Blog

Short blog posts, journal entries, and random thoughts. Topics include a mix of personal and the world at large.

Be a player

In the capitalist economic system such as ours, it is very important to have capital (duh). That’s how it works. You literally cannot survive without it. We trade our labor, working a job for money in return, just so we don’t starve and sleep on the streets. Equally important then is to avoid squandering all of the capital we toiled so hard for. Having adequate savings is how we thrive.

It’s incredibly calming to know that you’ve got enough money in the bank to cover any surprises. I cannot imagine the stress of living paycheck to paycheck. A sudden, unplanned cash event can turn into a downward debt spiral. A Sisyphean hole that you keep shoveling stuff in, but never fills completely.

If anyone were to accuse me of being privileged to not have to live paycheck to paycheck: get the French out of here. My parents of a combined $2,000 income - for a household of four - managed to save enough to buy me a brand new car when I graduated from high school. I’ve read enough Reddit posts to know that lots of people out there - of all income levels - have a spending problem. No matter how much you make, you should spend less than that. It’s not a value judgement, it’s math.

Because our surplus money can then be used to participate in the capitalist system: by investing it. That money becomes capital for others to turn a profit - by serving the needs of the customer. The return on our investment gets continuously reinvested towards other ventures, thereby compounding the growth. That is how we thrive in this economic system.

Don’t hate the game; be a player.

Get the Michelins

Ally bank is sneaky. They are quick to email me when the interest rate on the savings account goes up, but not a single peep when it goes down. I didn’t even realize it went down until my friend told me that it did. It came as a surprise because the Fed has kept the federal funds rate at the same level for the past several months. So it’s double sneaky: why am I getting less interest when the benchmark rate hasn’t moved at all?

Don’t make me move to SoFi! I really don’t want to do that!

In this post-pandemic era of high inflation, it’s never been more important to have a money cushion. Unexpected items arise and you kind of have to deal with it. For example, my friend recently found a tire defect (a sidewall bulge, likely due to San Francisco’s lovely potholes) on his Tesla Model Y. Because of this - combined with significant mileage on the original set of tries - he had to fork over $2,000 to replace all four Michelins.

If (the royal) you don’t have a savings cushion, that $2,000 will be one of those setbacks that you see in people with heavy debt. They are making steady progress in paying off debt, then boom, an unexpected $2,000 kicks them right back down the chute. Okay, maybe they’re paying $1,000 instead for the Chinese brands. For four split payments with Affirm. Or Klarna.

Honestly, nobody really budgets for tires, right? They see the monthly payment for the car, and petrol, as the only true outlay. The rest is out of sight, out of mind - because they occur not nearly as often. Insurance renewal only comes around twice a year. Maintenance - unless you drive an overwhelming number of miles - is once a year. Tires? Let’s say once every few years. But, if you have a money cushion, then these maintenance events won’t ever be shocks to the finances.

The interest rate may have lowered slightly on my savings account, but that money serves a critical, foundational purpose: emergency fund for unexpected expenses.

Free Tax USA

And my 2023 taxes are done! Because I’m a simpleton with only a W2 and a 1099-INT (from a savings account), filing taxes is always an under 30 minutes procedure. I’m obviously not a target customer for H&R Block. I can appreciate paying for convenience - in having a guy or gal do your taxes - but 30 minutes out of a weekend is not so detrimental.

What is detrimental is last year’s interest income. Because of historically high interest rates, the return from my savings account in 2023 was very healthy. That means I have to pay capital gains tax on that return, of which I am happy to do so, of course. It’s truly a first world problem if you’re complaining about having to pay a lot in capital gains tax. Though I do feel kind of icky about having to pay taxes on income derived from money I already paid taxes on.

The problem with having high interest income is that I no longer qualify for free filing with TurboTax. Apparently: interest income over $1,500 requires a schedule B form (which if you’re using a tax-filing software you shouldn’t have to care what that entails). Because of this one single extra form, TurboTax automatically asked me to upgrade to the paid Deluxe version. I went from free-filing for both Federal and State, to needing to pay over $110. Absolute vultures.

I’m not paying that in this economy. My friends turned me on to FreeTaxUSA, an online tax-filing service of the same ilk as TurboTax. The main difference here is that FreeTaxUSA doesn’t give its customers the bone. Federal tax filing is always free under (I am assuming) most circumstances, and it’s only $14 to file State taxes (compared to $59 for TurboTax). This is what friends are for: saving you $100.

Somewhat tangentially: I am honestly sick of seeing corporations raising prices because of “inflation” and “war in Ukraine”, then three months down the line say they’ve got a record profitable quarter. I endeavor to do as little business with such businesses as possible.

Extra guac

“Come on, guys, we make money now!”

Is a common refrain I’ve used to my friends lately. For the times when they agonize over really small money matters. Such as paying the extra few bucks to get guacamole at Chipotle. Isn’t the point of making money so that we don’t have to think about these trivial things? The extra few dollars here and there isn’t going to amount to much savings. But a burrito bowl is immensely better with guac.

I get it: my friends and I are from working-class upbringings, so scrimping to the last dollar is sort of innate in our money psychology. Our parents did so in order to give us a better life, so why not live that? We should pay extra for more leg-room on an airplane, and we shouldn’t drive to Costco for gas just because it’s significantly cheaper. If an item is under $10 dollars, why bother with the hassle of returning it? Just throw it away (sorry, environmentalists).

