Just a random dilemma I’ve been thinking about this past week.

There are 3 things I can buy with around 11,000 pesos. Sure, I can just buy all 3 at the drop of a hat, but that would take the fun out of this thought experiment. :p

1. LG IPS236V-PN – PhP 10,500.00

Pros:
It’s the cheapest IPS 1080p monitor in the local market right now. Combined with my recent purchase of a somewhat high-end video card, this will make playing upcoming games (Deus Ex, Battlefield, Space Marine, etc) much more satisfying.

Cons:
Probably the least practical of the choices in this post. I mean, I already got 3 freaking monitors and I’ll have to “donate” one of them to replace the aging CRT monitor my parents use in their desktop.

2. Corsair Force Series 3 120GB Solid State Drive – PhP 10,920.00

Pros:
Buying this would achieve 2 things: first, my main rig would be much faster as it will replace my aging SSDs; and the other is that I could use the old SSDs to make my laptop much more faster just by replacing the HDDs.

Cons:
Cloning my system drive will probably take 2 days of trial and error. The benefits may or may not be noticeable since I’m just upgrading an existing RAID-0 SSD setup. And since my gigs are nearly over, I don’t have any use for a speed upgrade on my laptop.

Overall, however, this is the most practical choice of the three.

3. 1 year Linode 512 – PhP 9,200.00 + domain name costs

Pros:
Properly configured, a web app running on a single Linode instance can handle thousands of concurrent requests. The opportunities here are endless.

Cons:
The opportunities are endless. There’s no guarantee that I’d do something revolutionary or even profitable on a new VPS.

And besides, it’s not like this Linode instance is running at 100% capacity.

–

Decisions, decisions, decisions…

Nowadays, however, it seems that most restaurants get their profit from their drinks, with Jolibee and McDonald’s being the worst offenders:

• 7/11 Big Gulp (22oz) – PhP 25
• Big soda (16oz) at Sbarro – PhP 28
• Coke Light 500ml PET (17oz) at Mini Stop – PhP 30
• Coke Light 1.5l PET (~51oz) at Mini Stop – PhP 43
• Large soda (16oz) at Jolibee and McDonald’s – PhP 45 ಠ_ಠ

Think about it next time you order fast food.

Anyway, here are my slides. As usual, they don’t make sense without me talking.

Well, here are the results of my financial tracking:

(I obviously fudged around the numbers a bit to give people a hard time guessing my income/expenses. )

First graph is the typical debit/credit graph showing my income and expenses for each month. The yellow line shows the running balance I have at the end of every month, zeroed at the lowest point of the year (end of July).

I got my first paid gig for the year last June, followed by another in August. Both are one-week teaching gigs, and as you could see in the graph, they cover 2 months of expenses on their own. Whether it’s because they pay that much or because I’m just that frugal is up to you to think about.

Started part-time consultancy work in August, going on site 2-3 times a week. I sometimes receive my pay the next month instead of the end of the month, thus the erratic nature of the chart.

The expense graph is mostly me living below my means (before June I was living off my savings I saved 2 years previous) with 4 noticeable spikes. January had me buy Windows 7, April had me pay for the domain and hosting of my 2 sites, and July had Starcraft II and Persona 3 Portable.

Buying a workhorse laptop at a Lenovo sale caused the large spike in October. Thanks to a teaching gig that month, I was able to make that purchase without seriously affecting my finances.

I don’t count September as a spike — looking at my ledger, the increase in expenses was a direct result of going to work, the biggest culprit being the expenses of eating out for lunch along with yuppies who still don’t have “financial independence” in their vocabularies. As seen in my November and December expenses, I eventually learned to spend up to 50% less than my peers in lunch outs without them noticing.

–

The second chart breaks down my expenses to different categories.

Work related expenses take the lead. But that’s kinda expected when you buy a laptop, a new hard drive, a couple of sticks of RAM, a VPS, a crapload of books, and an OS upgrade.

Food and transportation expenses surprisingly take second place over Bill payments. Eating out is obviously the main culprit, which is funny because I’m perfectly fine with eating a buy-one-take-one burger for lunch. The secondary culprit would be my soda and iced tea addiction which costs me over 10k per year.

Bill payments = electric, water, internet, mobile phone, and annual credit card bills = boring.

Finally, the entertainment and sports related expenses only make up around 12% of my expenses for the year. Makes sense since the only games I bought at full price were Starcraft II, 2 Shin Megami Tensei games, and Recettear, the rest bought during Steam sales. Also, I only watched 3 movies this year, and my sports/fitness related expenses were pretty much negligible.

–

tl;dr:

I only lost a month’s worth of expenses even though I only worked about 4 months this year while shelling out dough for a new laptop, VPS, etc. and eating out a lot.

And people wonder why I’m not looking for full time work.

