Closing Down Shop In New Mexico

So, you'd think since setting up a sole proprietorship or limited liability company (LLC) is pretty easy, closing down would be just as easy. I mean, you just send in one form with a check and boom you're in. However, its just like buying a house, easy to get in, a little more tricky and expensive to get out. By the way, it costs 2.5% to get into a house (loan, title fees, brokers) and 7.5% to get out of the house, so if you plan on making a quick buy and sell, you had better be able to cover at least 10% or know how to reduce the fees people normally pay.

Doing all of this paperwork is always so scary, so I always push it off. Last year, I was fined $1564 by the IRS for submitting the S Corporation election form(2253) late. This is pretty sad since there weren't actually any monies paid directly to the company, although I did advertise it and interview with potential clients, which got me some good side work.

Well, like most people, I struggle with debt and credit cards and picked up this great book by Suze Orman (Dave Ramsey is also a good read). She throws out a great concept, that people are often afraid of money and push off dealing with it. We have this belief that money is the root of all evil and we just hate dealing with the hassles and paperwork. One of her laws is respect for money attracts money and disrespect for money repels money. This is so true. Despite my ability to do paperwork for the IRS, I just put it off because I didn't want to deal with it. Months passed and well, what do you know, I was late and hit with an enormous fee.

After reading her book, I took the opposite route. I found out what I needed to close down shop of our New Mexico businesses, since we have moved to California. Did you know interest piles up on owed tax with no limitation on time?

In case some of you have to do the same, here's what I did. I got up to date on the CRS-1 forms, which have to be filled out if you sell goods at say, a Farmer's market. I calculated the penalties and interest as well for being late.

I filed the business tax registration update with the Taxation and Revenue Department, making each business closed. I filed the Tax Clearance Request as well. I sent the Articles of Dissolution for the LLC elected as an S Corp along with $25 to the Public Regulation commission. Finally, I don't know if I need other things like a "Certificate of No Tax Due", "Certificate of Compliance" or "Letter of Clearance" so I sent out extra letters to the Taxation and Revenue Department, Department of Labor and Public Regulation Commission just to make sure I'm squared away with them.

Come tax time, I will fill out the 1120S along with the K1s to square that away as well. This took me a good 5 hours to do, which isn't all that bad. On the other hand, I feel really good that I got focused and committed to getting these things taken care of.

So here's a summary of the what the digging got me:

• I found out my escrow account conveniently holds my money, acruing until it is time to pay taxes and insurance. I'd rather have the money to earn interest on it, so I closed my escrow account: $610.
• I found out my insurance policy changes caused an overpaying, which of course they were just letting sit in my account: $315.
• I also found out I had paid my flood insurance in addition to the escrow account paying it: $1015.
• The call to the IRS above: $1560.
• Finally, when I setup my automatic deduction for my mortgage, I double paid that month and the mortgage company would only apply it to principal if I specifically requested it. In other words, I was 1 month ahead every payment for a year. An easier way to explain it is that if you take a mortgage for $100,000 and then pay the company $100,000 the next day, they won't say anything. They will just keep that money, apply the payments and in 10 years or so, say, okay, we've used up all the money to make your payments and you still owe us $50,000. Anyways, found: $830 (called and applied it to the principal).

This post was reposted from http://sizuservices.blogspot.com/2012/01/closing-down-shop-in-new-mexico.html, originally written on January 8th, 2011.

Tidbits For Entrepreneurs

Just wanted to throw an update on my business ventures for anyone interested in starting home based businesses. My approach is to grow from the basement with little investment. Since most businesses fail, I would rather make money from the get go and end up ahead if things die out.

The book I will highlight in this blog actually is a people book. In order to succeed in business, I believe you have to understand people and find out what they need. This is something I have been very interested in and has helped my own personal growth.

First of all, I have a full time job that pays the bills. Last year, I went to the Small Business Development Center (SBDC). This is helpful for getting free advice and support from people who understand the system. They helped me to register my business. I wrote my articles of organization, paid $50 to the state to register an LLC (Limited Liability Company) and had my business. Sounded scary until I went through the process. "The best way to learn business is to start a business." When tax time rolled around, I elected my LLC as an S Corporation by filling out some IRS form. I also filled out some K1s which are like W2s for distributing profits and losses.

I took a $29 course at the SBDC, held by PTAP to learn about how to get a contract. I will get a CRC and DUNNS number. So far, no profit here. This business was registered in Nov, 2010. I did however get a little under $10,000 in part time work, by letting people know I do automated testing.

My next business involves my real estate investments. I covered the numbers in an earlier blog post. Right now, I have a $300.19 mortgage and rent for $750 dollars. This is a potential $5400 in cash flow. However, we were hit hard by Steinborn Property Management with a $1700 in initial fees for cleaning the outside of the house, cleaning the inside of the house, doing maintainence on the swamp cooler and replacing the busted water heater. We also pay 10% which means $80 per month or $960 per year. Already that leaves $2740 for the year (which would be great as an almost 14% return, but I imagine more expenses will pop up). These unexpected expenses are exactly why the numbers need to be really good in the first place! We have $20,000 down on a $80,000 property that rents for $750. The rent to value ratio is .9375%.

