A Portfolio For The Small Investor. If you are interested in dividend growth investing as a strategy, then I hope that you will be inspired by this blog, as I was by reviewing such famous blogs like Dividend Mantra. I became inspired to create my own blog documenting my dividend growth investing strategy. This blog will focus on my small portfolio starting from zero.
Thanks in part to the recently passed tax cuts, I will be getting the largest tax refund I have ever gotten. Specifically, I will be getting a minimum of $5000. Thank you Government. I don’t say that every day. Well, because of that refund, I have a good problem. How to spend my tax refund? I honestly don’t know, but here are a few honorable mentions.
1. Pay Down Student Loan Debt
As you know, I have a plan to pay off my student loans by the end of October of this year. The plan includes paying a minimum of $2000 towards this debt. So far so good. I started the year at around $19000 and now I’m down to around $15000. At this pace, l fully intend on paying off my student loan debt in its entirety by October. To follow my progress, check out my debt tracker.
I’m leaning against using my tax refund to pay down my student loan debt. The main reason is that this debt is a low 2.625% interest rate. Also, the minimum payment is only $97.61 per month. I feel I am doing more than enough to take care of this debt and get rid of it by October. Time will tell if I’m able to meet my goal, but for now, I don’t plan on putting this $5000 towards my student loan.
2. Buy A Used Car
As detailed in my post about increased expenses, one of things I’m going to have to decide this summer is whether to buy or lease a car. I’m leaning towards purchasing a used vehicle as opposed to a new one. At present, the only debt I have is my mortgage and my student loan. My student loan will be gone by October. And my mortgage is currently being paid by a tenant. Without the tax refund, I would have likely financed a used vehicle. Then, after I got done paying off the student loan, I would divert that $2000 towards paying off the car. However, with the tax refund, I could try to put that $5000 towards a used car. Heck, it might even be enough to purchase the car outright.
My only problem though is myself. If I have a lot of money lying around, I tend to spend it, little by little, on frivolous things. So, I try not to have a large amount of money easily available to me. So, it takes a little bit of discipline, but I’m going to have to fight with myself and not use that money after I get the return.
In any case, $5000 down on a $10000 car would be great, because that would mean I could have a fully paid for car in a relatively short period of time. That’s especially true if I’m dumping $2000 towards a monthly car payment (after student loans). Finally, the increase in income that I’m likely to realize this summer may allow me to pay off a higher priced used car at the same time as my student loan. Now that would be sweet!
3. Invest The Tax Refund
An enticing option for the tax refund would be for me to invest it in my dividend portfolio. Who wouldn’t want to go on a shopping spree and either add new companies to the portfolio or increase the shares in the existing holdings? Quite frankly, this would have been a no brainer if I was out of student loan debt and didn’t have to worry about a car payment. This is why having debt sucks and why I want to get rid of it as soon as possible. It just keeps me held back.
While this remains an option, I not leaning towards it. I’ve already increased my contributions this year in accordance with my financial plan. I want 2018 to be the last year that I carry non-mortgage debt. That way, in future years, when I get a hefty tax refund or a bonus, I can just worry about how best to invest it.
4. Take A Vacation
There is a definite possibility that I would use a good portion of the tax refund to take a vacation. I was already planning on taking a vacation to Spain before my summer move. I hear Barcelona is a good place to visit and I’d like to go. London is another possibility as well. Taking such a trip could easily cost me between $1500 to $2000.
It’s possible I might go to a less expensive destination or do something more low key for my vacation. But, I plan to be working a lot for my next job, and have a very stressful next few months coming up in my current position. So, I definitely need a break.
In the past when I’ve taken international trips, and spend the $1500 to $2000, I did so using credit cards. Well, I’m much more financially conscious now. Part of me feels guilty spending so much money on a trip because I could have used that money to invest. That same part suggests that I should temporarily sacrifice expensive trips now, so that I can take all the trips I want when I retire (hopefully earlier than the traditional retirement age). Then there’s the other part of me that says I only live once and I deserve this break after working so hard, before jumping into another position that’s also difficult. After all, life isn’t all about money.
