Two tips that will help your financial planning

Plan future expenses

To ensure that your financial planning is set up properly, it’s NOT enough to consider only current expenses. It’s very important to take into account for future expenses, particularly those that you know will appear.

Let’s run a simple scenario as an example. For simplicity sake, imagine your after-tax take-home income, from both you and your spouse, is $100,000 a year. You expect to get two promotions in 2025 and 2028, which will increase your income by 15% and 10% from the year before respectively. Except those two years, your income will grow on average by 3% every year till you retire. Regarding current and future expenses, here are the big items:

  • Your current monthly expense is $4,000. The natural increase in this expense line item is 2% a year, unless specified otherwise.
  • You plan to have two children. One born in 2025 and the other in 2028. It will cost approximately $20,000 to deliver each kid.
  • The first kid will see the monthly expense grow to $5,500 and the second will push it to $7,000.
  • The estimated amount that you want to give them for college tuition fee is $100,000 each by 2043, when they are 18 years old. Hence, the combined college fund will total $200,000 by 2043.
  • You and your spouse understand that unfortunate events can happen to anyone. As a result, you both want to set aside 10% of your annual take-home income for emergencies.
  • For investments, you budget it at 20% of your annual income.
  • Life is short. You want to see the world and travel. Hence, travel will take 5%, if possible.
  • Whatever left will go to the disposable fund that can be used for any purposes.

Using the information above, here is what the numbers look like every year between 2023 and 2035

If you notice, I am pretty conservative with the income estimate. Growing the top line, as long as other expenses don’t grow proportionately, will bring more flexibility, freedom and choice. This is why folks want a higher salary or have a side gig. One source of income isn’t sufficient to sustain various financial needs. Also, I don’t include the fund for retirement which can be $2 million for person. The exclusion is driven by the fact that our 401K already comes out of our paycheck prior to the scenario and that the Emergency, Investment, Travel and Disposable Fund, if unused, can all be funneled into retirement.

Regardless, it’s obvious that the paycheck now doesn’t seem very big any more, does it? If it’s not possible to grow income sustainably, then there must be restrictions on the number of financial needs and there must be also compromises. That fancy car that you dream about, that new TV and furniture set that you crave or that yearly trip to Europe that you brag about, they need to be either axed or paid for by money slated either for emergencies or investments. It all comes down to preferences and willingness to compromise. But without an exercise like this, a normal person with little adequate personal finance awareness would get themselves deep into debt or make decisions that would not leave much margin for accidents.

Nobody knows what their future holds. Hence, the point of this exercise is not to be 100% accurate. Rather, it’s about putting more thoughts on one’s financial status and life priorities, which is ultimately what all this boils down to.

The 2x Rule

I “stole” this tip from a book called Just Keep Buying: Proven Ways To Save Money And Build Your Wealth. Essentially, this rule dictates that anytime I want to splash money on something, I must put the same amount of money on investing (most likely an index). This simple tip is a brilliant way to tamp down my urge to spend impulsively or too discretionally. It creates a moment of doubt in your mind and makes you wonder how much you want the item at hand and whether you are willing to pay double for it. For example,I have told my wife numerous times in the past year that I wanted to buy new Apple gadgets, but the thought of having to put the same amount in investing deterred me and made me realize that I didn’t need those new toys that much. The end result is that I am still using a 10-year-old Mac and a 3-year-old iPhone.

Personal finance, as the name may already give it away, is very personal. What works for me may not work for you. These tools are helpful, but their usefulness depends on how you use them, whether you do so religiously and what your life circumstances are. Mike Tyson said it best: everyone has a plan till they get punched in the face. Nonetheless, it’s better to be prepared to some extent than to be caught completely off guard.

Tips for new data analysts

Having worked with credit card data in the past years, I have to say that it’s a steep learning curve. My manager gave me 6 months to a year to learn what we do in our day job and he wasn’t exaggerating. I actually needed that. Even now, more than 3 years later, I still learn something new every day. The complexity and the sheer amount of data is just staggering. Our warehouse has to store data of an account on a daily basis for as long as the account is active. And an account’s life can consist of numerous interactions from applications, special offers, purchases, fees, payments to calls, mobile logins or complaints. Everything can and should be analyzed so that we can learn actionable insights that can benefit the organization.

After a tough period when I put in the work to survive, I want to share a few things that have helped me tremendously become a better analyst and programmer. My experience is with credit card data. I don’t mean to think that what I do is more complex than others, but I believe the lessons I learned can be helpful in other industries.

Learn to connect the business and the data together

At my company, the better analysts and coders often have a better understanding of the business than others. They don’t take data on face value. They use data to answer business questions and, in turn, use their business knowledge to understand data better. For example, credit cards draw much of its revenue from finance charge. However, issuers tend to appeal to potential users with an intro offer that sets interest rate at 0% for a period of time (6 all the way up to 20 months). Without that understanding, how can one understand the revenue data before and after the grace period?

Likewise, data can help issuers answer business questions. In case you don’t know, credit card companies work with the likes of Experian, TransUnion and Equifax closely for acquisition campaigns. These credit bureaus know a lot about consumers in the U.S and each has a database that can be licensed out to issuers. Issuers go through a bureau’s database and choose a population based on a variety of attributes that they believe will be most responsive to direct mail campaigns. Through post-campaign analyses, issuers learn which attributes are more predictive than others. Hence, they can become more efficient with direct mail campaigns. Let’s say that if a campaign with a 1 million pieces worth $0.5 each yields about 5,000 accounts (0.5% net response rate), each account will cost about $100 in acquisition. By using data and improving the net response rate to 0.6%, an issuer can decrease that acquisition cost to $83. That’s a real financial benefit. That’s the power of analyzing data for actionable insights.