Not to say we should go super crazy with it and not save a single penny. As with everything in life, it’s about moderation. If we are consistently putting away a comfortable percentage of our income every month, why not go slightly crazy with the rest? Preparing for the future is fine, but we still have to live right now. That is why I spent six-figures on a car.

I remember a guest on a certain podcast said he lives and spends with the confidence that his future self will always make more money. While I don’t quite have that kind of bravery, some modicum of that mentality is good to have. I am young: I can and will earn the money later to pay extra for guacamole today.

Of budgets and cents

Boy, who would have thought that it’s harder to save money now that I have to pay rent! It sure was easy when I lived with my parents, and I get to squirrel away that 30% of my gross every month. It’s how I come to afford a six-figure sports car on a decidedly not six-figure annual salary. Well, the fun times are over: a far tighter monthly budget is one of the consequences of moving out.

And yeah, I’ve sold said six-figure sports car.

“Adulting” stops the fun. Everybody knows this. The need to save for some future probabilities means we shouldn't squander our entire paycheck. After subtracting rental cost, my discretionary spending have obviously gone way down. Nowadays, every dollar spent requires some serious thought and consideration. Gone are the days of dropping hundreds without thinking. Every outflow has to be reviewed. Did I mention I also have to buy groceries now?

The goal each month is to have something left over to stuff into savings and investments. Because having a money cushion provides optionality, and optionality provides stability and freedom. Stability in the sense that you have enough to cover any surprise money emergency. Freedom in the sense that you can do what you want, without being a slave to the any income. Work is turning out not so pleasurable? You can leave immediately, unless of course the next paycheck is figuratively life and death for you.

Having options is what I am continuing to strive towards. Paying rent is just a part of life, a new consideration that I have to account for. But it sure would be easier to not have it!

The emergency fund

For me personally, one of the silver linings of this whole COVID fiasco is I’ve been able to rebuild my once depleted savings reserves, and I have to say it feels rather nice to have a proper cushion again. In signing over six-figures for the GT3 last year, much of my fluid savings got allocated for that endeavor; combined with practically not saving any money at all each month - because I didn’t exactly stop traveling - my emergency fund was itself in a state of great emergency. At the start 2020 I had planned to enact austerity measures, though the flow of life - in regards to the pandemic - seems to have forced that on me anyways.

Being stuck at home and not being able to travel anywhere - my main area of discretionary spending for the past five years - have allowed me to store away quite a bit of money each month. In preparation for a highly uncertain future, I also have not purchased anything extravagant during this time - no “nice to have” upgrades for things I already own (that 4K OLED TV set will have to keep waiting). The coronavirus situation made it surprisingly easy to impose these austerity measures, and several months since it all started, I am once again in a position to not have to reply on the next paycheck to plug a hole I’ve dug previously.

Indeed, last year was the closest I’ve come to living “paycheck to paycheck” since my free-spending college days, back when saving 20% of income wasn’t even a concept registered in my brain. I didn’t realize how stressful that situation was until recently when I managed to rebuild my emergency fund to a comfortable size. It feels good to not have to scrutinize each subsequent financial move, and that I have the room to be slightly frivolous if I want to. This is how I come to buying the AirPods Pro, even though I already have a functioning set of the original AirPods.

Of course, gratitude must be handed out for how lucky I am to still have a job and be able to save money during these COVID times. I recognize lots of people are not so fortunate - one of whom is my own brother, who was laid off - and I’ve given support to them as much as I can. That said, I can only play the hand that’s dealt to me, and with that hand the goal is to maintain a resisiliant position, and perhaps improve in some areas as well.

But a recession is coming

I am ready and itching to head off on another travel adventure. It’s been a solid two months since my return from Japan, and as typical with the ebb and flow of these things, I’ve physically and mentally recovered, and recharged to set off again.

Of course, I don’t have nearly that much freedom from work to be able to skip town every two months, nor do I have the appropriate budget to do so. Indeed, the trip to Japan drained quite a bit of my cash reserves; a stash that was already lower than previous years due to my purchase of the GT3. I’m going to need at least a few more months to store back up the reserves, so even though I’m pining for another escape, the smart thing to do is to enact austerity.

Besides, I’ll be making my annual trip back home to China come the end of December. What’s another three more months of waiting, honestly. More importantly, homecoming trips don’t cost me any money because our family uses the proceeds from our rental property in China to fund it. Otherwise, I don’t think I’d be making the trip this year.

Because the recession is looming, and I think it’s important to batten down the hatches for such an event. Perhaps it’s idiosyncratic to my San Francisco locality, but I am seeing the recession signs all around: vacant storefronts, restaurants closing down, houses not selling, and rooms not renting out. Things definitely don’t look as prosperous as the stock market and unemployment numbers would indicate.

There are similar signs as well in an area near and dear to my proclivities: the automobile. The recent car auctions in Monterey back in August saw a 34% drop compared to 2018 results. You know things are turning sour when ultra rich people are holding off spending their free cash. Just yesterday, Subaru announced its first month of decline in sales after a streak of 93 months (almost eight years!) consecutive growth. That’s the proverbial canary in the coal mine stuff, and the entire auto industry in a downturn now.

I don’t think I’ll stop traveling if and when the recession happens, god willing that I myself don’t get laid off from employment, but for sure I need to build back up the war chest so to speak, for the next rainy day.