John Chow, born in year 1965 in
How John Chow creates his wealth?
Disclaimer: I didnâ€™t interview John Chow. This is my report after reading a lot of his posts at John Chow Dot Com and some interviews by other bloggers.
Most of his wealth is created online. He owns about a dozen websites and 3 dozens domain names. He is an experienced investor who prefers real estates and stocks rather than mutual funds investment. He lives below his mean probably due to his wife, Sarahâ€™s tight supervision on his spending habit. I can say that he definitely know how to manage his money from the concept and strategy he preaches at his blog. There are some tricks that he often uses to reduce tax, and make extra return with other peopleâ€™s money â€“ especially the bankerâ€™s money. For example, you can refer how he does it:-
Is John Chow really a millionaire?
Letâ€™s estimate John Chowâ€™s net worth. I think only John Chow himself knows how much he worth. Not even his personal financial planner. In order to estimate John Chowâ€™s net worth, I have to make some assumptions due to the lack of info. After all, I donâ€™t think any millionaire would be generous or brave enough to disclose all his assets in the Internet right?
After reading most of his blog posts, I can conclude that he owns the following assets:
1. Real properties: the house he is staying and a Versante apartment both at Vancouver.
2. Shares: Microsoft, probably a lot of Googleâ€™s share, and other high tech stocks.
3. Online business: JohnChow.com, TheTechZone.com, TTZMedia.com, Digital-Finder.com and about a dozen other websites.
4. Mutual funds â€“ index fund and Exchange Traded Fund (those low front load funds)
5. 2003 Acura RSX â€“a pretty nice car 🙂
Methodology and assumption:
1. I use Glurk.com to calculate the value of his websites with the help of Google PageRank, Alexa Ranking, and Technorati ranking. You can refer to the report below:
John Chow Dot Com http://www.glurk.com/saved.php?i=3356
Digital Finder – http://www.glurk.com/saved.php?i=3360 â€“ I believe that this value is overestimated. So I use a more conservative figure. Several years ago, John Chow turned down the offer to sell TheTechZone.com for 1.3 million.
2. Since John Chow seldom pays his purchase by cash, I assume that he only leaves $10,000 cash in his usual checking account which will be used to pay off credit balance every month. Other cash money he gets from his business is invested directly in some stocks.
3. If he is using the methods he teaches his readers about how to make the mortgage interest tax deductible, he will roughly have $300,000 of leverage investment in stock, index funds and ETF funds, assuming his current mortgage amount to 65% of the value of his house.
According to my assumption and the limited information I can find, I estimate that John Chow is a multi-millionaire with at least $4 million net worth.
John Chowâ€™s Lifestyle
What can I say? John Chow really knows how to enjoy his life! He canâ€™t agree with people who have no life outside of work, no free time! Thatâ€™s working hard but not smart.Â
As his regular blog readers, we know that John Chow likes luxurious cars. He fine dines at least 3-4 times a week according to his Fine Dining reviews. He charges his credit card slightly more than $100,000 in year 2005 and also 2006. He uses his credit card whenever, wherever it is possible to pay his personal and also business expenses. But he is a responsible spender who always pays off his credit bill every month. I guess he pays the credit card bill just before the due date every time.
Besides the expenses charge through his card, there might be some other expenses which is not able to be paid through his VISA, such as mortgage installment and some other small daily items, this easily added up to about $12,000 monthly expenses. If this estimation is close to his actual expenditure, he is being frugal considering the wealth he possesses.
As mentioned by most financial gurus, wealthy people are normally very generous. John Chow likes to helpÂ you make money online. If you write a review of his blog, heâ€™ll link to it and send you a ton of traffic.
Does John Chow do budgeting?
No. He doesn’t. Even though he is passionate about financial planning, but he does not have a budget plan. It is so unlike him indeed. Many years ago, he tried using PDA with Quicken and Microsoft Money to track his expenses for the whole month. After the month was up, he found a shocking number. You have no idea how all those little purchase here and there can add up to hundreds and thousands of dollars until you start keeping track of them. The experience was a little sobering. But he is lucky enough to have a discipline wife, Sarah who always reminds him of his impulse buy.
How John Chow defines Financial Freedom?
John Chow says that when your passive income equals your monthly spending requirements, you are considered financially free. It doesn’t matter how much money you make a year if all of those are active income instead of passive one. He likes online business because the Internet is an ideal place for creating passive income without massive capital investment.
John Chow admits that his Internet income is not 100% passive because some content sites require updates. However, the effort is minimum and far less than even a part time job. He does own some sites that require no input, yet still generating passive continuous income. An example of an autopilot page is the Digital Finder Price Index. This page updates itself every 15 minute and requires no human input what-so-ever.
You will never get truly rich if you are stuck to a 9-5 job because getting rich definitely requires lots of time and effort. John said that the average person has a financial lifeline of 3 months, meaning that the person can’t survive â€œfinanciallyâ€ longer than three months if he lost all his active income. I think that John Chow had achieved his financial freedom in this few years. How could someone blog for fun and attend class with his daughter where only housewives turn up, if he still haven’t achieve financial freedom? He might already have a very long, infinite lifeline.
What John Chow thinks about Life Insurance?
John Chow thinks that life insurance is a tax shelter that allows your investments to grow free of tax. He shows a strategy by how to use life insurance to shelter income. His strategy allows you to take money out of the insurance plan tax free, and allows you to transfer estate to your heirsâ€™ tax free. Anyway, his advice is applicable to Canada citizens only. For Malaysian, it is even better! Even though Malaysian government only giving tax relief of RM6000 (life insurance plus Employee Provident Fund) and RM3000 (Education policy and Medical insurance), all the cash value taken out anytime are tax free. There is no estate tax as well!