The nice thing about the property management is that I don't have to spend my time. However, I am spending my money. My philosophy is that if you want to get rich, you need to learn how to utilize other people's time and money. If I can get a 5-10% return this year, without spending much of my own time, I am happy. The get rich slow method. I would like to find some investors to use their money. Notice, they get the same benefit I do, as far as me using my time to find the investment properties and make regular investment decisions. The more value you can add, the more money you can make.

The final business I will discuss is my wife's soap making business. She started making soaps in the garage and sells them at the local farmer's market. She started in July 2010. Earlier this year, we asked the woman who gives me haircuts to stock our soaps in her store. The original agreement was $20 a month plus $1 for each soap sold. She didn't accept the $20 a month (and hasn't yet, which was very good of her) and we've only sold 4 soaps in the store over about 3 months. We have several ideas about doing larger gift items and setting up web traffic.

Luckily, for my original consulting business, I had a domain registered through IX Web Hosting. This is about $40 per year. You can always host your website for free by downloading Adobe Apache Server software and leaving your home computer as a Server. You will still have to pay $20 or so to register your domain name (ie www.mypage.com) I grabbed some free templates off the web. We will slowly modify the templates to avoid any copyright issues.

So this is the basic layout of a webpage. You have the header, basically a large background image that serves as a background, the right margin, the left margin, and a footer. In between you have the menus and content. I am doing the html myself and will be adding the following: online payment (using Paypal's easy to used Merchant Services) to quickly buy featured items, links to Etsy's online store (costs approximately $.20 per four months for each item posted), a blog allowing customers to follow us, links to facebook/twitter/linkedin/.

As you can see, I am a do it yourself type of guy, but I also like to utilize work from others whenever I can. In one sense, you have to do it yourself to get things cheap and save money. In another sense, you have to use others who can do things better to save time.

This post was reposted from http://sizuservices.blogspot.com/2011/07/tidbits-for-entrepreneurs.html, originally written on July 4th, 2011.

For more information about these three ventures, seehttp://sizusfinlit.blogspot.com/2014/11/early-on-three-businesses-and-lessons.html

Balancing Stocks

Assuming you have a nice company that you are buying stocks for, I would suggest investing enough that you can balance your holdings in the stock. I am not a stock person, but for the part of your portfolio which does contain individual stocks, I would suggest something like the following. Place 40-60% in stock positions and leave the other in savings. If you have only $10,000 (or less), I would say only invest maybe $4,000 of it. Anyways, if you have $100,000, you can invest $60,000 possibly buying 6 different stocks each position being $10,000. The reason you want to have cash on hand is to balance the stock.

For these calculations, I will use .3 and 1/(1-.3)=1.4285

1A. Lets say one of your $10,000 positions was bought at $1 per stock. This means you have spent $10,000 to own 10,000 stocks worth $10,000.

• Total Worth: $13,000
• On Hand Cash: $3,000
• Investment: $10,000
  • Number of Shares: 10,000
  • Share Price: $1

1B. Say the stock drops 30% to $.7 per stock. This means you have spent $10,000 to own 10,000 stocks worth $7000. Try to maintain a worth of $10,000 by making up the $3000 loss by buying 4285.7142=$3,000/$.7 stocks. This means you have spent $13,000 to own 14285.7142 stocks worth $10,000.

• Total Worth: $10,000
• On Hand Cash: $0
• Investment: $10,000
  • Number of Shares: 14,285
  • Share Price: $0.70

1C. Say the price jumps .4285% to $1 per stock. This means you have spent $13,000 to own 14,285.7142 stocks worth $14,285. Try to maintain a worth of $10,000 by making up the $4,285 gain by selling 4,285=$4,285/$1 stocks. This means you have spent $8,715 to own 10,000 stocks worth $10,000.

• Total Worth: $14,285
• On Hand Cash: $4,285
• Investment: $10,000
  • Number of Shares: 10,000
  • Share Price: $1

Of course, if you are targeting 30% changes, you will not gain as much if the prices increase very quickly. With this strategy you are assuming several ups and downs (market trends) before a long term benefit.

2A. Lets say one of your $10,000 positions was bought at $1 per stock. This means you have spent $10,000 to own 10,000 stocks worth $10,000.

• Total Worth: $13,000
• On Hand Cash: $3,000
• Investment: $10,000
  • Number of Shares: 10,000
  • Share Price: $1

2B. Say the stock jumps .4285% to $1.4285 per stock per stock. This means you have spent $10,000 to own 10,000 stocks worth $14,285. Try to maintain a worth of $10,000 by making up the $4,285 gain by selling 3000=$4,285/$1.4285 stocks. This means you have spent $5,715 to own 7000 stocks worth $10,000.