Look at the output

A common mistake I noticed among my coworkers is that those more prone to mistakes don’t often look at the real data output. There are two reasons for it. The first is complacency. After a decent amount of time on the job, a certain level of complacency tends to develop in each analyst. Such complacency creates a false illusion that one knows everything already, while, in fact, that is often far from the truth, particularly when complex data is involved. The second reason why less effective analysts don’t look at real data output is the false assumption that their previous work will continue to deliver forever in the future. Such an assumption ignores the fact that businesses evolve all the time and when that happens, the data evolves too, such as new partners, new products, new regulations or new acquisition channels. Assuming that an old block of code will work one or two years from now is a mistake, yet luckily it’s entirely avoidable!

Find outliers

Banking data is structured most of the time. There are business rules behind the scenes that dictate how values are set. As a result, it’s very helpful to look at outliers because it will reinforce an analyst’s understanding of not only the data, but also such business rules. Let me give you an example. A co-brand portfolio of ours mandates that a customer has to maintain a specific level of spending in a calendar year to keep their Premium status. One time, I noticed that some accounts didn’t meet the threshold, yet still managed to keep their status the following year. I asked around and learned that there was a policy which enabled customers who just missed the cut to qualify for the status only if they called our Customer Care. Without paying attention to outliers, I wouldn’t be able to learn about that policy. And how did I notice those outliers? Indeed, I looked at my data output!

Read about the industry

I always believe that our understanding of the world is a network of dots and how we are able to link them together. The more we read, the more dots we add to our personal network and the better connections we can create. Without reading, there wouldn’t be many dots to connect, to begin with. Plus, the world is full of smart people who are often smarter than us. Why not taking advantage of that? We can learn so much about the trends, best practices as well as mistakes from others and apply appropriately to our business. In fact, we just launched a new credit card and I am proud to say that came from an idea of mine, an idea that was born out of regular studying of the competition and the market. So, if you want to be a better analyst, read. Read about your competition, your customers, your industry and adjacent industries too. Dig as deep as your interest allows you. Read from the basic. For instance, if you want to know about credit card transactions, read this helpful but obscure book: The Anatomy of The Swipe! The more you get to the basics, the better you can grasp more complex concepts!

Stay curious

The overarching theme over the points I make above is curiosity. As long as you stay curious, you are automatically intrigued by the questions like: How does this work? Do I miss something? Is what people told me 100% accurate? Did they miss something themselves? These questions will drive you to dig deeper and constantly ask questions; which will eventually lead you to doing all of the above and becoming an analyst.

If you come across this entry, I hope what I share above is helpful and can prevent you from making the same mistakes that I did. Leave in the comment if you have any thoughts or tips as well!

The Mundanity of Excellence

Below are my notes from the academic essay named The Mundanity of Excellence, which was written by Daniel Chambliss. The essay drew on his years of studying swimmers on different levels to understand the sources of excellence. And as you can see below, the lessons aren’t only applicable to swimming. They can be very useful to us all in every walk of life.

What are NOT the sources of excellence

Excellence is not, I find, the product of socially deviant personalities. These swimmers don’t appear to be “oddballs,” nor are they loners.

Excellence does not result from quantitative changes in behavior. Increased training time, per se, does not make one swim fast; nor does increased “psyching up,” nor does moving the arms faster. Simply doing more of the same will not lead to moving up a level in the sport.

Excellence does not result from some special inner quality of the athlete. “Talent” is one common name for this quality; sometimes we talk of a “gift,” or of “natural ability.”

I agree with Daniel that socially deviant personalities, quantitive changes or innate talent ALONE does NOT explain excellence. There are plenty of world class athletes who seem very socially friendly such as Kobe Bryant (Rest in Power, Mamba), Roger Federer, Leo Messi or Lewis Hamilton. If the amount of practice alone was the determinant of excellence, why wouldn’t we have more world class competitors? Why would people have different skill levels even at the same age and likely the same amount of practice? If the innate talent could determine excellence, then why did we have several 1st draft pick players in NBA fail to meet expectations? Why did we have the likes of Ravel Morrison, who people at Manchester United labelled as genius, fail to reach the heights that seemed destined for them?

On the last point, the author expanded on why he didn’t think talent alone doesn’t lead to excellence

Talent is indistinguishable from its effects. One cannot see that talent exists until after its effects become obvious. One of the more startling discoveries of our study has been that it takes a while to recognize swimming talent. Indeed, it usually takes being successful at a regional level, and more often, at a national level (in AAU swimming) before the child is identified as talented. 

It seems initially plausible that one must have a certain level of natural ability in order to succeed in sports (or music or academics). But upon empirical examination, it becomes very difficult to say exactly what that physical minimum is. Most Olympic champions, when their history is studied, seem to have overcome sharp adversity in their pursuit of success. Automobile accidents, shin splints, twisted ankles, shoulder surgery are common in such tales. In fact, they are common in life generally. While some necessary minimum of physical strength, heart/lung capacity, or nerve density may well be required for athletic achievement (again, I am not denying differential advantages), that mini- mum seems both difficult to define and markedly low, at least in many cases. Perhaps the crucial factor is not natural ability at all, but the willingness to overcome natural or unnatural disabilities of the sort that most of us face, ranging from minor inconveniences in getting up and going to work, to accidents and injuries, to gross physical impairments.

