Dividend Investing Week 1

Dividend Investing.

REIR step 3 involves investing with good information.  Aside from real estate, dividend investing can generate some serious cash-flow.

Companies often pay out a portion of their profits to investors in the form of dividends.  This is great because regardless of stock price fluctuations, we can still make money just by owning a stock and holding onto it!  I want my readers to check out "Pulling Ourselves Up Financially" and see how beneficial it can be to track your holdings.  I have been following this blog for some time now, and would like integrate its idea of the 'weekly update' into this blog.  This will be a great opportunity to give my readers a view of the evolution of my dividend portfolio, while giving me a chance to monitor my progress too.

This is a rough idea of how I would like to present my data.   Yes this is very rough indeed, but the presentation will improve as the portfolio improves.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Real Estate Portfolio Introduction

Real estate should play a key role in everyone's portfolio.  Personally, I have had good luck with rental homes in my real estate portfolio.  Yes there are horror stories out there about evil tenants and destruction etc.  But there are ways to minimize risk in rental investments that I will get to later in this section of the blog.

Statistically, the average person's largest investment is their house.  As time goes on, this trend appears to be declining, as more choose to rent instead of own.

There are 2 points I would like my readers to know.  1-Real estate offers great diversity to your portfolio and 2-With the current tax code, there are many benefits to real estate ownership that you can take advantage of.  These will be addressed in the future.

Diversification and Investment Options

Diversification is simply spreading out your investments to reduce risk of loss to your portfolio.

Some believe you can have diversification by investing in mutual funds.  The bottom line is this is still just a mix of stocks... And on top of that - a majority of mutual funds hold only a few heavy-weighted stocks.... A truly diversified portfolio should contain other forms of investments.

Stocks
Real Estate
Bonds
Forex
Businesses
Physical goods/materials

The mix you choose will really depend on your situation and your personal understanding of the investments.
Remember, with REIR investing, invest with good information, and the profits will follow.

If your main focus is on stocks, you can choose to split your holdings among the various market sectors to reduce your risk. These sectors include:

Basic Materials
Capital Goods
Conglomerates
Energy
Financial
Healthcare
Service
Technology
Transportation
Utilities

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Net Worth, How to Track it

Now that the fundamentals of REIR investing have been mapped out, I want to focus on: "net worth." This is the heart everyone's financial health.

Net Worth is your assets minus your liabilities.  In other words, if you sold everything you owned, and paid off every debt you've got, you would end up with this much money.  A high net worth is what truly separates the rich from the rest of us, not the amount of income we get from working. I will explain this later...

I have been keeping track of my personal net worth for almost 2 years now.  This has been very beneficial for me, in that I have been able monitor the direction of my finance situation.  I encourage everyone to create a net worth spreadsheet using Microsoft excel or open office (free!), and update it every month.




There are many websites that can guide you through the process, but here is a screenshot sample of a net worth spreadsheet in open office.

This individual has a few assets valued at $66,100.
This individual has liabilities totaling $62,500
This individual's net worth is $3,600

When you calculate your net worth for the first time, you may discover you have a negative net worth!  This could be a great wake up call for you, like it was for me.  I followed my REIR strategy and updated my net worth monthly. I noticed my liabilities dwindled and my net worth began to soar, even without adding assets.  Therefore, my net worth was heading in a positive direction, which may have been unnoticeable without my net worth spreadsheet.

Visit CNN Money's Net Worth Calculator to see how you stack up vs. others your age and your income.  Very neat.  Leave comments or messages on your thoughts.

Reward Yourself - REIR Step 4

This is where the fun begins!  Now that your hard-earned money is generating some cash from investments, you need to reward yourself.

Heighten your motivation by celebrating your milestones.  Every time you pay a debt in full, take your family out for a good time and celebrate your victory!  Just never forget to give either.  The more you give, the more income will be generated from your investments.

Invest - REIR Step 3

The third step of my strategy, and focus of my blog is to invest.

Simply put, investing means purchasing something offering potential profitable returns.  Since there are so many strategies and approaches to investing, throughout this blog I will explain what works for me, and I'll encourage you to research and find whats right for you.

When I invest there are 2 points that I want to make.

I. The earlier you start your portfolio, the better.  This is backed by the idea of 'compounding.'  In which your investment gains will get future gains and this huge snowball builds up over time in your favor.

II. All of my strategies are based on passive activity.  I believe money has to potential to work harder than a human ever will.  Plus, there is nothing cooler than seeing your accounts grow as you do nothing but enjoy yourself, and the finer things in life!

Eliminate Debt - REIR Step 2

This is pretty straight forward. Stop using debt, and start paying it off immediately.

According to the federal reserve, households with credit card debt, on average owe $15,799 to credit cards.  Regardless of the interest rate, this is like having an investment of 16k guaranteed to lose money every year.