• Total Worth: $17,285
• On Hand Cash: $7,285
• Investment: $10,000
  • Number of Shares: 7,000
  • Share Price: $1.42

2C. Say the price drops 30% to $1 per stock. This means you have spent $5,715 to own 7000 stocks worth $7,000. Try to maintain a worth of $10,000 by making up the $3000 loss by buying 3000=$3000/$1 stocks. This means you have spent $8,715 to own 10,000 stocks worth $10,000.

• Total Worth: $14,285
• On Hand Cash: $4,285
• Investment: $10,000
  • Number of Shares: 10,000
  • Share Price: $1

If the stock drops and then increases, it is the same as if the stock increases and then drops.

Now there are two problems to consider. The first is that the position needs to be large enough that the alert values (.3, .42) allow to offset the cost of commissions, meaning you need a lot of money. The other problem is that this strategy assumes you have money to buy when drops occur, meaning you need a lot of money. If I had a huge amount of money and the companies had a huge amount of stock I would probably just day trade with several stable companies using small alert values (.003, .0042).

This post was reposted from http://sizuservices.blogspot.com/2010/08/balancing-stocks.html, originally written on August 29th, 2010.

Should You Purchase a Whole Life Insurance Contract Which Promises Tax Free Retirement?

Have you ever heard an agent promise a tax free retirement with a whole life insurance contract?  Have you ever heard of a 7702 plan?  Would it be ethical for a whole life insurance agent to say that the IRS created the 7702 code in order for Americans to have a tax free retirement?

The IRS created the 7702 code so that Americans could not shelter wealth in a whole life insurance policy.  There are limits to the amount of money one can put into a whole life insurance policy's separate account and they are based on the amount of life insurance coverage.  If one even tries to shelter money in the account beyond a certain limit, the whole life insurance contract becomes a modified endowment contract.

According to www.ameriprise.com, "The IRS definitions are essentially tests to ensure that an insurance policy isn't really an investment vehicle."  Other third party consumers such as Suze Orman and Dave Ramsey also advise people to avoid purchasing whole life insurance policies.

A loan is not tax free retirement!  Some agents promote the fact that you are allowed to take a loan on your policy, which will allow you to not have to pay taxes.  This is true of any loan but would not be a good reason to purchase a whole life insurance contract.  For tax purposes, using after tax dollars to fund the policy and still having to pay taxes on earnings if you surrender the policy is completely ridiculous.  Later, I will show you how to actually create a tax free retirement and there are ways to do this no matter how much income you make.

This post was reposted from http://finlit.biz/life-insurance/should-you-purchase-a-whole-life-insurance-contract-which-promises-tax-free-retirement/, originally written on January 21st, 2013.

Suze Orman on Universal Insurance

Jim Rohn's 70%-30% Financial Independence Rule

The rule I am about to share with you absolutely works. On the surface, it may not seem obvious, especially if you have not used these principles in your own life.

I love my children. They teach me so much. Yesterday, when they left my car, I saw the big mess they left with all their belongings. I was speaking with my son and I realized that they did not see the mess. As parents, we have to teach them what to look for, how to see things and help them to find things they normally wouldn't notice. As we teach, we learn ourselves about leadership and patience. The natural cycle of life puts us into a leadership position.

It reminded me that as we grow in life, we may be presented with the same story, the same setting, yet have a different interpretation. Things we may have thought were boring as a child, bring so much joy as an adult. Things that we used to find funny, we can't see the humor in anymore.

Sometimes we can be quick to judge, quick to draw a conclusion. Truth has a way of bubbling up to the surface though, so the key is to continue to search, continue to explore. Wise people not only learn from their own experiences, but can also learn from other people's experiences.

EXPENSES

So, the rule, in a nutshell, has 4 parts. The first part states that one should only ever use 70% of their income on expenses. Most people probably think that this is not practical since they are already overextending themselves. However, most people probably can say that they used to be making 70% of what they are making now and they were covering their expenses. If you ever have trouble applying a financial rule, work hard towards increasing your income by becoming more valuable to the market place and when you do, apply the increase to the financial rule. As an example, if you are out of debt and you don't have a retirement account, maintain the same standard of living after your next pay increase and use the raise to fund your retirement account.

CHARITY

The next part of the rule states that you should donate 10% of your income towards charity. Whenever, I consider taking advice, I always ask myself, "What if I am wrong?" So imagine this isn't a good move and you spend 30 years giving to charity and you still end up broke. Well, the positive side is that you did something fulfilling with your life and helped to create a change in your community. From another perspective, changing your perception from one in which you ask, "What do I get from this?" to the alternate, "How can I give more?" allows you to become the type of person who is valuable to the market place, hence increasing your earning potential.

From yet another standpoint, giving and gratitude go hand in hand. By giving you allow yourself to feel gratitude which gives you a certain peace of mind since gratitude and negative thoughts like fear, doubt, worry cannot be felt simultaneously. Finally, by giving to charity, you have the opportunity to affect someone's life and possibly have a direct impact, which may later stimulate the economy.

