This is even bigger than it sounds - instead of being paid the typical US salary in USD with an expense account for overseas expenses, he has opted to get hired at a local salary in RMB with a local benefits package. I don't know for sure, but I believe he probably took about a 15-20% pay cut based on what I know.

Why Would Someone Localize to China?
He did this for 1) the job opportunity and 2) he believes he can save more money here than working back in the US.

Technically I agree he could save a lot of money here - he would be getting very well compensated compared to our local peers and if he can adjust his lifestyle expenses to everyone else's, he should be able to save a higher percentage of his salary.

However, from my viewpoint, adjusting his lifestyle here in China would be a lot more difficult than adjusting your lifestyle expenses back in the US. Here is some of the things coming to mind.

• Language Barrier - neither of us speak Mandarin very well. To adjust his expenses he would need to be semi-fluent in the language or it will cost him.


• Race - neither of us are of Asian descent. We stand out in China - its harder to negotiate and pay normal prices when you look like a foreigner.


• Standard of Living - Living standards are different here. Cars are a luxury (however they are quickly becoming affordable for many), the quality of foods and products is different, and there are quality of life differences - parks, entertainment options, air quality are not the same.
• Food Diet - The typical diet here is obviously different from our western fare. Western food is more expensive - sometimes double the price in the US for equivalent food. To adjust to local lifestyle expenses he needs to adjust his diet to 100% Chinese and only eat western food on special occasions. Probably the easiest adjustment for him to make, but for some (like me) this could be a huge challenge.
• Health-care - Big differences in the health care systems. He would have medical coverage benefits, but he would have to rely on the local healthcare system. This is probably the riskiest part - if he got a serious injury or illness he would be relying on the local healthcare system for care. Its unclear what happens if he needs care in the US.
• Retirement - While not as big a concern, but he won't be contributing to Social Security and he won't be eligible for a 401k.

My co-worker is definitely not crazy; he is young, healthy, and sees enough opportunity that could pay off in a few years. Time will tell if this will be successful for him. He isn't the only one here who has done this - my wife and I just met a young newly-married couple that just relocated and localized here from the US a couple months ago.

There are too many pitfalls here that I wouldn't touch this at this point in my life. However this may be a sign of the coming times - maybe the US will no longer considered the land of opportunity.

Its still a work in progress, any feedback is appreciated and may be incorporated into future monthly reports. The only equity investments not covered are:
1) my 401k which is invested in institutional index funds through my employer that I haven't found a tracking symbol for.
2) investments roughly worth less than $500, simply because I don't have the time and energy to keep up with them. I am thinking I will sell these off at some point and add the proceeds to my current investment portfolio because they are too much work to track.

June Highlights:

• What an ugly month for the stock market. The total stock market index was down over 8% for the month. On the plus side I finally was able to have my portfolio's return match the benchmark, a small achievement, at this point I'll take what I can get.
• Big dividend month with most of the companies we hold paying dividends (Pfizer, Wachovia, Anheuser Busch, Exxon, Johnson & Johnson).


• GE paid a dividend in May, but didn't record it so I have added it to this month's report to try and keep up with it. On that note, I don't have easy access to a couple holdings (Duke, Spectra, PG, Medtronic, etc) so I am currently not recording dividend payments/reinvestments for those holdings. I will have ot figure out a way to handle this once I get back to the US and get this information.


• The Vanguard ETFs (VWO, VXF, VTI) all split 2for1 in June.


• I added more to our Wachovia and KBW ETF investments. The financial industry bloodbath continues with no end in site. I don't know what will happen, but I'm drooling over the valuations.
  

June 2008 Investment Report:

Here's our latest status:

• 1) Primary House Down Payment Goal ($80,000) - Started year at $36,500. There was a modification to this goal as we redirected $13,750 of our house savings to cancel PMI on House #3 so we are counting that equity as part of the available cash for our house downpayment. Current Status: On track ($57,150/$80,000)


• 2) Fully Fund wife's 2007 Roth IRA contributions ($2,900 left) - Current Status:Complete ($2,900/$2,900)


• 3) Fully Fund my 401(k) ($15,500) -Current Status: On-track ($9,680/$15,500)


• 4) Fully Fund our 2008 Roth IRAs ($10,000) - I thought we were on track until I put this report together. Turns out the regular $400 monthly contributions made to my wife''s account for the 1st 4 months of the year were for 2007 so I have some catching up to do. Current Status: Slightly behind ($3,300/$10,000)