The Lottery: another way for the government to tax the (typically tax-exempt) poor.

As much as I’d like to shy away from yet-another-”greed is evil” post, recent circumstances have led me to mingle with people who still think spending money on the lottery is a good idea. So instead of being a jerk IRL, I’ll just post the arguments against the lottery here online.

The first argument against the lottery is that the odds are stacked waaaaay against you. Anyone who has even the basic knowledge of Combinatorics and ROI knows that the lottery is a loser’s game.

Don’t believe me? Why not try this little app I made using Rails 3 and a dash of jQuery. You could even check the source code to see if the drawing algorithm is sound.

(It’s not an original idea, though. I just based it on a Hacker News link last week.)

The second argument is that the people likely to win the lottery are the people least likely to have the financial literacy to handle such a large amount. But I guess you already knew that.

I’ve mentioned multiple times before that earning more money does not equate to financial stability. You may think that that’s just some theory I picked up in random financial books, but thanks to a certain show of internet drama last week, I now have a good example of why Notorious B.I.G. was right:

• The whining of the rich by Michael O’Hare, and
• a follow up post In Which Mr. Deling Responds to Someone Who Might Be Professor Xxxx Xxxxxxxxx by economist Brad DeLong

For those of you who don’t have time on their hands to read the posts and comments, here’s the summary:

Law professor and his Oncologist wife earns over half a million dollars a year. They’re going to lose the Bush-era tax cuts they have, and so he’s whining that he won’t get to pay for all of his expenses i.e. he’s going to be poor.

Before you go “WTF, I’d be happy to earn just $20K a year!” I would like to point out that the couple’s problem isn’t limited to people earning that much. A lot of middle class people also fall into the same trap as that family.

It all boils down to pride.

Say you’re a twenty-something professional earning PhP 25K a month after taxes. It’s not hard to imagine what type of people you’re hanging around with: yuppies obsessed with getting the latest cellphone models, clubbing and out of town gimiks, and looking forward to getting that promotion/credit limit increase so that they could get a car loan.

You basically have two options here. The “easy” route is to just go with the flow: spend your money like them. Get your monthly cash flow to negative just so you could appear as rich as your friends. Don’t worry about debt: you’ll eventually get promoted later and by then you’d be able to pay all of them off.

But you won’t. By the time you’re earning more, your colleagues have changed too. They’ll be spending more so you’ll also be spending more. Before you know it, you’ll be pulling in a 7 digit yearly salary but still have money problems like the good professor in the story above.

Or you can take the second option: swallow your pride.

The most glaring indication that the professor in question has no financial literacy whatsoever is his insistence to get a loan for a $1M home when he hasn’t even paid off his student loans yet. This irrational focus on appearance has ruined many relatively well-off families (including my family, but that’s a different story altogether).

Don’t think of it as “living below your means”; think of it as “not living beyond your means.” I’m not asking you to take a vow of poverty here; it’s still ok to hang around with your gadget obsessed friends, just don’t get pressured into doing (financially) stupid things.

If all of them are carrying iPhones and Android phones just for show, why should you waste a month’s worth of effort on such a device instead of putting it in better investments? You will be teased, yes, but in the long run, who’s going to have a lot less financial problems when shit hits the fan?

–

Bonus:

Here’s what happens when whole nations get the “get a crapload of money but don’t know how to spend it” dilemma: The Resource Curse.

Anyway, to kick things off, let’s start with something that happened to me a couple of weeks back.

I received a call one Saturday morning from a guy who was offering me a job. Or something like that. It was around 9 in the morning that day and it was still an hour before I should wake up. All I recall is that the guy mentioned something about being in a “multinational company” and I was referred by a friend to a job with “high income” and “flexible hours”. Being groggy as I was, I immediately responded with what first came into mind: that I was not interested in the income and all I cared about is whether the project was interesting and whether the work hours are flexible enough.

I believe the guy hesitated for a moment after hearing such an unusual answer (people want money, not time), but regardless, the guy scheduled me for a 6:30 PM meeting the following Thursday at their office in Makati. The after-work hour meeting time was supposedly due to him being busy and that was the only time that he could meet with me.

Looking back, the whole thing was really fishy had I thought about it. But I didn’t; my past few freelancing gigs were of the same “referred by friend/acquaintance + meet with the guy to talk the job over” setup and they all went well. Besides, compared to those gigs, the friend that referred me this time around was a lot higher in the “people I trust” list.

Fast forward to the following Thursday. The first thing that came into my mind when I entered the guy’s office was:

Aw crap, I got suckered into an MLM seminar.

Now, I can’t just go and rip Nu Skin and MLM as a whole a new one like a lot of local bloggers have already done before. Aside from having a trusted friend there, my parents are also into direct selling so directly badmouthing the whole thing would be a bit out of line. In fact, I would even go to say that what they are doing is perfectly legit.