ACTIVE VENTURE

Ten percent of your income should be used to fund an active venture. Everyone should own a small business. Small businesses give you huge tax advantages (will blog on this later). Small businesses stimulate the economy. This category can also include education and self-improvement. Classes and books may be expensive. It may also include actively loaning out money to a friend as startup funding or supporting a Kickstarter project. This might also include investing in real estate. All of these things can stimulate the local economy.

Most people don't realize they can stimulate the economy just by connecting two people who are looking for each other. They can talk and communicate, creating one more transaction, one more connection. They can speak to each other in the lines at the grocery store, coffee shops, online.

Some people live by the rule of "Eat, drink and be merry for tomorrow we die." I love this philosophy because to me it means that we should enjoy life and be grateful. However, I think that living happily may be completely different than partying as marketed in the media. Everyone has been given a specific set of talents. My hope is that people can use those talents to their full extent. A wasted talent may translate to a village of hungry people or a cousin out of a job.

PASSIVE VENTURE

Ten percent of your income should be used to generate passive income. In this category, you would include investing in global companies and the global economy. Picking big companies, no-load mutual funds, passive index funds, etc to stimulate growth in our country.

This may also include real estate if you have property management and are hands off in decision making.

Dedicated to Cheng Xu.

This post was reposted from http://sizuservices.blogspot.com/2012/10/jim-rohns-70-30-financial-independence.html, originally written on October 14th, 2012.

Early On, Three Businesses and Lessons Learned

Having a small business can have a dramatic effect on taxes. The first year I made a six figure income, was in 2011. That year, according to Turbo Tax, I was in the 5% tax bracket. That same year, a good friend of mine was a nurse at Standford hospital, making about half as much money as me. Since he had no small business, he paid about 3 times what I did in taxes.

Steven Schussler's wrote a great book, "It's a Jungle in There". There are several good points about being an entreprenuer, that can be learned from his story. Take for example, the IRS hobby law. According to www.irs.gov, one of the main benefits of having a small business is that: "An activity is presumed for profit if it makes a profit in at least three of the last five tax years". Even if it does not make any profit, a judgement by the IRS can still be made to show it was a valid business venture. In Steven Schussler's case, he was able to write off huge amounts of money by doing crazy things like turning his house into a showroom to bring investors in. Writing off massive losses in the hundreds of thousands of dollars, he funded theme restaurants that featured dinosaurs, jukeboxes and eventually the rainforest.

In this blog, I post information about some early ventures and hope you can grab some useful information. This information was originally copyrighted in 2010 by Izu Services, LLC.



Izu Services

The mission of Izu Services, LLC is to advance automation technologies in the areas of Robotics and 3D Modeling in a manner as to enrich the lives of people within the community.

Specialty:

• Automated Software Testing
• Algorithm Development
• Terrain Processing

Previous Clients

• CNI, Las Cruces, NM
• EBID, Las Cruces, NM

Important Events:

• Told a refund of $1560 would be issued by the IRS
• Moved to CA, Completed Articles of Dissolution (New Mexico) to close business ($50)
• Fined $1560=$190 x #ShareHolders x #MonthsLate for filing 2553 late
• Distributed IRS K1 to shareholders to include profits in their tax returns
• Completed IRS 2553, Election by a Small Business Corporation to become an S Corporation (have shares)
• Completed Operating Agreement (internal bookeeping)
• Completed Articles of Organization (New Mexico) to register business as LLC ($25)

I am constantly on the look out for ways to improve my own personal financial plan. As I learn, I have no problem giving this information out to others, especially since most of us need a total finanacial makeover. At this point, I have a small following and I appreciate every view I get so thank you for supporting me! Please keep coming back and if you like what you see, leave comments, ask questions or e-mail me. While my main expertise is software optimization and automation, my financial interests include stock investment, IRA, 401(k), gambling, small business, real estate and taxes.

Hopefully, you can also learn about making small transactions through Pay Pal, Google AdSense, Amazon Associates, Etsy, Tradebit or your own website. Thank you for clicking ads and purchasing books in my blog. If I have helped you mold your own personal financial plan, donations or soap orders are always welcome!

Izu Reality

The mission of Izu Realty is to focus on affordable housing in the Las Cruces, NM Market. Using an S Corporation, Izu Realty can pull together multiple investors to limit the risk for any particular individual. The goal is to focus on creating steady returns of about 5-7%.