• 5) Fully Fund my wife's 401(k) to Max Permitted ($15,500) - Looks like we aren't going to achieve this goal since my wife won't be working this year with our China assignment extension. I think we should come up with an alternate - like investing $10,000 in our taxable brokerage account instead. Still need to discuss this with my wife. Current Status: Not Applicable ($0/$15,500)


• 6) Fully Fund my wife's car fund ($20,000) - At the beginning of the year my wife had about $17,000 saved. Current Status: On-track ($19,400/$20,000)

• Finances - We think we come out at least neutral by extending versus going back. Too many variables regarding job income, expenses, timing, etc. but as long as we are spending at or our below our current levels we should come out even/ahead. The biggest variable is my my wife returning to work by going home in June vs going home in Dec and we won't know what the affect is until we get back.
• Wife's Career - It will be more challenging for my wife to find the type of position she is looking for when we get back. However, after talking it over we think it will be managable. We will send my wife home early so she can go to a job fair that we think will help her land on her feet. Worst Case: she will substitute teach until the next school year. Best Case: she will find a desired teacing position in a school located close by. Most Likely Case: she will find some not-so-desired teaching position in a school further away. Plus depending on when/if we start a family her career would likely be put on hold anyway.
• Rental Properties - We need to rerent both rental properties in the next month. We have signed up some family to handle one of the properties and we will be visiting the US and handling the 2nd property on our own. Kudos to our supportive family.
• Petcare - As fate would have it we are having family move back to the area and they are willing to take care of our pet for the duration of our assignment.
• Spending Time With Family - We are planning a trip home for a couple weeks to catch up on spending a little time with family. We will still be way behind for the duration of the extension, but that comes with the territory when you are overseas.
• Life Planning - After we talked about it, this extension didn't seem to derail anything for us, but gave us a delay on the realities of returning home. It potentially allows us to save additional money for our new home, and we are going to take a trip to Australia during the extension so we will hit an important long term goal to my wife with the trip.

It was kind of weird have everything seemed to come together to stay. While we didn't see a major benefit in extending (other than potentially extra savings), the obstacles to extending seemed to figure themselves out so we decided to extend. It does ensure us we will be able to save at a similar savings rate to the past 6 months and we will hopefully hit a long term goal of ours to visit Australia so I think we come out ahead.

Now that we are sticking around and have adjusted to living over here, I decided I should go ahead an open a local account. The primary reason I opened it was to stockpile what I will need in terms of local currency for the remainder of our assignment to take advantage of the declining dollar.

The exchange rate I have been getting has plummeted since I have been here in mid-2007 from 7.7 to now 6.8. Even though I knew this was going to occur, I didn't have any place to stick local currency except under the mattress so I only took out/exchanged what I needed each month.

With my new China account I can forecast my expenses for the rest of the year and go ahead and move an amount of money over that should last me for most of our extension.

Its a little bit of a gamble, but I am not particularly worried in a resurgence of strength in the dollar at least for the next 6 months.

Still lots to learn.

The plan which was significantly altered in 2005 was weakened, now offering only a 5% discount to the market price versus a 15% discount and no longer offering the optioning effect of allowing participants to purchase stock at a fixed or better price for a 6 month period.

I had continued participating for the past 2.5 years since I felt the stock was significantly undervalued. While I am not saying the stock is particularly overvalued, I no longer see the compelling valuation in the stock that I did. Maybe I should take that as a sign I should sell some of my holdings, but as I have previously admitted, I don't quite have a disciplined sell strategy in place for my investments.

Now I need to figure out what to do with the extra money in my paycheck. At this point I believe it will be diverted to cash savings for our house down payment goal in the short term and into an index ETF in the longer term.

Why Focus on Reoccurring Monthly Expenses?
This type of expense are the Achilles' heel to any family's household budget. Each expense no matter how insignificant accumulates into a bigger and bigger expense each month eventually over longer periods becoming significant costs. That means every dollar you reduce a subscription you could be saving $12/yr forever. If you shave $10 off 1 subscription that is equal to $1,200 in savings over the next ten years.

Not Getting The Maximum Value
Because it is a subscription, it likely means you aren't getting the maximum benefit from it each month because its always there. Lets take a typical example - a premium movie subscription like HBO or Netflix.

Its easy to financially justify the subscription when you enrolled -- it would pay for itself and then some because you could replace your typical renting of say 10movies/month at a cost of $40/month with a cost of $20/month with this subscription. Sounds good at least initially -- you can watch unlimited movies and say $20/month vs renting 10movies/month.

