Blog Archive

Want Financial Stability? Start Sleeping Better

Key factors to financial stability are simple - make smart life decisions and sustain them for the long run. Few examples are as follows:

  • Investing - Find low cost index funds such as the Vanguard Total Stock Market Index Fund (VTSAX), automate your investment and invest for 20+ years.

  • Transportation - Never lease a car. Buy affordable and reliable car with cash and drive it for 10+ years.

However, despite how simple these principles are, we oftentimes find it very challenging to make smart life decisions and even more, sustain them year after year. We receive a hot new stock tip from a co-worker and feel we need to jump on it due to fear of missing out. We see an ad for a luxury car and before we know it, we are on the Kelley Blue Book to see how much my old beater would sell for.

We can’t completely eliminate dumb decisions from our lives, but I have noticed a trend in my own life. I tend to make irrational and regretful choices when I’m emotionally and physically drained. And as I’m getting closer to 40 (just turned 38!), it’s becoming even more apparent that I need to better manage my energy level as my responsibilities as the sandwich generation grow (e.g. demanding career, growing kids, aging parents, increasing financial responsibility etc.).

In this post, I want to share with you the starting point for better managing our energy level, better sleep!, and six tips that will allow us to most effectively rest our body and mind.

 
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Sleep is one of the most underappreciated activities. It is oftentimes the first item to be sacrificed when other priorities pop up and many of us don’t give it too much thought. However, study after study have shown a direct correlation between sleep and mental performance. Lack of adequate sleep leads to slower reaction time, lower concentration and reduced analytical reasoning to name a few.

We’ve all been there. You slept late watching Netflix latest release. You woke up early because you have to be at work by a certain time. However, your brain was only halfway present. You couldn’t concentrate effectively and you were constantly distracted. You came home feeling drained and unsatisfied.

But in contrast, you’ve also experienced the opposite. You slept early and woke up refreshed! Throughout the day, you felt like Bradley Cooper from the movie Limitless. You were able to concentrate intensely. You walked by a box of donuts with no problem - you have intense willpower to resist! You came home feeling accomplished and proud of yourself.

Now how can you repeat this day over and over? Here are six tips to better sleep:

1) Set a Sleep Schedule

Set a routine sleep schedule (e.g. 10am - 6pm) and stick to it both weekdays and weekends. Our body craves routine. Resist the temptation to stay up late on weekends because you don’t have work the next day. Once your body gets used to a sleep routine, you will fall asleep quicker and wake up more refreshed.

2) Make Your Bed & Room Super Comfortable

Treat your bed with the utmost respect. Check your mattress firmness, sheet thickness and even the pillow comfort. Set your room temperature to ideal 70 degrees. You want it all to be most comfortable as possible. Do you enjoy laying in your bed? Do you look forward to crawling into your sheets? Is the pillow thickness ideal for your sleep position?

3) Watch What You Eat or Drink

No big meals at night after 8pm. Your body will struggle with digestion and you’ll find it hard to fall asleep. Also avoid alcohol before bed and limit caffeine after 4pm. “Alcohol may seem to be helping you to sleep, as it helps induce sleep, but overall it is more disruptive to sleep, particularly in the second half of the night,” says researcher Irshaad Ebrahim, Medical Director at The London Sleep Centre. Caffeine on the other hand can disrupt your sleep up to six hours after consuming. So if you want to be in bed by 10pm, coffee after 4pm is not a good idea.

4) Empty Your Mind

Keep a pen and notepad next to your bed and get in a habit of clearing your mind before bed either through journaling or just listing out what’s in your mind. By writing down your thoughts and concerns, you are giving it a place outside of your head.

5) Eliminate Light & Noise

Completely darken your bedroom by turning off all lights before you get into bed. You also want to eliminate all noise if possible. I prefer to use an eye mask and an ear plug to make sure I can control for all light and noise. If you go this route, make sure you use high quality products and not the free eye masks they give you on international plane rides. They are much more comfortable to wear and completely block out all light.

6) Power Down

Lastly, get an alarm clock! Since the invention of the iPhone, we’ve taken it as a matter of fact that phones are our alarm clock. However, how many of us have stayed up longer than we wanted scrolling through Facebook feeds or just reading our emails in bed? The temptation is too strong and the light from any of these devices also have a way of over stimulating our brains. If possible, have your phone across the room or even better yet, in a different room and get an analog alarm clock!

Do you find it challenging to get adequate sleep? Are there any tips from above that resonate with you?

Remember the 20% and 28% Rule When Buying a Home

Purchasing a home is not easy. Not only is it one of the most expensive purchases we will make in our lives, there are so many numbers to consider:

What is a good down payment?

How do I know if the monthly payment makes sense for our family?

In this post, I want to share with you two essential rules you want to consider when buying a home

 
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1) Down Payment - At Least 20% of Purchase Price:

The first rule of home buying is to only buy a home when you can afford a 20% down payment.

Many lenders will give you a mortgage even if you put less than 20% down. However, don’t think that they are being generous. Lenders are in the business of lending money so if they can lend you more money while mitigating their risk, they will eagerly do so. What’s worse is that they pass on all the risk to the borrower in the form of Private Mortgage Insurance, aka PMI.

Borrowers who can’t put down 20% are required to carry PMI on top of their mortgage. PMI typically cost between 0.5% to 1.0% of the entire loan amount. This means on a $300,000 mortgage if the PMI fee was 1.0%, borrower would be paying $3,000 annually or $250 monthly on top of his or her regular mortgage! Why!? By putting down 20% down payment, you can avoid this pesky PMI expense.

