The Wrong Type of Freelancing

I’ve been a big proponent of multiple income streams and freelance work on the side, both as a way of accelerating income production and ergo savings, as well as a way of employing arbitrage and earning a global market wage, which is often higher than the prevailing local wage in all but the most wealthy countries. That strategy may be nearing an end.

In finance, there’s a saying that you need to constantly reinvent your algorithms, because what used to be a solid moneymaker eventually gets discovered by all and then exploited such that there’s not any more easy profit to be wrung. It’s also the case with football. Things evolve and you must constantly innovate – west coast offense, spread offense, zone read, RPO – as defenses catch up and the easy gains are no longer there.

So it is with lifehacking. We identify low hanging fruit, it gets popularized, and eventually the margins are driven down to almost zero such that it’s not worthwhile doing anymore. We see it with all gigs. Uber and Lyft have low margins due to competition from other drivers. For menial tasks, Fiverr, Taskrabbit, and Mechanical Turk have created a marketplace with an endless supply of low cost foreign labour, with unsurprising results as this article shows:

The internet makes all workers equal; there’s no way for a buyer to know who really is sitting behind the computer doing the work. This is a boon for many. Graham talked to people who did not have legal immigration status in the countries where they lived, but were still able to earn a living online, and older workers who had lost their jobs, but had disguised their age and were finding work.

But that also means similarly talented people can charge equal rates, regardless of their actual qualifications, even if they live in countries that have vastly different costs of living—and that Americans and other skilled workers in the developed world have a particularly hard time competing. That’s partly why the Harvard economist Richard B. Freeman warned more than a decade ago that the growth of the global workforce, with its proliferation of educated workers everywhere, “presents the U.S. economy with the greatest challenge since the Great Depression.”

Monika Taylor lives in the United States and offers psychic readings for $5 on Fiverr to supplement her full-time job. She had mostly been selling her readings on Facebook and Pinterest for about $65 to $85, she told me, but when she stumbled across Fiverr, she figured it was a good way to broaden the number of people she could reach. Though she balked when she saw that others were charging just $5 for psychic readings, she decided to list her services anyway, figuring she could raise rates once she had enough clients. She got a few clients over the last few years, but when she raised her rates recently, to $15 from $5, people stopped buying her readings, she said. Now, she has gone back to mostly selling on other platforms. “If I had to make a living on Fiverr,” she told me, “I would be living under a bridge.”

That’s the keyword – you can’t rely on these side gigs (essentially anything that trades time for money) anymore.

The following avenues are still open, but facing increased competition:

  1. Being elite in any particular field (you can name your price as a top consultant)
  2. Being niche in your focus (e.g. Pashto expert before the 9/11 attack)
  3. Being hyperlocal in a job that can’t be digitized and outsourced, ideally in something that’s not very popular (handyman in SF)
  4. Create a product that generates passive income, ideally attached to your brand
  5. Rental real estate with enough cash flow to cover costs from tenants

By having multiple streams of income, we can more easily compensate for stagnant strategies and shift attention and focus so that the stream as an entirety continues to grow.

Facebooktwittergoogle_plusmail

It’s Never Too Late to Pivot a Career

My wife and I just went to see Ready Player One in the theaters. It blew my mind. I understand why it won’t be everyone’s cup of tea, but it has a tight plot and pays loving homage to tropes, characters, and memes dear to gamers worldwide. We all need our heroes, and the early creators of video games are underappreciated today for their contributions to the field, though their influence was as great as J.R.R. Tolkien.

On a personal finance note, what interested me about the movie was the situation of the author. His Wikipedia article can be summarized as such:

  • Currently 46 years old
  • For most of his youth, was an amateur stand up poet, of no particular note
  • In his mid 20s, transitioned to becoming a screenwriter, without much critical/commercial success
  • In 2010 at age 38, he wrote a novel for the first time and it became a rip roaring success
  • At the same time, he was able to monetize it further by selling the film rights and even writing the screenplay

What can we learn from him?

