Personal update

It is time for another rambling update.

I put 51% of my income this month (of $12,075 yes everything is always in pesos so yes, if you are new to my thread, I am poor. :-) ) in different investments part in my CetesDirecto account as CETES, part as a 30 year bond and some as international funds mostly emerging markets in my investment account. My BMV selections are still up by around 14% so the market must still like Mexican companies. of course all the international investing is keeping CETES below inflation which is still officially below 5% for the year. (although food is probably around 8%)

I have been having problems with one of my English groups, I was 12 minutes late entering class so they decided they wouldn't attend that class and that I needed to give them another class later to make up for it so I told them no and that this Tuesday they can find a new teacher. I also had started a class for one of the students of that group and her husband at a big discount and I told them they can continue at the normal price if they wish.  In effect I lost about one third of my income for this next month. It was really stressing me out though and if I let this group get away with canceling at the last minute they'd tell other groups and they'd start doing it too.

The good thing is that now I only have to make the hour and a half trip to Atizapan on Tuesdays and Fridays. I'll also be home by 6pm both days. With the problem group I got home about 9:40 on Tuesdays. I still have a Monday morning class about an hour away by bus or subway and a Thursday morning class also about an hour away. Remember Mexico City is a megacity, so only an hour away is good. More than an hour is   bad. I'm open to starting new groups since an even lower income means that even with roommates and sharing rooms, etc, it will be even harder to save without the income from those two groups.  In any case, my remaining classes will cover all my essential bills so I have no reason to touch my investments or emergency money in November.

One of my roommates mentioned (last month) the possibility of working in the area he supervises doing data entry and other admin assistant work. I said that it would be good since I'd be making about the same money plus have benefits like vacation, but he still hasn't told me when they'll be having interviews so it is hard to say if it is true or not. I hope so. Having a regular office type job 5 days a week and classes before or after work or on Saturdays would be great!  Yeah, if that happens I'd have to leave most or all remaining groups in Atizapan, but I could look for new groups near his office in Polanco.

One roommate is still behind one money. He promised to pay what he owes me from last month tomorrow and to be caught up tomorrow. Another needs to pay me tomorrow too so lets hope the follow through. The one who was sharing my room left to share with his university classmates and a new person should be moved in next week. I hope this new one can stay a while longer.

My net worth (using valuations of different investment accounts + cash) is at $116,884  (yes as always in Pesos) I know that is pocket change for most of you but I'm very happy. It went up about 3,000 in existing investment value since the stock market went up and about 6,000 in earned income contributions I made from being so frugal.  
55% of my network is in retirement accounts. It was at 67% in April. :-)  I expect November and December Net worth to be flat or to go down a little since most classes are canceled after the 12th of December and they don't start back until January 6th.  It all depends on the new potential job and any art/design income I can make.

The consumer credit trap and how to avoid it

This morning I found an interesting advertisement from HSBC which said I had won/earned (ganado) 2 percent monthly interest rate on purchases made through the end of October. I was not thrilled.  I probably get an e-mail message each month telling me of different buy now pay later offers for different stores and I keep asking myself "why?"

Why would I want to shop at those stores?
Why would this be in my interest?
Why would I want to pay 2% a month (24% a year!) to go buy stuff this month with my credit card?

Unfortunately many people would see that e-mail and immediately plan to go buy stuff sometime that week.  The problem is that credit cards and any other form of consumer credit is a drug. As humans we get a little excited and happy every time we have something new. It doesn't require a purchase, but shopping is a very easy way to get new stuff.  It is also unfortunate that this happiness is very temporary. Typically from a few seconds to a month. After that it is either consumed or gets put in a pile of other stuff. Eventually we need to buy containers to store our stuff in and find somewhere to put it all. That's probably why the bigger the house, the more stuff we have and the more stuff we have the bigger the house we "need".  Since housing is a huge fixed expense, just having a huge collection of stuff - even free stuff - would have a large financial burden. You'd need an extra bedroom and a garage just to store it all.

What about the credit card balance? First of all you will now have to pay it. If you are late on a payment or miss a payment you'll pay a large fee. Additionally you'll be paying 24% each year this month's purchases that you didn't even need.