Excellence is mundane

Superlative performance is really a confluence of dozens of small skills or activities, each one learned or stumbled upon, which have been carefully drilled into habit and then are fitted together in a synthesized whole. There is nothing extraordinary or superhuman in any one of those actions; only the fact that they are done consistently and correctly, and all together, produce excellence.

Doing more does not equal doing better. High performers focus on qualitative, not quantitative, improvements; it is qualitative improvements which produce significant changes in level of achievement; different levels of achievement really are distinct, and in fact reflect vastly different habits, values, and goals

All the world class put in thousands of hours in practice before they burst into fame. Not only do they train as hard as anyone else, but they are almost maniacal about improving their craft. The late Kobe Bryant studied cheetahs to improve his fade away shots. He called up Hakeem to learn about post-up moves. He talked to Michael Jackson to become a better athlete. LeBron James and Cristiano Ronaldo have taken care of their body and skills so well that they are still performing exceptionally at the age of 36.

Motivation is mundane, too

But even given the longer-term goals, the daily satisfactions need to be there. The mundane social rewards really are crucial. By comparison, the big, dramatic motivations— winning an Olympic gold medal, setting a world record—seem to be ineffective unless translated into shorter-term tasks. Viewing “Rocky” or “Chariots of Fire” may inspire one for several days, but the excitement stirred by a film wears off rather quickly when confronted with the day- to-day reality of climbing out of bed to go and jump in cold water. If, on the other hand, that day-to-day reality is itself fun, rewarding, challenging; if the water is nice and friends are supportive, the longer-term goals may well be achieved almost in spite of themselves. 

You see the effect of short-term goals and daily satisfactions every often in reality. Fitness apps have leaderboards so that you can compare yourself with friends or strangers. The confidence and satisfaction boost derived from seeing your name on the top of the leaderboard makes you likely committed in the long run. Personally, when I started to learn English, the road to fluency wasn’t easy. First, I needed to reach some local certificates that were proof of the mastery of the language in Vietnam and the stepping stones for international tests such as IELTS or TOEFL. After I achieved those certificates, then came the preparation for IELTS. Even after I got my IELTS, I still needed to practice a lot to use English comfortably. Without the small wins, I am not sure I would have persisted for years to learn a second language.

Maintaining mundanity is the key psychological challenge

In common parlance, winners don’t choke. Faced with what seems to be a tremendous challenge or a strikingly unusual event, such as the Olympic Games, the better athletes take it as a normal, manageable situation18 (“It’s just another swim meet,” is a phrase sometimes used by top swimmers at a major event such as the Games) and do what is necessary to deal with it. Standard rituals (such as the warmup, the psych, the visualization of the race, the taking off of sweats, and the like) are ways of importing one’s daily habits into the novel situation, to make it as normal an event as possible

Rafael Nadal is famous for his rituals on the tennis court. He always takes a cold shower before every game. He walks into a court with his bags on one shoulder and a racquet in the other hand. He never steps on the court lines. He has two bottles, one is water and the other can be juice. They have to be placed in a certain order and the labels always face the side that he is on. There is no scientific explanation for his behavior, except that doing these little things make him focused and at ease.

One of my favorite movies is Burnt, which stars Bradley Cooper as a 2-star Michelin chef named Adam striving for his 3rd. Adam is infamous for his short temper, ridiculously high standards and lack of patience. He kept pushing his team to the limit every day and wore out everybody in the process. After a betrayal of his Sous Chef, sorting out his personal problems and with the help of his new girlfriend, Adam became more relaxed in his pursuit of the 3rd Michelin star. This scene below is what he got his chance. At 0:22 when being informed that the judges arrived, Adam nonchalantly said “We do what we do”. Everybody looked shocked because it wasn’t what they expected from him. But it’s exactly that attitude that helped him and his team psychologically in their triumph.

The biggest take-away for me from this article is that in addition to putting the work in, I need to spend more time on thinking about how to improve myself qualitatively and how to be smarter and more disciplined with my practices.

Important lessons on investing that I learned

Over the weekend, I reviewed my portfolio and by extension, my performance as the CIO of my personal hedge fund (lol). I want to see how I have fared so far and importantly, if there is a lesson or two to take away going into the remaining four months of the year and 2022, what would that or they be?

In the first half of 2021, ending 30th June 2021, my portfolio’s return is 8.5%, compared to the return of 15.3% of the S&P 500, including dividends. Last year, Minh Duong Capital’s 2020 return was 21.3%, compared to S&P 500’s return of 18.4%. What does it mean? Obviously, I underperformed the market in the first 6 months this year, a fact that is particularly disappointing given that I outperformed the index last year. In other words, I overestimated my stock-picking power this year. Frankly, I didn’t do a good enough job. Instead of spending a lot of time looking at new ideas, I should have just bought the S&P 500.

That’s actually one of the big two lessons I learned: buy more ETF stocks. Take S&P 500 ETF ($SPY) and Vanguard Total Stock Market ETF ($VTI) as examples. In the last 10 years, they have an annualized return of 13.9% and 15.2% respectively. The beauty here is that investors don’t need to spend any time researching and regularly checking their portfolio. The ETFs just routinely deliver two-digit returns every year with minimal efforts or financial understanding of the companies.

