health condition like me.



Together, all the way. (image courtesy of Cigna)



Awesome Tax Advantages

With an HSA, you can contribute pre-tax money, just like a 401(K) or Canadian RRSP up to a pre-defined contribution limit. In 2017, the annual HSA contribution limit for individuals is $3,400 and $6,750 for families.

You can then use the money saved in your HSA self-directed investment account to buy individual stocks, mutual funds or ETFs (much to your heart's content) and your earnings will be TAX-FREE as long as you use them for qualified expenses.

There is also no Required Minimum Distribution-- You are not forced to take money out of them, which can potentially bump you up to a higher tax bracket.

In other words, an HSA account combines the TAX-DEFERRED feature of a 401(K) or RRSP, and the TAX-FREE and No RMD aspects of a ROTH-IRA, provided that you use them for qualified medical expenses, which you will surely incur anyway!

Eligible medical expenses may include things like contact lenses, dental treatments, insurance premiums, long-term care, and laboratory fees.

I don't believe that Obamacare is that broken to be repealed. But it's a shame that President Trump wasn't able to negotiate a deal with democrats last week to pass the American Health Care Act into fruition. The proposed bill would have expanded the HSA by increasing the contribution limits and lowering the percentage of the tax on distributions that are not used for qualified expenses.

Here's how I plan to use it

A little known feature is that you're allowed to pull out and reimburse yourself for past eligible expenses AT ANY TIME--- as long as you keep the receipts.

For example, instead of withdrawing money from the HSA account to cover things like routine dental treatments or medical check-ups, I can pay for these out-of-pocket. In this way, the money invested in the account can continue to grow and compound-- tax-free.

Later down the road, say in 20 years, I can reimburse myself for these expenses and use the money for paying non-eligible expenses that would have been taxable otherwise. That $1,000 that you didn't take out, 20 years ago, would have grown to maybe $10,000, depending on how it is invested.

By doing this, you'll have more money to spend for major expenses such as long-term care or heaven forbid, open-heart surgery.


May you stay healthy.





Monday, March 6, 2017

Aw, Snap! (I should not have bought the stock)

Buy what you know, and stick to companies with good long-term
prospects and quality management-- are 3 well-known rules that the famous investor, Warren Buffett, follow when buying stocks.

None of these rules I followed when I bought 200 shares of SNAP when it went public last week.

The purchase was done on impulse. Risky move indeed, but it is risk that I can afford to take.


I bought what I barely knew

I sort of knew what SNAP is. It is the parent company of Snapchat-- famous for its disappearing messages. Across the country, millions of teenagers and millennials have been using the app to share intimate and sometimes indecent selfies. It's the killer app that could have saved Anthony Weiner's career-- if only he knew about it.

I'm no active Snapchat user, but I do try to login to my account (I go by the username of M Solve) every now and then. The only reason why I have yet to send a message is because I don't know anyone there. Most of my friends are either on Facebook or Instagram.

Being an older Generation X'er, I simply don't belong to the age group (I still do get a lot of compliments that I look very young for my age though).

What's interesting for me is that the company's 26 year old co-founder and the CTO, Bobby Murphy, is part Filipino. He's now worth a cool $5.6 billion dollars. His mother grew up in the Philippines before emigrating to the USA. This is probably what intrigued my interest to watch the stock.

Valuation, what valuation?

Everybody knows that buying stocks is the same as buying a piece of a business. When you're buying the coffee shop across the street, the first thing that you ask is "What's the bottom line?". Let's say the store's net profit is $10,000 per year, after all the employee salaries and other expenses are paid. If the owner is selling the business at $100,000, the Price-Earnings (or the P/E ratio) is 10.

The P/E ratio is probably the most important metric that professionals use (and misuse) when buying or selling stocks. In general, a low P/E can indicate that the company may currently be undervalued. Either that or the company is doing very well relative to its past trends.

In the case of Snap, there is no P/E ratio...

Companies that are losing money do not have a P/E ratio.

In fact, the company has incurred a net lost of $514.6 million in 2016 and $306.6 million in 2015, according to its SEC filing in February.

An alternative would be to use the Price-Sales metric by using revenues instead of earnings. But even then, valuation in Snap's case is not relevant, according to the "Mad Money" host, Jim Cramer. You simply cannot value the stock when only 200 million out of the 1.2 billion shares are publicly traded.

What's pushing the price is the stock's "hotness" factor.

Why then did I buy the stock?



It's pure speculation, I do not plan to hold the stock for a long time.


I seldom buy individual stocks, it's risky. The ones that I'm currently holding, I've held for a very long time. I'm fortunate that I've profited from them, through dividends and asset appreciation.

Snap will be the exception to the rule. For growth stocks like Snap, expect potential dividend money to be reinvested back to the business. Capital appreciation is what I'm hoping to get.