  • You just need to hit one home run to make it big (unwritten, but we can assume that he tried to sell publishers on other manuscripts which were rejected, before his big break)
  • It’s never too old to transition your career (he actually did it multiple times, from poet to screenwriter to author)
  • You can derive unexpected synergies from past careers (writing the screenplay on his bestselling book, and probably his experience with movie pacing led to a good book)
  • When you do have a success, monetize the crap out of it before it recedes from public memory

Armed with that confidence boost, now you too can go out there and write the next bestseller.

Facebooktwittergoogle_plusmail

Think Ahead to Minimize Regrets

Three articles today, all with the same theme about regrets. Each has a different story to tell regarding personal finance.

  1. Going without a car. It’s easy to do in a big metro area with good public transportation. We all know that. Still, the author does a good job crunching the numbers on how much saving they derive, and how to compensate for the lack of a car when you’re out in the countryside and want to visit natural parks or get groceries.
  2. Bride regrets her expensive wedding. This does hit home due to my recent wedding. In planning my wedding, I had an ongoing conversation with my now wife about costs. We are both frugal people, and in the end came to a happy balance where we were able to have a quality memorable experience by not skimping on the things that matter while not fretting about minutia.
  3. Letting go of FOMO. Also known as “fear of missing out” – it’s supposedly big with the millennial crowd. My personal experience with Bitcoin was reading the first summary of its original release posting on Slashdot, back when I followed tech news religiously. In this article, various academic elite all comment on why they, and many other experts, missed the Bitcoin bubble. Yes, many of them thoughtfully evaluated the technology very early on, like I did, and concluded that it had minimal value except as a tool for money laundering and other illegal activities. None of us really entertained buying because we knew the intrinsic value was likely close to zero. Still, it’s not easy to have that kind of lottery ticket regret when you recognize a bubble early and could have ridden it. The article does suggest ways to mentally cope; perhaps the best one was that other experts similar dismissed it too.
Facebooktwittergoogle_plusmail

The Definitive Guide to Locum Tenens

Having worked in locum tenens for almost 2 years now, I feel that I have a good grasp on ways to maximize the experience. This article will serve to give a honest appraisal of the pros and cons of locums practice, describe the financial/tax advantages of such, and give tips on how to make the setup work for you.

Is locum tenens right for me?

For most people, it’s a qualified yes. Overall, I think locums is a great way for new grads to learn the ropes of the profession, get exposure to different practice patterns, and pay down loans fast. Concurrently, it also works well for those nearing retirement who may not want to work a full schedule but do want to preserve flexibility in their schedule.

Generally, since locums by definition is a temporary assignment without guarantee that the placement will be based in your preferred area, it’s more appropriate for those without firm attachments to a particular place. Often times, family is the reason doctors drop out of locums. Either they get married and have a spouse who is from or has a job in a particular place, or kids come into the picture.

I’d say that locums is generally better for those who are less subspecialized, to maximize the number of opportunities around the country. Someone in primary care, hospital medicine, general surgery, radiology, and ER is much more suited to doing locums work, since shifts and warm bodies are largely interchangeable. In contrast, pathology, neurosurgery, and EP are more specialized and thus tend to only have openings in tertiary referral centers in large metropolitan areas. These are normally hot locations and with a surplus of providers, so there’s less drive for locums positions to open up.

That leads us to…

What are the pros and cons of locums?

Pros:

  1. Higher hourly income than a full time job. Positions that are desperate to have shifts filled offer premium pay to attract a bunch of providers in a hurry.
  2. Benefits if you know how to use them. It’s a bit of a wash, as the benefits that normally come with a full time position are shifted into base pay and amenities attached with the assignment. We’ll learn later how to maximize them.
  3. No need to worry about billing or productivity. Since you’re paid by the hour, you’re a glorified salary worker with no benefit to seeing higher volume or worrying about maximal billing (though you still should, as we’ll see later).
  4. Taxation. Being paid on a 1099 rather than W-2 basis allows one to legally take all sorts of business deductions, if you play your cards right.
  5. Seeing the country and the world. Imagine being able to go to Maine in the summer, the Caribbean or Hawaii in the winter, and staying there at no cost. There are also international placements – many people go to New Zealand for example.