We will see which part of me I listen to. I’m leaning towards taking a vacation, but keeping my costs as low as possible, while also having a good time.
5. Do Nothing
But for the recent flash crash we had in the stock market, I never would have given this option much thought. Because I live paycheck to paycheck, I don’t really have a large chunk of cash set aside to take advantage of price decline in the stock market. The approach I’ve been taking is to dollar cost average my way into the market. I get paid and a portion of my paycheck gets automatically invested via my retirement and taxable accounts. This approach works for me.
But then we had the recent flash crash. I wish I had an extra $2000 or so to take advantage of price declines in some of my favorite holdings, including Realty Income. Unfortunately, I was unable to do so in large part because I didn’t have cash lying around.
So apart of me thinks that I should hold on to this money to invest it in what may be a market correction to take advantage of lower prices. I guess that’s like market timing, which rarely few people do well.
For now, I’m leaning against this option, but more and more, I am appreciating the value of having cash that is ready to be invested in the stock market at the appropriate time.
There are other things I could do with the tax refund. These includes saving for a down payment on another house, or buying a new computer. But, the above options are the more realistic and I’m likely to pick one of them. Right now, I’m leaning towards paying cash for my vacation while keeping that expense as small as possible. Then use the difference to buy a used car or pay for the down payment on a used car.
Are you getting a tax refund this year? What do you plan to do with your refund? What do you think I should do with mine? Let me know by commenting below.
What a busy week its been! I’ve had so many long hours at work. I actually have to go back to work today, tomorrow and even Monday, which is a holiday. It does feel good putting in a hard day of work, but I’d rather do what I want rather than what I must to make ends meet. I can’t wait to achieve financial independence. So, I’m working towards retiring early, in the next 15 years. It’s going to take a lot of motivation and inspiration to get to that point. There are likely to be so many obstacles to overcome that every bit of motivation helps. But rather than focusing on the next 15 years, why not just focus on getting through this current month. So, that’s what I’m going to do. If you’re of the same mindset, then hopefully this inspirational quote will help get you through February as well.
Inspirational Quotes For February
Before I share with you the inspirational quote for the month, let’s review last month’s quote.
My inspirational quote for January was: “The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low and achieving our mark.” – Michelangelo Buonarroti.
My inspirational quote for February is: “I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.” – Jimmy Dean.
They say life is what happens when you make plans. You never know when an obstacle is going to come your way. But, you do have the strength to adjust your sails and see it through. After all, it can’t rain forever and the night is darkest just before the dawn, as the sayings go.
Inspirational Quotes From The DGI Community
These are the inspirational quotes from the DGI community last month. As always, if you want your quote to appear in the section below, just leave me your quotes in the comments section before publication of the next edition of the inspirational quotes of the month.
Dividend Solutions – “You have to own it. Anything that you want to be good at and anything that you want to succeed at, you have to own it.” – Tim McGraw. I tend to agree. When you have buy in, you tend to work harder and perhaps more creatively to achieve your goal. Good one Dividend Solutions.
What, that’s it? You’ve been slacking guys and gals. Make sure you include your quote in the comments section for inclusion into next month’s post.
In case any obstacles comes your way this month, just remember that you can always adjust your sails to get through the storm. Thanks for reading and hopefully, one or more of the above quotes will inspire you to get through the rest of this month.
Now, leave your quote in the comment section below so we can all inspire each other.
It was inevitable. The low expensive lifestyle that I’ve enjoyed is coming to an end. It now seems very apparent that my expenses will significantly increase this summer. It’s not entirely surprising, but it is what it is. Let’s take a closer look at my increased expenses in just a few months.
