Never Spend Your Money !

“Think about what your options are and the benefits of having your money in Investments that are “producing income.

Never spend your money – At least if you don’t have to. Part of the Dividend Income Investor philosophy is not spending money in the first place. If you don’t spend it you don’t have to worry about saving. (See Golden Rule of Investing) And of course any money you do not spend starts generating income for you immediately because you invest it in Dividend Stocks. Sounds simple to me !

What I mean in the Title though is just a little different, same concept but let me give you an example. I recently took out a mortgage on an investment property. You will hear many people speak ill about debt. I hear this all the time involving potential stock purchases. Debt in itself is not a necessarily bad thing though. There is “bad” debt and then there is “good” debt. I would consider “bad” debt spending on anything that does not produce additional income for you. But I believe the mortgage I took out to buy the investment property is “good” debt. Why? Well in this particular case I took out debt and I am paying 5% interest on the debt but because I was currently earning over 9% on my money I felt it was better to leave my money in the investments and as a result I am still earning 4% more than I would have just for the privilege of not having debt. I also consider the fact that the property I mortgaged would also earning a return making my “debt” even more beneficial.  Beside the fact of earning more by leaving it in the investments let’s look at it another way. Say I only earning 5% and the loan was 5% in that case I wasn’t making any money on the investments. In this case I would still choose to to pay cash for the investment property. If I were to pay cash for my investment property I would own the property without debt but I would have given up a significant amount of cash to accomplish things with or to invest in another investment with a  higher rate of return.

Now of course I realize you can’t do this with all your purchases but it usually makes sense to do it with most major purchases like automobiles, homes, investment properties and the like. Every penny I invest is there to stay if I can do anything about it. I no longer look at cash in the same way. I use to see it as a spending instrument but not any longer. I now see it as an INCOME PRODUCING INSTRUMENT ! Once you start looking and thinking about your money in this manner you be a changed person because its then that you realize just how much potential income you are giving away but spending your money needlessly.

Start thinking before you spend money. Think about what your options are and the benefits of having your money in Investments that are producing income. If you do you will be rewarded many times over especially with the power of compounding on your side.

What do you think? Can you stop spending your money ?

Let us know your thoughts. Feel free to comment below.

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Keep it Simple

Too much information is as bad as too little information in most cases

Keep it Simple Stupid – (KISS)

Do you really have to learn to read charts and learn about fancy terms like “Death Cross”  or “Golden Cross” , Elliot Waves – Bollinger Bands…. The answer is no. To be honest I don’t know all this chart reading and terms and I intentionally tune it out.  There are literally dozens of financial Metrics to look at a company’s financial well being, Finviz lists 72 of them! The Devil might be in the details but you can sure get lost in them also.

Too much information is as bad as too little information in most cases. In my experience it seems even the experts don’t always see the warning signs of bad companies. Enron comes to mind as an example. This is especially true if a company is intentionally hiding its problems. The metrics are no more accurate than the numbers inputted into their calculations. On the bright side it has also been my experience that there is usually plenty of warning signs before a company goes under. It is usually a long and slow progress with lots of writers and analysis beating the drum to be cautious.  Think about it – Unless you are able to go into a company, talk to their accountants and sit in on boardroom meetings you may never know the real picture of what is happening within a company. Think Enron, the company that fool thousands of investors, both individual and the institutional investors. Metrics didn’t show anything wrong because they were all made up !

You do need to learn a few basic terms and indicators like: PE ratios, Dividend, Dividend Yield, EBIT, Cash Flow… But perhaps the most important way to investigate a stock is to read as much as possible from others on a stock before you invest and to keep up with it after you invest. I look at the basic metrics but I also go to financial websites, like, Seeking Alpha, and read as many articles on a company as I can before investing in it. What is the consensus of most writers? And perhaps even more important than the articles themselves what are people in the comment sections saying? If most of the commenters are positive on that stock then it is usually a good bet that you can move safely forward with your acquisition of the stock. A little common sense can go a long way. The fact is we now have tools available to us through the internet and technology that investors of the past could not possibly even dream of. Make sure you make good use of them.

Thoughts or comments? We would love to hear them ! Please feel free to post below.

The Golden Rule of Investing

What is the “Golden Rule of Investing”?

What is the “Golden Rule of Investing”?

 

 “Think of all money you earn as a Potential source of Future Income”  

Don’t think in terms of how much money you have or have saved but rather how much money you can generate from what you have.

In other words, when you receive your pay check, of course you have to pay your bills. And some bills you will always have – electric, water, gas, phone, mortgage but those that you don’t is where you can get the money to finance your future.  A great example is your car. A lot of people buy a car – and of course they buy into the marketing that owning that luxury or high priced sports car is more fulfilling somehow. But what you need to consider how much future income did you give up for that little bit of prestige you got from the fancy car? That extra $ 10,000 or $20,000 you spent just stole from your future income source.  When you make purchases, no matter how small or large you should think about the true cost.  Now if you had kept in mind my Golden Rule you hopefully would have come to the conclusion that you were better off with the lower cost car and saved yourself that $20,000 dollars. If you had then let us see what it would have done for you.

