正文
Since typing Chinese is too slow for me, forgive me for writing this in English. I have been browsing this forum for a while and wanted to share my finance and experience as a way to ‘contribute’ to the forum.
Net worth gained 190K this year beating my original goal of 150K.
Family profile:
A family of 4 (with two young kids) in DFW
Where the gains came from:
Savings from salaries: 73k
Investment gain: 47k
Other gain: 70k
Income:
Income 1: 149k (salary + bonus)
Income 2: 23k (part time)
Major spending:
Tax: 39k (fed, property, social security and medicare)
Kids: 20k (daycare/ tuition)
Car: 18k (net spending between buying new and selling old)
Other: 22k
My wife used to measure our financial health by asking how much do we have in the banks?. If I told her 20k, she would feel poor. But 80K in the bank would make her day. That’s when I started tracking our financial progress and print out report to convince her that we had more than in the banks. In other words, I had to tell her what net worth was and wasn’t. Even with that, I had to print my reports. Just showing her from the computer is not sufficient. Don’t assume she is dumb because she is not. That’s just how she thinks financially.
I didn’t know about this forum until late last year. About the same time last year, she pointed out this forum to me because I always seemed to waste time reading wsj and other financial journals. She was reading cooking tips out of the site of course.
Here are some random thoughts on personal finance. These are the things we experienced or believe in. I’m sure it will provoke lots of disagreement. But I appreciate respectful disagreement.
When I joined a tech firm in tech bubble years (99), I thought I would be a millionaire within 5 years. Don’t laugh. That’s what a lot of people believed in. Instead, we have to rely on save and invest on our hard-earned money and we are still not there yet but getting close.
1. Our definition of net worth: home equity + investment + bank accounts – debt. I don’t include any other assets such as cars, furniture etc as part of net worth calculation because they depreciate very fast. But I do include any debt as part of net worth calculation. For example, if I bought a car of 20k and took a loan of 15k. That will translate a net worth decrease of 20k because of debt. This is not fair because it punishes spending. Well, who cares. It’s my finance.
2. 190k gain includes a one-time gain which I don’t expect it to happen at the same pace next year. So our next year’s normal gain should be about 120k to 150k if financial market still goes up. Otherwise, who knows.
3. Focus on net worth: when you sit and look back for the past year financially, you should focus on your net worth. How much you earn is just one side of the equation. If you end up with no significant net worth gain, you have worked for someone else for that year (bankers, brokerage or retails?).
4. Setbacks: You will have setbacks in your life and they will likely be out of your control. We had lots of things that stacked against us. Both my wife and I came from poor families. When a Chinese couple have kids, it’s very common to get help from Chinese parents. Instead of realizing that dream, awaiting us were issues. Not only we were unable to get help from our parents, our kids needed special care and we couldn’t put them to daycare for first a few years. In order to take care of them, my wife had to quit. So we were left with one income for a long time. At that stage, it was very easy to fall into a victim mindset. “How can we do well given that we have just one income?”. But the key is that you do the best you can do with the constraints you have. There is no perfect moment. If you have a victim mindset, you will always be a victim of some sort.
5. On Saving: When I was growing up, I was deprived of lots of ‘normal’ things because of being poor. So when I think we had enough money, I had an urge to buy things that might be useful. My wife (being a wise woman) killed that habit. For the record, we are not financial “geeks”. We do spend money (such as home renovations, cars, kids, clothing and vacations etc). But if the item has major impact on our net worth, we will discuss for a while before just doing it. For example, having a BMW or Lexus is nice. But how will that impact your net worth? If you spend 60K on a BMW and your net worth is just 600k, it will be 10% of your net worth gone. On the other hand, if you have 6 million, it will be just 1%. With just 600k net worth, you can trade a 60K BMW with a 25K for a cheap car. You can invest the 35K saved. Twenty years later, that 35K can be 280K (if your stock doubles every 7 years). If that turned out to be a bad investment, you really didn’t lose anything. Your BMW is probably gone also. Of course, if you are doctor, layer, realtor or financial advisor, you need to impress your clients. There is nothing wrong with buying a fancy car. But for back office workers (like IT professionals), I think that kind of saving or sacrifice is worth it unless you do have lots of money. I have seen a couple who bought a huge house they can barely afford. Both of them had to work just to cover all expenses related to the house. That’s not wise either. One can argue that the house can go up and you will have more gains. What if it doesn’t for next 10 years or 15 years? You should not put all your investment in one basket. You buy a house to live and hope it will appreciate. But you also need to save and invest in stocks.