You'll need to consider the opportunity cost of your consumption. Consumption is a bad word. The cost of the goods you buy plus interest plus the occasional late fee plus storage cost is huge. Say I went out and bought a new wardrobe up to my current $3500 peso limit. Those clothes are not going to generate income. If I already have sufficient clothing it was a waste of money. I could have just bought what I need and could pay off at the end of the month without paying interest.   It would be great to have another pair of trousers and a dress shirt, but I don't need to spend more than 900 pesos perhaps less if I go to a store like Walmart or Soriana. I probably won't even buy those. I don't really need to buy a shirt. I could just buy trousers with cash or using credit and pay my card off in full at the end of the month.

Instead of spending $3500, I could spend 400 pesos for what I could really use and assuming I actually had $3100 pesos available, I could invest it in stocks, bonds, or CETES (T-bill equivalent). Supposing that I already have met my savings goal for long term needs, I could put the money in the bank to pay for  my vacation!

How can you avoid the consumer credit trap?

• Be aware that banks are not your friends. They want you to owe them money so that you will become a steady source of income for them.
• Be aware that happiness from stuff is only temporary, but its cost is long term in money, interest and fees, and in increased storage and housing.
• Pay yourself first. Set aside money every time you get paid. Some money should be for irregular expenses and some money should be for retirement. The irregular expense money that isn't spent should be put in investments.
• When you see something you like in a store, ask yourself if you really need it and if you have the cash available to pay for it (without taking money from your savings!) Better yet, wait a day or a week before making the purchase.  You'll be surprised how often you feel you absolutely need something one day and the next week you no longer want it.
• Don't carry your credit card(s) with you.  
• Plan your shopping trips. Make a list of the things you need and stick to it.
• Don't go to shopping centers as social events. Go to parks, go for walks,etc. 
• Don't watch television. Those advertisements might make you think you need something.

Sometimes you need to find new friends on the path to financial freedom

Resistance by friends to your budgeting and saving may be strong. In my case, I can think of several occasions when I was either insulted, told I was cheap so I wasn't worthy of a relationship, or worse. It is time for another story.

A friend of mine, at least I thought he was a friend, who I know had trouble grasping the concepts of frugality so that one could save money for whatever, had asked me to join him and other friends to celebrate Saturday, the 15th of September (grito de independencia). We had gone out before with and without other friends so I thought it would be fine.

There were several of us and we had a decent time, but I think I would have enjoyed myself as much watching a movie on the computer. I bought three drinks and relaxed a little. As we left around 4 in the morning I could tell that my friend was in a bad mood.

 He started to complain to the others about how I bought inexpensive shoes.  I had told him one day many months ago how I had bought new dress shoes at the mall near the apartment for about 500 pesos and I casually mentioned that my last tennis shoes were 200 pesos in the market. That day he mentioned that he knew of a place where I could get very good tennis shoes for 400 pesos of better quality and I had said yes, I was interested. Many months later he hasn't accompanied me to go buy them. We had actually scheduled a day to go shoe shopping once and he left me waiting for his call. That didn't however stop him from telling them how cheap I was early Sunday morning. Obviously cheap tennis shoes aren't going to last very long, but for 1/3 of normal price  I don't really care if they'd only last a few months.

I don't remember all of the conversation, but  I commented that I am careful with my money because I'm saving money to buy my house. Instead of saying ok, not having my own home yet, was again held against me.  It seems that you aren't supposed to save money and you are supposed to magically own while maintaining an above one's means lifestyle!  The topic then changed for a few minutes.

Supposedly we were all going to go have supper at 5am somewhere. When we arrived at a bus stop, one of them said that I was inviting them to supper. I guess all my efforts to save part of my low income makes them think that I'd buy a meal at an undisclosed location for people I had just met (my "friend" had friends I hadn't met join us).  Then several others repeated that statement that I'd pay. Here in Mexico, inviting someone means you pay the bill. I said no and then one of them said that my Spanish was very bad (even though I'm fluent). It was clear that he was offended because I wouldn't invite them a meal. Of course, they didn't invite me any drinks or anything earlier.

