Become An Owner Instead of a Worker


When we’re young, we trade our health for money.  We work long hours.  We lift heavy things and wear down our tendons. We spend hours typing or doing other repetitive motions that cause carpal tunnel syndrome.  We spend hours on our feet and wear down the disks in our backs and develop heel spurs.

We trade this wonderful gift of youth and health that we’ve been given, the ability to keep pushing it for may hours, to bounce back when we fall down and heal fast when we get cut, for cash by working way too many hours.  We go in before dawn and leave after dark, never getting out to see the sun and the woods and the oceans.  We work hard to go on a vacation, which is then rushed and filled with work thoughts and emails back to the office the whole time.  We buy large, beautiful homes that we spend all of our free time maintaining and cleaning when we aren’t working to pay the mortgage.  We buy things on credit and then spend a quarter to half of our time working to pay interest payments.

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While we’re young we can make extra money by just pushing it a little harder.  We can make that car payment if we work overtime on weekends so we can drive that shiny new car to work and have it sit in the parking lot all day, slowly decaying away.   We can take on that second job and get all of the cable packages and five different web streaming services.  We can keep buying clothes to impress people we don’t like and buying all of the latest gadgets to look good for people we don’t even know.

When we get old, we trade our money for health.  Any money we’ve saved up through those long hours of work goes to treatments, surgeries, and drugs to reduce the pain our weary bodies feel.  We spend money to try to have the ability to walk and run and jump and heal like we did so easily while we were young.  We get surgeries to be able to walk after long hours of carrying heavy loads have destroyed our knees.  We buy prescriptions to lower our blood pressure after years of sitting idle at a desk, eating poorly, and letting our health decay.

Stop.  Stop today.  Stop right this minute and change your life.

Become an owner instead of a worker.  Instead of getting that new car, drive your old one for a few more years and send those car payments you would have made into a stock mutual fund and become an owner in a group of companies.  Buy a smaller house for cash and invest the money you save on interest.  Stop buying things to impress people and just buy what you need so that you can spend time with your family who don’t care what the label on your blouse or jeans says.

Start building a portfolio so that you will be getting dividend payments and capital gains instead of paying interest payments and penalties.  Let others work for you so that you don’t need to work those extra hours.  Expand your lifestyle by waiting a little while to buy things, instead investing the money in mutual funds, then using the distributions from those mutual funds to add to your income.  Direct some of that money back into buy more mutual funds, and your income will expand on its own.

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Everybody can become an owner.  You can start a mutual fund account with Schwab for only $1.  You can start investing through Vanguard funds for only $3,000 ($1,000 if you start a retirement account).  Start an account and start sending a little of your paycheck in each month to build your wealth.  Own things.  Build things.  Stop just using all of your effort to generate entropy.  Stop having your money flow into your back account through direct deposit and then back out again to bills through auto pay without your even seeing it.

The next SmallIvy book, Cash Flow Your Way to Wealth, will be coming out in about a month.  It gives the game plan to go from worker to owner.  Subscribe to this blog to make sure you get your copy when the time comes and don’t miss out.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Don’t Let Imperfection Keep You from Growing Wealthy


 
IMG_1836I have a confession.  We haven’t put money into my kids’ Educational IRA accounts yet for 2016, even though the year is about 3/4 over.  We also don’t pull together a budget every month, and haven’t for a few months.

We have done good things like starting IRAs when we first started jobs and have contributed to them most years.  I also got into the 401k at the first opportunity, although I only contributed about 10% of my pay between our IRAs an my 401k the first ten years or so of work.  Today I’m contributing around 15%.

We do eat dinners in most weeks except for one diner out as we have been doing since we were first married, but we have started going to lunch or breakfast after church or if we’re out on a Saturday here and there.  We also probably impulse buy at places like Wal-mart and the guy really saw me coming with that Kirby vacuum.  (I have noted, whenever I decide to just “buy something nice for once,” I usually end up regretting the purchase.)

Obviously, even though I write a blog that is about personal finance about 80% of the time, I don’t have a perfect financial life.  I’m like the fitness guru who has a doughnut and a cup of coffee sometimes before work.  Yes, I know better, but that doesn’t mean I always do better.

We have been able to pay off out home in about 12 years, however.  We have also not had a car payment for something like 15 years now.  I purchased a new car on payments back when I was credit-ignorant, and probably won’t do so again.  But who’s to say, maybe in a weak moment I might.  We also have put away money for our childrens’ college and I’m predicting we’ll have way more than enough for retirement.

The point is that no one is perfect in anything, even when it comes to personal finance.  Often we try to find gurus to improve our lives, but then give up and stop taking their advise when we find we can’t do everything perfectly.  We also watch and wait for those who seem perfect to slip up, then use their failure to be perfect as an excuse for our not even trying.

