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Thanks from Savemode

Well - it seems that I don't have time to update this blog anymore. I am simply working too much. I am the only person I know making well north of $120,000 after taxes and living in a shoebox with expenses of about $800 a month. We save between 90 - 95% of our income. We have no debt and are frugal to a fault. For example we don't buy food containers; we buy margarine and reuse that container until it falls apart - I mean the cheap margarine too! My wife will reuse paper towels if they were only used to soak up water or if they can be used again to clean up some non-food-related mess. We spend zero on clothes, entertainment, and many many other things. This won't go on forever, of course. I plan to buy a house in the USA (and pay cash) and retire once I have sufficient streams of income. The thing I want to emphasize is this: If I can do this anyone can!! However, to do it I had to move overseas because the need I recognized (the desire at all costs to learn English by Asians) could only be filled by coming to Asia and getting good at teaching, and then going one step further and starting my own business. I am the embodiment of all of the platitudes that you've read about saving money and earning money: pay yourself first, make yourself indispensable at work, be your own boss, cut out frivolous spending, etc, etc. If my portfolio drops $1000 in a month what do I care if that month my income is close to $20,000 (as it was in August)? Anyone can do this but so few are willing - too bad for them!

Living and working in Korea - 1

One thing that should be tapped out here early is my experiences regarding living in Korea. I have set myself up here and earn a pretty good living but the one thing that you cannot have while living here is job security. A long time ago in college a professor (my major adviser) told me something like 'In Asia, doors will open but they can shut on you with no explanation as to why'. What that translates to for me is that with one email, or none at all, my business can go to zero, or I can lose one or both jobs with no warning and no recourse. I know people who lost their teaching jobs for getting into a car accident! In this very homogeneous society, non-Koreans are held to a different standard and are definitely held to be 'outside looking in'.

Of course, this has great bearing on how we spend our money. It also means that, despite the fact that my earnings and savings are relatively high, I cannot think about things like a 30-year mortgage based on what I made in 2007. Thus, any use of leverage that I can't cover out of savings is out of the question. Also, planning for retirement is affected, as next month's pay packet can always be the last. It's impossible to really plan in this sense, as it's not a sure thing here until it's actually in the bank.

About this blog

In a nutshell, this blog is for people like me who have high relative incomes and for whom most conventional financial advice does not apply. I considered not letting on where I live and what I do but I don't think it's going to hold for the life of this blog so here it is: I live in Korea and teach English at a university. I also have other English-related jobs and run a small business with my Korean-born wife. The business is related to, you guessed it: English.

Living in Korea isn't for everyone, and a lot of English teachers come here and leave within a few months. However, for those who stay it's easy to make a lot of money here. Most teachers typically take on what are known as 'private classes', meaning that they go around and teach small groups of kids in private homes. For this, the pay is W50,000 per hour, which is about $55 - tax free. It is also possible to run a little 'study room' in your own home (if you have the room). It is not unheard of to combine the two and make 7k - 8k per month - all tax free. In fact, it's easy: get one private class and let the mother of the kids know that you are looking for more and it will mushroom. I will write more about living and working in Korea in another post but suffice it to say that money is why most English teachers come here. The exchange rate for the Korean Won is currently about W925 to US$1, and the starting pay at most language institutes is around W2m, or about $2200, plus free housing.

The two sources of earned income combined with the business and the investment income I have at present put me well into the 90th percentile of all American earners - which means that I make north of 100k - after all taxes! The tax rates are very low here in Korea; my effective rate is less than 4%. In addition, I get a $80,000 foreign earned income exclusion, which, with the help of a few basic deductions like an IRA and my standard deduction and exemptions, essentially wipes me off the US tax rolls too. I would have to earn over $140k in the US to have the spending power I have here. There are other benefits to living here but those will go into a future post that deals with living and working here.

I have sought advice on what to do with the 8k - 10k we save every month. I'll get into how we managed to get to this point but first some background. We are in our early 40s and own our apartment (see earlier posts) free and clear. Taxes on it are only (the equivalent of) a few hundred dollars a year. We drive a 2 year old Kia that we paid 12k for in cash in 2005. We both use credit cards but the ones that are from Korean banks are automatically paid off every month while the US-based ones, used mostly for vacations and gift-giving, get paid off in full every month. There are few temptations in the area where we live - no Starbucks and no shopping centers that aren't an arduous drive from home. Our place is small so we can't buy too many things as that will clutter it up. In short, we just don't spend much every month - our total cost of living is less than W1m a month, which is about US$1ooo. We don't have expensive habits and my ever-frugal Korean wife watches every penny like a hawk - it's in her nature to do so. The one thing that we do spend money on is travel: once every 18 months we allow ourselves a 2-month vacation that usually includes stops in Europe and the USA. We love these trips and while we don't spend foolishly while on vacation, we don't constantly look to save a buck or two with the hotels, meals and car-rentals. In other words, we lower our frugality antennae and enjoy the sights and go out of 'savemode'. In 2007 we went to Tuscany (plus Skye and Yorkshire in the UK and Country Kerry in Ireland), and and I came home with a handmade leather briefcase that I spotted in a shop in Siena, buying it (after dickering a little) from the artist who created it. My wife similarly went a little off the rails in a woolen shop in Killarney. Even while on vacation, we stayed in three-star places, ate at inexpensive restaurants, rented the smallest car possible, and flew RyanAir a few times!