Cons:

  1. No guarantee of work. Your position can be canned with a month’s notice if the position gets filled by full time hires. In other times, there just aren’t enough shifts to go around to meet your needs, either because of full timers, per diems, or competition from other locums at the site. Other times, the site just plain won’t like you and can terminate you at any time. This can be an endless source of stress if you don’t mitigate it.
  2. Lack of other benefits. Again, I’d put benefits under both pro and con because I think of it as a shift in type of benefit to other things that ultimately comes out to be a wash overall. Essentially, you lose health insurance, retirement benefits,
  3. Travel time. Having to fly back and forth to a remote location can be a real downer, taking up the bulk of a day.
  4. Taxation. Again both a pro and a con. The major con is having to file taxes in multiple states, being responsible for paying estimated quarterly taxes, and double taxation for payroll tax (Social Security and Medicare contributions)

How to maximize the locums payoff

Knowing the above, I’ll now get to how to maximize enjoyment/benefits and minimizing the downsides, based again on my 2 years of experience and background in investing/finance.

The first key is to take advantage of the benefits. Normally, contracts come with housing, flights, and a rental car all paid for by the client. My preference is to have long-term arrangements “living in” each community, with shipping or driving my car (reimbursed of course) to the site. The housing stipend (in my experience $2500-$3500) is generally enough to get a furnished apartment or a private Airbnb in the area close to the workplace. My preference is for Airbnb due to the flexibility of being able to cancel up to a month in advance if the client’s needs change. Living in the community will shorten the commute time and minimize flights back and forth. It will also let you save money by not having to maintain a home anywhere else. Yes, you’ll be a bit of an itinerant tramp, but with furniture provided for, you won’t have to bring much when you move from site to site. Living in the site will also endear you to the client. If there’s a last minute emergency shift that needs filling, you’re already on site and can take it. Also, no matter how many shifts in a month you do, the client won’t have to pay more for extra hotel days. Also, you won’t incur any flight costs for the client by virtue of relocating yourself to each new site. Finally, by shipping your car, you can reimburse the mileage driven from home to work, and again save the client money by avoiding a car rental.

If it’s unavoidable for whatever reason and you have to maintain a home elsewhere and commute back/forth, do the next best thing and take advantage of hotel and airline rewards programs. In my experience, Hyatt has the best rewards and you can accumulate free days very quickly without having to spend a lot of money. Hyatt Place is a great mid tier brand with a full free breakfast, but unfortunately is only located in major metro areas. The next best is Hilton, due to widespread availability, easy to earn status (Gold = free breakfast at HGI and Doubletree), and many free breakfast options (Embassy Suites, Hampton Inn) even without status. IHG is my third choice mainly due to availability, especially in rural areas. Holiday Inn Express, while not the best place to stay, works for a clean, comfortable, hassle-free experience with free breakfast to boot (comparable to Hampton in quality). You will accumulate points easily that can be redeemed for free nights at a fairly frequent basis, but higher rewards tiers don’t come with as good concessions (no free breakfast) compared to Hyatt or Hilton. Other locums have used Marriott or SPG, but my reading of their rewards programs is that they’re on the less generous side of things overall, and aren’t as widespread as either Hilton or IHG.

As for flights, my preference is Southwest plus another. When possible, Southwest is generally the cheapest point to point between major metro areas, and the two free bags is a lifesaver when moving homes. They also have many direct flights from the cities I care about (San Jose and Dallas), and their rewards program is quite fair in terms of availability and usability of points. The next tier in my book is Delta, mainly because their points don’t expire. They also fly to many remote locations and have hubs that I use frequently (Salt Lake, Minneapolis, Atlanta). Of course, in your situation things may be different, and United, Alaska, or American may be better options based on your home city. Sometimes they will be the cheapest and most direct flight, but my preference is not to use those if I have an equal option due to worse frequent flyer benefits (for United and American) or limited geographic reach (for Alaska, though they are improving).

