Thursday, September 27, 2012

Living a Life Full of Joy and Happiness

I have always been a quiet Christian. I'm not sure if it is because: A) for the longest time I didn't know how to view all the hypocricy of organized religion, B) if it is the fact that I have always been a huge fan of self development where religion is a vehicle or C) whether I believed this was all just too personal to be exposed.

A) At this point, in time I have found that people stay with an organization for its cause. The fact that they unconditionally love and forgive those around them despite their imperfections and hypocricies is amazing. Now, I realize when people unconditionally love others, they themselves benefit the most because they are filled with love.

B) Some people are completely against religion and for the most part I have found that the number one reason is the hypocricy. At some point in time, they may have been hurt and hurt deeply. Nature and life are progressive. There is a nature cycle of life and as such, we as individuals should strive to find our purpose and progress to grow in mind, body and spirit. It is those that open their mind and heart that tend to grow the most. It is those that have consistent, daily, weekly reminders through any vehicle that tend to grow the most. One committed to growing will not limit his studies to one religion, faith, organization but will tap into the endless and vast well of knowledge in existence today. Is it true that someone who does not share my faith may still benefit from my message?

C) Some people are like me and tend to be very private individuals. I love people but at the same time, I shelter anything that might make me vulnerable. However, in terms of self reliance, there are three levels: dependence, independence and interdependence. What this means, is that while you can do it alone, a higher calling says to do it together. As a team, when you are weak (no matter how strong you are this time will come), there will be someone to pick you up. When you can come into agreement with other people, the benefits and blessings are exponential. The great thing about people is that no matter who you are, when you are at your lowest, when you feel there is nothing more you can lose, there will always be someone there to extend their hand. It may be a friend or family member, but it may also be a complete stranger.

While reading this morning, I came upon the story of Adam and the Garden of Eden. I always view things in a very different light than others. Most think this has to do with the start of mankind. They think that when Adam gave into Satan's seduction, that he fell to the Earth and the world fell into sin's grasp.

I view this very differently. I think that there are a lot of gray areas out there. As individuals, we create a blueprint for ourselves about what is right and wrong. So, I want to separate truth with what we believe to be true for a second. This is a very philisophical point, since some believe there is a single truth while others believe what we perceive to be true is truth. I think the point of the story is that when our actions are not aligned with our blueprint of what we believe to be right, that we fall into a life of disorder. In a sense, it almost doesn't matter what is really right, but what we believe to be right. For when our actions are not aligned with our blueprint, we actually sabotage our own success.

So in order to live life happily, we must have the discipline to take actions which are aligned with our own personal blueprint.

Support My Mission

1. You can support my mission by visiting http://www.izuservices.com and donating. A dollar lets me know you support my mission or like my posts. Thank you for those who have already donated.

2. Donate to SAGE via http://sagescholars.berkeley.edu/. The UC Berkeley SAGE (Student Achievement Guided by Experience) is a self-funded experiential leadership program that provides education, professional development, mentoring and internships to UC Berkeley students who come from poverty and low income backgrounds. I serve on the Leadership Council for SAGE and want to help raise money for their cause.

3. Call toll-free (877) 855-8111 or log on to www.PrimericaSecure.com to save yourself some money on either your home or auto insurance policies. Be sure to use my last name (IZU) and solution number (2MTFT). PrimericaSecure automatically compares rates from multiple companies such as Progressive, Travelers, Safeco, Hallmark, etc.

Saturday, September 22, 2012

How Dividends Work

I am a huge fan of dividend paying stocks. I like companies that are paying back their investors now and only use their investor's money so they don't get into a situation where they have a deal on the table that they can't do because they don't have the capital to back the deal.

So, let me talk a little about how dividends work. This discussion is inspired by a talk with a good friend who asked me why a person would not just buy a stock before the dividend paid out and then sell the stock after the dividend paid out. He also did not know about the x-dividend date, so I will clarify that here.

If a stock pays dividends quarterly, the board of directors will meet after each quarter to declare a dividend (or decide not to pay a dividend). In this scenario, I will just assume the second quarter has finished and the board of directors are meeting on July 10th to declare a $1 dividend. We can just call July 10th the "meeting date". This means the company will pay $1 to each shareholder for every share owned. In the meeting, let's say they also decided to make the "record date" on July 20th and the "payable date" on July 30th. Then, the "x-dividend date" is July 18th, which is determined by FINRA to be two business days prior the "record date".