At the moment, ETFs make up only 2% of my portfolio. I do plan to increase the ratio significantly in the next few months and next year. Don’t get me wrong. I still enjoy researching companies and finding winners which I believe will bring higher returns than that of the ETFs. But at the same time, I want to make sure that I at least have the same return as the market. You know, being realistic and all that. Does buying ETFs sound simple and easy? Yes, but it’s not in reality. Nowadays, it only takes a few phone taps to trade for a stock. When the barriers are that low and when you are tempted to prove that you are a better investor than just somebody buying an ETF, the illusion kicks in and the temptation is highly irresistible. Nonetheless, that’s what I plan to do in the near future. Buy more index and wait for only great opportunities.

That’s one lesson. What’s the other one that I learned?

In addition to stock picking and investing in ETFs, one can leverage the expertise of hedge funds. These guys get paid in the form of 2/20 (2% management fees and 20% of your profit) with an implicit promise to outperform the market. In other words, they are EXPECTED to deliver higher returns than what investors would get from the likes of S&P 500 or VTI. Here are the returns of a few funds in the first half of 2021:

Among this small sample, my personal return this year is higher than some funds’ and lower than others’. Of course, there are more funds spread out across the spectrum. The question, though, is how should I think about my performance in comparison with these funds? Well, not so much. Such a comparison is a slippery slope. If I want to make myself feel better, I only need to identify a few underperforming firms. On the other hand, it’s just unrealistic to think that I can beat the professionals whose full-time job is to find investing ideas and whose experience & resources far outweigh mine. The goalposts should stay constant, not move based on how I want to feel. In fact, Morgan Housel said: one of the most difficult skills in investing is to not constantly move the goalposts.

Hence, I decided to judge myself based on two things: did I avoid making the same mistakes twice? Am I delivering a higher return than ETFs? If the answer to both questions is yes, every time I conduct a review, then I will be a happy person. Otherwise, there is work to do.

People prefer electric shocks to being left alone with their own thoughts

I came across this academic study that focuses on how difficult it is for people to sit alone with their own thoughts. Here is the most interesting part (I put together small paragraphs from all over the article)

Ninety- five percent of American adults reported that they did at least one leisure activity in the past 24 hours, such as watching television, socializing, or reading for pleasure, but 83% reported they spent no time whatsoever “relaxing or thinking”.

Most participants reported that it was difficult to concentrate (57.5% responded at or above the midpoint or the point scale) and that their mind wandered (89% responded at or above the midpoint or the scale), even though there was nothing competing for their attention.

There was no evidence that enjoyment of the thinking period was related to participants’ age, education, income or the frequency with which they used smart phones or social media.

In part 1 of the study, participants rated the pleasantness of several positive stimuli (e.g attractive photos) and negative stimuli (e.g an electric shock). Many participants elected to receive negative stimulation over no stimulation, especially men: 67% of men gave themselves at least one shock during the thinking period compared to 25% of women. The gender difference is probably due to the tendency for men to be higher in sensation-seeking. But what is striking is that simply being alone with their own thoughts for 15 min was apparently so aversive that it drove many participants to self-administer an electric shock that they had earlier said they would pay to avoid.

Source: Just think: The challenges of the disengaged mind

This is simultaneously interesting, embarrassing and frightening. I have one of those disengaged minds. Just sitting alone with my own thoughts is so challenging. I tried to do it multiple times and always found myself looking at my phone. More embarrassingly, at the time of the “transgression”, I was aware of that tendency and had no other distraction competing for my thoughts, yet I still couldn’t keep myself engaged. Yoga has been a greatly positive experience, but whatever progress I may have made is apparently insufficient with regard to being able to sit alone with my own thoughts.

I started and sustained my fitness habit for 30+ days. Here is what I learned

Yesterday marked the 34th day in a row that I completed my workout targets on the Apple Fitness app. To those who aren’t familiar, there are three rings. The red ring shows how much calorie is burned in a day, the green ring records how many minutes you work out and the blue ring refers to the number of hours in which you stand at least for one minute. I set my goals as 550 Calorie, 50 mins of workout and 11 hours of standing. Here are the lessons I learned after the last 30+ days

My challenge has been going on since 4/25/2021

A sprint or a disciplined marathon

While I could have gone for 1200 Calorie a day, I knew that sort of target wouldn’t be sustainable. I wouldn’t be able to keep that level of commitment for 30+ days. Hence, I set a target that is both challenging enough for me to put in real effort and realistic enough for me to maintain it for a month. Think of it as a choice between a sprint or a marathon. You can run at a high speed, but that burst of energy won’t last for long. After a couple of days of heavy workout, I’d probably take it easy the next day and completely fail the challenge. In some cases, rest would be precisely what my body requires. But I chose not to give myself that excuse. So, before you embark on a similar challenge, think of an appropriate goal for yourself. You can slightly low-bar it in the beginning and raise it gradually in the process. Just don’t start too big and fail too soon.

Pulling through the moments of demotivation matters

There were days when I woke up feeling energetic and couldn’t wait to start a workout. On the other hand, there were days when my level of motivation was low. You know what it feels like: a bad sleep, mood swings, effect from a gloomy weather, stress from work, fights with your loved ones. I had plenty of that during my challenge. There were times when I had to pull late workouts or put everything I had into a HIIT because I was behind. It’s tough to force your mind to go through those moments and commit to the mission at hand. But. I guess it’s one of those things that can help me mentally deal with other aspects of my life. As I am fully vaccinated, it increasingly becomes difficult to stay here and not to be able to return to Vietnam to visit my family, friends and girlfriend. It’s tough, but I definitely feel this little challenge helps a bit.