After optimizing your travel/housing situation, you should turn your attention to the direct financial implications of being paid as an independent contractor. The main advantage to this is being able to expense certain things from your business. Although, with most housing and travel expenses paid for, the most rewarding deductions left over is meals while away from home (per diem accounting of this eases record keeping). However, you will be able to set up a SEP IRA or Solo 401k. The former is easier to set up and has fewer reporting requirements but you have to make more than roughly $280,000 per year to reach the maximum contribution limit of $55,000 for 2018. This is a great perk which we should definitely seek to maximize, as it’s a higher limit than standard employed 401k plans ($18,500 limit). The Solo 401k is more hassle but does let you reach the same $55,000 limit with lower income. In terms of investment options, both are the same. For me, I use a SEP IRA since I work a full time schedule and can easily clear that income hurdle.

Lastly, we’ll talk about mitigating the downsides of being an independent contractor. While there’s nothing we can do about double payroll tax, we can at least deduct the employer half from our gross business income. This leaves health insurance, which most people will either buy from the ACA marketplace or get for free from a spouse, the latter being the best option if you’re lucky enough.

Don’t forget to pay estimated quarterly federal and state taxes. Pay attention as they can be on different schedules! Normally for W-2 wage earners, your taxes owed are deducted from each paycheck. As a small business owner or contractor, you have to calculate taxes on your own. I find that the best way to navigate this is to pay enough to meet the safe harbour clause. For high wage earners (anyone over $150,000 filing as married), this means paying 110% of total federal tax from the previous year. As a simple calculation, if your total federal taxes for 2017 is $60,000, you should plan on paying $66,000 in quarterly installments in 2018 to fall under safe harbour. It doesn’t matter if you ultimately earn more than that. You’ll still have to pay what you owe, but by paying the safe harbour minimum, you won’t be charged fees and penalties for underpayment. As for how much to set aside from each paycheck, I’d go with 35% if you’re in a low tax state and 40% if you’re in a high tax state. While setting this aside it can be helpful to have the money earn interest in a money market account or short-term bond fund until you have to pay.

With the recent tax law overhaul, working professionals stand to benefit from lower rates. Yes, there’s a loophole where high-earning professionals can reduce their taxes substantially without having to incorporate as a pass through S-corp.

Of course, if this is too hard you can always find a tax accountant to do things for you.

I purposefully leave out life insurance as I feel that it’s a big waste of money. The main point is to leave something to your heirs, but if you’ve been doing everything correctly and investing on schedule, your estate should be big enough to more than outweigh any insurance payout.

How to pick assignments

Early on in your locums experience, you may be tempted to commit to one state license or one job. Don’t. Locums who fail to plan can end up with no work at a moment’s notice. Instead, get credentialed in multiple states where you think you can get work and see what’s available. I divide sites into two categories (this will be from a hospitalist perspective now). Tier one is a desirable primary site with low census, good EMR (I like Epic), low-no procedure requirements, closed ICU, and located in or close to a major metro area (to minimize flight time). Due to desirability, this site will require a long-term commitment usually on the order of 4-6 months minimum, with a minimum schedule each month (typically 7-14 shifts). Tier two is a higher census typically rural site that’s more desperate for providers and will take anything from anyone, even on a part time or ad hoc basis. It’s good having a site or two like this in one’s back pocket in the case of a dry spell. You can even have a tier three which is purely per diem arrangements with local hospitals.

This is also a rough guide to how to screen for assignments in general. Again, from the hospitalist perspective, I like bigger groups with more concurrent hospitalists. This means that any unexpected surges in workload is distributed more evenly (only 1-2 extra patients per provider) as opposed to the same volume spread over 4 hospitalists, which can overwhelm the system. No joke. I’ve heard of some hospitalists who start at a site and quit after a day due to the high workload. Average census is probably the next most important to screen for. It can be helpful to get a sense from people on the ground as opposed to just the medical director, who can be biased in trying to sell the position. My general goal is to shoot for 12 patient census for 10 hour shifts, 15 census for 12 hour shifts, and to also inquire if there are concurrent admissions. The most extreme workload that I’ve done is average census 15, 3-4 admissions, 12 hour shift, with no cap. That was brutal. The other end of the spectrum is a census of 9-13, 10 hour shift, no admissions, which usually led me to “finish” the day at 2 PM. I think it’s far better for health/sustainability and med-legal reasons to keep to the lower census sites as much as possible. Even from a financial perspective, it’s better to be able to work 21 shifts and still be fine mentally (and still be able to do stuff each day after work) rather than only 14 shifts and still feel burned out.