Resources

• Property Research
• Property Management
• Financial Advice
• Business Plan

Alamo

• Nov 2011 : Paid Taxes and Insurance totalling $1008
• Nov 2011 : 80/24.3/64.549=-8.8 : 750/076.35=1700 : -7,148
• Oct 2011 : 80/23.0/64.654=-7.7 : 750/000.31=1026 : -6,642
• Sep 2011 : 80/22.7/64.760=-7.5 : 750/172.81= 277 : -7,191
• Aug 2011 : 80/22.4/64.865=-7.3 : 750/749.58=-300 : -7,569
• Jul 2011 : 80/22.1/64.969=-7.0 : 750/382.67=-300 : -7,369
• Jun 2011 : 80/21.8/65.074=-6.8 : 750/489.81=-667 : -7,541
• May 2011 : 80/21.5/65.178=-6.6 : 459/1387.1=-927 : -7,605
• May 2011 - House rented for $750/month
• Apr 2011 : 80/21.2/65.282
• Mar 2011 : 80/20.9/65.385
• Feb 2011 : 80/20.6/65.488
• Jan 2011 : 80/20.3/65.591
• Jan 2011 - House unoccupied with a mortgage of $300/month

Chisholm

• Nov 2011 : 130/33.8/114.547 : -18,383
• Nov 2011 - House unoccupied with a mortgage of $833/month

Month Year : Appraisal/TotalPayments/MortgageBalance=HomeIncome : Rent/Services=RentIncome : Net

Equations

• HomeIncome(n)=Appraisal(n)-TotalPayments(n)-MortgageBalance(n)
• RentIncome(n)=RentIncome(n-1)+Rent(n)-Services(n)
• BalanceDue(n)=BalanceDue(n-1)-Rent(n)+Services(n)+Proceeds(n)

Izu's Bath and Body

How Many Homes were in Preforeclosure or Foreclosure status in California in 2012?

According to www.dqnews.com, there were 54,615 Notices of Default in California for 2012 Quarter 2 and 49,026 for 2012 Quarter 3. Extrapolating this data, means that about 200,000 NODs were sent out in 2012.

The same article states "While 1.48 million of California's roughly 8.71 million houses and condos have been involved in a foreclosure proceeding the past five years, 847,067 have gone through the whole foreclosure process. The other 633,000 were either sold, or the payments were brought current."

character analysis essay

This means 17% of properties have started the foreclosure process, is the last five years. My question is, "If you take all the houses and condos in California, how many of them were either in preforeclosure (had been issued a Notice of Default) or foreclosure status sometime during 2012?"

How can we protect ourselves from getting in over our head in debt? Whose responsibility is it to help Californians avoid preforeclosure and foreclosure?

I think education is the key. However, knowledge is not power, applied knowledge is power. Thanks for reading and until next time, happy reading!

This post was reposted from http://finlit.biz/debt/how-many-homes-were-in-preforeclosure-or-foreclosure-status-in-california-in-2012/, originally written on January 21st, 2010.

Basic Guidelines for Rental Properties

I decided to finally try to purchase a rental to start trying to build up some cash reserves. I've read some books on the subject and the main thing people say is to make money using other people's money. They want you to get hard money loans for the down payments.

Let's talk about this a little. Obviously if you pay zero down, your loan will be larger and your monthly payments will be larger. And if your monthly payments are larger, there is a higher probably that you will default on your loan.

On the other hand, if you pay all cash for a property, there is virtually no risk (although you still have to pay taxes and the property is susceptible to damages). This is because you don't owe any money and there is no way to default.

So, perhaps there is a happy medium. As an investor you want to maximize your rate of return on investment. Here are the numbers with the property I am purchasing. I hope to buy a $55,000 property, and pay $11,000 to avoid mortgage insurance. This will allow me to have less risk since this is a first property. I shoot for a R/V ratio of 1% (1/100 of the value), meaning I want to rent for $550 per month. Most real estate people say to estimate 2 months of vacancy per year. If the mortgage payment on my $44,000 loan is $325, that leaves $225 per month or $2250 per year of cash flow. Placing $250 into the home might leave a $2000 return on my $11,000 investment which is 18%.

On the other hand, if I paid $55,000 cash, I would have $5500 per year minus $250. That would be a $5250 return on my $55,000 investment which would be a 9.54% return.

Now, these calculations lead me to understand how much a house should be valued at. Based on the paying all cash, you would see that a 5% or 10% return is reasonable, meaning you should pay between 100 to 200 times the amount you would rent a house for.

So, here are some quick rules of thumb.

1. Paying 20% down is the standard way to balance risk versus reward.
2. An investment rental should be purchased at a R/V ratio of 1%.
3. A home has intrinsic value of about 100 times monthly rents.
4. An ideal sale would be at a R/V ratio of .5% (200 times monthly).
5. Placing 20% down on a R/V ratio of 1% should earn about 18%.

Here are some other interesting tips.

1. Purchase cheaper homes that allow multiple people to afford rent.
2. Purchase multiple unit properties (easy to obtain R/V of 1%).
3. Purchase during down cycles (1%), sell during up cycles (.5%).
4. Make money based on R/V.
5. Don't purchase assuming an appreciation, let that be an added benefit.

This post was reposted from http://sizuservices.blogspot.com/2010/08/business-business-business.html, originally written on August 12th, 2010.