So instead, I’ll just point out the stuff I found really wrong based on my experience.

No thorough background checks.

For a company that thrives on hiring people that are likely to buy their claims, I find it ironic that a couple of MLMs have tried to hire me in the past. I mean, even before I started writing personal finance posts, I didn’t have financial problems that would require me to take drastic measures like joining MLM schemes.

A quick check, like, say, googling “Bryan Bibat” and checking my portfolio or CV would immediately tell you that I’m not the type of guy who would get suckered into these type of things.

The lack of background check also made the pre-seminar interview pretty awkward. I was able to answer all of their leading questions, e.g. “Are you happy with your work hours?”, “Do you have financial problems?”, etc., in a positive manner i.e. I made it clear that I have no use of whatever they were offering to me. I was even able to answer the supposedly difficult “Is there anything missing in your life right now?” without a problem.

Spending half a year pondering life’s mysteries tends to do that.

Cut the crap about being privileged to be invited to your seminars.

No you’re not fooling anyone by saying you’re too busy with work so that you could schedule an after-work hours seminar. Nor are you fooling us by saying that we’re the lucky few to hear about your business pitch.

That type of guilt tripping only works on the clueless. Anyone who would spend a few minutes googling would quickly found out that you’ve been doing this for years. Your recruitment video even predates the global recession of 2008!

The whole “privileged” thing is even funnier when taken in the context of my profession. Last May, a fresh grad pitched a potential project to me over pizza. This guy was at most upper-middle class and didn’t have income of his own, and yet he was able to offer me something to make sure I was all ears about his project.

Now, this doesn’t mean that I require prospective clients to feed me before I listen to them (though they tend to do that most of the time), but the point is still there: If this guy was able to do what he did, why can’t a multinational company who claims to be able to make me rich with little effort not give me a little something for free during their seminar?

And this brings me to the final point…

The financial advice is screwy.

As I said in my tweet, to be fair, most of the talk gave sound financial advice.

Yes, linear income will not allow you to retire early. Yes, having a business is the likeliest way of retiring wealthy.

But no, earning more isn’t the best way to become financially independent.

Whenever I hear that type of advice, the fitness fads in the past few years always come to mind.

“Want to lose weight? Go to a gym/play badminton/participate in runs/etc.”

But the truth is, it’s the other way around: if you want to lose weight, you need to control what you’re eating. In the same way, if you want to be free of financial problems, you need to be in control of your spending habits.

Earning more is not the solution, rather, it can even be a bigger problem. Studies have shown that people who aren’t in control of their spending habits, those who have no financial strategy whatsoever, tend to spend even more once they earn more money.

Start out with earning 15K a month, spend 15K a month too.

Get a promotion and earn 25K a month, go up to spending 30K a month (thanks to the credit card).

Get another promotion and earn 40K a month, go up to spending 50K a month (thanks to the auto loan).

and so on…

In short, once the 2 hour presentation about gaining financial independence ended and I didn’t hear anything about controlling one’s expenses, I immediately told the guy who called me:

“I wasn’t impressed.”

And so I wasted 5 hours of my life (counting commuting) to attend something that I wasn’t even remotely interested in. But hey, look at the bright side, at least I got to experience first hand what people are talking about when they talk about MLM seminars!

So to my colleagues who want to refer me to other people, please please keep the referrals to development, consulting, teaching, or even public speaking gigs and not to these type of “offers”.

This is the third time an Indian dude (I checked the IP address) took time to go to my contact page and answer the CAPTCHA just to send spam about SEO; I think it’s a good time to speak my mind about SEO in general.

But first, let’s talk about how wrong this approach is.

If you’re going to offer to do business with me, you should have at least read my About page. There you should have realized that (a) I’m not doing this site for money, popularity, or the like and (b) I am an experienced software engineer and I could probably do better than you in SEO if I put some effort in it.

This display of ignorance alone is enough to make me throw your mail into the spam folder of my mailbox.

And now, back to the topic of SEO.

–

To me, Search Engine Optimization is like investing in stocks. You can go the slow-and-steady Warren Buffett way, or you can go the “get rich quick” day trading way.

Most SEO (including the spam I got) falls under the latter; both this “hardcore” SEO and day trading promises huge profits for little effort. In reality, it’s the opposite—in the long run, the costs of using these two approaches often overshadow whatever profits you would gain.