6. On investment: I think you should put a bulk of you money in index funds. It’s very hard to accept average returns. But it can do wonders to you year after year. To do this, you will have to accept you only have average IQ when it comes to investing. This is hard because we tend to think we are better than average.
7. Protect yourselves: you need to buy enough insurance to protect your hard-earned money. You will need to buy high liability coverage on your cars and house. Consider umbrella coverage. If you have car accident and get sued, you may lose your own money. I do see people had to cough up their own money to pay for damages due to bare minimum insurance they chose. The thing is liability coverage is usually very cheap and many people (high Chinese earners) don’t buy them. I even heard that some people lie about size of the house to get lower coverage. Imagine when your house is destroyed by fire and Insurance Company found out that. Some people would find a cheap company to insure themselves. If this company can’t pay for demage, why do buy your insurance in the first place? This is penny-wise and dollar-foolish. Buy term-life for both of you. If you or your spouse die, the other one and you kids will have some money so that that their financial setback is minimized. We do see people (I mean people around you) contracting cancer and dying from it. I work in IT and don’t sell any financial products. So this is not advertisement.
8. Step up and take care of your own finance: You must educate yourself on finance. Do not have fantasies that someone else will do it. Of course, you can have it managed. Is it really worth it to have 1-2% of your asset taken away year in and year out? If you have 500K, it will be 5k out of your net worth year in and year out. I have known people who were sold on some high-fee insurance products presented as good investment products. But based on their financial shape, I doubt they have already maximized their 401k, IRA and 529 yet. So it doesn’t help if you just stick your head into the sand like an ostrich and avoid facing the truth. In the US, it appears that people are good at blaming other people for their failures. “My house has to be foreclosed because the broker or lender who financed my loan didn’t check my income and therefore I am not able to afford that house now” (referring sub-prime mortgage mess). I always laugh when I saw this on TV. They didn’t check your income? Where were you? I don’t think many Chinese are in this category. But I just use it as an example to show you a point that you need to step up for yourself because no one else will.
9. Live your life: you shouldn’t put all your energy to work without balancing your life. Your kids will grow up quickly. If you miss growing up with them, you can never make it up. You may argue that “I’m making money for them”. They will never know or appreciate that. All they remember is the playful moments.
Net worth gained 190K this year beating my original goal of 150K.
Family profile:
A family of 4 (with two young kids) in DFW
Where the gains came from:
Savings from salaries: 73k
Investment gain: 47k
Other gain: 70k
Income:
Income 1: 149k (salary + bonus)
Income 2: 23k (part time)
Major spending:
Tax: 39k (fed, property, social security and medicare)
Kids: 20k (daycare/ tuition)
Car: 18k (net spending between buying new and selling old)
Other: 22k
My wife used to measure our financial health by asking how much do we have in the banks?. If I told her 20k, she would feel poor. But 80K in the bank would make her day. That’s when I started tracking our financial progress and print out report to convince her that we had more than in the banks. In other words, I had to tell her what net worth was and wasn’t. Even with that, I had to print my reports. Just showing her from the computer is not sufficient. Don’t assume she is dumb because she is not. That’s just how she thinks financially.
I didn’t know about this forum until late last year. About the same time last year, she pointed out this forum to me because I always seemed to waste time reading wsj and other financial journals. She was reading cooking tips out of the site of course.
Here are some random thoughts on personal finance. These are the things we experienced or believe in. I’m sure it will provoke lots of disagreement. But I appreciate respectful disagreement.
When I joined a tech firm in tech bubble years (99), I thought I would be a millionaire within 5 years. Don’t laugh. That’s what a lot of people believed in. Instead, we have to rely on save and invest on our hard-earned money and we are still not there yet but getting close.
1. Our definition of net worth: home equity + investment + bank accounts – debt. I don’t include any other assets such as cars, furniture etc as part of net worth calculation because they depreciate very fast. But I do include any debt as part of net worth calculation. For example, if I bought a car of 20k and took a loan of 15k. That will translate a net worth decrease of 20k because of debt. This is not fair because it punishes spending. Well, who cares. It’s my finance.
2. 190k gain includes a one-time gain which I don’t expect it to happen at the same pace next year. So our next year’s normal gain should be about 120k to 150k if financial market still goes up. Otherwise, who knows.
