The Real Beginning of Investing for Young Budgeteer

P.S. There are no affiliate links in here. Not one. I linked to a few sites from time to time to show you where I search for information but my goal is to share what I do, not to get you to buy something so I profit. Have a nice day and feel free to check out anything without the fear of being sold. Also, the wad of cash is from high school when I used to drive food delivery for a small sandwich shop called Jimmy John’s? It seemed like a fun thing to reminisce with. Nothing special about that.

Okay, wow. Yes, it has been probably over a year since I threw something up. As my “main hustle” or some people might call it just, my job, started to take off, as well as getting married, buying a new house, becoming the HOA president (bad decision), and then having to remodel because of a freak accident in my house, I haven’t been able to write much recently.

Hmmm… My bad. I’m sure there’s not many of you out there reading this, but for my own joy and pleasure, and because I’ve kept to my constant fast-track of learning, it makes me happy to put out my thoughts once again. If you have negative thoughts, please know that I already don’t care for your comments. If you have constructive feedback to add value here or positive wishes to share in the joy of learning that we all hope for, I ask for your friendship and for you to share your knowledge as well as so many others are sharing to boost this community effort of trying to put ourselves in a better position in life.

MY BIGGEST GOAL HERE IS TO SHARE WHAT I AM DOING TO RETIRE, NOT TO PERSUADE YOU TO MAKE ME RICH BY READING. IT SOUNDS COUNTER-INTUITIVE TO TALK ABOUT THE STRUGGLES OF WORKING AND SAVING AND INVESTING IF I AM DOING IT WITH THE IDEA TO GET PAID MORE WHICH MAKES ME UNREALISTIC AND ANY CONNECTION I HAVE TO MY REAL AUDIENCE. WE’RE ALL IN THE SAME BOAT. NO TRICKS. I want the nitty gritty and I want to share the nitty gritty. Yes. I understand that we will have different situations and I understand that my salary and your salary are the not the same. My savings rate and yours are not the same. But what is the same? That I am starting and you can as well. That I am trying out ideas and first-hand proving and sharing the results that you can see work, and I’m being practical. If I buy a house and I have an issue with a tenant, you could probably have the same issue. If I buy a stock of a company without knowing everything and they do well, it is possible for you to do that as well. I don’t plan to make money here. I only plan to share my results transparently from one friend to another. Thank you for reading, new friends.

The Goal:

For most of us who dabble within the realm of personal finance, there are many combined goals and many goals that are different depending on one’s situation, one’s idea of necessity, and of course, what lifestyle they would like to consistently have. One of the similar goals is to have more FREEDOM.

More freedom of time
More freedom of place
More freedom of ability
More freedom of activity

In an effort to reach the fire movement, FIRE idealists either ramp up their income or they save significant portions of their earnings so as to weather the storms of the future. This enables them to live consistently at a certain level without the need to meld to the typical chains of a day job or a career position that only lets them live how they are because they are constantly gone from their families and lives from a significant portion of their day.

Even more recently, I’ve seen a myriad of post from new or current FIRE community embracing the idea of what they call #SlowFI. An idea that you don’t have to sacrifice the latte, the avocado toast and your friends to eventually become happy at a later point. Perhaps the effort of running faster than you have strength and then realizing that you may have an overall happier experience if you focus on now as well as the future. Don’t take your eye off the ball, but if you don’t hit a home run every swing, you can still get to home plate.

I am reading through a book right now that touts this similar concept. The Happiness Project by Gretchen Rubin. It states, “In his book Happier, Tal Ben-Shahar describes the “arrival fallacy,” the belief that when you arrive at a certain destination, you’ll be happy. … The arrival fallacy is a fallacy because, though you may anticipate great happiness in arrival, arriving rarely makes you as happy as you anticipate.”

Interesting. And maybe why a lot of FIRE community and PF bloggers are opting for SlowFI over… idk, strict FIRE? (Whatever that means, you get my point.) They are realizing that you sprint your heart out for such a time and then as you start to wane, you can still re-evaluate and change your approach so that you last for the entire journey. (and so you can enjoy it along the way, right??)

So why am I saying this? No reason, I’m just giddy to get back into writing again. I’ve learned a lot over the past year and I felt like typing it out, both for my own edification and tracking and for the benefit of anyone willing to read this far. I truly appreciate it.

When I first started writing blog posts, I had begun to invest in stocks, I began to invest in a 401K, and I worked to improve my incomes while cutting my expenses. I was doing great. But I think I started because I thought that you “invest early for the best results” and the fact that blind obsession had worked before. I have revamped my goals and revamped my method of achieving those goals.

The defining statement that I will try to accomplish here on this site from here on out is to:

Cover My Expenses With Income Generating Sources Other Than My Job.

I’m sure it will alter slightly as I age.

The Strategy:

401K:

As of the time of my writing this, I am not “brand new” to investing. I have a 401K with my employer and I am contributing to that regularly. It holds about $8-10,000 in it but mainly the available ETFs/Mutual Funds are limited and I won’t be tracking that fund for this purpose. I am just making it clear that I have a 401K elsewhere and it won’t be contributing to this portion of my investment conversation.

Rental Properties:

Over the last year or two as I have been learning about finances I’ve been drawn to the idea that in cases, like Real Estate, you can have an active role in the growth and invest unlike in a company you hold stock for. If that CEO decides to sleep with the CEOs of all your other companies, you had no control over that but your stocks will probably take a hit. On the other hand, when you buy property, there are a handful of benefits that will help your investment to hold more value to you in the long run. The first is a must and the others are icing on the cake.