A better approach for both SEO and trading would be to stick to the basics and take things slow. Here’s just some of the basics:

• Make your site SEO friendly, but don’t go overboard. For a WordPress site, this would mean getting a domain with your name on it, enabling pretty permalinks, installing All in One SEO Pack and Google XML Sitemaps, and adding either Google AdSense or Google Analytics somewhere in your themes. Anything beyond that is overkill IMO.
• Write interesting posts. Getting people to want to read your posts is really the best SEO you could do.
• Rubbernecking or writing stupid controversial things are fine (hey, it’s your site!), but I personally won’t recommend it. You might get a lot of hits at first, but don’t expect that to last once you get labeled as a douchebag.
• Join relevant communities and talk to people. If you’re nice and interesting enough, you don’t even need to advertise your site address—they’ll be the ones to look it up.
• Be consistent. You don’t need to post something everyday, but try not to leave your site un-updated for more than a few months.

Granted, some of the basics take a lot of effort (like writing interesting posts) and may even take more time and effort than “hardcore” SEO, but you’ll be more certain of getting higher exposure in the long run. The key here is that you shouldn’t focus on putting your site on the top of the result lists. Instead, you should focus on the quality of your site: getting on the top of the result lists will automatically follow.

Know your financial situation.

It is common to see people living beyond their means just because they aren’t aware that they’re earning less than they’re spending. You don’t need to read books to know that the obvious solution to this problem is to be aware of one’s financial situation.

However, personal wealth is more than just your paycheck and bills. In order to paint a better picture of your financial situation, you must track down other aspects of your finances and your life.

For this tip, I’ll be asking you to take note of the following for the next month:

Your passive income.

This is the money you’re getting in a month that doesn’t require any work. The simplest example would be collecting rental fees for a house that you leased to other people. Other examples would be interest on bonds, valuation increases in stocks, and profit from businesses you’ve invested in.

If you’re a normal twenty-something professional, this should be zero.

(Spoiler: financially independent people have a passive income higher than their expenses.)

Your wealth.

To simplify things, just ignore your “assets” and just focus on your wallet and your bank accounts at the end of this month.

Your current wealth should be the sum of the money in your wallet and all of your bank accounts (credit limit not included since it’s not real money) minus all of your debts. Credit card balance counts as debt and should be subtracted from the total unless it’s on a 0% monthly installment (then it should be counted as part of “expenses” below). Also, if someone owes you a substantial amount of money, add this to your wealth.

The normal value for a twenty-something professional would be at most at the low 5 digits (Philippine Pesos) to around negative 5 digits.

Your income.

This should be easy. Just get your paycheck and take note of your gross income.

The time you spend for your income.

This is a key point from the book Your Money or Your Life. The obvious example would be to compare a person earning PhP 5,000.00 for 40 hours of work to a person earning PhP 2,000.00 for 10 hours of work. Even if the two are set in the same time span (say, a week), the latter is more appealing because it’s 200 pesos/hr compared to 125.

The not-so-obvious way of thinking stated in the book is to take into account the other hours you spend for the sake of work. There’s commuting. There’s the hours you spend dressing up for work or shopping for work clothes. There’s the work-related meals. There’s the “decompression entertainment” and vacations to keep you sane. There’s the visits to the doctor due to work related stress.

It won’t be surprising to find out that a person who works 40 hours a week spends another 30 hours a week on the average to support his job.

So for this step, track down how many hours you’ve spent this month as a side effect of your job.

Your expenses.

Here’s the hard part:

Track down and itemize every expense you make down to the peso.

I would suggest you go low-tech for this one, using a small notebook or hipster PDA then transferring it to a simple spreadsheet instead of being tempted to find an app for your expense tracking. The problem with the latter is that their classification systems are usually inflexible. You’ll have more freedom classifying your expenses when you do it manually.

Yes, it’s annoying and yes, it’s easy to fall off the habit after a few days. However, knowing your financial situation depends on how accurate you track down your expenses. This is the only way you’ll see if you’re spending too much on certain things like food and clothes.

This process might also cause some feelings of guilt, especially if you notice that you are spending too much on stuff like food and clothes. Don’t feel guilty about your expenses (yet). You’ll just fall into the same trap as binge eaters who feel that they need to compensate for their overeating but just end up in a worse condition in the long run. At this point, just spend as you would spend normally.

–

Next month, I’ll write a follow-up post to discuss what to do with those numbers.

Edit: the video was taken down. -_-

Anyway, here’s the gist of things:

• Poor people waste their money on inexpensive but useless stuff. In the Philippine context, that might be cigarettes or cellphone load.
• The middle class are worse off: they spend money on stuff that drains them of money. Houses, cars, spending on credit but just paying the minimum per month, etc. Most of them only appear to be rich, but in reality they don’t have any accumulated wealth.
• The wealthy spend money on stuff that gives them money: investing on stocks, building businesses, etc. They actually avoid buying what the things the so-called “rich” people buy because they know it can jeopardize their financial independence.

It’s nothing new if you’ve read a couple of good financial management books. The good part about the video is it’s short enough to share to “busy” friends.