3. Focus on net worth: when you sit and look back for the past year financially, you should focus on your net worth. How much you earn is just one side of the equation. If you end up with no significant net worth gain, you have worked for someone else for that year (bankers, brokerage or retails?).
4. Setbacks: You will have setbacks in your life and they will likely be out of your control. We had lots of things that stacked against us. Both my wife and I came from poor families. When a Chinese couple have kids, it’s very common to get help from Chinese parents. Instead of realizing that dream, awaiting us were issues. Not only we were unable to get help from our parents, our kids needed special care and we couldn’t put them to daycare for first a few years. In order to take care of them, my wife had to quit. So we were left with one income for a long time. At that stage, it was very easy to fall into a victim mindset. “How can we do well given that we have just one income?”. But the key is that you do the best you can do with the constraints you have. There is no perfect moment. If you have a victim mindset, you will always be a victim of some sort.
5. On Saving: When I was growing up, I was deprived of lots of ‘normal’ things because of being poor. So when I think we had enough money, I had an urge to buy things that might be useful. My wife (being a wise woman) killed that habit. For the record, we are not financial “geeks”. We do spend money (such as home renovations, cars, kids, clothing and vacations etc). But if the item has major impact on our net worth, we will discuss for a while before just doing it. For example, having a BMW or Lexus is nice. But how will that impact your net worth? If you spend 60K on a BMW and your net worth is just 600k, it will be 10% of your net worth gone. On the other hand, if you have 6 million, it will be just 1%. With just 600k net worth, you can trade a 60K BMW with a 25K for a cheap car. You can invest the 35K saved. Twenty years later, that 35K can be 280K (if your stock doubles every 7 years). If that turned out to be a bad investment, you really didn’t lose anything. Your BMW is probably gone also. Of course, if you are doctor, layer, realtor or financial advisor, you need to impress your clients. There is nothing wrong with buying a fancy car. But for back office workers (like IT professionals), I think that kind of saving or sacrifice is worth it unless you do have lots of money. I have seen a couple who bought a huge house they can barely afford. Both of them had to work just to cover all expenses related to the house. That’s not wise either. One can argue that the house can go up and you will have more gains. What if it doesn’t for next 10 years or 15 years? You should not put all your investment in one basket. You buy a house to live and hope it will appreciate. But you also need to save and invest in stocks.
6. On investment: I think you should put a bulk of you money in index funds. It’s very hard to accept average returns. But it can do wonders to you year after year. To do this, you will have to accept you only have average IQ when it comes to investing. This is hard because we tend to think we are better than average.
7. Protect yourselves: you need to buy enough insurance to protect your hard-earned money. You will need to buy high liability coverage on your cars and house. Consider umbrella coverage. If you have car accident and get sued, you may lose your own money. I do see people had to cough up their own money to pay for damages due to bare minimum insurance they chose. The thing is liability coverage is usually very cheap and many people (high Chinese earners) don’t buy them. I even heard that some people lie about size of the house to get lower coverage. Imagine when your house is destroyed by fire and Insurance Company found out that. Some people would find a cheap company to insure themselves. If this company can’t pay for demage, why do buy your insurance in the first place? This is penny-wise and dollar-foolish. Buy term-life for both of you. If you or your spouse die, the other one and you kids will have some money so that that their financial setback is minimized. We do see people (I mean people around you) contracting cancer and dying from it. I work in IT and don’t sell any financial products. So this is not advertisement.
8. Step up and take care of your own finance: You must educate yourself on finance. Do not have fantasies that someone else will do it. Of course, you can have it managed. Is it really worth it to have 1-2% of your asset taken away year in and year out? If you have 500K, it will be 5k out of your net worth year in and year out. I have known people who were sold on some high-fee insurance products presented as good investment products. But based on their financial shape, I doubt they have already maximized their 401k, IRA and 529 yet. So it doesn’t help if you just stick your head into the sand like an ostrich and avoid facing the truth. In the US, it appears that people are good at blaming other people for their failures. “My house has to be foreclosed because the broker or lender who financed my loan didn’t check my income and therefore I am not able to afford that house now” (referring sub-prime mortgage mess). I always laugh when I saw this on TV. They didn’t check your income? Where were you? I don’t think many Chinese are in this category. But I just use it as an example to show you a point that you need to step up for yourself because no one else will.
9. Live your life: you shouldn’t put all your energy to work without balancing your life. Your kids will grow up quickly. If you miss growing up with them, you can never make it up. You may argue that “I’m making money for them”. They will never know or appreciate that. All they remember is the playful moments.
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