I keep discovering that the people who accuse me of being cheap and ask me to "invite" them things are people who never buy me anything not even a subway ticket.

I didn't respond to his insult since I didn't see the point. I normally don't have a desire to argue or fight especially about stupid things between 10pm and 9am. I'm much rather relax, have a good time, or sleep. Instead of fighting back, I retied one of my shoes.  Then one of them said they didn't feel like waiting more for the bus and they started walking toward the undisclosed all night restaurant. Since it was only a few seconds after the insult, I decided to cut my losses. They went one way and without a word because I was angry, I crossed the street to take the same bus route going the opposite direction home.

I was hoping to get a text message or a message in Facebook asking what happened or if I was ok, but instead I got nothing.  I can interpret this in several ways. One is that my friend is jealous that I'm saving money now and trying to reach a goal. Another is that he's a very low quality friend or at least very inconsiderate. Finally I can accept that while I might join him sometime in the future to a bar, that that's about the extent of our friendship and that it is time to find friends who are happy that one is trying to improve his situation.

If you have been saving money for your future whether you are saving for your first home or your retirement, don't be surprised to find out that your friends are less than supportive even when they have more money than you do.  Sometimes you need to find new friends on your path to financial freedom!

The pleasure of investing for your financial freedom

I'm a long way from financial freedom, but I've noticed a change since I started my switch from saving to investing. There are many definitions for saving and investing so I'll give you my own.

Saving is putting money away without earning interest or earning significantly less than inflation. Saving for me is Emergency fund money or any other money in cash or anything that pays less than 3%. Why 3%?  Current inflation here is about 4.7% (officially). Your typical bank savings account, money market account and certificate of deposit would be savings.  Savings are important. If you have no savings you need to save first and then you can invest.

Investing for me is putting money in stocks, bonds, and any other investment that earns near, at, or above inflation in any case it should earn at least 3% to keep up with "ideal inflation".

Anyway, I had paid off my credit card in 2011 (My previous savings got spent during the recession), and saved up my emergency savings for 4 month's expenses and then I started researching and found how I wanted to invest in a mix of stocks and direct bond purchases earning 4-6%.  I put 3/4 of my emergency funds into those so I'm down to one month of expenses in cash.  I'll probably keep it like that for the near future since my cash earns no interest in the bank. I just keep that there as I might need it tomorrow/real emergency money. The refrigerator could stop working or something else might come up. Still I hate to see the purchasing power drop due to inflation.  In fact yesterday, I noticed that two things I enjoy went up by one peso each.

Yesterday, I got the first bank statement for my new bank account that includes investments. Although only a small part of it was new money from last month's income, I felt just as good as if I had bought a pizza or new shoes.

Every Thursday when I see the new cetes and bonds assigned to my Cetesdirecto account, I get a little excited that I made another small step closer to my goal of financial freedom.  New shoes wear out, and  pizza gets eaten, but investments make you more money.

I've started to ask myself how many 20 or 30 year bonds I'd need to buy a pizza every month with interest or something else I enjoy. I suppose once I start getting dividends I'll do the same thing.

If you haven't yet, start saving so you can start investing for your future. Even if you don't want to retire early, you'll find uses for that new investment income.  Saving isn't fun, but investing feels great!

When you are doing well don't tell your friends or family.

I've discovered that at least in Latin America, it is best to tell people how bad you're doing. I've been working hard at cutting expenses and minimizing others. I'm still spending too much on food, but much less than many people I know.

Even though I only just implemented my investment strategy this month (The strategy I've been working on for several months), I've already gotten comments that "I make more than them so I should be more generous." or that I'm very "cheap" because I am not sharing my new found wealth.

It is ridiculous because I have been struggling and making sacrifices to save and invest what I can of the very low (much less than minimum wage in the United States) income I have. I won't see income above a few dollars a month for at least a year and that is supposing that I have non-stop work for the next twelve months. That is pretty doubtful since most of my groups cancel most of December and half of January plus a week or two for holy week in the spring. Of course for those few dollar a month earnings I'm saving much more which is a net loss every month; sacrificing money today for money years from now. It isn't as if I had won the lottery or inherited a fortune.