You see, there's nothing wrong with doing a little speculation ;)

I bought the stock with money that I can afford to lose.


$5,000 is money that I can afford to lose. That's the most that I could lose, but the probability that I'd lose all that in a year or two is close to nil.

I figured that if the stock loses 2/3 of its value then that will be comparable to me spending $3,348 to travel to Manila to attend my high school reunion. And since I didn't actually go, any loss that I might incur due to this trade will still be within my budget.

Let's wait and see.



Monday, February 20, 2017

What 20 years in America has taught me about money


Today is my 20th year anniversary living in America-- the land of milk and honey. The place where pretty much anything that I'm accustomed to seeing is bigger. Bigger houses, bigger cars, bigger TVs., bigger you name it.

I can vividly remember what my reaction was the first time I was handed a bucket of popcorn in a movie theater. "Do you expect me to eat all that?" was written all over my face. Suddenly, it finally made sense why most Americans are bigger than me.

It was 1997 and companies in the United States were hiring like crazy in preparation for the Y2K problem, otherwise known as the Millennium bug. Problems arose because programs were designed to store only the last 2 digits of the year to save computer memory and this made 2000 indistinguishable from 1900. It didn't take a long time for me, a natural geek (I've been writing code since age 12), to get hired as a computer programmer.

I grew up in the Philippines, a country with a colorful history. At one point, it was regarded as the second wealthiest in East Asia, next only to Japan. But the economy stagnated in the mid 60s when the late dictator, President Marcos and his wife Imelda (infamous for her 3,000 pairs of shoes), started using the country's Central Bank as their personal ATM machine.

I came from a well-to-do family, but a great number of people in Manila, the city where I came from, were living in poverty. This was a sharp contrast to the booming economy of the U.S., where the majority is the middle class.

Eventually, I became a proud American citizen. I'm very grateful for the opportunities that were given to me. Now, I can honestly say that I love this country probably more than some of her natural-born citizens.

I'm also thankful for the money lessons that I learned along the way...

TIME IS MONEY

When I ask a fellow Pinoy (informal term for Filipino) to meet somewhere at a specific time, a common follow-up question that I get is for qualification whether I meant Filipino or American time.
Filipino time meant I'm coming 15 to 30 minutes late.

You see, Filipinos are notoriously known for being late. One theory that I read is that this is embedded in the culture as it's generally considered 'unethical' to arrive at a party early as you don't want to be perceived as greedy-- that you want to get all the food for yourself.

On the other hand, "American time" meant arriving at a precise time. This probably started when the United States and Canadian railroads instituted a standard time in time zones.  Before then, time of day was a local matter and may vary from city to city. It became very important to arrive at the station at the exact same time in order to not miss your train ride.

In fact, one of the most fascinating things that I've read over the web about American time is that it's not worth Bill Gates' time, the richest man in the world, to pick up a dropped $100 bill from the ground because he's making much more than that per second that he is alive.

I also learned that not investing early will cost you. Given two people of the same age who both plan to retire at age 60. The person who started investing at a late age of 35 will have to contribute twice as much on a monthly basis until retirement in order to accumulate the same amount of savings as the person who started at age 25.

From time to time, I still arrive in meetings a bit late. But I learned not to procrastinate. Whether it's paying the bills, filing my taxes, or rebalancing my portfolio, I make sure that I complete them consistently ahead of time.

It took five years after I moved to America that I started to understand and appreciate the time value of money. I sort of regret not investing in my 20s. But it is certainly a lot better than not starting at all.

DIVERSIFY YOUR INVESTMENTS

You've heard the mantra many times: "Don't put your eggs in one basket!". Of course, I knew about this even before I migrated to America. But because I'm Filipino the phrase has a different twist,

"Don't put all your baluts in one basket."

For those who never heard of it, a balut looks like a regular egg that you buy from the grocery store except that it is an actual developing bird embryo (usually a duck or a chicken). It's a common food in countries in Southeast Asia and is considered as a favorite delicacy of many Filipinos.

Eating the thing has been featured many times in the popular stunt game show-- Fear Factor.
I personally find it funny to see how scared the contestants are eating this Filipino delicacy when I myself can eat 5 of those in one sitting especially when they're still warm.

It's all mind over matter. But I also know that it's easier said than done. Case in point, I heard from my wife that some people in Texas eat cows' balls-- I have to admit, that is something that I cannot stomach.

Going back to investing, diversification essentially means investing in a mix of asset classes to ensure you are not in serious trouble even if you lost a significant amount of money on one of your investments. This is because any losses, incurred on any of your investments, may be offset by gains earned by other assets.

Whereas there weren't many options in the Philippines when I was living there, the vast number of investment options in the United States made it possible for me to diversify my investments.

THE POWER OF COMPOUNDING

As a 13 year old high-school student in the Philippines, my economics teacher required us to open a savings account at a local bank. Our grades at the end of each period would be partly based on the interest that we earned and how frequently we went to the bank to save some money.