Yoga or HIIT

At 550 Calorie, I couldn’t sit around all day and meet the quota. Usually a long yoga or at least 20 mins of HIIT is necessary to get the job done. The question now becomes whether I am up for spending an hour on yoga or sweating out with maximum effort for 20 minutes. When your days are overburdened with commitments, a HIIT is a better option, but do you have the mental fortitude to go through 20 minutes of hard work? When your energy level is high enough for a HIIT but your body is sore from the day before, are you patient and committed enough to complete an hour of yoga? The same applies to real life. I am sure my writing would be a lot better if I spent 10-12 hours a day without a job on writing. The progress in a short period of time would be significant. On the other hand, I could choose to write less intensely but over a period of time and with a financial cushion from a day job. The progress would take more time obviously. What then is your preference in that case?

Sometimes it’s just too late

Here is how the Stand ring works. To record one hour on the ring, you have to stand for at least one minute straight during a clock hour. Somehow the motion tracking on Apple Watch can see if you are standing or sitting. It means that if you set your goal at 11 hours of standing like I do, you can’t load up everything by standing for 11 minutes straight in one hour and call it done. You have to stand for at least one minute between 7am and 8am, another between 8am and 9am, so on and so forth.

I have a friend whom I am doing this challenge with. One time, he texted me around 8:30pm and said that he still had 5 more Stand hours to go to meet his daily goal. I told him that he wouldn’t meet it that day because he only had 4 available hours left at most. The lesson here is that if you don’t consciously plan and start your standing early enough during the day, you likely won’t be able to succeed. It’s like coming into a 60-minute exam whose questions require at least 25 minutes to complete, when there is only 20 minutes to go. Or if a flight is about to take off in 30 minutes and you are still at home that is about 30 minutes or less away. Sometimes, it doesn’t matter how much money or effort you put in, time’s not available to buy.

Great reminders for clustered and busy minds

I came across a couple of things that I absolutely believe are great reminders and lessons in life, especially when our mind is often distracted by the deluge of daily information, and clustered with hours at work.

The better measure of success

When I was a kid or even in my 20s, success was solely associated with money and title. Because how success is measured is personally subjective, that approach must still ring true to some. That’s perfectly fine. But it’s important to keep in mind that it’s NOT the only approach. Liz and Mollie created a graphic below to demonstrate another point of view on success. And I agree with it. Whenever you compare yourself to another person’s title or net worth, it’s important to keep in mind that they are only two small slices of the whole pie. There are other aspects that are as, if not more, important than Title and Money. Would you still trade for bigger Title & Salary slices if the other shrank significantly? Would Title and Salary still mean as much if you hated what you do, got sick often, had bad sleep most of the time and never had time for your hobbies?

If there is anything that I want to add to the pie, it’s relationship. Relationship with friends or loved ones is highly important and it requires time and attention, both of which are limited resources, to cultivate. Sometimes, not “having a life” may be what it takes to achieve professional success and I applaud those who are willing to make that sacrifice. But personally I am at a point of my life where surrounding myself with friends, family, my cat and my girlfriend sits firmly at the top of my agenda. Hence, it’s pretty pointless to compare my situation with others’. And it’s often pointless to make any comparisons, to begin with.

Title 1: How we’re taught to measure success. Image: A pie diagram showing two equal parts, Salary and Job Title.

Title 2:
A better measure. Image: A pie diagram showing more segments, which in increasing sizes are Job Title, Salary, Free Time, Liking What You Do, Physical Health and Mental Health.

Twitter handle in top right: @lizandmollie

The Dunning Kruger Effect

The Dunning Kruger Effect is a bias in which people mistakenly overestimate their ability at something. Barry Ritholtz had a graphic that succinctly illustrates the Effect

The Dunning-Kruger Effect
Source: Barry Ritholtz

The world’s problems are often complicated, multi-faceted and, in my opinion, can hardly be fully explained in most cases. Should the federal government provide the economic stimulus package to help out citizens in need or should it be aware of the potential federal debt and inflation? Which one outweighs the other at this moment? Would action or lack of it result in a worse scenario for the US? I don’t think anybody can say for sure. Additionally, people in Western countries, especially in the US, often claim that democracy is the best societal form. But is it? Given what is happening with voter restrictions, the spread of misinformation, the dysfunction of Congress, the income inequality and the long lines at food banks, is it really definitively better than what happens in Vietnam, Singapore or China, countries that are essentially authoritarian? Financially speaking, can anyone explain why Bitcoin has risen leaps and bounds in the last few years? What are the underlying rationales for its rise or fall?

I understand that there are scenarios where we need to “fake it till we make it”, as in we demonstrate a high level of confidence than what our competence can back up. In interviews for a new job, how can an outsider applicant be sure that he or she will do a better job than an internal candidate? How can a person be confident in succeeding in a new industry or a new environment? Yet, all of us sell ourselves hard in interviews all the time. In entrepreneurship, investors pour plenty of money in startups and make expensive bets that these startups will be able to cash all the checks that they claim they can write. I am not naive enough to think that confidence doesn’t play a role in our society.

However, if one is serious about intellectual curiosity, it’s important to beware of the Dunning-Kruger Effect and avoid overconfidence when one is not competently ready. The tricky parts are to know where one is on the curve and how to move to the right of the x-axis. Everybody has their own method. Mine include 1/constantly remembering that in most cases, nobody really knows what is going on, 2/ reading everyday to keep myself as informed as I possibly can and 3/ writing things down. The act of writing my thoughts down really helps. Often, the end result is much better than my initial thought, regardless of whether it is good enough to thousands of people out there.