As an added bonus, some sites have policies in place that allow rounders to go home early when they’re done with work. These places are worth their weight in gold if you find them, and almost inevitably fill quickly. If I can work 7 AM – 4 PM, get home on time, take the remaining cross cover call from my gym, and get paid for a full 11 hour shift, sign me up to work 28 days straight here!

For me personally, EMR is an important screening criteria for sites. I grew up with Epic. It’s the only EMR I’ve used since starting medical school, barring short stretches at the VA and the local student-run free clinic which was on Allscripts. My comfort level with Epic is so high that I’m twice as efficient on there as compared to any other EMR. I can very easily navigate through all the tabs to get the relevant information on patients. As someone who prefer to type, use templates and add in smartphrases than dictate, I can type out a note in roughly 10 minutes from start to finish on Epic, as compared to closer to 30 minutes fumbling through a dictation and waiting for it to upload (full disclosure: I’ve never dictated before and don’t plan to start). This means I can tolerate sites with high workload if they’re on Epic, while a hospital using Meditech will need to tempt me with far better hours/pay to get my consideration.

As a general rule of thumb, I like to think of the US in terms of geographic areas. The Northeast is a wasteland for hospitalists. Census is generally on the upper end but the area is oversaturated due to the glut of academic programs pumping out providers who like to stay in the area. Even if you’re willing to work full time, good luck finding any position in NYC, Boston, or DC. If you do, it’s probably going to pay far less than $200k. In contrast, the South is what I like to call high workload, high pay. People who gravitate towards places like Florida, Tennessee, and Texas like the lack of state income tax (more take home pay!) and are willing to work hard for it. When I say work hard that means positions routinely advertise 20-25 average daily census, and 10-12 admissions for night/swing shifts. Moving on to the Midwest and Mountain West, I consider this to be my personal sweet spot. Perhaps due to the weather, there are far fewer providers here than anywhere else in the country. Thus, pay is high (for both locums and perm jobs) and census is generally very reasonable. My favourite is the Twin Cities, since I know the health systems well there and the fact that all the major systems are on Epic. The TC also have a great public transportation network, and it’s possible to go carless there including from the airport to all major hospitals. My second choice would be the West Coast (CA, OR, WA). Workload is in between the Midwest and the South, and pay is comparable to the Midwest. California is a great license to have, and there are generally tons of jobs, though not always in the most desirable areas. A big personal plus is that all the major health networks (Providence, Legacy, Kaiser, Sutter, Swedish) are on Epic.

How to be a good locums provider

While the previous section focused on what a site can do to be more appealing to locums, this section will be on how to be a good locums candidate and provider.

Put yourself in the shoes of a site. What they want is someone who has the fewest hang ups and is easy to deal with. An ideal candidate is willing to go anywhere, do anything, work at various hours of the day, learn the local system quickly, and not complain. This is why I’m so picky on which sites I screen for before applying. By carefully selecting just the best sites, I create an environment where I can get started on the first day and easily outperform full-time staff.

Aside from medical competence and efficiency, it’s also important to be attuned to the local political and dynamics within the group and between the group and the administration. Getting on the good side of admins, schedulers, care coordinators, and the chief is important. When the group evaluates whether to keep using locums and if there’s a crunch, which locums to cut, they’ll keep only those that they like and who perform well. Remember, you can stand to be picky when applying for jobs, but once you’re in the door, do your best to perform well. On site is not the best time to complain.

Finally, I want to emphasize how important it is to be cost-conscientious. Hospitals and groups don’t have unlimited budgets. If there’s any chance of waiving certain benefits such as rental car, or minimizing flights by living locally in long-term housing, do so. It will improve your standing in the client’s eyes and again make you more competitive to retain or to be asked back when they have options.