Well, we all have to live somewhere. Unfortunately, I’ll be moving to an expensive city where the cost of living is much higher than what it is now. Of course, I still have to worry about my mortgage, but, as long as that stays rented, the house will mostly pay for itself.
In an effort to keep costs low, I plan on doing what I’ve always done. That is, I plan on having roommates. All I need is a bed and for the room to be close to work. I’m really hoping that I can get something for under $1000 per month. If that happens, I should be able to come out ahead. But, I’m really not sure.
What’s even more pertinent is that I’m going to toy with the idea of buying a house in this expensive market. It may not happen. But ideally, I would buy a duplex, triplex or fourplex although those are few and far between. But, whether I rent or buy a house, my housing expenses will definitely increase.
To Lease Or Buy A Car
My transportation expenses are also increasing. Right now, I have a scooter that I paid $500 for. I also have a motorcycle that I will have access to once I make the summer move. However, I’m going to need a car. The only thing I need to decide is whether I want to lease a car or buy new/used.
The general guidance is that you should not lease a car. After all, paying that monthly car payment for three years straight and have nothing to show for it at the end doesn’t sound appealing. But, life is more complicated than that. The monthly payment on a lease would likely be less than if I bought a new vehicle and I can upgrade the vehicle everything three years.
But buying is a appealing as well. I could buy new or used, try to pay off the car and then have no car payment for several years. It’s unrealistic for me to try and purchase the vehicle with cash. I might have been able to do that if I wasn’t paying off my student loans early. But I’ve already committed to paying off my student loans and nothing is going to change that. Quite frankly, having this dilemma is exactly the reason I want to get rid of my student loans. No more will debt get in the way of my future plans.
Granted, they say that one of the first things you should do when getting out of debt is to stop acquiring more debt. Were I to buy a car, I would likely be borrowing money to do so. In any case, it’s a temporary solution because as soon as I pay off the student loans, I’m sure I would divert that $2000 per month towards paying off the car.
I just haven’t decided if I’m going to buy used or new, although I will likely buy used. And then, if so, hopefully no more than 10k total, which should be fine since I have the motorcycle as a back up. It’s a good thing I’m not fancy, but I do need a reliable (and respectable) car for work.
I am not unmindful that I will also have a pay raise in the summer to accommodate for the increased expenses. Only time will tell if I can make it out ahead. If I live with roommates, which I’m used to doing, and buy a cheap but reliable used vehicle, I’m confident I can come out ahead. I might even be able to increase my minimum contributions to my divided portfolio. Although I can’t see the future, I can nonetheless plan for its eventuality.
My life is going to dramatically change in the summer. Part of me is looking forward to it. But part of me is not. After all, I will have a significant increase in responsibility at my job, which is a very stressful position. I expect to be stressed out for the foreseeable future. Hopefully it all works out. But, regardless of the stressful nature of the job, I want to have my financial house in order. As the saying goes, life is what happens when you make plans.
What do you think? Would you lease a car, or buy a used or new car? What about my plans to keep housing costs low? Any ideas? Let me know your thoughts by commenting below.
Dividend Portfolio began in late 2015. Since that time, I’ve never published a guest post or ran an advertisement. The most I’ve done was reference a few affiliate links here or there. And, I’ve made a whopping $0.00 doing that. Well, earlier today, I took a very small step towards achieving my goal of having multiple sources of income. I decided to monetize by blog through Google Adsense. I don’t expect it to make me rich, but I do hope it will help cover the cost of maintaining the blog.
Well, perhaps the better question is, what took me so long? Google Adsense is a great way to add revenue to your site or blog. It’s easy to use, and if do so responsibly, it can be financially rewarding.
In terms of why now, I was just looking for ways to make extra income. I keep reading about side hustles and wanted to do something myself. Truthfully, every now and again I read about those bloggers who make a ton of money per month on their blogs. Since I have a blog, I figure I could at least try to offset the cost of running Dividend Portfolio for the year. My costs include not just the hosting fee every year, but for extras, such as the scrolling feed you see on the sidebar under, “Recent Post – Favorite Blogs.”