One implication is that if you have a different point of view than some authority voices out there who have a better reputation, a brand name or a celebrity mark on social media, it doesn’t mean that you’re wrong and they are always right. I am a fan of Twitter as I learn a lot from the people on it, but I am often taken back by claims that some experts make with startling confidence. For instance, some chastised the AB5 law in California as a disaster, but recently the top court in UK forced Uber to recognize drivers as employees and the company followed suit, pointing out that the extra expenses would not raise fare. In another instance, some experts called GDPR a disaster as it would help incumbents like Google or Facebook and reduce competition. Well, the WSJ yesterday said that Amazon, Google and Facebook are now responsible for 90% of the US’s digital ad market. The US doesn’t have GDPR, yet there is a triopoly. Also, it’s difficult for me to believe that analysts think that they can run companies better than insiders who have a lot more information. Yet, I have seen many who make declarations with overwhelming confidence on social media all the time.

We’re nobodies in the grand scheme of things

A couple of days ago, Business Insider published a picture of the Milky Way, which took a Finnish astrophotographer 12 long years to put together. Just look at the magnificence and grandness of the picture below

When viewed from outer space, we will look extremely small, like a peck of dust on Earth. Imagine how would you describe each of us when Earth itself looks extremely small in the Milky Way? Microscopic is the best adjective I can come up with, but that doesn’t even come close to doing the scenario justice. Plus, most of us don’t make it past 100 years of age. Yet, the Earth is millions of years old and the Milky Way is much much older than that. What if there is a civilization out there that is so advanced that our current one looks like BC to them? Whenever I think about life from this perspective, it’s easy to get me grounded. And that often helps with avoidance of the Dunning-Kruger Effect or of the thinking that success is just about money and title.

Simple tips to save money

Saving money is something that many of us share interest in, especially when the financial situation is tight. Here are some methods I use to save money

Use public library

I talked about this on my blog before. With public libraries, folks can have some serious savings on books. The public library in Omaha allows free borrowing of many books and as long as the books aren’t in demand, members can renew their withdrawals several times. Even if you turn the borrowed books late, the overdue fees are usually pretty low. I believe that should be the case for other cities. If you don’t have a problem with reading good old-fashioned physical books, why waste money when you can borrow them for free? Take the book below as an example. I had to read it for a course at school. Instead of $12-$15 to Amazon, I could borrow it for several weeks for free from Omaha Public Library.

Buy international version or used books

There are three versions of books: US Edition, International Edition and Global Edition. The content is essentially the same across three editions. What differentiates them is the copyrights and whether you can resell it legally. Here is what Abebooks says about International Edition Books:

Looking for cheap textbooks? Consider international editions – textbooks that have been published outside the US. These books are usually significantly cheaper than textbooks published in the US. Offering tremendous value, international edition textbooks are created to be sold in different regions and are often printed on cheaper paper and are usually softcover. The content may be the same as the U.S. version, or may have differences such as the book cover, ISBN, pagination, or region code.

Customers located in the US can now purchase international edition textbooks. However, note that the publishers of international editions generally do not authorize the sale and distribution of international editions in Canada and such sale or distribution may violate the copyrights and trademarks of the publishers of such works.

Source: Abe Books

In the US, the difference in prices between US Edition and International Edition can be outrageous. Take Marketing Management by Kotler as an example. If you look for a brand new US Edition of this book on Amazon, it will cost you around $140. The same title in International Edition costs $72 on Abebooks. A used International Edition version costs $5. Even if you could resell a US Edition for some money, that would take away your time and require you to pay up front. Think about how many books you are requested to buy during your degree and how much money you could save. E

Buy groceries at Aldi

Almost everyone in America knows about Costco and its appeal, but if you are a lone wolf or don’t shop enough to justify a Costco membership, I highly recommend Aldi for groceries. I get it. The retailer doesn’t do much advertising and its stores don’t look fancy at all. What you get; however, is cheap groceries. I wrote about why Aldi manages to sell their goods at a cheaper price. The gist of it is that many popular items such as vegies, milk, yogurt, bread or fruits are available at a significantly lower price than they are at other stores, including Walmart. If it’s cheaper than Walmart, how much money could you save from not shopping at Whole Foods or Hyvee?

Source: CNN

Save before spend

I set aside 10% of my monthly salary for my 401k and then a few hundred dollars every time I receive a paycheck is automatically transferred to my Robinhood account for my own portfolio. Thanks to these little tactics, my savings are guaranteed before any expenses kick in. I can safely spend all the rest, though I rarely do, without worrying about whether I will have any left for savings. How many of us end up with no savings every month after all the expenses, even though we plan to in the beginning? Save before spend

Avoid premium gas

I’ll let CNBC explain it

Other small and simple tips

  • If you have a medical procedure, try MDSave. I wrote about my own experience with MDSave.
  • I make my own coffee and food at home
  • Instead of paying a gym membership, I use free and helpful resources like this channel for workout at home. No equipment, no driving and no membership needed

One last message to take to 2021

As I was having my morning coffee today, I came across this email from Ryan Holiday, who is a fantastic writer and somebody that you should subscribe to, I couldn’t help, but think that this message below is an important one to take to 2021:

One of the best pieces of advice from Seneca was actually pretty simple. “Each day,” he told Lucilius, you should “acquire something that will fortify you against poverty, against death, indeed against other misfortunes, as well.” Just one thing. One nugget. This is the way to improvement: Incremental, consistent, humble, persistent work. Your business, your book, your career, your body—it doesn’t matter—you build them with little things, day after day.  Epictetus called it fueling the habit bonfire. The filmmaker, entrepreneur, author, former governor of California, professional bodybuilder, and father of five Arnold Schwarzenegger gave a similar prescription for people trying to stay strong and sane during this pandemic: “Just as long as you do something every day, that is the important thing.” Whether it’s from Seneca or Epictetus or Arnold, good advice is good advice and truth is truth. One thing a day adds up. One step at a time is all it takes. You just gotta do it. And the sooner you start, the better you’ll feel… and be. 