Yes, you’ll end up better financially if you never buy stuff on credit, put away 15% of your paycheck for retirement religiously, and buy a really inexpensive home.  You’ll be better off if you budget to the penny every month and stock to your budget.  You’ll do better making sure you eat every one of your leftovers and avoid wasting money on food that you throw away.  You’ll probably be better, both financially and physically, if you never buy a car and instead ride a bike to work everyday.  But you probably won’t do these things, or do all of these things, every time.

But don’t let that stop you from making good choices as often as you can.  Don’t think you need to be perfect financially or it isn’t worth doing anything financially.  And just because people who give good advice sometimes fail doesn’t mean it isn’t good advice.  Nobody’s perfect.

Your investing questions are wanted. Please leave a comment and let me know what you think.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

How to Invest a $100,000 Inheritance


So your Great Aunt Grace passed away and left each of her grandchildren and great nieces and nephews with a $100,000 inheritance.  Let’s say you are in your mid-forties with a home and a family and the typical middle-class financial situation.  You want to invest the money, rather than squander it, in respect of your aunt who worked hard so that you could have this money.  What is the best way to invest to make sure that the money will last and be a blessing rather than a curse?   Here are some suggestions.

Pay off your high interest bills:

There are no investments that will provide a big enough return to overcome the 18%-24% that a credit card will charge.  The first thing to do with a windfall is to pay off those bills and then cut up the cards so you won’t rack up a balance again.  Then, put $10,000 in a checking account with a debit card attached.  Use the account to cover the float (the money needed for the time between when you pay for things and when your paycheck comes in.  This is what you  used to cover with your credit card between the time you made the charges and paid the bill).  If you ever find yourself spending down the account and not paying it back, cut back on lifestyle and save like crazy until it is replenished.  While you’re at it, pay off variable rate loans like HELOCs and Home Equity Loans.

Put some money into some mutual funds:

An easy way to invest for those who don’t want to spend a lot of time is to put money into mutual funds.  With mutual funds, the two things that should concern you most are the cost of the funds and the turn-over rate.  The best funds to buy are therefore index funds or index Exchange Traded Funds (ETF)s.  With $60,000 to invest (the amount left after your bills are paid), I’d put $20,000 each in a large cap index fund and a small cap index fund.  I’d then put $15,000 into an international fund and maybe $5,000 into a bond fund or an REIT fund.  This would provide a good deal of diversification without a great deal of care and feeding.

Buy into individual stocks:

For those willing to take a little bit of time doing some research, some individual stocks can be selected and purchased in addition to mutual funds.  Mutual funds will provide the steady, market returns (somewhere between 10-15% if held for many years), but individual stocks provide the opportunity to realize very large gains.  The secret here is to buy stock in companies that have a lot of room to grow that have already proven themselves capable of making money through a great business.  You’re looking for the next Microsoft or Home Depot which grows and splits several times over the next 20 years until they become an international powerhouse.  With high interest debts paid off and $60,000 to invest, I would put $30,000 into mutual funds as described above, and then put about $10,000 each in three stocks that I considered best-of-breed in three different industries.

The first place I’d look is technology.  I’d look at Google, Ebay, Facebook, Amazon, Xilinx, and other companies and see which one I thought had the best management team, as indicated by their fiscal results, and still had a lot of room in which to expand.  The secret for buying individual stocks is that it doesn’t matter which is making a lot of money now – it’s which will be able to make a lot more money in the future, since that is what drives the price up.

The second place I would look is in the restaurant industry since that is where there is room for growth by opening more locations.  I’d look at Chipotle Grill, Darden, BJ’s Restaurants International, Starbucks, Rare Hospitality and others to see which I thought was best positioned for growth.  I would look at how many restaurants they have in different areas of the country and how many places in which they aren’t already dominant.  I’d also see if they could expand internationally.

The third place I’d look is in retailers since they also have the ability to expand by adding more product lines and/or more stores.  I’d look at some of the traditional stores like Kohl’s, Home Depot, Lowes, Gap, The Buckle, and Ambercrombie.  I’d also look at online businesses since that might be where retail is going.  Perhaps one of the physical stores also has a significant online presence that could grow.  Because goods have become a commodity business, which means that everything is pretty much the same and things can be bought at a lot of different places, cost has become the dominant factor for many things.  I’d therefore look for stores that sell unique things you can only get from them since they will be able to maintain higher prices, rather than racing to the bottom with everyone else.

I would assemble my list and then buy in 200-300 shares at a time, waiting after the initial purchase for a dip in price so that I could lower my cost basis (the average price I paid for the shares).   I would buy in over a period of a couple of months until I had a $10,000 position, and then I would be ready to sit pat for many years, giving the companies time to grow.  I would hold on until one of the companies stopped performing well in their business or grew so big that there was little room for growth, then sell out.  I would also trim the position back if it grew too large – bigger than $30,000-$50,000, say.  Too large is defined as big enough that it would have a significant impact on my life if the company suddenly folded.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.