I have a graduate degree in an English-related area. That helped me get the university job. I also do part-time proofreading online, based in Korea. I read somewhere that if you can make yourself indispensable to your employer, you will be justly rewarded. I applied that idea to the part-time job in two ways, first by making myself available to proofread at a moment's notice and second by turning in flawless papers by going over them a second time before submitting them as finished work. I always catch a few errors by doing this. I have also cultured a relationship with the organization who hired me, not an easy task considering that it's 100% online. Additionally and without going into too much detail, my business serves a niche here in Korea that apparently no one has thought of. It is just getting off the ground and still has room to grow. Finally, we have some investment income in the form of monthly dividends that add to our bottom line (presently, however, this income is in DRIPs). Those four things have put us financially where we are now. Pretty simple.

We hope to retire in 10 years - that's the goal. I have extrapolated out my income and savings habits to 2017 and most accounts predict that we will have a net worth of more than $1m by that time, even assuming only a 6% return on our investments and no increase in the price of our apartment, which seems unlikely. We have no children will not have any. Unless we buy a house sooner in the US (this is undetermined as yet), we plan to move there in 2017 (I will be 51), buy a place, and just live comfortably and simply. I plan to buy a nice car - probably used, and will seek to avoid taxes and fees on everything, which I expect will be our biggest expenses after retirement. After the move and after paying cash for the house, we expect to have over $600k to live on.

The crux of this blog is this: why does conventional wisdom say that you need 70% of your income in retirement?! What the heck do I need with $70,000 a year while all I want to do is relax with a nice view and enjoy a good book most days or take a pleasant walk? How much does that cost? In truth, we probably need $25k a year in today's money), for taxes and upkeep on the house and so that my wife can fly to Korea when she wants. We already have some passive income - this blog represents my efforts to secure more passive income, through communicating with others and learning about how to build it. Traditional sources that say you need 70% or more of pre-retirement income aren't helping me and the one other source that I've looked into extensively, rental income, seems to be a losing game at this stage: why anyone would buy a buy-to-rent property that is a lock to lose money every month considering taxes, fees and everything else is one of the great mysteries of life at this stage of my education. I have looked far and wide in the USA at buying a multi-unit building with a view to securing cash flow amounting to more than 6% of my initial outlay (not including fees) on a yearly basis. It seems impossible, so I am hoping that someone will comment and enlighten me as there must be something I am missing ... I understand the tax breaks that are involved with owing rental property but remember: I already have my taxes down to zero. What then? Why should I put $60k down on a 300k property that at best nets me $100 a month income and more than likely brings in nothing or results in a net loss? Seemingly people do this when a CD at 5 % would bring in $250 a month, which would pay my (future) property taxes. Like I said, it's a mystery to me.

So, the two main points of this blog are viable ways to secure passive income in retirement that don't involve a losing proposition (such as real estate right now) and understanding 'outside the box' strategies with which to maybe fund my retirement starting in 10 years considering the assets that I and my wife will have at that time. More to come...

Free Paint Job

About two weeks ago, the entire apartment complex (just three big buildings) was painted anew. The original color was typical of the period when these buildings were constructed: pink and mint green. To say that they were ugly is an insult to truly ugly buildings everywhere. They were hideous from the outside and didn't compare well with the merely ugly surroundings. The painters completed the job in five days! To do this, the painters would tie a rope to the top of the building, and then swing like a spider building a web back and forth from top to bottom with a huge pressure-paint gun blasting paint onto the walls. They sat on a small wooden board, and a tube ran from their gun to the walkway of the floor they were on (or near), to what looked like a 10-gallon square metal can of paint. More like this can were stored in the elevator in the building, and when they ran out, they would just swing over the walkway wall, call the elevator, and hook up another can. For the few days they were here, there were 2 or 3 cans in the elevator at all times. They were the perfect size for little kids to climb on to allow then to push the button for their floor, and that's exactly the function they served while on deck with the painter. It was interesting, once you got past the initial shock, to watch a painter swing back and forth and blast away with the paint gun. They used no safety line - it was just one long rope somehow tied to the top of the building supporting a board as a seat with a long power cord and the paint tube trailing off to a nearby walkway. Other workers in the parking lot covered any cars that hadn't been moved with large sheets of plastic (they made an announcement beforehand on the voice-of-God speaker installed in every apartment - we heard it even though ours is disconnected).