In his book Atomic Habits, James Clear talks about something he calls “The Plateau of Latent Potential.”  This plateau can be likened to bamboo, which spends its first five years building extensive root systems underground before exploding 90 feet into the air within six weeks. Or to an ice cube, which will only begin to melt once the surrounding temperature hits 32 degrees (or the resulting water that only boils at 212 degrees). Just because it sometimes takes longer than we’d like to see the results of our efforts doesn’t mean that our efforts are going to waste. In fact, most of the important work—the build up—won’t seem like it’s amounting to anything, but of course it is. Plutarch tells the story of Lampis, a wealthy ship-owner who was asked how he accumulated his fortune. “The greater part came quite easily,” Lampis supposedly answered, “but the first, smaller part took time and effort.” Any goal we have will take time and effort to accomplish, and beginning it will most likely be harder than finishing. But we have to keep going, because habits and hard work compound. Remember always that greatness takes time. Most importantly, remember what Zeno said: that greatness “is realized by small steps, but is truly no small thing.”

Source: Ryan Holiday

It took me back to what has happened in my life since I came to the US 4 years ago. I came here with just around $4,000 in my pocket, a computer, a graduate assistantship at University of Omaha, Nebraska and a desire to have a better life. Initially, I rented a room in a house that was about 15 minutes of walk or a couple of bus stops from my university campus and had 5-6 other tenants. I hadn’t known how to drive and didn’t have enough money to buy a car or to learn how to so. My sole income at the time was the $1,200 stipend from the school. Nothing else. After rent, food and everything else, I managed to have just about $300 in savings. Nothing much, but I got by.

Public transportation in Omaha is spotty and leaves much to be desired. I used to ride bus #2 to school and that bus runs once every 15 minutes during the weekdays before 6pm. After 6PM, it runs more slowly at once-every-30-minute frequency. On the weekends and especially Sundays, buses in Omaha either stop or run at a very low frequency. In the fall, missing a bus wasn’t that big of a deal because I could comfortably walk to school. In the harsh winter of Omaha when streets were slippery, I often had to watch the bus schedule closely so I wouldn’t miss it. For groceries, it was a bigger challenge. I used bus #18 to go to Walmart, which has arguably the cheapest groceries. The bus runs once every 30 minutes, so to save time, I had to game it out before hand what I needed to buy and how to leave Walmart just in time to catch the bus. Besides school and grocery trips, it was a bit tricky and time-consuming to go anywhere with buses around here without wasting precious money on Uber/Lyft, money that I didn’t have much at the time.

The following summer, I had to find a job. My school stipend wasn’t available during the summer when I didn’t have to work at school. Luckily I got a 10-week internship at one of the eCommerce companies in Omaha. But I knew that I would have to line up the next job after the internship to gain more experience here in the US and make more money. As an international student, you’re not allowed, as far as I know, to have an internship during the first school year. You can have a 20-hour/week job after the first year and luckily a graduate assistantship at school on top of that. So I got an internship at a managed service provider in Omaha on top of my job at school. That earned me more money. The catch was that I had to work 40 hours a week and completed 4-5 courses a semester, since I wanted to graduate as early as possible. I graduated in December 2018 and landed my current permanent job in Feb 2019. Had I graduated a year later, I would likely have been jobless because of Covid.

The strain of study and 40-hour work made me wonder at times what I was doing during my 2.5 years at the university. I felt frustrated and hopeless at times because I didn’t feel like my life was inching forward. I had to work a lot to reduce my jealousy and avoid comparing myself with others. Certainly, looking at my peers and their lives was a bit hard for me at some point. Fast forward to now, I have a job, my own apartment, a car and some savings. I am grateful whenever I reminisced wishing for a car while I was walking to school or on a bus to a grocery store in the middle of Omaha winter. On some winter days, I felt deeply hopeless and frustrated. Like my life wasn’t going anywhere and being here was a goddamn giant mistake. Harsh coldness, alone from family and friends and a feeling that whatever I was doing wasn’t leading anywhere. Obviously, I had no idea that the struggles were necessary for what was to come next. I just had faith, for absolutely no reason, that it would work out. Thankfully, so far, it has.

Another reason why I relate so much to Ryan’s quote is this blog. It’s called onepercentamonth because I want to have personal progress every month. Enough to feel that I am progressing gradually and consistently, but not too much to miss other funs that life has to offer. My other intention is that this is the getaway space for my thoughts, a place where I put thoughts to words to hone my thinking and my writing. I haven’t advertised this blog before, even on social media. I figure what is the point when fame isn’t what I am after here. Nonetheless, it’s good to see the blog’s growth. All traffic came from WordPress, word of mouth and the search engines. At first, there was little traffic. But I continued to toil at it and after two years, I could get traffic for the whole month of Jan 2019 in 2-3 days. My little blog is nothing compared to that of many other people, but it’s something that gives me comfort and joy. Plus, I could see the last two years as the plateau of Latent Potential for what it is now and hopefully what it is now is the buildup for something greater that will come in the future.

