Tuesday, June 18, 2013

Owner vs renter mentality and why you should align your long term benefit and the transaction model.

Owners just have a different mentality compared to renters. The mentality shows up in so many little ways. The pride of ownership really can't be mistaken. Fundamentally the difference can be simplified as this: owner gives and renters takes. Owners invest time, money, and other resources into the asset to maximize the value of asset or the extend useful life of the asset based on some reasonable expected return on effort. Renter minimizes the effort and avoids investing time, money, and other resources in preparation for the exit based on the expected rental time span.

The most obvious example is car owner vs leaser. Most owners would not miss the recommended oil change or other scheduled maintenance. On the other hand, some car brands has to give away oil change for free during the lease period to incentive leaser to bring in the car. Leaser would do it in the beginning because the expected rental exit time far exceed the effort time. But as the exit period approaches, the value or the benefit of the scheduled maintenance decreases dramatically because long term benefit will go to someone else after the rental period.

I'm not suggesting that everyone should only buy a home, a car and completely avoid leasing or rental. These are financial transaction model decision that can be decided by considering multiple factors and can be quite advantageous. However there is a strong correlation between the transaction model and the user's mentality, and that is the source of the danger.

 I believe in order for a person to be successful in anything, one must *own* the problem and the solution. Ownership is a mental attitude completely within ones control. You can mentality own any problem and solution that you put your mind to. When you own the problem, you will invest time, and money into the problem and solution. If you have a renter attitude of the problem, then you hope it will go away on its own or you want call someone else to fix the problem as cheaply as possible. 

The initial purchase transaction model will likely to set the mental attitude and behavior for the useful lifespan of the asset. It's quite difficult to apply a different attitude after the transaction model as been set. Here are my personal finance spending short hand.

1) Avoid buying or leasing if possible. Less is More.
2) Buy to own appreciating asset and build up equity over time.
     House, stock, businesses, etc.
3) Buy big ticket items to keep so you will be motivated to maintain the value and extend the useful life
     Car, TVs, major appliances.
4) Rent lifestyle or rapidly depreciating items.
     Gym membership, gym equipment, boats, RVs, skis
5) Pay per use
     Carpet cleaners, DVDs, books, vacation house, time-shares,

Back to the car example, I wouldn't lease a car because the I believe I could maintain the car better and could do a better job selling my car for a good price then the dealership. I can keep the margins on the transaction for myself in case I decide to sell. I wouldn't buy a used car even though the saving is considerable because I don't trust the maintenance level of the average car owner. I still own my first car and it's almost 19 years old. The car is still in good condition (relatively for a 19 years old car) because I had an owner's mentality and invested the proper time and energy for the maintenance. I budgeted 10 years as the useful lifespan for the car ( and I'm nearly 100% over my target. It's a great feeling. Instead of car payments, I invest that money into other opportunities such as sport camps and college funds for the kids.

The decision to rent or own is not a simple decision that can be made by the online calculators. Those calculators are useful starting points. The real decision is your personal mental attitude and setting proper goals and expectations that are in alignment with the attitude.
If you know your enemies and know yourself, you will not be imperiled in a hundred battles... if you do not know your enemies nor yourself, you will be imperiled in every single battle.
Sun Tzu The Art of War

Tuesday, June 11, 2013

I received the diamond class action lawsuit settlement today.

I applied for this way back in 2008 see this here: Get a refund for your diamond purchases. I have completely forgotten about this class action lawsuit claim, until today. To my surprise, I actually received a check today. I almost ripped up the envelope because it looked just like junk mail.

Amazing. I think this is how people feel when they won a bit of lottery money (I don't play so I have 0 chance of winning.) It's a great feeling. Free money!

Tuesday, June 4, 2013

I blog for my kids.

Blogging and writing is very hard for me. I don't enjoy the process of writing and editing. It's hard work to think of topics. Mostly of all, I don't have any confidence in my writing. It always feels awkward. So why did I start a blog? Like everything truly meaningful and persistent in life. It's intended as a gift and it's out of love that I started this blog.

I remember very clear why I wanted to start a blog. I started blogging back in 12/27/2007. My wife and I were talking about how to teach our son, who was just a toddler, about money and responsibility (never too early too start.). Especially after the mega rush of all the presents he received, we felt this is a very important topic and one of our core family values is to be responsible about finances. I felt a rush of excitement and energy. I had so many ideas that I wanted to share, so many decisions that I have made over the years, some I liked, some I regretted, but all I learned from. Obviously, it was impossible for a toddler could fully understand all the idea and decision process that I hoped to teach. My wife suggested that I start a blog, and I felt that eureka moment when the light bulb just turned on in my head. I even had the vision of the perfect title. 

Over the years, whenever there was a learning moment with my kids, but I was unable to provide a well thought answer on the spot or the answer deserved greater depth of discussion beyond the understanding by young children, I used this blog as a mean to better organize and articulate my thoughts. I remember one of the most important whiteboard conversation of my life. I received my job offer from Microsoft, and I couldn't believe how much I would be making in one year. If you know Microsoft back in the day, their salary for new college grads were bad. It just goes to show how naive I was. It was my friend that set me straight about cost of living, retirement planning, savings rate, etc. It was a quick 15 minutes conversation, but it set the ground rules for my personal financial  planning. My main regret was the talk came from my friend instead of my father. Now, I want to a different kind of father to my kids. 

While working on our family will, I very consciously realized that I wouldn't be around forever, and certainly not with the same mental acuity as I do now. It would be best if I continue to wrote blog entries so my kids can understand the context and the rational of our decisions and the results we hoped to achieve. It's my hope that when they grow up and have kids of their own, they would read these entries and realize that we were human. We made decisions with much thought and love, but plenty of mistakes were made too. And, just in case, if 18 years of asian tiger parenting drove them crazy and they stop talking to me, at least, they would still read the blog and read about the values that shaped me and I tried to pass to them.

Looking back at my very first blog entry about the meaning of the title. This blog is a dialog of my decisions between my present self to future self AND TO MY KIDS.