Some lenders might forgo the PMI fee even if you can’t put down a 20%. Why are they being so kind you might ask? Not so! Lenders want home buyers to borrow more money and they will do everything to make this possible. Stay strong and keep to the principle of putting down at least 20%. This rule will also make sure that you don’t buy more than you can afford. The 2008 housing crisis was a direct result of homebuyers buying more than they can afford by putting less than 20% down. Many mistakenly thought that just because the banks were willingly lending them the money, they could afford the payment.

2) Mortgage Payment - At Most, 28% of Gross Income:

The second rule of home buying is to ensure that the mortgage payment (including property taxes and insurance) is no more than 28% of your gross income.

28% is a general ‘mortgage rule of thumb’ used by lenders to assess borrowers ability to take on the mortgage. Lenders typically want no more than 28% of your gross income to go towards your housing expenses including mortgage payment, property taxes and insurance. If the debt-to-income ratio exceeds the 28% limit, borrower may not get the loan or need to pay a higher interest rate.

An example of this 28% rule looks as follows:

  • $500,000 home purchase

  • $100,000 down payment (20% down)

  • $400,000 30 year mortgage with 5.0% interest rate

  • $2,147 / month mortgage payment

  • $500 / month property tax ($6,000 a year)

  • $100 / month insurance ($1,200a year)

  • Your monthly mortgage plus property tax plus insurance would be $2,747 ($2,147 + $500 + $100)

  • Using the 28% rule, you would need to make around $9,800 a month ($2,747 = 28% of $9,800), or $117,600 annually to feel comfortable purchasing a home under the 28% rule

My recommendation is that 28% should be your upper most limit and you should aim to bring this number down as much as you can. Housing is most households biggest expense and is also the least flexible. You can quickly lower your monthly food or entertainment expense if need be. However, once you are locked into a 15 or 30 year mortgage payment it's not easy to get out of this obligation. Staying within the 28% rule will help you avoid the trap of buying a home more than you can afford.

Are you thinking about purchasing a home? Or did you recently become a homeowner? What do you think about these rules?

My wife, the secret weapon to our financial success

I always tell my wife she is the secret weapon to our financial success.

When we got married 8 years ago, we were not only broke, but hopelessly naive about our dire financial situation. Thankfully, with the help of Dave Ramsey and his lessons on basic personal finance, we were able to pay off our student debt, save for the future and build a strong financial foundation for our family.

I couldn’t have done this without my wife.

 
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1) Dual income, same level of expense

It may sound very unromantic, but one of the immediate benefit to our marriage was our ability to double our household income while maintaining a similar level of expense as when we were living separately. Unless you dramatically increase your lifestyle, you can maintain a fairly similar expense level married as when you were single.

Housing - The apartment that we moved in together cost about the same as the apartment that I was living in alone prior to getting married. I was living in a high cost of living area near UCLA and we decided to move to a lower cost of living area near my wife’s work. When you can go from having one income, one housing payment to two income, one housing payment, it makes a huge difference in your savings rate.

Transportation - Living close to my wife’s work not only cut down on gas cost but it also gave us opportunities to carpool few times during the week saving us additional money on transportation.

Food - We were able to purchase larger quantity of food that we would cook for the week; both at home and work. This was also the time when I ‘perfected’ my $2 lunch with much experimentation.

2) Willing to cohabitate with my parents

One of the amazing things about my wife is her ridiculous level of grit. Angela Duckworth discusses in her best selling book, Grit: The Power of Passion and Perseverance, how grit is one of the best predictor of success in life. I really lucked out having met and married a woman who can teach me this everyday.

Not many people are willing to live with their parents as adults. Especially not if they had a choice and even worse if it was their in-laws! However, when my father approached us about the idea of cohabiting as a mutually beneficial arrangement for both our childcare and minimizing their overhead cost, my wife thankfully didn’t run out of the room. After much deliberation, we agreed and it’s been six years and counting.

There’s been many times when we doubted our decision and after a tough day of cohabiting, we’d even looked at other living options. However, despite all the ups and downs, my wife stuck through all of my parents peculiar nuances with patience, understanding and grit.

From a financial perspective, the cohabitation arrangement has allowed both of us to continue to work in our high demanding jobs and acquire a home that we couldn’t have afforded if my parents didn’t help with the equity - on the condition they came with the house :)

3) The best partner

When we think about our personal finances, we tend to fixate on and over emphasize the end goal. How much do I want to save? How much debt do I want to pay off? When can I retire?

We think and believe that when we reach that goal, we’ll be happy. But how many of us have reached the end only to realize that we aren’t as happy as we thought we’d be?

Life is a journey. Goals just help us to know which direction to move towards.

My wife is my secret weapon because the best part about our financial journey is the fact that I was able to do it with my best friend and life partner.

Accountability - When one of us would think about making a ridiculous purchase (mostly me), we would keep each other accountable on what our financial goals were. So… you are telling me you need the new $2,000 mac book pro to write better blog posts? I’ll let you think about that.

Motivation - In our many carpool rides together or late night walks around the neighborhood, we would talk about our financial future. What would it be like once the debt was paid off. Or what about once our home was paid off! Could one of us stay home with the kids? These discussions motivated and kept us on track towards our financial goals.

Enjoy the Process - The most enjoyable part of our financial journey has been the fact that I’ve been able to do it with my wife. Going to work, paying off debt and saving for the future is not easy. It can be stressful and emotionally draining. However, when you have the right partner, the challenge can be an enjoyable and a rewarding process!

Do you have a secret weapon in your financial journey? Who or what is it? Why is it your secret weapon?