Is the Chinese Way of Spending Better than the American Way?

I recently read an article from www.wisebread.com which inspired me to think about the differences between how Americans and the Chinese spend money. It was great to see that not every culture spends like we do in America, especially, since Americans live in a debt epidemic.

Has the United States gone too far with its 12 trillion in debt and 150 trillion in future debts? What about the fact that our gross domestic product is only about 10 trillion dollars? This means, as a nation, we are over a year's salary in debt since we take home about 2 trillion dollars. How would an individual's personal finances look, if they mirrored that of our nation? In other words, what is a good ratio for personal debt to earnings and should our nation be required to satisfy the same guidelines?

On a post from www.easeconomics.com, the author states that a person with 20% debt and 80% cash is highly leveraged. People should treat their personal finances as if they were a business. This involves looking at financial metrics such as debt to income ratio. By the way, most loans would not even be considered if the DTI was above 50% (see blogs.cfed.org).

On the other hand, our government runs on a 120% DTI.  Is this good?  Is this fair?  What would Warren Buffet think?

This post was reposted from http://finlit.biz/debt/is-the-chinese-way-of-spending-better-than-the-american-way/, originally written on January 20th, 2013.

Are You Overpaying for Technology Stocks?

Have you ever thought of purchasing Apple or Google stock?  Have you ever sat on the sidelines and watched as friends and family seemed to make money in the stock market?  Is it smart to put all of your hard earned money and savings towards purchasing a few individual stocks?  What percentage of your portfolio should be in individual stocks?

Just because you see Jim Cramer rant and rave about it, that doesn't mean you should run out and purchase!

With the invention of the internet, a new technology age began and thousands of Americans began investing online.  Basic supply and demand states that stock prices would drastically increase.  For the most part, popular stocks are largely overpriced, but the question is, how much are they overpriced?  So here's how you should think about individual stocks.

There is some value of the company and no matter how bad the market gets, if the stock price falls far enough, it will allow an investor or group of investors to purchase the company below its value.  That means there is typically some floor to how far a stock price can fall for a particular company.  This is especially true if the company is profitable and has assets.  Now, the main problem comes from the fact that most people purchase well above that floor value and hope that some sucker out there will purchase the same stock for even more.  Don't be that sucker.

This post was reposted from http://finlit.biz/retirement-2/are-you-overpaying-for-technology-stocks/, originally written on January 19th, 2013.

How to Get Ahead Financially as a Software Engineer

If you make a six figure income, are you guaranteed a great retirement? My earlier post generated some discussion. There, I stated that someone making a six figure income may be just as well off during retirement as someone making half that income.

What was pointed out to me was that the six figure income earner has more options. However, this only translates into a great retirement if the earner decides to put away a good chuck of that money. It was pointed out to me that in Chinese culture, putting away $250 for every $1000 made was quite common.In fact, according to blog.checkadvantage.com, Chinese people are much more strategic with their money.

Do you think that Americans should be saving more money? Do you think you should be saving more money? What are some of the reasons we aren't saving as much money as we should be?

This post was reposted from http://finlit.biz/retirement-2/how-to-get-ahead-financially-as-a-software-engineer/, originally written on January 20th, 2013.

Don't Perform Surgery on Your Retirement

Imagine that you just learned you had breast cancer and you needed to have surgery to remove a cancerous substance?  What would you do?  I'd bet that you'd start researching breast cancer and start learning a great deal of information.  Of course this would be great because then you could formulate some great questions. This would help you choose a doctor that was well educated, experienced and that you were comfortable with.  But in the end, you definitely wouldn't start performing the surgery on yourself!

So why do so many think that they should handle their own retirement decisions? Is it enough to do some part time reading and find a few good tips on the internet?  I love the tips you can find and am a big fan of Suze Orman.  In fact, no one will care about your money more than you, so it is in your best interest to learn about fundamental time tested principles.  At www.forbes.com, the question is posed as to whether Americans need a financial planner. I'd say your best option is to research a ton so that you have great ideas to work with. But in the end, when it comes to investing, let's keep the scalpel in the hands of the professional.

This post was reposted from http://finlit.biz/retirement-2/dont-perform-surgery-on-your-retirement/, originally written on January 19th, 2013.

3 Reasons the Silicon Valley Software Engineer is in Trouble Financially

If you are thinking about entering the world of software engineering, reading this might save you a fortune. The lifestyle of a typical software engineer is about ten to fifteen years. Here in the valley, companies are infamous for downsizing and hiring younger more eager engineers.

There is a fundamental philosophy underlying your personal finances. Lets call it the "Millionaire Next Door Principle." This principle states that it does not matter whether you make 40K, 100K or even 250K when it comes to determining how long your will last through retirement. What matters most is the percentage of money you save regularly. The reason is that your spending habits will tend to match your income. As you make more, you will spend more. Once your habits are set, they are very difficult to change, which means that during retirement, you are likely to spend the same amount. Doesn't it make sense that if you have 500K saved and you make 100K per year, you will only last 5 to 7 years in retirement?