I don’t think I’m lucky enough to be one of those famous bloggers. I’ve tried unsuccessfully for years to make money online. I am really bad at it. I don’t think in all those times I’ve made $10, or even $5. This is the first time though where I’ve actually started and stuck to a blog. Barring some crazy catastrophe in future, I fully expect to maintain this blog over the the next several years, or even decades. Conceivably, during that time, my readership will have increased and hopefully so will the level of income I get from Google Adsense.
However, I wish to emphasize that while I would love to make money, the main focus on this blog is not to write posts so that you can click the ads. If they are of value to you, great! If not, that’s ok. I will still be focused on documenting my journey towards financial independence through dividend growth investing.
I’ve updated my goal for 2018. My goal is now to make $100 in Google Adsense by the end of the year. I have no idea if this is realistic or too aggressive, but we will see. In order to achieve this goal, I plan on doing more things that will help boost traffic to the site. After all, I could have the greatest content in the world, but if no one is there to read it, does it really matter?
Also, I don’t plan on spamming my blog with ads. If I write a short post, like this one, you can expect to see one Ad in the most. If I write a longer post, which I sometimes do, I would only have at most two Ads in that post. Finally, there will always be an Ad on the right side of the blog on each page. I have no intention of doing much more than that.
Finally, I’m thinking about writing a set up guide. I found that even with You Tube videos, I got stuck in the beginning part of the process. But, I also want to ensure that all the kinks have been worked out before I do so. We will see.
I do have a favor to ask. After I placed the Ad where I thought it should go, I noticed that it doesn’t really show up in Internet Explorer 11. And, when I use Chrome, sometimes it shows up in different places. So, for example, even though I opted to have an Ad between the “Awarded Top 100 Dividend Blogs” logo and “Recent Post Favorite Blogs” feed, I sometimes see more ads on my screen. When I check the site on my phone, I also see three Ads, sometimes separate Ads.
So, I’m asking you to tell me if you only see one Ad on the right hand side of the page? This should occur right after the “Awarded Top 100 Dividend Blogs” logo. If you have the time, could you also check it on your phone and tell me if you see one Ad or three? Presumably, you should also see one Ad in the same place.
It may very well be that I’m not seeing mine correctly because of the computer cache, or because it just takes a while for Google Adsense to properly display on the site. But, I just wanted to make sure. I would ask my friends to do it, but I’m still very private with my blog.
Thanks for your help in advance.
Well, there you have it. The last major change I made to the site was the transition from http to https, which I wrote about in my post, Dividend Portfolio Is Now More Secure. Perhaps I should have titled this post, Dividend Portfolio Is Now More Profitable. Maybe I will save that title for when I actually hit the $100 mark.
What do you think about my choosing to monetize the site? Is the number of Ads I plan on using too much or too little? Did the Ads show up in the right place on your computer and/or your phone? Let me know your thoughts by commenting below?
I’ve been meaning to update my readers on a number of various topics that I’m focused on in 2018. At first, I was going to do separate posts about each and I might still do that in the future. But, for now, I’ve decided to lump all of them into one post. As we know, with the beginning of a New Year, there comes lots of motivation. People make resolutions but after a few weeks or a couple of months, they fail to keep their resolutions. Now that one month has passed, it’s time to take a closer look at how I’m doing with my goals for 2018. Am I still on track? Here is my progress report for January 2018.
Student Loan Repayment
I started the year with $19,860.23 in student loan debt. My goal for 2018 is to pay that off by October. The minimum payment is $97.61. However, my plan was to pay a minimum of $2000 towards my student loan. I can’t wait for this to be gone. Once I’ve paid it off, that $2000 can be applied to either saving for a down payment or towards my dividend portfolio.
Well, I am happy to report that I was able to pay $1997.61 towards my student loan in January. I was $2.39 short but I felt like I needed more cash around because January was such a long month. I hope to reach the $2000 mark in February.