However, after the 1st couple of months you quit reserving every evening to watch a movie on your premium movie subscription. Obviously other things are going on in your life besides your movie watching hobby. You have seen all the popular movies on it and while you still use the service, you stop maximizing the value of it. Then there could be a new movie that the premium service doesn't offer so you end up having to go out to rent the movie anyway.

Sooner or later you are at the point of maximum profitability for the subscription -- that is the point where the service provider is getting the maximum profit from this service -- you are paying for the service and not even using it enough to justify paying for it.

What are Some Typical Subscription Expenses?

• Magazine Subscriptions
• Cell phones
• Home Telephone Line
• Cable
• Internet
• Home Security System
• Satellite Radio
• Movie Subscriptions (Netflix)
• Yard Maintenance (eg. TruGreen Lawn Service)
• Insurance (Car, Home, etc)

Cancel The Subscriptions You Don't Need
You need to do a self-assessment of each of your subscriptions and determine if the true cost you are paying is worth the service you are receiving. Your likely deriving some benefit from the subscription, but is it really worth the price you are paying?

For example, my wife signed up for a home security system when she bought her town home. The benefit was is made her feel safe since she was living alone. However shortly thereafter she got a roommate and eventually yours truly came into the picture. Did she feel more safe with a security system? You bet. Was it worth the $400+/yr to maintain the security system? It took a little convincing on my part, but in the end she canceled the security system.

Look for Ways to Reduce Remaining Subscriptions
My wife and I are on an overseas assignment. While we opted not to cancel our telephone subscriptions we were able to sign up a reduced rate suspend cell phone plan by AT&T and suspend our telephone service with Bellsouth. This cut our subscription costs down by over 60% during a time when we weren't getting the maximum benefit of the expense.

Downsize to Less Expensive Subscriptions
Another option is to look identify what benefit is really important and find a less expensive subscription that gives it to you.

My wife's telephone bill was running her $35+/mo. Canceling her telephone wasn't an option for her, but by studying the bill, I found the subscription also included a home maintenance plan. Since it was only the telephone service that she cared about we were able to drop this part of the subscription and reduce her monthly fee.

Another example is considering changing the movie subscription plan you are on. If you are paying $60/mo for premium cable, maybe you could consider dropping to $40/mo basic cable and $5/mo Netflix to reduce your monthly costs, but still get the same usage benefit.

More Ideas to Consider for Reducing Subscription Costs

• Reduce insurance to what is really needed- Consider dropping comprehensive and/or collision coverage or raising your deductibles
• Consider canceling cable and taking the money saved to upgrade to HDTV
• Reduce phone service plans if you have both cellphones and landlines
• Use free Internet offerings (eg. public library, Starbucks, or neighbors) and cancel your Internet service
• Cancel newspaper and magazine subscriptions and consume the free content on Internet

Due to the repetitive nature of subscriptions, reducing even small amounts eventually take out big chunks from your total expenses.

Granted its not a lot of money - about $0.04USD per plastic bag. However it has immediately changed my behavior. I had to pay the tax for a couple plastic bags the 1st time, but now I bring my own plastic bags and my wife has started carrying a cloth bag with her for trips to the store.

I like the idea of an economic incentive for going green. It amazing how simple yet powerful this one is. I'm surprised more places in the US don't adopt it.

Its still a work in progress, any feedback is appreciated and may be incorporated into future monthly reports. The only equity investments not covered are:
1) my 401k which is invested in institutional index funds through my employer that I haven't found a tracking symbol for.
2) investments roughly worth less than $500, simply because I don't have the time and energy to keep up with them. I am thinking I will sell these off at some point and add the proceeds to my current investment portfolio because they are too much work to track.

May Highlights:

• I have been able to fill in more of the 'Date Acquired' column which is the date of the initial purchase of at least part of this investment. I still have some more work to do to finish up the acquisition date and the cost basis information.
• We bought more into the financial industry with additional investments in Wachovia and an initial investment in the KBW Banking Index ETF.
• Remaining investments have be part of our ongoing monthly investments - Pfizer DRIP ($50), ConoccoPhilips ($25), IBM ESPP (payroll deductions), and Roth IRA ($800) contributions for my wife and I. Pretty self-explanatory.
• IBM has performed well. I nearly sold 100 shares of IBM at the end of the month, but hesitated. Its on my list this month to complete the sale and use some of the proceeds for our home savings goal and the remainder will likely be moved into the Vanguard Total Stock Market Index ETF.