Here are the reasons the software engineer is in trouble:

• They have no plan for retirement
• They are typically given a "do it yourself" 401(k) plan
• They are in risk of a drastic pay cut in the near future

This post was reposted from http://finlit.biz/retirement-2/hello-world/, originally written on January 18th, 2013.

Investing - Poker versus Stocks

So, in 1999, when I was a waiter at Spago's, I took my lunch break reading about stocks and investing.  Even though I had read a ton, I still had no clue what a good investment strategy was.  I saved up $10,000 to invest and thought I would test the waters.  I met a broker at Wells Fargo and listened to his pitch, investing $1000.  After about 2 or 3 months, that $1000 had doubled with my investment.  No, kidding, I was going money eyed, like Scrooge McDuck.  So what did I do, I invested the rest of the $10,000.  Later, this amount dropped to $7000 or so, and I decided to let the money sit.  After he realized I had no more money, he transfered my account to an online brokerage.  About 2 years, later, the fund was stagnant and Wells Fargo online changed their policy and I was chared $200 in brokerage fees.

I sold the Mutual Fund, placed an automatic trade ($25) every quarter to avoid fees and decided to try to pick some stocks and sit with them.  Over about 10 years, I can say that I've lost about $7500.  I now sit with a low fee, passive index fund, that tries to hold the top 500 stocks from the S & P.  Of course I have my 401K in a 50% 50% split between bonds and a mid cap fund.

What are my mistakes?

1.  Well, first of all, I thought a broker at Wells Fargo, would have any clue what he was talking about.  The goal for any bank is to give their pitch and make sure a trade occurs.  They make their money off of transactions.  Even reading this blog, you will probably go out and buy some stocks, even though I am telling you I lost $7500.  That is the purpose of CNN, the stock tickers, the shows on TV, the millions of ways to invest money, etc.  And trust me, you will invest your money in these at one point or another.

2.  Not having a clue what I was investing in.  Just trusting someone else to make money, without even knowing the fees involved in the transaction.

3.  Picking a stock because I thought the company looked good and made a good product.  Even with my index fund, which is supposedly safe, I really have no clue why the fund is doing what it is doing.  Picking stocks the way I have is like throwing a dart at a dart board.  Without a lot of valid research, this really is just gambling.  Buffet, a great value investor, once said he will only find 1 or 2 stocks the whole year.  Researching the whole year to find a stock.  We will definitely know when we want to buy, spend maybe 2 days at most, thinking about whether we want to buy.

4.  Playing into the Ponzi scheme.  I invested my $1000 had it doubled and immediately, put a bunch more money in.  That is exactly what a Ponzi scheme expects.

Now, let me give you a flip side.  In 2005, I started playing poker.  Basically, my strategy was an aggressive style and I attempted to be patient and go all in when I had an excellent hand.  This is called hard ball poker.  My first tournament, I bought in for $35 or so, with 5 or 6 tables and won the whole thing!  I got $535, which I tipped $35 off of.  I played $8-$16 that night and lost it all.  My family was not with me, as I had to get a summer job in a separate city and I had a week to start work.  I managed my money great, and moved down to lower limits, learning anything I could.  I was up about $700 after that first week (not counting gas, food).  I remember many hands from that first week.  The first was a flush versus flush, which had happened several times, but it was hard for me to read the hands as fast as the dealer was dealing.  I had seen several pot splits and I protested that we both had flushes so we should split the pot.  Luckily, it was limit since my strategy was to bet my shirt on any flush or full house.  Another protest was when I had 2 pair and another person had 3 of a kind.  I had been playing my 3 of a kinds weak, previous to that hand, thinking it was not that great.  The final hand, was when I had 4 of a kind.  I had four 4s and there were 2 sevens and 2 fours on the board, meaning the other guy could have a 7 for a full house or two sevens for four of a kind.  I sat thinking and thinking about whether to raise or just call.  Finally, I decided to raise.  Basically, we had capped all betting on all rounds.  Four of a kind, and I was thinking.

Anyways, I kept playing on and off and reading many books and trying different things.  I learned about how to small ball, which meant to risk very little.  The basic strategy here is to win lots of little pots by constantly raising pre-flop, in position to minimize the field to 2 or 3 players.  Then, bet out a lot after the flop.  You lose several medium pots, by controlling the pot size and checking with things like top pair on the turn, possibly inducing a bluff on the river or getting away cheap against a strong hand.  You win a few large pots because of all your aggression, people just don't believe it when you have an awesome hand.  They walk away saying, man this guy is terrible, always putting his money at risk and he still gets lucky.

Out of 10 players, I might only be better than 1 or 2 at the table.  However, that is all I needed.  If I ever tried to take on everyone, I would lose my shirt.