Because $97.61 is the minimum, I have that automatically drafted from my account so I don’t miss a payment. Then I take the income from my rental, plus my salary, and apply them towards my student loan. I’m hoping there’s not much real estate expenses between now and October. My tenant’s lease is up in August or September, so there might be vacancy for month or two. But, I still got time to prepare for that eventuality, and worst case is that I cover everything with my paycheck.
To follow me on my progress towards paying off my student loan, visit my debt tracker for 2018.
This is huge for me. I recently discovered the power of a high savings rate. I even wrote about it in my post entitled Savings Rate: The Secret To Early Retirement. I’ve been obsessed with the FIRE principles and trying to figure out how I can have a high savings rate.
Well, I did some math and calculated my savings rate. At first, I was looking at my expenses and even focused on my fixed expenses in an effort to figuring it out. But then I realized that regardless of what my expenses were, or what I spend money on, my savings were always the same every month, even though my income might have changed. So, I looked at my monthly pay (before taxes) and what I was saving to determine my savings rate.
The reason I focused on my gross monthly income and not my net income is that I’m including my contributions to my Roth 401K and Roth IRA as part of my overall savings rate. I’m not just including what I see in my checking account. Even though the Roth accounts are post taxes, the money in my Roth 401k does not go to my checking account, but straight to the 401k plan.
Because I am focused on early retirement, and to maintain some amount of privacy, I did not include my contributions to my Robinhood account, cryptocurrency exchanges or to my emergency fund. However, those contributions are a very small percentage of my overall investments and so the savings rate reported below is relatively close to what it actually is.
Monthly savings rate = (monthly savings / monthly gross income) * 100. So, if I make $100 a month (gross), and I save $80, then my savings rate would be (80/100) * 100 = 80%. If my math is off, or if I’m calculating my savings rate incorrectly, please let me know.
Based on my math, my savings rate for January was 45.54%. I hope to maintain it at that level or increase it going forward.
Back in July of last year, I was very excited to post about my new fitness goal. I had a personal trainer and started going to the gym. Then I got injured (not while working out) and had to stop going to the gym for a while. I lost the motivation to work out and so I didn’t blog about it anymore.
Then, late last year, I went to a body building competition. All I could think about when I was watching the performers was what it would be like if I were on that stage. So, after the competition was over I tried going back to the gym again. I did it on my own. I didn’t really know what I was doing, but went, on and off.
However, in December, I found a workout partner who agreed to help me with my fitness goals. I knew that the New Year was coming, but I didn’t want to wait until January to make a resolution about my fitness. Too many people (including me for many years) have a resolution to get fit, and then end up quitting after a few weeks. What’s impressive about this story though is that I consistently went to the gym all of December and all of January!!!
The consistency is important for me because I think this is one of the longest stretches I’ve had in my efforts to work out. But, even more exciting is that, a few days ago, I found another work out partner. He has agreed to help train me for an upcoming body building competition in the Spring. He’s trained two people before and they did well in the previous competition. So, we started in February.
I try not to think about it. I haven’t seen much improvement in my body in the past couple of months. But, I’m going to start taking pictures. I’ll keep you posted.
My first cooked meal of 2018
Well, I started the year off strong! During the first week in January, I cooked all my meals. I only really know how to cook a couple of things, which I posted in this post. But, sufficed to say, this goal has been a DISMAL failure. After the first week of me cooking, I got food poisoning, which caused me to have to go to the hospital. That was a horrible two days. I haven’t cooked since. What’s worse is that I think I’ve spent more money in January than I did previously on food. I don’t know exactly how much because I’m embarrassed to see what the actual number was. I just know that I spent over $500 on my credit cards (because I ran out of money in my checking account) and it was all on eating out every day!!!
On the bright side, it’s February. So, I’m going to try again! This is super hard for me, but I’m going to try baby steps. Rather than going cold turkey and cooking everyday, I’m going to ease into it. So, a colleague had a great suggestion.