Conclusion

So there you have it – the nuts and bolts, inside scoop on the locums life from someone who’s been through it. Personally, I’ve loved locums overall. It might not suit everyone’s lifestyle or approach to things, but it fits what I want from my career at this time. Use the above tips. Structure things well and through careful maximization of benefits, sites, shifts, and tax treatment, you can earn as much as an orthopedic surgeon while working half as much.

Facebooktwittergoogle_plusmail

Should I Contribute to an IRA with a 401k?

If you don’t have a 401k offered by your workplace, then an IRA is a no-brainer. You may even be eligible, if you have your own business, to contribute $55,000 (in 2018) to a SEP-IRA. But what if your workplace gives you a 401k? Should you contribute to an IRA on top of that? If so, what type should you choose – traditional or Roth?

First, you should understand that your limit is $5,000 ($6,000 if age >= 50). Since you have a 401k plan already, the limits and rules for an IRA on top of that are less generous. Now let’s first look at the IRS’s rules for contributions:

The key here is tax deductibility. If you stay below certain income limits, your traditional IRA contributions are deductible from your taxes, which is 90% of the benefit from these plans. However, tight income limits of $63,000 for singles and $101,000 for married filers makes this a difficult proposition. The worth of tax deductibility is based on your marginal tax bracket. The higher the bracket is, the more you save on taxes for the year with an IRA contribution. Based on 2018 tax brackets, at those incomes limits, the corresponding tax bracket is 24%. That’s quite low by historic standards. The general rule about Roth vs traditional 401k is that if your tax bracket is low now, you should choose Roth, for which you pay taxes now and everything accumulates tax free within the account. However, if your tax bracket is high now, you may benefit from deferring taxes, taking the savings up front, and withdrawing in retirement at a lower bracket. That’s the traditional IRA plan.

So basically, the conclusion is that if your income is such that you qualify for an IRA while you already have a 401k, your bracket is by default so low that you should only consider the Roth option. Now a wrench in this general guideline is state income tax. If you are in a high state income tax state such as Hawaii, California, Oregon, and Minnesota, be aware that Roth contributions mean paying all taxes up front, including state income taxes. These are the only corner cases where a traditional IRA is still worth considering even with a low federal tax bracket.

Regardless of what you do with the IRA, make sure you maximize the company sponsored 401k first, and put away enough in savings to meet emergency needs.

Facebooktwittergoogle_plusmail

When it Makes Sense to Commute by Plane

True story. I was in Vietnam a few weeks ago and on a street food tour of Hanoi, I met an Australian expat. She was a lively conversationalist and told me the nugget of a story: there are Australian resource workers who choose to live in Bali and commute to Perth to work in the mines.

It’s true (the internet proves it so!) and it makes total sense for those involved.

  1. They get to live in paradise, or at least a place that most people pay thousands to travel to
  2. The flight is cheap (Google Flights shows direct round trip tickets to be $180 if you book a month out)
  3. At 3 hours and 40 minutes, the flight is doable given that the work schedule was described to me as 5 on 5 off
  4. Cost of living is lower in Bali than in Perth
  5. Living expenses are covered at the worksite in Western Australia, which avoids the unpleasant need to maintain two residences
  6. Enough people do it that the visa/residence aspect in Bali must not be a problem

Calculating that the cost of a flight 2-3 times per month is still less than the difference in rent between Denpasar and Perth, the miner comes out way ahead. Of course, this works best if you’re single, mobile, and without significant family attachments to keep you in Australia. But if you are single or can otherwise make this work by moving your spouse to Bali, it can work out really well.

Can this type of arbitrage be applied to other situations in life? Of course! In fact, the cost of housing in most major American cities has become so exorbitant (see $3500 per month rent in SF for a one bedroom apartment) that it’s cheaper to commute to work, even on a business class flight! It’s true. I’ve been investigating this for my own professional life and came up with one such arrangement.