Over the long haul, I was at about $8,100.  BTW, I recently quit playing, due to the time and effort I was using and taking away from family.  The best book I ever read was Ace on the River by Barry Greenstein.  If you want me to sum it up, he dropped out of his PhD, lost his family and became a millionaire.  Somehow, subconsciously, my ordering represents my actual priorities.

I've never lived near a Casino (good thing), so most of the year, I would not play, except possibly online. Literally, at a Friday night home game with some friends, I would feel bad winning and move all in pre-flop with 97 off to try not to take their money. Here, there may be 10 players and maybe 2 or 3 could match up to me (or better). Remember, having 2 worse in this crowd is enough to make money.

I wish I had exact numbers, but about a year before I finished my PhD, I lost my excel spread sheets as my hard drive crashed.  Luckily, I just had to retype a bunch of stuff, since I had been e-mailing my advisor my work.  Back to the story.  Now wait a minute, how does this guy invest in stocks and lose $7500, yet gamble and win $8100?  What is the point of this story?

1.  One major difference is that I was highly educated in poker, yet had just a brief education in stocks.  For me, the gamble was the stocks and the poker was skillful.

2.  I managed my money well.  With stocks, balancing is an important part of the investment game and managing money is very important.  With poker, I would drop limits to limits I could beat.  Anytime I went up limits, I always dropped limits before I lost whatever I won.

So after all that, what did I learn.  I learned that poker is not gambling in the short term, but requires full attention and thousands of hours to master.  Even at a masters level (okay ignore extreme cases), one can only make about $50,000 a year, grinding 80 hours a week.  Do yourself a favor, get an education and make twice that.

Stocks, also require a smart investment strategy.  If you are not willing to put 100s of hours in to learn, you are just gambling.  Don't listen to advice people give you, learn for yourself.  People make money in the stock market by making the right decision against popular belief.  In fact, it is better to think of the stock market as a gamble between two people, since there is always someone on the other end of the stock, losing money.

This post was reposted from http://sizuservices.blogspot.com/2010/08/investing-poker-versus-stocks.html, originally written on August 8th, 2010.

Our Mortgage Crisis

So, these past few years, I have seen friends all around me buying up houses, with little down and huge monthly payments.  I stood by and said, no to a new house.  I stuck with my $80,000 house which is only 936 square feet.  Why did I do that?  Because, I believe growing up in Silicon Valley, that we have definitely lost our business sense.  My uncles and grandfather, grew their business as farmers, the old school way, by borrowing money from people you knew.  That way, if you were to ever try to screw people out of their money, they would be there to haunt you.  I'll leave the discovery of how to do business in the internet age for later.

Anyways, there are time tested hard and fast rules for buying a house.  Put 20% down and don't pay more than 3 times your annual salary.  I bought my house with 4 kids during graduate school, putting $20,000 down.  I always worked through school, but not many people I know bought a house during school.

So, as the years past, and I looked at my friends buying the houses, unfortunately many of them lost their houses.  Sometimes multiple.  Now lets dig in a little deeper as to what is happening.

A bank, offers a loan to a poor person, who can't afford the payments.  The loan is tricky, with hidden fees and variables.  The bank is almost positive the person will default, but still takes the risk.  If you ever noticed, banks are funny this way.  They don't want to deal only with people with great credit.  They need people to default.  No one defaulting, means no one paying the expensive penalties.  Everyone defaulting means they have no cash flow.

Anyways, so the bank gives out a loan to a poor person.  In the event of default, that poor person's money is taken.  The bank gets the cash flow and turns around and sells the loan (through bonds, etc) to a middle class investor.  The middle class investor has no clue about investing, but walks into the bank one day, to see people all dressed nicely in business attire and believes the broker, when the broker talks the middle class person out of buying a CD and buying this bond which involves higher interest mortgages backed by real estate.  Wow, the bank just eliminated their risk of default.  In the case of a default, the investor loses all their money too.  The bank has the cash flow (from the investor's initial purchase and the poor person's monthly payments).  The whole scheme blows up one year, all these funds get placed to the side, CEO walks out with 4 million dollars and the poor person and bank file bankruptcy.  Whew, good thing the middle class investor didn't put all the chips in one basket.

The big short gives many details of the sub prime mortgage crisis.
Next time the bank offers you a great no down offer, just think about the guy on the other end, cause I can guarantee its not the bank taking the risk.  Speaking of which, who's fault is this?  I would say all three parties.

Take this interesting example.  Three guys live in a village.  One guy has a house, another wants to buy it and the third has $100,000.  The third provides interest and is trusted to hold money.  He loans the money to the guy wanting to buy the house, who trades if for the house.  The guy who sold the house, then gives back the money, to make interest.  The third guy was very smart.  He still has the $100,000, and now has extra since he is making profit on the loan he just gave as well as the up front fee to handle the transaction that just occurred.

This post was reposted from http://sizuservices.blogspot.com/2010/08/our-mortgage-crisis.html, originally written on August 6th, 2010.