Monday, March 26, 2007

Financial decision history

I've been meaning to post a history of critical decisions in my financial life. I saw Frugal Zeitgeist's history at and decided to follow the same format.

Age 12: Orphaned as a child, I had to start working at age 12 to support myself. I learned about minimum wage, sweatshops, and standing on your own two feet. Didn't learn about child labor laws. I had my own checking account, I think I even had a credit card. I worked every year ever since that first job.

Age 14: I remember a freshman class assignment to state our financial goals for the next 5-10 yrs. I remember writing that I expected to make $35K a year after graduating from college, and being laughed at by classmates for having such outrageous expectations. I have no idea where I pulled that number out of.

Age 17: After graduating from high school, I had the choice of going to UC Berkeley or MIT. I made my choice purely on tuition cost. Although I had a scholarship for MIT, it wouldn't have been enough to pay for half the first year's tuition, much less room and board. Even at that age, I didn't want to take on any debt. I'm not sure how my life would have been different if I had chosen MIT, but I don't think I could have done any better financially. I probably would have turned out geekier.
I remember during my MIT interview, the interviewer suggested I apply for Harvard pre-med. I'm glad I didn't, I don't think I would have made a good doctor. My sis is a doctor, you have to really love the field to dedicate your life to it.

Age 21: I worked lots of odd jobs all through college to pay for it, but into my senior year I decided to do an engineering internship for 8 months at Chevron. It paid $25K annually, which to me was a ridiculous amount of money at the time. It enabled me to graduate from college with no debt, and $10K in the bank.

Age 22: Started first full time job, making - you guessed it - exactly $35K. I consciously made a choice between grad school and work - my childhood pretty much dictated my decision again. Not sure where I would have wound up if I followed the grad school route.

I made several financial mistakes in my job selection. First, being a pretty immature dude, I was too lazy to interview. So I pretty much stopped interviewing after getting two offers - one from Bell Labs in NJ, and one from a semiconductor company in Silicon Valley. I chose friends + weather over Bell Labs. If I was on the ball, I would have tried to get an interview at a company like Sun Microsystems or Cisco, and been set for life from the start.

Second, what sold me on my first job was that it involved travel, lots of travel. Being an adventurous young man, I found travelling for free really appealing. I spent 3 months in Scotland and UK, and another 3 months in Penang, Malaysia, and took ample vacation after both overseas assignments to tour the surrounding countries. I remember putting 5000 miles on my rental car in Scotland, with all the castle-hopping weekend trips I took. The decision was both good and bad for me financially. While I managed to have awesome travel adventures on company money, and room and board fully paid for while banking 100% of all my paychecks, saving that little money probably cost me big money. In order to get the travel experiences, I chose a product engineering career rather than a much more lucrative design engineering career. It took me almost 4 years to get back on the design engineering career path.

Age 23: I bought my first non-junker car, a Honda Accord. Still second-hand, but only 11,000 miles on it. I kept this car for 14 years and 250,000 miles. It was still running fine when I donated it. I remember when I went into the Mercedes dealer while shopping for my next car. They didn't take me seriously after asking what I was currently driving... :)

Age 26: After getting a little exposure to design engineering at a previous position, I decided to fully dedicate myself to design by switching companies and taking a pretty substantial pay cut (since most of my experience was in the other career path). Of course, in the long run, this was the second best decision of my financial history.

Age 28: After getting two full years of intensive experience in chip design, I decided to take a big risk for a big payoff going to a startup company. I had learned from my coming-out-of-college interviews, and this time around, I wasn't lazy. I interviewed at many companies, made sure I spoke with most of their staff, previewed and evaluated their products. I made the best financial decision of my life from this detailed evaluation, hitting a grand-slam home run on my first start-up selection. I spoke with the director from my previous position, and he strongly advised me against my decision: he had tried 10 startups during his career, and none of them had made it big. I had quite a lot of respect for him professionally, given that he had BSEE and MSEE from Stanford, and was quite strong technically, but thankfully I went against his advice.

In hindsight, I made a mistake in negotiating for a higher salary rather than more stock options (this ended up costing me millions, but it's impossible to know that at the time).

Age 31: I made the brain-dead mistake of not early exercising all my stock options before the company went public. I made this mistake because it cost real money to do the exercise (thousands or tens of thousands), but it would have saved me hundreds of thousands, possibly millions, in taxes later on. A case of being penny wise, pound foolish.

Age 33: I made my first million, 1.5 million to be exact. I made the mistake of thinking that this amount was a lot, listened to the advice of numerous financial advisers, and started diversifying out of my company stock and into a bunch of "safe" stock in big companies (think S&P 500). It's hard to say exactly, but this diversification probably cost me in the neighborhood of 15-20 million pre-tax dollars.

Age 34: Made my second and third (and fourth?) million. Bought my first home, paid for in cash. I guess in hindsight, it was a mistake not to buy my first home right out of school, I certainly could have afforded to with my first salary. But 12 years earlier, I already thought housing was a bubble and it would crash any day - haha. Instead, it more than tripled in those 12 years. Another mistake is my debt-averse thinking. I have hated and feared debt all my life, probably because I grew up so poor (relative to those around me). The concept of good debt is something that is very difficult for me to grasp, even to this day.
The same year, I made the huge mistake of not offsetting capital gains by realizing capital losses. So I ended up with a huge tax bill that could have been a lot smaller. I ended up taking the losses in the next tax year, and then it took a couple of years to finally recoup the capital loss carryforward.
Things could have been a lot worse. Many people got hammered by AMT bills that year on option exercises of stock that eventually became worthless stock. I think the IRS is finally providing some relief to them years after the fact. I don't know how the IRS can deal with the situation fairly to everyone involved.
The subject of financial mistakes you can make in purchasing and owning a home is a whole other story on its own.

Age 35: My accountant made a mistake in my estimated taxes. I didn't double-check and based my entire year tax planning off of my accountant's numbers. This mistake cost me another million. Ever since then, I have made sure I personally understand my tax situation, and I even go so far as to do my own taxes. I've found that it really helped me understand consequences of financial decisions (when to buy assets, when to sell assets, the timing of tax payments, tax implications for different assets, how to stay out of AMT or how to get it back once you've paid it, etc). And how screwed up our tax system is.

Current: Took over my investments in the past few years. I understand them to the point now that I am comfortable to hand over the control again to a third party. Because now I know exactly what to expect from them.


frugal zeitgeist said...

Hey, I'm flattered. Thanks a lot. I'm impressed by your history and accomplishments; you must be pretty self-motivated and driven.

To answer the question you left on my blog, YES, going to the Galapagos is totally worth it. What I would suggest doing is finding a tour operator that focuses not so much on the leisure aspect but on the learning opportunties. The tour I went on had morning overviews of what we were going to see, plus an evening discussion group about what we had seen, plus reading and films. Shoot me a note at frugal (dot) zeitgeist (at) gmail (dot) com if you want to talk about it further.


Rags 2 Riches said...

Thanks for stopping by. I'll take you up on that offer. I'm more interested in the learning rather than leisure aspect, so your tour sounds good.

rocky said...

Was that first semiconductor company job at Intel? They have offices/fabs at all the locations you mentioned.

Anonymous said...

Do you consider paying off your home a mistake?