My second cooked meal of 2018
For lunch, I usually eat chicken and rice, maybe drink a coke, and that would cost me $10. Since cooking rice is super easy for me (I bought a rice cooker), I could only buy the chicken, which is $5 and bring my cooked rice to work. Then I could either buy a case of coke or, because I’m trying to be more healthy, a case of water. I like that idea and I’m going to try it!
I’ll let you know how I do in my next progress report.
I’m actively thinking about the idea of reporting on my net worth. I use Personal Capital to figure out what it is. In fact, I might do a review on Personal Capital later. Part of the reason I like Personal Capital is that it tracks the Zillow estimate for my house, and so my net worth includes the value of the rental property along with the mortgage payment.
I’m not good at making graphs. If I can figure out a cool way to display the information, I will likely report on the subject. In fact, I might just figure out how to copy and paste it from Personal Capital to make it easy. But we will see. Stay tuned.
As I mentioned, I really wanted to get this information out. I haven’t decided if I’m going to keep everything in one progress report post or make them separate. My savings rate and net worth might be separate posts in the future. In the mean time, what are your thoughts? Let me know by commenting below.
What a long month January was. For a guy who only gets paid twice a month, I had way too much month left after my money. But, February is finally here and now I’m all smiles. That’s because I can once again make a contribution to my dividend portfolio. Just like clockwork, every month I deposit the same amount of money regardless of what the price of the stock is doing. That way, I dollar cost average my way into the stock market. I’m not saying it’s the best approach for everyone, but it’s definitely the best approach for me. So, lets see how much dividend income I received in January.
In January, I received a total of $14.93 in dividends broken down as follows:
CSCO – $8.31
O —– $6.62
That’s it. Slightly disappointed, but I understand every little bit helps. As this is the first time I am tracking my dividends in January, I don’t have last year to compare it to. That will also be the case for February and March dividend income report. In any case, that’s $14.93 that I didn’t have to work for. That money will get reinvested back into my portfolio and compound its growth overtime. I just have to get used to the fact that some months will be low payouts as compared to other months, based on the companies dividend payout schedule.
Forward Annual Dividends
Getting closer and closer to the $1000 mark. At the time of this writing, the dividend meter shows my forward annual dividends at $701.27. My goal was to hit $700 last year, but I made it happen sometime in January. Better late than never.
In January, I added Emerson Electric (EMR) to my portfolio, which added $6.22 to my forward annual dividends. It’s doubtful I’ll add any more companies soon, but we will see.
For years, I’ve been interested in the subject of personal finance. I’ve read many books, listened to many podcasts and more. I thought I had a a basic idea of what I needed to do in order to retire. However, I recently discovered a secret. That is, there is a distinct relationship between your savings rate and early retirement. By dramatically increasing my savings rate, I’ll be able to significantly boost my dividend portfolio and be well on my way to early retirement. There’s much to discuss, so let’s dive in.
A lot of the financial materials out there rightly focuses on retirement. However, the problem is that much of the focus is on retiring around the traditional retirement age of about 60 or 65. The assumption is that an individual would start out at age 20, work 40 years, and then retire at age 60. But who wants to spend 40 years of their life working because they have to? I know I don’t. But, I didn’t know better and so for the longest while, I was following that mantra.
I listened to many different financial gurus and took the advice I thought was relevant to my situation. For example, I came across David Bach. He has written many books, but perhaps one of his most famous is The Automatic Millionaire. One of the things that David Bach teaches is the concept of paying yourself first. What many people do is after they get paid, they first pay their bills. So, they might pay their mortgage, their credit cards, utilities, etc. Then, after all the bills are paid, they try to save what’s left. Rather, David Bach suggests that as soon as you get paid, you immediately save a portion towards retirement. That makes perfect sense, and I’ve tried to adopt that in my own financial plans.
