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.

Are Rewards Cards Really that Rewarding?


I have a huge amount of respect for Dave Ramsey.  I discovered him soon after I moved to Tennessee in 1998.  At that time we had just bought a new Jeep Cherokee and were making car payments.  I also had a couple of credit cards that I was paying off every month, which seemed to be working for me, until it wasn’t.

After I started listening to Dave Ramsey, we started paying off the car faster, paying it off in about three and a half years instead of the original six we were signed up for.   We then refinanced the mortgage from a  30-year to a 15-year, taking advantage of the lower interest rates, then paid if off in about 12 years, saving probably a hundred thousand dollars in interest. Thanks to Dave, we were on great financial footing by the time we reached our mid-thirties, despite starting off “normal,” as Dave would say, which meant that we were in debt with a car payment, spending money as fast as it came in.  (At least we never had credit card debt since we were paying the cards off each month.)

Pick up a copy of Dave’s book if you’re perpetually in debt beyond your mortgage and get started on your debt snowball – it can change your life:

I still held onto the credit cards since they did not seem to be hurting anything and we were getting a little cash back.  One day, however, I opened up a bill and discovered that I had been charged a bunch of interest, basically wiping out the cash back I was getting.  What had happened was that I had written a check for the full amount, something like $1759.65, but had mis-written the line where you write out the amount of the check.  The  box said $1759.65, but the line said “One-thousand fifty-nine and 65/100s.”  I had left out the seven hundred.

I’m sure that the people who received the check noticed the mistake, but didn’t call and tell me, letting me think that I had paid off the balance in full.  The credit card company (Bank of America) decided instead to cash the check for the lesser amount, then charge me for interest for the first month and the next month since I had not paid the amount in full.   Because I had particularly a large balance the next month, the interest came out to several hundred dollars!   At best I was getting a hundred dollars or so a year in rewards.  Needless to say, I was fairly upset.  When the company refused to refund the interest, I cancelled the card, sending in a check large enough to make sure I paid off the balance so that I wouldn’t continue to be hit with interest.

At that point I swore off credit cards, instead using only cash and a debit card for about eight years as Dave Ramsey advised.   Rewards cards were nice for the free stuff, but they’re ready to zing you if you make one mistake.  There is also the danger of purposely letting yourself carry a balance during an emergency event in your life.  Once you fall into that hole, while you think you’ll just pay everything off and be done with debt, things usually just keep happening to make you fall back in.  It is difficult to climb your way out.

   

A couple of years ago I did get a credit card again, but this time it is on automatic payment from my brokerage account such that they automatically pay it off in full each month.  So far this has mainly worked out, although I am still somewhat leery.  The only thing I don’t like about it is that they wait until the last-minute to pay off the card, allowing the balance to build up as I add charges for the next month, such that the balance can grow with time and even start to threaten to bump the credit limit if I’ve had some big charges.  I go in every so often and make a special payment to send it back to $0 to keep this from happening.

A few days ago, a gentleman from US News and World Report contacted me, saying that they had done a survey and written a piece on rewards cards, including how to select the best ones and how to manage these cards and was wondering if I wanted to include a link to it in my blog.  At first I was a bit leery to reference the report since I certainly don’t want to promote everyone rushing out and loading up on rewards cards since they really can bite you, but I was impressed once I read the piece in that they constantly made the reminder that you really need to pay the balance each month if you want to be “rewarded.”  If you carry a balance, the value of any rewards will quickly be swallowed up by interest payments.  It also does give some good information on how to select the right rewards card for you if you are so inclined.

The U.S. News & World Report’s 2017 rewards credit card survey and guide can be viewed here:

So if you do decide to get a rewards credit card, here are some things that I would suggest to help protect yourself from ending up in a bad place a few years later:

  1.  Make sure you have an emergency fund, meaning 3-6 month’s worth of expenses, saved away in cash to handle the little emergencies that come up.  Having a credit card for an emergency is a bad plan since that is how people often start to get into serious debt.  Instead, have the cash you need to cover things that come up before the next payday.
  2. Have as fool-proof a way as possible to make sure the bill is paid on time each month. Credit card companies purposely make you wait until after a certain day in the month before you can pay the minimum payment to increase the chances that you’ll pay late.  Watch out for their games that are designed to get you paying interest and penalties.  Find as good a method as you can to make sure that bill gets paid on-time (or early) each month.  Some people send in a check or do a transfer as soon as they make a purchase.  Using automated payment seems to be working for me.  
  3. Don’t ever let the teaser rates cause you to decide to carry a balance.  If you are late with a payment for any reason, and sometimes if you are late in paying another card or even your mortgage payment, they can jack your rates up to 30% or more.  Really, they can jack you rate up if Wednesday falls in the middle of the week or if it is hot in the summer.  They have all of the power in that credit card agreement you probably didn’t scan before you signed up.  You can quickly go from being able to easily handle the payments to just scraping by if the interest rates are raised.  There is no reason to carry a balance on a credit card, ever.
  4. Still use cash to help control your spending.   For most people, spending with credit is painless, where paying with cash hurts.  Think about going to Wal-Mart and shelling out ten crisp $20 bills to pay for a cart full of stuff, versus handing over a card and signing a slip.  One really makes you think about the money you’re spending, the other barely registers.  This means that people spend more with plastic than they will with cash, even when using a debit card.  That is why the fast food chains are now taking credit cards even though they pay a fee when they do.  The amount extra that people spend when using plastic more than makes up for the fees.  While your impulse may be to put everything on the card to maximize your rewards, it is still a good idea to use cash for things like dinners out where you may be tempted to blow your budget if you don’t feel a little pain when the bill comes.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @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 Save for Retirement with Coffee