May 2008 Investment Report:

Highlights for May

• All credit card debt (except current month's purchases) is in the form of 0% APR balance transfers earning interest in my savings accounts.
• We were asked to extend our assignment till the end of this year.
• My wife and I are spending a lot of time with life planning. We are coming up to some major crossroads in our lifes and we are working through some life decisions.
• We crossed the half-millionaire mark this month. Its a significant milestone for us - we have reached 25% of our financial freedom goal.
• Overall our investments performed well this month especially with the strong performance of IBM. See our May 2008 Investment Report.

You can see my previous monthly net worth updates here.

To celebrate my wife and I are staying in tonight, heating up some soup for dinner, and watching a movie since we have been over budget in our food/dining spending recently.

We have now reached about 25% of our financial freedom goal, but I actually feel like I am already there. Technically we could start to coast, take the foot off the career gas pedal, and if we can just maintain our savings rate there would be a reasonable chance that we would be financially free in ~10 years (give or take).

On the other hand with all the life planning we are doing, our savings ability could be changing drastically over the next couple years. Guess its a bit premature to feel like we can coast to the finish line.

Its been 2 years, 2 months since I reached 10% of our financial freedom goal.

When I first read some details about this book I knew I needed to read it. It is a book that I could have probably written myself although it wouldn't have been nearly as entertaining. Once I got it I tore through it, finishing the book in a matter of hours.

Given I had high hopes for this book -- I was left a bit disappointed. The book was a little simple, more often than not it was focused on recanting the author's experiences at pinching pennies to the extreme and getting into real estate.

The book was an easy read. It was light and humorous - it should appeal to anyone who hates reading about boring finance details and is more looking for examples of how average people "made it".

To that end I was disappointed that 80% of the author's wealth was created by 3 property investments. Great for the author, but not sure its a recipe for success that other's can replicate.

I think its more of a statement of being in the right place at the right time. Purchase properties in transitional neighborhoods and rehab them. Mix in a little landlordng with a focus on positive cash flow is a recipe for hard work and growth, but he got lucky by timing it during the biggest property boom in 50 years. The next story like this may be a stock investor who mortgaged everything, put all the cash in stocks, and rode the stock market to Dow 30,000 in the next 12months. Who knows.

Perhaps the most valuable part of the book is how extreme the author went to cut expenses. College clean, multiple roommates, Ramen binges, always looking for a way to pay less, etc. All these actions which are probably extreme to the average consumer may help give motivation to folks to further cut their fixed expenses. It was a good wakeup call to me as to how content I with our higher expenses.

In the end I give the book a thumbs up -- its a refreshingly easy read to give you a little inspiration to dive into your next project to reach your financial goals.

With only 4 weeks left, we are starting to look forward to everything that is going to happen when we get back. We can finally start to consolidate our stuff and find a place to settle down. It will be nice not to have to live out of a couple suitcases when we get back. That said we are really enjoying our time here in China. We have experienced so much in just the first 6 months of our marriage including visiting Thailand, Malaysia, Singapore, and several spots in China.

If we were to stick around for another six months we have a number of things to figure out:

• Finances - We need to sort out if it makes financial sense for us to stick around. There are a lot of financial implications if we stay vs going home. Tax situation changes, my wife won't be able to contribute to a 401k in 2008, etc.


• Wife's Career - my wife won't be able to slide back into a teaching position at the beginning of the school year. This could potentially be an income loss up until the beginning of the following school year and make it more challenging to find the type of position she is looking for.


• Rental Properties - We need to rerent both rental properties. We were going to be back in the US in time to turn around and rerent both of our rental properties . We need to figure out a plan on how we get this done if we are not going home.


• Petcare - We have a pet that we have made arrangements to have taken care of while we are gone up until June, but after that we are going to need to make new arrangements.


• Spending Time With Family - We are both pretty close to our families and had planned to spend time with them when we get back. If we stay we need to address this.


• Life Planning - Even though we are still currently thinking a lot about our long term plans, we need to figure out if and how this fits in the big picture. If this does not move us towards our long term goals then why would we do it?

Guess my wife and I have a lot of stuff to talk about tonight.

RME appears to be a no cost Paypal alternative although I can't see how they make an money. Here is a link to their fee schedule.

*Full Disclosure: I will earn $10 for referrals via links.