  1. Live in Tokyo, where the monthly rent is about $1200 in the city itself, even cheaper if you live in the suburbs
  2. Catch a direct flight to a west coast city in the US for a job as a locums nocturnist (bonus if the job is in Washington state where there is no state income tax)
  3. Work 7-10 days straight and then take the rest of the month off

Mind you, the living expenses stateside are of course all covered by virtue of being locums, absolving the nocturnist of maintaining a costly car and pied-a-terre in the city. There is a secondary bonus. Normally night shift workers are paid a premium in the US, due to the unsociable hours. However, Japan is far enough away from the US such that accounting for time zone difference, our nocturnist will be working a daytime schedule back home! By keeping the number of contiguous shifts high and the number of trips back and forth low, our nocturnist gets to maximize his # of days off, pay per shift, and minimize overhead expenses (time, money) involved in the commute. With a round trip ticket from Tokyo to Seattle about $850, rent in the US will just need to be more than $2000 per month for this commute to be worthwhile. That’s not even accounting for how much cheaper and better life is in Japan compared to the US.

Of course, one can think of similar arrangements for a British locums physician seeking to live in SE Asia and commute to the UK to work night shifts on an as needed basis.

Facebooktwittergoogle_plusmail

Unfair Comparisons on Cost of Living

I’m livid after reading Marketwatch’s recent article on cost of living differences, in which it tries to make a blanket comparison between Asian cities and American/European ones.

The key part is in how they designed the study:

The study rated the cities according to how expensive it is to buy basic items there at supermarkets, mid-priced stores and specialty outlets, using the price of food, drinks, clothing, recreation and entertainment and the cost of buying and running a car (including the cost of gasoline).

It also includes recurring expenses, including the cost of renting a home, utility bills, private schools and domestic help.

I understand why they’re doing this – to create an apples to apples comparison. However, there’s a reason the government changed the index of inflation to account for substitutions. Essentially, to have the same or better lifestyle in an Asian city vs an American one, you can go without certain things. The cost of owning and operating a car in Tokyo, Singapore, or Hong Kong is exorbitant because of incentives/taxes against congestion. Plus you don’t need a car to get around anywhere. It’s actually probably faster to take the metro/subway to avoid the surface congestion. Whereas in an American city you absolutely need a car to live.

Another aspect is private schools. I understand why they’d want to keep that in the comparison – the article is geared at high powered corporate expats who want to replicate a western lifestyle in Asia (note that they include domestic help in the calculations). However, again in the US you need to send your kids to a private school to get any kind of decent education. Not so in Asia. There, the locals hardly ever do so because public schools are so good (extremely competitive by world standards). This is anther example of a cost that’s not experienced evenly between Asia and America.

Finally, I’m not sure how they calculate food, but in my experience food in Japan (assuming you eat Japanese style meals) is much cheaper, tastier, and of better quality than the equivalent American ones. Restaurants are also cheaper, mostly due to not having to pay tip.

My gripes about this article are similar to my wife’s experience moving back to the US from Asia.

Facebooktwittergoogle_plusmail

How Not to Support Spending

What’s one way that you can stretch your spending beyond your means? By financing it. What used to be bought entirely with cash has turned into longer and longer payment schemes. From 10 to 30 and even longer mortgages, and ever increasing auto loan durations, it’s one more way for cash strapped modern families whose wages haven’t grown to keep up with their neighbours.

I can understand doing it for housing – it’s generally a productive asset that will increase in value or at least hold its own. Many may say cars are a necessity for modern life, so that’s fine, but do try to be frugal with how luxurious a car you get. What’s inexcusable though is financing every aspect of your life including luxury spending and consumption. That’s just asking for debt trouble. Live by the old mantra that if you have to go into debt to buy a depreciating asset, it’s probably not a good decision.

Facebooktwittergoogle_plusmail

Get Out of a High Cost Area

You probably know that coastal cities are expensive. Actually, if  you’re reading this blog, chances are better than not you’re an educated person living in an urban area. It’s also not surprising that the high cost of living serves as a wall that prevents the migration of poor workers from e.g. Ohio or West Virginia. Interstate mobility in the US has decreased, and part of that can undoubtedly be explained by pull (family ties) and push (cost of living) factors. This has contributed to political polarization, overall wage stagnation, class-based segregation, and increased resentment all over the board.