The apartment also had the underground parking garage repainted, again moving away from the pastel theme to standard parking-lot green.

What did all this cost? Nothing! Apparently, the management fee accumulates and these funds are used to spruce up the area when it needs it. There is also money coming in from the weekly market that is allowed to set up here on Thursdays (they turn part of the upper parking lot into a regular Asian market) as well as the Friday morning recycling drive, in which a mountain of plastic appears in the parking lot before 9AM and is hoisted away by 10. The effects have been immediate. The units like ours (they come in three sizes in this complex) that are for sale (and there aren't many) jumped to about $160,000 and a crucial thing happened: one got sold for that price at the same 'realtor' (she's on-site) we used earlier this year. Once that happens, no one will sell for less, so the three for sale are all that price in the local version of the 'pennysaver' now.

We looked at a lot of places before buying this one. We looked at one place that was a little bigger (a 3 X 2 vs. ours which is a 2 X 1) but it was well north of $400,000 and had one disturbing feature: the entire walls were glass on two sides of this corner unit on the 10th floor, and if you opened the blinds during the week, you found yourself no more than 10 feet away from the guy in the next building (an office building) on the 10th floor there. This is a common problem here: a building is built and the next one is built inches away. We were looking into some office and the office workers were looking back. If they needed Grey Poupon, it would have been only a short stretch.

We also looked at cheaper places for around $100,000 that were built on crudely laid concrete foundations. These were typically 4 - 5 story buildings with about 16 or so units in them. On what may have been someone's vegetable patch, some 'developer' bought what patches they could during the housing run up here and then plopped the biggest building possible on the land - typically inches away from the next plot, and sold the units individually. One problem was the lack of parking, but the real turn-off with these places, despite the fact that the interiors were often quite passable, was the judicious use of concrete all around the building, and all around all others like it nearby. What did they have against green grass? Or even weeds? Every little corner and niche of land free from a building or roadway was concreted over - and it often looked as if it was simply poured and allowed to dry as it fell.

We bought our place because it couldn't possibly fall in price. People will always need a place to live and there will always be a bottom price that will always be paid to secure a decent and actual livable place. Ours, when we bought it, was relatively cheap as it was in an area of this city that hasn't been made over or in the news after a big announcement by developers (more on how this works here in a future post). We bought this place exactly at the right time, in my opinion: when no one else wanted to live in this area. Since then, aside from the new paint (which is a neutral tan and brown scheme - much better), a subway stop is coming in 2 blocks away that connects this neighborhood with the nation's capitol. That will only improve the outlook for this old area of this old city.

Cheap living

Earlier this year, just as the housing boom in the US was beginning to bust (and during a lesser boom here), we bought our apartment. Apartments are very popular in Asia, especially in countries with crowded cities and most land given over to farming, like the one I live in.

Buying the apartment was pretty bizarre. There was no escrow, no inspection, no assessment, no banks, no insurance, no nothing! It was like buying something at a yard sale. We looked at it on a Saturday, decided we wanted it, paid a $5000 deposit to what passes for a realtor here the next day, and on Monday showed up with the entire balance in cash at the realtor's office. The current owner showed up with the keys. The realtor served green tea, and everyone got to work counting money on a little table, with the realtor's kids running around in the office. Eventually the owner scooped up the entire sum, the equivalent of about $145,000 in US dollars, put it into a brown paper bag and handed us the keys. We all signed one sheet of paper, in triplicate (us, her, and the realtor) and that was it. Then we finished the tea. It was still hot.

A few days later, she moved out and a few days after that, we moved in. We took our copy of the paper we signed to the tax office responsible for our new area, paid about $3k in one-time taxes, and we have been living here ever since. Property taxes are about $150 per year. All other expenses, including heat, electricity, gas, water, and 'management' fee are no more than $140 a month - usually less.

Welcome!

I hope to use this blog to track the progress of my business, my goals, and my life. I am starting this blog because very little of the current personal financial information out there applies to me. I live and work overseas, run a successful small business here, live very cheaply (and I mean very), and save more than 80% of my income. I have too many options in terms of what to do with what is left over every month. I invest it, save it, and take nice vacations. I plan to do this for the next ten years, move back to the USA, buy a house (this I may do sooner), and live simply and free. We'll see how that plan goes...