Coffee drinks are all the rage ever since Starbucks expanded to every corner and convinced everyone that they should pay $6.00 for a cup of coffee on the way into work.  Being a graduate of UC Berkeley, which I consider to be the center of the coffee-house universe, I can’t stand Starbucks.  You see, a coffee-house is supposed to be an experience.  You go and order coffee drinks made with machinery that you could not afford to possess, get served in fancy glasses and cups, and then sit for an hour or two, sipping your beverage and pondering life.  You can also get together with friends and relax on a nice couch and play a board game or two over a latte and scones.    When Starbucks came along, they doubled the price you would normally pay for coffee, plus everything was suddenly served in paper cups instead of a real glass or mug.  Now the experience is like going and paying for a movie, only to be handed a DVD to take home and watch.  Totally missing the point!  (Starbucks likes to think of themselves as environmental, but now thanks to their influence instead of people reusing glasses and mugs each time they get a cup, everyone is getting a paper cup, a cardboard wrapper so they don’t burn their hands, and a plastic lid.  Not very green!)

Still, everyone around me seems to be stopping off at Starbucks on their way into work.  I’ve also started to see people with bottles of Starbucks iced coffee in the refrigerator or at their desk.  At least in this case Starbucks put the drinks in a nice bottle.  I’m surprised they don’t come in a plastic soda bottle, given how much Starbucks degraded the coffee shop experience.

  

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That got me thinking.  Here is a great way that people could save a lot of money, perhaps so that they could start to contribute to a retirement account, with very little if any sacrifice on their part.  Let’s say you drink 2-3 of those Starbucks iced coffees per day.  The Starbucks website lists their suggested retail price at $4.99 to $5.99 for a pack of four.  That’s about  $3-$4.50 per day if you drink 2-3 of them.  If you do this each work week, that’s $720-$1,080 in coffee per year.  Invested in growth stocks, getting 12% per year from age 22 to age 70, that’s between $1.5 M and $2.3 M for retirement.  (You can check my numbers in the investment calculator here, and play around with your own numbers of you like.  Note the most amazing thing about that calculation is that you only contribute something like $32,000 yourself – it is investing and compounding that takes care of the rest!)

But wait – what about your coffee fix?  Well, those bottles are totally washable and reusable.  Start off by buying a couple of 4-packs, then save and wash out the bottles.  You could even use the dishwasher if you’re lazy.  Then, get some good coffee (check out some of the selections below if you wish).  You can get something like 50 cups of coffee from each pound of coffee, so with a quality coffee selling for about $10 per pound, you can make about 50 iced coffee bottles for about 20 cents each from a pound of coffee beans.

 

The recipe would be something like:

  • While still hot, dissolve 1/2 cup sugar in 4 cups of coffee.  If desired, add a flavoring.
  • Once cool, in a pitcher, add 1 cup milk, or half milk and half cream, and mix.
  • Divide between 4 cleaned bottles, using a funnel.  Add milk to fill bottles as desired.
  • Cap and store in the refrigerator until ready to take to work or drink at home.

Note you could make 8 cups of coffee and make eight bottles by doubling the recipe, or even make more at the start of the week if desired to save time later in the week.  The cost for everything will be something like $0.30-$0.40, depending on whether you use only milk or milk and cream, how strong you make the coffee, and how much sugar you add.  You could also make it lower calorie by using skim milk and less sugar.

      

So there you have it.  You can save for retirement, still have your coffee, and even reduce the amount of waste you generate by reusing bottles over-and-over.  You can have better coffee, be able to reduce the calories you’re consuming if desired, or even make it especially decadent by using more cream and extra sugar and flavorings if desired for a special treat now and then.  It’s really a win-win for everyone except perhaps Starbucks.  If you feel bad for them, you could use Starbucks coffee beans.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @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.