The key tenet in my book is that wages are not going up, at least not as fast as cost of living. This article makes it abundantly clear that it’s driven by housing:

Housing costs have grown much faster in high-income places than low-income ones since 1960. Housing has always been more expensive in high-income places, but the difference is getting more extreme. In 1960, on average, US states with 10% higher incomes had housing costs that were 10% higher. In 2010, states with 10% higher incomes had 20% higher housing costs.

I would also add labour to that mix. As part of overall price pressures, you have to pay more for help, since they need to be able to afford to live there or otherwise be compensated for a long commute in from the exurbs.

So if you’re living in an expensive city, carefully examine your own life and entertain the notion that you may have more disposable net income after moving to the sticks. (Note: this doesn’t factor in the potential for career advancement and networking opportunities in the big city)

Better yet, take advantage of geographic arbitrage using techniques from my book.

Facebooktwittergoogle_plusmail

How to Buy a Car (From an Expert)

I somehow got subscribed to the daily Quora mailing list with interesting questions and answers. The one for today was about how to get a good deal when buying a car. Pasted here is the entirety of the response:

Let me make your life easy (I own a few dealerships). It takes 5 minutes. Once you know exactly what kind of car you want, simply go to the dealer, a salesmen will greet you. Tell him you’d like to go inside and talk about the car your interested in. Go inside, tell him you’re comparing with two other brands but you like this one the best. Tell him, I’d like to buy this car now if you can match the other dealers’ offers which is $100 over invoice. Tell him kindly, “Please let your manager know my offer is $100 over invoice, which is what the other dealers offered me, and if he accepts, I’d like to see a copy of the invoice (which they must do legally – you’re welcome), and then we can wrap this up now and I’ll buy you lunch for your great service.” That’s it. Unless it’s a specialty car, it will go down just like that. If you’re paying cash, it’s a done deal 99.9%. If that doesn’t work, call the next town over, tell them you were offered $100 over invoice but you don’t like how they do business so want to go to the competitor. If they agree (which they will because the car biz is super competitive) ask them to email a copy of the invoice. Once they do, call them and tell them you’re on your way. Side note- best time to buy a car is New Years Eve, 2 hours before closing using this method….just tell them “Come on guys, let’s wrap this up quickly so we can all go spend time with our families.” It’s not as hard as people think. Believe me, the salesman just wants to sell a car, he cares more about closing the deals than anything else because if he doesn’t, he doesn’t get paid. Another note, the faster the deal, the better. And be POLITE, good salesman ARE expert salespeople and they’ll rip your head off without you knowing if you’re an ass. Oh, and all your friends who think they’re experts…are not! Even if you buy the car for 50 cents they’ll tell you that you’ve been screwed, lol. Buy a decent car for $100 over invoice and go home happy. And don’t over spend on cars, they all have four wheels….just get a good running car. The more you spend, the more they depreciate and they’re all worth $2500 in 10–15 years. This is advice for new cars. Used cars….offer 3k less than the asking price OR 500 over wholesale book whichever is less (use blue book online between trade-in & private party value)(pay cash)…also 5 minutes. But only do these if you’re ready to buy in that moment. Test drive all first. If you don’t have cash, get pre-approved at a credit union and take the letter to the dealer to solidify your seriousness. If you have bad credit….it’s the bank that will screw you, not the dealer. Also with bad credit, the dealer had to pay bank fees so they can’t come down as much on the price. Bank fees range from $500–$3000! depending on how bad your credit is. My thumb is tired now…good luck!

All I can say is that these recommendations make sense. I usually go through Costco Auto which gives a pre-fixed price, but direct bargaining with a dealer can work as well. Go in with a no nonsense attitude, have an anchoring price, and come prepared with a preapproved loan (or cash). That takes away the multiple possible ways that the dealer can screw you over. Be prepared to walk away if the dealer can’t meet your pre-established price though.

It also helps to go in at certain times of the year (4th of July sale, Christmas sale) at the end of the season when sales reps are trying to meet quotas. Also what can help is buying a model that is not that popular that the dealer is trying to move off the lot. Sedans right now are losing ground relative to SUVs and light trucks, so it’s a good time to scoop up one and go against the grain.

Of course, going for a slightly used car instead of a new one can save you money, as this post shows.

Facebooktwittergoogle_plusmail