  • June 30th - End of second quarter
  • July 10th - Meeting date (determined by board)
  • July 18th - X-Dividend date (determined by FINRA)
  • July 20th - Record date (determined by board)
  • July 30th - Payable date (determined by board)
If the stock cost $50 per share on July 17th, the price would automatically be adjusted to $49 per share on July 18th. Whoever owned the stock on July 17th would be paid the $1 dividend, even if that person sold the stock on July 18th. The owner of the stock on July 17th would be recorded by the company as the owner of the stock on July 20th and would be paid the $1 dividend on July 30th.

The important thing to note is that you do not want to purchase the stock on July 17th because you will buy the stock for $50 per share and then be paid a $1 dividend per share and then taxed on the $1 dividend per share. It is better to purchase the stock after the "x-dividend date", once the stock has been discounted to $40 per share.

Support My Mission

1. You can support my mission by visiting http://www.izuservices.com and donating. A dollar lets me know you support my mission or like my posts. Thank you for those who have already donated.

2. Donate to SAGE via http://sagescholars.berkeley.edu/. The UC Berkeley SAGE (Student Achievement Guided by Experience) is a self-funded experiential leadership program that provides education, professional development, mentoring and internships to UC Berkeley students who come from poverty and low income backgrounds. I serve on the Leadership Council for SAGE and want to help raise money for their cause.

3. Call toll-free (877) 855-8111 or log on to www.PrimericaSecure.com to save yourself some money on either your home or auto insurance policies. Be sure to use my last name (IZU) and solution number (2MTFT). PrimericaSecure automatically compares rates from multiple companies such as Progressive, Travelers, Safeco, Hallmark, etc.

Sunday, September 16, 2012

Izu's 100-200 Property Valuation Rule

According to the United States Census Bureau (reference), in 2011, there were about 312 million people in the US of which 38 million lived in California. In California, there were nearly 14 million housing units. According to an analysis done for San Mateo County (reference), in 2009, close to 503 thousand of these were pre-foreclosures and about 390 thousand of these were foreclosures. That means, nearly 892 thousand of the 14 million housing units or about 1 in every 15 homes was in jeopardy of being lost to the bank.

The statistics above state why I am such a fanatic about following specific rules when you purchase your home. I know that one of the four d’s (death, divorce, disease, disaster) could cripple you down the road. While many renters feel their entire rent is going down the drain, in reality only a small portion of the rent money is paying down the house. When I purchased my first home, I estimated only saving $70 a month based on tracking expenses, even after factoring in the equity being built (this is plenty when you are actually ready to buy, because you will be getting rich slowly). In addition, renters have the flexibility to move in case they lose their job and they can find a cheaper place to live if necessary. So here are my rules of thumb for buying your home:

  • Only purchase after your car loans, student loans and credit card debt are paid off.
  • Don’t purchase over 3 times your annual household income.
  • Put 20% down on your home.
  • Don’t pay over 200 times the monthly rent in the area.
When it comes to business ventures, leveraging can be very profitable. However, if you are a new investor, at least for the first investment, I would modify these rules:
  • Put 25% down.
  • Don’t pay over 100 times the monthly rent in the area.
Lets look into where the numbers 100 and 200 come from in the 100-200 rule.

During March 2012, the California median home price for single-family detached homes was $291,080 and average interest rates for thirty year fixed mortgages were 3.95 percent (reference). So typically, people are paying $1381.28 for 360 months. That is $497,261 it total payments and $206,181 in interest over 30 years.

Interest rates these days are very low but historically, they have not always been this low. Holding a 9% interest rate would mean paying 190% in interest which means almost paying 3 times what the home is worth over 30 years!

California counties collect an average of 0.74% of a property's estimated fair market value as property tax (reference). The average home insurance rate was $803 (reference). Average maintenance costs for home owners are about $672 for the year (reference). In addition, home owners tend to tack on projects around their home, which I will assume cost about the same as maintenance. Based on these numbers, one can expect to spend 1.5% of their home price yearly to cover property taxes, insurance and maintenance.