Those are my two stories which serve as concrete evidence for what Ryan said above. As 2020 is drawing to a close and I am sitting here, reminiscing the past and reflecting on what happened, I feel that this is an important lesson to take with to 2021. If you come across this entry, I wish you health, luck and happiness in the next 12 months. If you feel stuck at times in your life that nothing is progressing, I hope Ryan’s message and my life stories should help as a reminder that you’re likely paying the dues, that you are planting the seeds for future fruits, that you’re growing your own bamboo.

Until next time!

How much money you may be wasting on coffee shops?

We have all heard about the importance of savings. But what if we look at savings from another perspective? What if we look at how much potential earning excessive spending could cost each of us?

Take coffee consumption as an example. All credit to this Twitter user for inspiration to use coffee as an example. Many of us love to drink coffee every day, but a coffee from a branded or local indie shop can cost around $5-6 per cup. Depending on the consumption level, one person can spend a lot of money on drinking coffee outside per year.

Cups Per Week12345
Total Cost Per Week ($6/cup) (including tips) $              6  $            12  $            18  $            24  $            30 
Total Cost Per Year (52 weeks) $          312  $          624  $          936  $       1,248  $       1,560 

What if we substitute drinking coffee at a shop for drinking coffee at home? We all know that drinking coffee at home will save us a lot of money, but let’s run an experiment and find out approximately how much money can be saved. Here are two combos A) one 12oz bag of ground coffee that is in the cheap range and a French Press from IKEA that costs $9 and B) a slightly more expensive bag of coffee and a Metallisk at $20.

Either of these combos should be enough for a cup of coffee at home every day. For the sake of argument, let’s say every year a person needs 18 of these bags to have one cup of coffee a day. Combined, 18 bags of Dunkin Ground Coffee and the French Press will cost $120/year. Since we like to drink coffee with some milk, let’s throw in another $30 of milk and round it to $150/year. Here is how much drinking coffee at home would save a person:

Cups Per Week12345
Total Cost Per Year (52 weeks) $           312  $          624  $           936  $          1,248  $          1,560 
Total Cost Per Year From Combo A $           150  $          150  $           150  $             150  $             150 
Saving from Combo A $           162  $          474  $           786  $          1,098  $          1,410 

Over a long period of time, the compound interest will make these savings much more valuable in the future. Let’s look at four scenarios where the annual interest rate we can earn from these savings, whether it’s from a bank or investment in stocks or from dividends, is 3% to 10%

Cups Per Week12345
Total Cost Per Year (52 weeks) $           312  $          624  $           936  $          1,248  $          1,560 
Total Cost Per Year From Combo A $           150  $          150  $           150  $             150  $             150 
Saving from Combo A $           162  $          474  $           786  $          1,098  $          1,410 
Annual Rate at 3% $      12,215  $     35,740  $      59,265  $        82,791  $      106,316 
Annual Rate at 5% $      19,570  $     57,259  $      94,949  $      132,638  $      170,328 
Annual Rate at 7% $      32,341  $     94,627  $    156,913  $      219,199  $      281,486 
Annual Rate at 10% $      71,700  $   209,789  $    347,878  $      485,967  $      624,056 

Essentially, what the table above means is that drinking coffee at home using Combo A would save a person on a 3-cup-a-week routine more than $300,000 after 40 years at the annual rate of 10%. Even at a more moderate rate of 5%, it would still be around $100,000, a significant sum for most of us.

Here is what the savings would look like with Combo B and the same criteria

Cups Per Week12345
Total Cost Per Year (52 weeks) $           312  $          624  $           936  $          1,248  $          1,560 
Total Cost Per Year From Combo A $           200  $          200  $           200  $             200  $             200 
Saving from Combo A $           112  $          424  $           736  $          1,048  $          1,360 
Annual Rate at 3% $        8,445  $     31,970  $      55,495  $        79,021  $      102,546 
Annual Rate at 5% $      13,530  $     51,219  $      88,909  $      126,598  $      164,288 
Annual Rate at 7% $      22,359  $     84,645  $    146,931  $      209,218  $      271,504 
Annual Rate at 10% $      49,570  $   187,659  $    325,748  $      463,837  $      601,926 

From this example, there are two lessons. 1/ the compound interest is a powerful tool to learn and have in our favor. The sooner a person learns about it, the better and 2/ If a person is even only decent at maths and knows the power of compound interest, explaining savings in this manner could be more powerful than just talking about it. Personally, I wish my parents or teachers in Vietnam had taught me this when I was 15. I would have saved so much money from all the shenanigans and earned some from putting the money into an index fund or a high dividend yield stock.

You may argue that the scenarios are a bit extreme and that each of us should enjoy what life has to offer. Well, that may be right, but coffee isn’t our only sin, is it? How about regular food from Chipotle, the 5th streaming service of the month, the 20th bottle of perfume or the 15th pair of shoes? The point of this exercise isn’t to arrive at the exact figure, but to look at the opportunity cost of excessive current spending. A moderate control of spending and savings will help each of us save a lot of money, even after we enjoy the occasional delicacies.

FYI, here is a Future Value calculation I made, using Financial Calculators