  • Cash Flow (or “50 Real Estate Investing Calculations” states as “the cash left over after you the the monthly income from the property and pay all of the monthly expenses of the property.”)
    • I.E. The rent you collect minus the mortgage, the utilities, the taxes, the insurance, the case reserve funds.
    • Cash Flow Positive Rental Properties are the only ones I will put an offer on. If you are paying for a property that is not making you money (about 10-12% at least, your money can be better spent in the stock market making you 7-8%.)
  • Appreciation: Example: In my area, a townhouse we looked at buying was going for $95,000 last year. Now those townhouses are all selling around $135,000. The owners bought them for $95,000 and when they go to sell, they will make another $40,000 in one year JUST from holding onto it. No work involved, $40,000. Not bad.
    • Probably the hardest part of this is buying in the right area. No one can tell if a certain area will explode with growth, but usually an area where growth is already happening will allow nearby areas to grow as well in the coming years.
    • I won’t rely on appreciation too much because I plan to hold these properties for a very long time if not forever. Their main goal is to bring in cash flow monthly.
  • Tax Benefits: After you have paid your taxes, interest, etc on a property, those items are able to be written off on your taxes each year. The government likes people who own land/property and those can actually benefit you when it comes to tax season.
  • Principal Paydown or Equity: At the same time that I am both making money each month from the property and the home is appreciating, I also will have a tenant that will be making (covering) the mortgage payment for me. That includes the principal portion in that property. Therefore, they are paying to continually drop my loan amount. So my loan amount goes down, without me having to pay it, and the amount of the property that I actually can walk away with is going up, without me having to pay for it.
    • Equity defined by “50 Real Estate Investing Calculations” is “the value you have in your real property investment.” Most say it is the unrealized amount of money you can net or walk away with after you sell the property and pay your selling costs.
    • I am going to try and always get a 30 year fixed rate mortgage. Here’s the reason. It changes my mindset to focus on always having a tenant in the property (which will be necessary long-term anyways) so that I have some cash flow. A 30 year mortgage will allow me to cash flow a little higher each month and allow me to put that money into another property soon rather than having it tied up in a property.
    • Since I plan to have these properties and never sell them, eventually the 30 year mortgage will be paid off (again, not by me) and the cash flow will make a huge jump.
    • Again, if I buy these in cash or pay these off early, then I get no tax benefits such as depreciation of the property or tax write offs on the interest, etc. Which leads me to my last point
  • Leverage: Being able to use a little bit of money to own an asset that is worth much more than you are able to currently pay out for. If I invest in Amazon (trading now for something like $1,700 a share) then I need $1,700 to invest in them. They will then pay me dividends and the stock price will go up that I can eventually sell for more money. (appreciation) BUT in real estate, I can put down 20-25% of a property and receive all of the benefits of investing in the whole property which now pays me monthly, has those other benefits I mentioned before AND someone else will pay for me to own the rest of the 75-80% that I didn’t originally put out money for.

Something recent that happened yesterday is my wife got a call from her dad saying his co-worker invests in properties in our city and they were looking for someone to showcase their houses. So we’ve got a connection now to investors. As well, it turns out my co-worker flips houses and his brother is a real estate agent. So we are slowly building our team before our first investment. More to come on that.

Dividend Stocks:

To keep stocks and dividends simple, a stock is a piece, an entitlement to a portion, of a company just like a puzzle piece is to a puzzle. Since becoming an analyst and VERY NEW to stock trading, the numbers associated with stocks has seemed pretty boring and the idea that the value of a company is only what people think it is worth kind of makes me feel weird putting my money into the hands of people debating over a company doing well or not. Isn’t that the point of income reports, earnings calls, and like.. your balance sheet? It seemed very gambling-esque.

In any case, whether you are new to stock trading/investing in the stock market or seasoned, you come to understand at some point in your experience that the simple truth is that buying good companies and companies that are going to grow will benefit you in the long run. Penny stocks and other high risk investments can ruin your future a lot with a higher probability than there is to “make it big in one go.”

A dividend is when an established company decides to pay back part of its profits to those people who own part of the company and decided to trust that the company will do well. While most of the time, this is sub single dollars per share, it adds up when you have multiple shares and get paid every month or what is more regular is every quarter.

A handful of companies are well known for increasing their dividends year over year for sometimes up to 25, 40, and even 62/63 years for companies like Dover and Emerson Electric. This is usually a good indicator that they will continue paying dividends to their investors. I included the site that I check to see this list of titan companies called Dividend Aristocrats.

I will leave the deeper things to people who want to explain things like dividend yield and why a certain company cut dividends or why you should not invest in such and such a company but for the simple purposes of starting out, I am just going to detail each month with the dividend amounts that I am receiving from the start. (which was $0.04 the first month, by the way) I plan to include the companies that I am investing in, a short bit on why (which will include my personal experience with these companies most times), the price I bought them at, what their dividend yield is, and then a summary of my dividend totals for each month and hopefully a breakdown from each company. Plain and Simple.

The Conclusion:

My goal in sharing this is for the accountability to myself but mainly to add a little of real life strategies that I am taking for retirement. And with that, I will be on in a couple weeks to report back what I am up with those. Thank you again for reading!

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