Suppose you see a home that rents for $1455 a month and you are interested in purchasing this home for personal use. Then, I would advise not paying over $291,080 for this home, using the 200 factor from the 100-200 rule. The reason is that every month, you should expect to pay $1381.28 to your mortgage company and $363.85 for additional expenses. This is a total of $1745.13 a month. Many people make the mistake of thinking that since the mortgage is lower than the rent, they have a good deal. Making a mistake here and losing this home would cost you about 11% of your home price (loan closing costs, legal fees, buyer and seller commissions) which would be about $32,019 for an average home in California.

Following my 100-200 rule gives you staying power. It allows you to hold the home long enough to have something great happen, like appreciation. Banking on appreciation because you know house prices will go up is gambling. Doing the numbers ahead of time and make sure you can afford the home is good business. Later, people will say that you are lucky, when you know different. You have planned ahead of time, just in case you hit some hard times. Doing this, I have no doubt you will get lucky and when you move into a bigger home, you will have rental property which still fits the numbers. This means rather than selling and losing that 11%, you now have an investment property, adding an asset to your collection.

As a landlord, one should factor in repair costs, appliance costs and additional costs (changing tenants, new carpet, painting). A renter should also assume 2 months of vacancy per year. If property management is involved, one might also include a $300 lease fee and 10% of the monthly rent going toward property management. In addition, unlike owning the home, an investment property should make a return like 2.5% of the property’s value (this is 10% of the 25% down). Using the 100 factor from the 100-200 rule, the same home which rented for $1455 a month, should not be purchased for more than $145,500 as an investment if you expect to make a good profit. Many investors just hope to make some profit. However, it is a good idea to compare to expected returns with the returns expected from other investments.

In terms of taxes, rental income may be considered active income if this is your job. Otherwise, it is passive income. This is important to calculate your depreciation deduction. In general, active income can offset active income and passive income can offset passive income. If you make major decisions, you might say that you actively manage your properties, but the income is still considered passive. This is a whole blog topic in itself, so I won’t cover it. In either case, both depreciation and appreciation should be considered icing on the cake and should not be factored into the equation, because one might not ever see these benefits if they can’t own the home long enough to see them.

Support My Mission

1. You can support my mission by visiting http://www.izuservices.com and donating. A dollar lets me know you support my mission or like my posts. Thank you for those who have already donated.

2. Donate to SAGE via http://sagescholars.berkeley.edu/. The UC Berkeley SAGE (Student Achievement Guided by Experience) is a self-funded experiential leadership program that provides education, professional development, mentoring and internships to UC Berkeley students who come from poverty and low income backgrounds. I serve on the Leadership Council for SAGE and want to help raise money for their cause.

3. Call toll-free (877) 855-8111 or log on to www.PrimericaSecure.com to save yourself some money on either your home or auto insurance policies. Be sure to use my last name (IZU) and solution number (2MTFT). PrimericaSecure automatically compares rates from multiple companies such as Progressive, Travelers, Safeco, Hallmark, etc.

Tuesday, September 4, 2012

My Personal Proclamation

See, I learned something at a very young age. If you asked people who knew me growing up, they might tell you that they noticed something different about me. What I learned has manifested itself as a truth throughout my life as I put various principles into practice and worked to achieve my goals. What I learned will be present in what I write here and some may see it, some may not.

I am going to build one of the largest brokerages in San Jose. I am willing to put my reputation on the line and risk everything to do it. I want to let people know now, before I have any major successes, because I don’t want someone to be able to say that I was lucky. I want people to know that it was planned from the beginning. I have written my one page business plan. My goals may seem impossible, but they are just improbable, not impossible. My goals are meaningful specifics and I will be reviewing them often, possibly changing them and improving upon them. I have a game plan to succeed. The only question I have is “How long will it take?”

I have always been a teacher. I love to share knowledge and will continue to do so. In high school and college, I tutored others, so that I could share what I had learned. I think that if we build upon the ideas of each other, our society will benefit. I refuse to hog knowledge, even though I know knowledge is power. I have been willing to publically post my successes and failures, along with various ideas, in hopes that others will benefit.

For two years, I wrote in my blog about various topics, a majority of them being finance related. About 4 months ago, in May of 2012, I started sitting down with clients for free to offer financial advice on various topics. I did this for free because I felt I had abundance at the time and I wanted to start giving back to the community. It was during this time that I was offered a whole life insurance policy. Then, I became aware of three major disasters occurring in our society: stock market disaster (stock crashes of 2001 and 2008), real estate disaster (subprime mortgage crisis) and life insurance disaster (80% of people owning whole life policies). Three is a magic number and enough to make me devote my life to educating people about each of these areas.