He also points out in his post that most of us donâ€™t carry enough life insurance. We all like to think weâ€™re invincible but weâ€™re actually not. What will happen to you and your family if you can no longer trade hours for dollars?
He also advises that we should always seek out the advice of an experience financial planner before proceeding with any investment.
How John Chow manages his cash flow?
John Chow played the famous Rich Dad Cashflow 101 board game designed by Robert T. Kiyosaki for the first time in 29th January, 2006. He said the game can teach you the basics of fundamental investing and how to take control of your personal finances, build a business through proper cash flow management, and learn how to invest with greater confidence in real estate and other businesses.
John is definitely a calculative person. He shows how he takes advantage of the bank policy to make 6% interest on his checking account. But the 6% made is understated. If his highest tax bracket is really 50%, he had to make 12% return on the minimum balance $2000 to be able to save $119.40 per year.
Another example of being calculative is the case with tax return. He prefers to plan his tax well so that he will not get a tax refund. Because a refund would mean he overpaid taxes and the government had the use of the money interest free for a whole year.
John Chow understands how to differentiate the true assets and liabilities. According to his gun and butter theory, gun is asset and butter is liability. He wrote â€œItâ€™s pretty simple and easy to say that we should all be acquiring guns, because guns make more guns, while Butter just melts. However, most people go through life buying butter and no guns, or they buy butter thinking itâ€™s a gun, when in fact itâ€™s just a very expensive piece of butter.â€
How John Chow invests his money?
John Chow never stops learning about investment and personal finance. He reads Money Sense magazine, and some other investment articles online. He also enjoys watching some money related TV shows such as Till Debt Do Us Part, Maxed Out, Property Ladder, and Flip That House.
Investing in business startup
John Chow lists his 5 requirements for investing in a new business.
1 – The Business Must Have Low Start Up Cost
2 – The Business Must Have Exclusive Rights
3 -The Business Runs Itself
4 – The Business Has To Be Global
5 – The Business Has To Be Portable
He shows the example of starting his blog with only a few dollars spent for the domain name. But he had successfully made money out of thin air by turning the blog into a profitable site in just a few months time. His April 2007 earning from the blog alone is $11,7002.66.
Real Estate Investment
Just like other millionaires, John Chow definitely loves investing in real estate. He said that real estate is an extremely safe and sound investment, even if prices move against you. The key is to structure the deal so that rental income covers all expenses. If that is done then it doesnâ€™t really matter what happens to prices in the near term. In the long term prices will always go up and the longer you wait the more equity you build up.
He plans to buy 2-3 properties every year. He bought his first house for $412,000 in April 2005. He then bought a unit at Versante on 26th November 2005 for $350 per square foot. John also uses the flip strategy to reap investment return during rising market.
John Chow diversifies his portfolio into stock investment. He is a knowledgeable investor who can explain the investment jargon like Earning Per Share (EPS), Price Earning Ratio (P/E), treasury etc. He owns some Microsoft shares which he declined the buy back offer from the company in August 2006. He probably owns some Google shares too. Similar to Warren Buffet, he reads all the financial reports when he invests in the company.
Mutual Fund Investment
John Chow hates mutual fund! Realizing that 70% of the mutual fund managers fail to beat the market, and fees as high as 8.5%, John prefer alternative such as Index Fund and Exchange-Trade Fund (ETF). ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold. Because it trades like a stock whose price fluctuates daily, an ETF does not have its net asset value calculated every day like a mutual fund does. John explains his dislike in his post – The Mutual Fund Scam. But is mutual fund really a bad investment?
How John Chow manages his debt?
John Chow’s opinion about debt is â€œTo get rich you must be heavily in debt. The key is to have the right kind of debtâ€. Good debt is any kind of debt where the interest is tax deductible. But the problem is most people have a lot of bad debt instead of the good one! John Chow eventually figured out a way to determine if someone has a debt problem — â€œYou Have a Debt Problem If You Canâ€™t Pay Off Your Credit Card Balanceâ€
How John Chow uses his credit card?
John Chow fell into a credit card trap before. He has been one of those people who are still paying for that pizza they order years ago. It took him years to get out of it. He definitely learns from the mistake.
He says that it is ridiculous to pay the credit interest with after tax dollars. So that 18% per year they charge become as high a 36% interest. Currently, John Chow uses a Visa that gives him 1% cash back on all his purchases. He is making money on using it since he always pays off this Visa on time.
He received his TD VISA â€œdividendâ€ check on 14th February, 2006 amounted $1,036.43 and represented 1% of his 2005 purchases made with his credit card. He actually spent more than $103,643 in year 2005 alone! In year 2006, the dividend slightly drops to $1,030.65 which represents his purchases of $103,065.00 in 2006. That’s a big sum of money to a lot of people. Although he said that some of the expenses are business related â€“ such as hosting fees. Anyway, how much would it cost to host websites for a year? We can imagine what kind of lifestyle John is living in. He is a discipline spender, definitely a smart credit card user.
How John Chow treats his mortgage
In January 2006, John Chow refinanced his mortgage for a better rate. As usual, he shops around for the best rate available. His advice is to have excellent credit and finance only 65% of the house value. For those people who have lots of undeclared income, it is smart to pay 35% down payment and finance only 65% from the bank. The bankers will approve your mortgage without asking if you make enough money!
John Chow also knows that his primary residential home is not a gun (according to his Gun and Butter Theory). He advises his readers to shorten their mortgage term to less than 15 years. According to his theory, mortgage interest on a principle residence is not tax deductible unlike in the
He personally prefers the home equity line of credit (this is something like Flexi-homeloan in
It is most peopleâ€™s dream to live like John Chow â€“ work at home flexibly, spend most of the daily activities with family, fine dining, luxurious cars and a semi-celebrity.
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