I have:

• found roommates for the other rooms in the apartment.
• found a roommate to share my room.
• one roommate uses my closet and sleeps in the living room.
• refused to buy a car and I only take a taxi when necessary.
• limited myself to inexpensive food when at home and eating out. When I eat out I normally buy something very cheap on the street.
• started washing my clothes by hand when I have time to do so. 
• rented an apartment in a relatively poor area of the city with good public transportation.
• recycled and reused what I can.
• stopped buying magazines or newspapers except when they are for use in my English classes. I have been reading some newspapers and magazines at the university library where I teach a few days a week and I'll read news articles online.
• refused to buy more gadgets except as a replacement.
• paid my credit card in full every month. 
• refused any unjustified regular expenses. I have my cell phone and internet at home. I don't need anything else that isn't essential.

I have many more things to do like try cooking more of my food at home, but I feel good to know that I'm making progress. This doesn't make me "very cheap", it makes me responsible.  I don't have to ask friends for a loan. I don't have to take what doesn't belong to me since I am being responsible with my low income.  No, I don't have a huge bank account. I decided to keep no more than one month's income in cash except in the event that I take a much needed vacation.  No, I couldn't live for a year on my investments. I suppose if I could cash everything out I'd be able to survive for a little under a year, but it would be only survival. Of course, I would then have nothing for retirement nor for a house or condo to call home.

It seems that all the minor miracles I've been managing to have humble savings is considered to be a horrible thing to the general population. I should, according to them, spend all my money on stuff and on them and forget about being responsible or savings. Will they take care of me one day? Will they give me food, clothing, and shelter?  Of course they won't!  They are just jealous of what little someone else has been able to manage. They are jealous that I've made the commitment to prepare for my future. 

My advice to you is that if you have friends or family who are like them, tell them you are broke, that you have no savings and that you aren't sure if you'll be able to pay your rent next month. They'll be happy thinking you're just as bad off as they are and when you want to save money instead of spending a huge portion of your paycheck on a night at a bar or on a cruise ship vacation. Tell them you can't afford it because you need to buy a new television or other stuff that they would think is important. 

Measuring Financial Independence Progress and the arrogance of idiots

Last night I was in Messenger, and I said hello to a contact that I haven't met in person, but he was someone with whom I'd chat with about 2 years ago.  All was well until I mentioned to him that I started sharing my bedroom in the apartment I rent.

He didn't ask me why, but he quickly went on to judge me (someone he hasn't even met). He asked my age. I'm 36. Then he went on to ask me about my posessions. Do I have my own house? no
Do I have a car? no, and I don't want one. I live only a few minutes walk from the subway and a major avenue. I definitely don't want to waste money on a car. Then he went on to tell me that I don't even know if I'll have food to eat tomorrow.  That isn't the case, but I didn't feel like correcting him since he didn't seem to care about my situation only my posessions.

He then told me that I have nothing. Then he continued to tell me how he has his own house and furniture and he pays his bills.

The difference is that he lived with his parents most of his life and his parents gave him for free the lot to build his house on. The hardest thing in a megacity is to find WHERE to build a house and actually buy it. The actual construction here is very easy to manage once you own the land. It is very likely he never rented.  I'm not saying anything he did to have his house is wrong.  What I'm saying is that his arrogance is wrong since he basically lived off of his parents while I have had to pay rent and bills and yes, I buy my furniture too.  If he had been renting since his early 20s like I have and had he bought the land his house is on then I'd admire him. Since that's not the case, I think he's a jerk who deserves retribution for being so arrogant.

Should I have my own place by now? I suppose I really should, but my income isn't high, and I'm single. Most of my income isn't considered when applying for a loan. He also works independently, but since his parents gave him the land, he didn't even need to request a loan to build.  Land in a megacity/metropolis is very expensive. If I lived in a small town or even a small city, I probably would be able to buy an empty lot for not so much.

As for his scolding me for sharing my room, I think that was just stupid, but that shows you how backwards people are. Instead of praising you for making a sacrifice to finally get ahead financially, they scold you since you really should spend as much money as possible and somehow manage to buy a house of your own while single on a low income.  Sorry, but I'm not going to buy into that backwards thinking.  That's what leads people into mortgage foreclosure and living on the street or with family, because they spent instead of saved.