Unlike most people, who get recruited by Primerica, I was looking for Primerica. As soon as I saw what the company did, I hopped on board. In my eyes, the company does 3 things as stated in their mission statement: “Help families become properly protected, debt free and financially independent.”

Before I started with the company, I did a ton of research on the company. I also interviewed clients, previous business owners and people who had been approached by business owners within the company. What I found were almost all people who know the company will say the products are great. Some struggled with the business model. For me personally, it comes down to ethics and values. On two occasions in my life, I have had to say the following: “I will not take a job, even if it means doubling my salary, if I do not believe in what I am doing.” Although, I might have profited greatly, that was that. In addition, a non-conventional business model means those that normally might struggle to find jobs can actually generate income. I’m sure some stay at home mothers could use some financial education and some extra income based on working with only two clients a year.

In high school, someone once asked me, “How are you able to stay so happy?” I responded, “Everyone has a choice. I choose to be happy.” I was fortunate to have been taught many great principles while growing up and even more fortunate to have learned many great principles throughout my life. Primerica is an interesting company that is dedicated to self-development. The interesting thing is that even with Primerica throwing out the keys to success, people can still fail. This is because people must first be open to receive before they can learn. My brother (Kevin) often says, “You can’t change people. You can only make it easier for them to change.”

Primerica offers a great business opportunity. However, this opportunity is not for the faint of heart. Only 1% of the company makes a six figure income. For everyone who starts training only 20% get licensed. Furthermore, 60% of the business is done in house. Still, if you knew what I knew, you would do this business. I know 70% of businesses fail, 90% of small businesses fail. In a calculus class I once taught, over 50% of the students either withdrew or dropped out. Unlike other businesses, this is an excellent business to fail in. Even those who fail may learn information that can save thousands, tens of thousands or hundreds of thousands of dollars, depending on what they are able to pick up while they are here.

I know that the best way to learn is to do. I will partner with people and families one on one to help them succeed. However, I can only influence so many people. What I really want is a team, an army of people devoted and dedicated to financial education and bettering our society. We are swimming against the tide. We are battling advertisements and marketing agencies. We are exposing potential issues with banks, credit card companies and insurance companies. I cannot do this alone and I am willing to learn what is necessary to guide my team. I have a voice and it will be heard.

There are three articles which I have read which would deter most people. These are great articles by the way, with many truths:

Even reading these, I find myself not moved but stagnant in my position. If you really look at various companies, what Primerica offers is completely opposite, like night and day, even though other companies seem to be similar on the outside. Primerica was built based on the crusade to stop life insurance companies from ripping off people, whereas some similarly structured companies continue to rip off middle class families. Years later, Primerica has expanded to include products to help people get out of debt and save for retirement. To me, this means the company has branched out to further their crusade, almost completely in line with the problems I see.

When people believe in what they do, an almost cult like organization is formed. When people have such strong beliefs and a single mission, they can move beyond their individual imperfections and work together to achieve a common goal. As people leave the organization, the crusade lives on, because at the end of the day, others still believe in the mission.

While some may be concerned about what they can get today, I like to let the marshmallow sit on the table, thinking up ways I can add more value to society. I like to build up a foundation of small bricks which will show returns in a residual fashion. I have a vision to build something great and realize it starts with the laying of a single brick. If I can build it right, it will stand forever.

Support My Mission

1. You can support my mission by visiting http://www.izuservices.com and donating. A dollar lets me know you support my mission or like my posts. Thank you for those who have already donated.

2. Donate to SAGE via http://sagescholars.berkeley.edu/. The UC Berkeley SAGE (Student Achievement Guided by Experience) is a self-funded experiential leadership program that provides education, professional development, mentoring and internships to UC Berkeley students who come from poverty and low income backgrounds. I serve on the Leadership Council for SAGE and want to help raise money for their cause.

3. Call toll-free (877) 855-8111 or log on to www.PrimericaSecure.com to save yourself some money on either your home or auto insurance policies. Be sure to use my last name (IZU) and solution number (2MTFT). PrimericaSecure automatically compares rates from multiple companies such as Progressive, Travelers, Safeco, Hallmark, etc.