If you need to use debt to buy something, that just means you can't afford it.  The exception to this may be your first home if you have nowhere else to go.  Forget about keeping up with the Jones' next door or impressing your friends with expensive cool things that you purchase with debt.  When you stop doing this, you'll find that the only people who cared about your new purchases were others that are in the same debt-loving situation.

There are 2 methods to paying off debt.  The first is to pay your debts off in order from smallest balance to largest balance.  The second method is to pay your debts off in order from highest APR to lowest APR.  I personally favor the first method, because its easier to see improvements in my financial situation.

Reduce Spending with bill savings - REIR Step 1

Reduce Spending, Save Green (bill savings)!

II.Bill Savings

-Save on TV. I originally signed up for satellite t.v. service for $49 each month. A couple years later, my bill inched its way up to almost $90 a month for no reason... I called them to cancel and they told me of a 'bare-bones' package for 9.99 monthly, I gladly accepted and even paid extra for the local channels.  My current bill is $14.99/month.  This resulted in a $900 savings every year!

-Save on Electricity.  According to the U.S.E.I.A, our average energy usage at home is displayed below.  Aside from getting energy-star rated appliances, there are 2 major things you can do to lower your electric bill.. The easiest thing to do is monitor your thermostat and wear the right clothes!  Another thing you can do is use surge protectors.  Shutting your TV off when your not watching it helps... but if a TV is shut off it still uses electricity when its plugged in (called phantom power).  If you have all of your electronics plugged into surge protectors, you can shut your protector off when you are done... eliminating huge wastes of power.

-Save on insurance. My advice is to shop around before committing.  You can save money by having multiple vehicles or homes if you insure with the same company.  Also, shop around annually, because a few companies will raise their prices every year in hopes that you never leave since you have developed some sort of loyalty to them.  As for health insurance, if your relatively healthy get lower premiums by having higher deductibles.  Never go on without insurance!

-Save on phones.  Get an affordable cell phone plan, and dump your home phone.  Most people don't use landlines anymore (except for faxing).  This can be a great savings.  Just remember to update all of your contacts with your new number, including lenders, insurance agencies, banks etc.

Reduce Spending with food savings - REIR Step 1

Reduce Spending, Save Green (food savings)!

This is the foundation for my personal strategy.  I found that the biggest reason for not investing is the fact that I don't have the extra cash.... I have found a few ways to do this without starving my family or having my electricity shut off.

I.Food Savings
-Make lunch at home and bring it to work!  Compared to local fast food restaurants groceries are very cheap.  Remember to keep your lunch simple and healthy to include soups, sandwiches and basic fruits.  If you get frozen convenience type meals you will be paying several dollars per meal.

-If you insist on eating out, eat at a buffet style restaurant and order a water... Including taxes, I can eat at the local Cici's or Ryan's for $5.40.   They advertise all you can eat for 5 bucks, but fail to mention that ordering a soda will run you an additional $2.15 after taxes...

-If you live in an area with a lot of grocery competition, I would try utilizing coupons.  Personally I do not shop with coupons since my local grocery stores do not accept double-coupons... I focus on cost/ounce ratio when I shop, always grabbing whatever is the lowest.  The 'brand' might not be as good, but you'll learn to enjoy the cheapest brand at the same time you enjoy saving money.

Watch Your RIER!

My vision: to encourage investing early, helping me become financially independent sooner.

I believe there are 4 elements to learn, that will allow for great financial freedom.  To help me remember these, I just think to myself.. "REIR."

1-Reduce Spending.
2-Eliminate Debt.
3-Invest.
4-Reward Yourself.

Every decision I make involves all 4 of these elements.  Every dollar I can save today, can be something much more valuable in the future.  I recommend getting a copy of Dave Ramsey's Total Money Makeover for a much more detailed approach to financial freedom.

Resource Capital

Here is a glimpse into RSO, one of my personal REIT investments.  At the beginning of last year, I started with 200 dollars in this DRIP (dividend re-investment plan), and have put in 100 dollars monthly.

My investment strategy does not focus on the price of stocks, but rather their dividends.  Knowing the situation of the U.S. housing market, I figured share price would fall.  This did not stop me.  As  a long term dividend investor I was prepared to let the dividends roll in.

Over the course of the year, I have $1400 invested.  As of today, the stock closed at 5.87 per share.  253.29 shares x 5.87 = $1486.81.  This resulted in an $86.81 gain of 6.2% annual gain



Disclaimer: These trades are not recommendations for others. I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Investing Early Introduction

Thank you for you interest with investing early.

It is my mission to encourage you to invest early.  This may not necessarily mean investing while your young, but investing before its too late.

I have a sense that our country is going in the wrong direction, with few people helping us get it back on the right track to prosperity.  Over the years the government has made us dependent on social security for retirement.  Well for some people, it may not be there when we're able to collect, or we might not make it that far.  401k could be the same thing, I know its your personal account, but will it be there when you need it?

I feel that I can make a difference in your life, and your community, by helping you become financially independent.  I hope you follow this blog to learn how to invest, save and reward yourself, so you can give to others, later.