Each one thousand dollars if invested at 8 % yielding stocks would provide you with $80.00 per year in income or $6.66 per month for the rest of your life.  It may not sound like much but consider that was just the one thousand. Now, let’s multiply those thousand dollars by twenty. That creates an income stream of $1,600 per year or $133.33 dollars per month! Could you use that extra $133.33 per month for the rest of your life? But wait, it doesn’t stop there! Because of “Compounding” your income stream will be constantly growing also! Most stocks pay their Dividends on a quarterly basis so we will see what happens over time to your income based on quarterly payments of Dividends.  Even though I like to express Dividend Income in Monthly Income because I believe most of us can relate to that better, the reality is that most companies pay their Dividends on a quarterly basis. So we invested in this company (we will call “Company A”) and it is paying its dividend each quarter of $.40 per share (I will explain how dividends work in more detail in a later chapter) we would earn $400 the first quarter. If you used that money to buy more shares,  your shares would increase by 20 shares so in the next quarter your dividend income would be $408.00, 2nd quarter it would be $416.16, 3rd quarter it would be $424.32 and the 4th quarter it would be $432.80! On an annual basis your income would now be $1,729.73 per year or $ 144.14 per month. This is a monthly increase of $10.81 per month!  So as you can see not only will the money you saved provide you with a monthly income for the rest of your life it will also grow and provide you increases in income for the rest of your life ! Don’t worry if you don’t understand how dividends work or the how the math works as we will be discussing that later on. The important thing for now is to understand that by investing money correctly (and not spending it unwisely) your money can grow to provide you with an income stream so that you will never have to worry about money again and insure a bright future for you and your family.

“Don’t ever spend a Cent if you are not forced to”!  – If you spend it – you lose it, but if you save it, it will pay you for the rest of your life!

Investing by not spending money is a Mind set. Place signage everywhere for you to remember if you have to – Place a sign in your office, put notes on your computer, or even in your purse or wallet if you have to , to remind yourself your goal of not spending money unnecessarily.

Think in terms of accomplishing small goals to work towards your main goal.  If you want to save $50,000 to invest – well that seems like a task that is very hard to accomplish for most of us. But if you think smaller it becomes much easier. I like to save $1000 at a time. When I reach that $1000 goal I invest it. Do that 50 times and you have reached your goal.

Another way of thinking about this is every dollar you spend unnecessarily now will cost you a lifetime of income. Spending $100 today will cost you about $16 per month in income at retirement or will reduce your income by $200 per year in retirement! That might not sound like a lot, but how many hundreds of dollars do you spend unnecessarily each year? Smokers or expensive coffee drinkers can easily spend $4 a day or $1,500 a year on their habit – that equates to 15x$100 or $240 per month in retirement income or $2,800 per year in income – Your habit for 10 years could cost you $2,400 per month or $28,000 per year in potential retirement income.  As you can see, your choices today can have “Compounded” effects on your future! This is just one small item that I used for an example, take a moment and try to reflect on your habits and determine just where you are potentially spending your future unnecessarily. Most of us will be surprised as to just how much money we are spending on things we really don’t even need.

 

So, in summary we should all think in terms of any money we have as being a vessel to earn future income. When you spend it ( yes, I realize sometimes it is absolutely necessary) we lose the ability for our money to generate income. Always remember the “Golden Rule of Investing” prior to making a purchase and realize what you are really giving up to buy that sill fad or knickknack that will probably add little or no value to your life.

Thanks for reading and be sure to share your thoughts and comments with us.

 

How Much is Each $1000 you Invest Worth?

Thinking in terms of small achievements are easier for some of to understand so hopefully this will give you the incentive you may need to get started with your savings.

Using a 8% yield as an example ( my personal target minimum yield) then say the purchase price of the stock is $10 and the annual dividend is .80 then — $1,000 divided by the $10 stock price equals 100 shares of the stock purchased.  To determine our dividend income we would multiply the 100 shares by .80 = $80 per year or $6.66 per month (I like to express my income in monthly terms because that is how most of us best relates)

But, if you are reinvesting the dividend income then – assuming the share price stays the same for simplicity purposes you would have added an additional 8 shares of the stock.

So the second year you have 108 shares x .80 = $86.40 or $7.20 !   By the time you reach twenty year s you are bringing in over $28.70 per month, $345 per year and you will now own 431 Shares valued  at $4,310 dollars!

Now if you wanted to you could bring in $28.70 per month for the rest of your life and still have that $4,310 to pass on to your loved ones.

Now it’s easy to determine what ifs

I did this ten times = $ 287 per month

If I did this 20 times = $ 574 per month

Or .. If I did this 50 times =  $ 1,435 per month !

Or even .. 100 times = $ 2,870 per month !

So now that you know the secret start saving and investing $1000 at a time to meet your goals for Income for life!   Thinking in terms of small achievements are easier for some of to understand so hopefully this will give you the incentive you may need to get started with your savings.

I hope you enjoyed this article and encourage you to share your thoughts with the author.