No, I don't regret not living off of my parents during my 20s and then have the option of being an arrogant idiot like him.  I'm very proud that I've been able to survive without having to ask my parents to support me or to give me land for my own house.  I only regret not posting the roommate advertisement years ago! I'd have a lot more money saved today if I had a roommate sharing a room not only an apartment. I also wouldn't have had to move  a few years ago when times were tough if I had shared the rent of my room with another.

I definitely want to continue to live with roommates and yes share my room (I started sharing this month).  Some of the money I save will go toward bunk beds. The rest of the money I save goes toward my financial independence and early retirement.  I definitely hope to have my own home, but I'm not going to be a jerk about it when I do.  As long as I am single, I plan to have roommates! It just makes sense to share.  Housing costs are normally the biggest expense and rent money isn't an investment. You pay it and it is gone. When I buy my own place, I also plan on having roommates. If I'm lucky their rent money will pay the bills or most of them. I will be able to have my own place and still retire early.

I actually could get a small loan for a tiny house without a yard on the outskirts of the metropolis, but I wouldn't be able to live there while I am working since it would be about 2.5 or 3 hours away and since there is no yard I wouldn't be able to have a garden. Those houses only have 1-2 tiny bedrooms so I wouldn't be able to share. It wouldn't be a very good investment since it wouldn't be a place I'd want except in an emergency. It makes more sense for me to invest in dividend stocks and bonds.

What do you value? Do luxuries like a car make you feel like you have more value that someone who takes public transportation?  I think a better measure of how you are doing is in stability, the ability to cover your basic needs, and safety for the future. Having your own home gives stability, but only as much stability as being able to live in it and pay the bills.  A car doesn't make you more stable, it eats money. A car is a convenience.  How many months could you survive if you stopped working your regular job today?  If I stopped earning money today, I could easily live 7 months and 10 months if I only cooked basic food at home.

Is life really too short to invest for your future?

I had an interesting chat with my other new roommate two nights ago. We were discussing my philosophy which isn't really new to me. Many people believe in living simply and saving for the future unfortunately here in Mexico and apparently in most of Latin America (this roommate is from Venezuela), the habit of saving is only for very short term savings typical reasons for saving money were for a party, for vacation, and for home electronics. Only about 8% of Mexicans according to the survey I read in a newspaper actually are saving anything for their retirement even though over 50% say they have the habit of saving.

Let me get back to the conversation. My roommate mentioned how its possible to die soon and not be able to enjoy your savings and early retirement. That is true but I think the odds are much higher that I'll live to be at least 50 and since all my grandparents ( I believe) were mid-80s or older when they died, unless I get sick or die from an accident I'll most likely live to my mid-seventies or older.

I guess it comes down to two things, how long you expect to live and if you believe that pleasure today is more important than pleasure tomorrow and the day after.  In other words, is it worth it to sacrifice the car or the apartment in an expensive area and the restaurant meals in favor of simple living in a cheap apartment sharing with roommates so that you'll be able to cover emergencies and if there aren't any emergencies in the next 6-10 years be able to retire early?

Only you can answer that question for yourself.  Like him, I also think that life is too short. I think it is very possible that I could die before I'm 67 or whatever the government's retirement age happens to be.  I would like to be able to be financially free and do whatever I want for years before that time. I'd like to travel the world and make destination photo books to sell online. I'd like to meet new people, try new food, and learn new languages. I'd like to have time to take lessons to improve my manual art skills. If I didn't have to work everyday to live, I'd have a lot more time for those activities especially travel.

It is difficult to say if I'll be able to reach the goal since I'm averaging about 50% savings even with my frugal lifestyle. My income isn't high enough to save more. I do know that even a little makes a big difference over time.

Are you one of the 92% who leaves your normal-old-age retirement to God or your children?  It is time to wake up because you might not die young as you planned and your children might be spending their money on your grandchildren instead of you.  What does life is short mean to you?  Does it mean to forget the future and be irresponsible or does it mean to plan for tomorrow?