In an effort, to obtain the highest mark possible, I remember going to the bank to deposit a measly sum of 3 to 5 pesos (sometimes in really small denominations, to the ire of bank tellers), every first day of the week for the span of one year.

At that young age, I knew that my money was earning interest, no matter how small. I even knew the difference between simple and compound interest. But it was only when I moved to America, after I started saving and investing in stocks for the long term, did I realize how fast my balance could possibly grow (especially when the dividends are reinvested).

For example, it took my retirement balance 7 years to reach the $100,000 mark, but it took only a little over 2 years for it to double to $200,000.

The fact that you'll end up more than $7,000,000 ahead when you doubled a penny every day for 30 days as compared to when you're given a flat $100,000 each day for the same period is simply amazing.

It's no surprise this mathematical phenomenon is always referred to as the 8th wonder of the world.

THE GREATER THE RISK, THE HIGHER THE REWARD

When it comes to sports, Filipinos are known to be passionate about boxing. Hence, the rise of the current record holder, eight-division boxing world champion, Philippine Senator Manny Pacquiao. At one point, he was the second highest-paid athlete in the world second only to his arch-nemesis Floyd "Money" Mayweather, an undefeated American fighter considered by many as the best defensive fighter that the sport has ever seen.

The 2015 fight was billed as "The Fight of the Century". The fight was televised through pay-per-view (PPV) and was jointly produced by HBO and Showtime. Win or lose, both fighters received the highest purse of their life (the single biggest payday in the history of sports). This is in part because of the great amount of risk either party will supposedly experience when facing each other in the ring...

The greater the risk, the higher the reward.

The fight turned out to be a big disappointment because Mayweather spent most of his time dancing in circles around the Filipino boxer instead of fighting.  In spite of this, Pacquiao earned over $100,000,000 fighting Mayweather, who probably earned twice as much. 

Compare that number to the relatively small $4,000,000 base purse that Pacquiao earned fighting a lesser-known Mexican boxing champion, Jessie Vargas, last fall (I and a couple of friends personally flew to Vegas to watch the fight)...

The lesser the risk, the lower the reward.

When it comes to investing, investors can control or minimize the risk in their portfolio by a proper mix of stocks, bonds or cash. Most experts consider a portfolio more heavily weighted toward stocks riskier than a portfolio that favors bonds. Stocks are more suitable for someone with a higher risk tolerance, whereas bonds will be more appropriate for those that can't afford the risk.

Should you invest majority of your retirement savings in bonds because it's less risky? The answer is a big NO, unless you're retiring next month. On average, S&P 500 has returned about 12% since 1982. You're lucky if you get half of that investing in bonds.

Investing in a diversified portfolio of stocks for the long-term is the best way to combat inflation, which is likely to erode your returns otherwise. Using the boxing analogy above, it's better that you face a riskier Mayweather because of the higher rewards (not to mention that you get to punch him in the face).

American innovation played a major role in providing the advanced tools needed to manage the risk and maximize the rewards of your portfolio. I myself, as well as other immigrants from around the world who worked for fintech companies, have contributed our share towards the advancement of the technology-- in our own little way.

I'm looking forward to learning more lessons in the years to come.


[See also]
Living the American Dream - The Friendly Russian





Monday, February 13, 2017

Your spouse will have the greatest impact to your financial well-being

With Valentine's Day just a couple of days away, I'm beginning to feel the pressure to come up with something really special for my wife. Traditionally, it would be fresh flowers-- a bouquet of red roses to be specific.

In the past, I hated buying flowers. I've always thought of it as a big waste of money. So to minimize the cost, I bought them at Walmart. If you're as frugal as I was, just don't tell her where you are buying it from, or it will quickly lose its luster.

In fact, when my wife and I started dating I bought her fake porcelain flowers reasoning that they can last forever. The idea that one would spend $50 on a rose bouquet that won't last more than a few days is beyond me.

For single lads out there, I'm now convinced that the bouquet of flowers that you buy on Valentine's Day may very well be one of the best investments that you're going to make (next to an engagement ring)... IF AND ONLY IF, you are giving it to the right woman.

Unless of course, your only intention is to get laid.

For single ladies out there, be aware that accepting a bouquet of flowers from someone you like may become a prelude to a romantic engagement that more often than not lead to an actual marriage. And that's the scary part.

For both parties, be forewarned...

THE SPOUSE YOU PICK WILL HAVE THE GREATEST IMPACT TO YOUR FINANCIAL WELL-BEING


This is an obvious point for gold diggers. But I'm not talking about marrying for money. I'm talking from the point of view of an investor. If you're looking to marry someday, the most important thing that you can do is to pick your spouse carefully.

Happy Valentine's Day.

This is an actual picture of the rose that I gave my wife last year.