David Bach is not the only one. There’s also Ric Edelman. Ric Edelman has his own financial advisement firm that gives everyday Americans access to certified financial advisers. He also runs a weekly podcast which I listen to regularly. Ric Edelman also has written many books, and perhaps, one of his most famous is The Truth About Money. One of the principles I take away from Ric Edelman’s advice is the importance of having a well diversified portfolio. Truthfully, my dividend portfolio wouldn’t meet Ric’s definition of well diversified. But, my investments in my Roth 401K and Roth IRA are more diversified because I’m invested in various funds, including index funds. So, I try to keep his principles in mind when I invest.
Of course, there’s also Dave Ramsey. He has his 7 baby steps, of which I try to follow the first 3. Dave recommends in baby step 1 to first save $1000 in a starter emergency fund. I am still working on saving my $1000. In baby step 2, Dave recommends that you get out of debt using the snowball method. Using the debt snowball method, you would pay off your debt from smallest to largest (except the house). He then recommends in baby step 3 to build your emergency fund to 3 to 6 months of your expenses. For me, I’m working on baby step 2 and will be finished with it by October when I pay off my student loans. Visit my debt tracker to follow my progress.
But Wait There’s More
There are other financial gurus that I’ve listened to over the years. These include Ramit Sethi who wrote I Will Teach You To Be Rich and has a blog by the same name. My biggest take away from Ramit is his concept of Conscientious Spending which I wrote about two years ago in my Conscious Spending Plan post. I’ve also listened to Suze Orman and others. So, why did I go through citing all these financial gurus?
The point is that even after listening to all the names mentioned, reading all their books, looking at all their fancy charts about compound interest, etc, I never really grasped the fundamental relationship between having a high savings rate and retiring early. It’s certainly possible that one or more of the financial gurus did mention the importance of having a high savings rate. It’s certainly possible that I might have missed it. Or that I did read it, but it didn’t sink in. Maybe I was too young, or immature, or naive, or stupid to have understood what they were saying before. I don’t know, but I feel duped.
Too Motivated To Feel Sad
I don’t blame the gurus. In fact, I will continue to listen to them and take the advice I feel is relevant for my situation. But now, I also understand that a lot of their advice is for folks who will have a traditional retirement and I just have to tailor their advice accordingly. Before I go on, I want to emphasize that I am neither recommending nor disparaging any of the financial gurus listed. I’m only saying that in all my time listening to them, there was always something missing to give me the confidence to believe that I too can have a successful retirement. Well, I’ve recently discovered the missing link and now wish to share it with the whole world (or at least the 100 or so readers who read my blog everyday).
About a year or two ago, I kept hearing about FIRE. FIRE is an acronym that stands for Financial Independence Retire Early. Honestly, I didn’t pay much attention to it because it was usually used in association with a discussion about Millennials. As I am not a Millennial, I mostly ignored the topic. That was dumb!
Had I paid more attention, I probably would have discovered the secret to early retirement earlier, but I didn’t. However, as I am learning more about FIRE, I started to change my thinking. Rather than just focusing on the traditional retirement age, is it possible for me to retire early?
Sometimes, believing that something is possible is a key ingredient to achieving your goal. I never really gave early retirement a second thought because I never thought it would be possible for me. I’m close to being 40 and kicking myself everyday for not starting earlier. In my head, I figure that I still have a good 20 to 25 years of compounding growth in the stock market. I hoped that would be enough time to allow me to have a respectable retirement. I don’t want to live on beans and rice during retirement. Unless I win the lottery or marry rich, I won’t be sailing around the world in my yacht during retirement. But, I hoped that I would live in a nice house, and if I wanted something nice, I could buy it without calling Suze Orman asking if I can afford it.
I’m On FIRE
But, I started to pay more attention to FIRE. A lot of the gurus talk about being financially independent. But, now I am paying more attention to the possibility of me retiring early. You heard that right! For the first time, I truly believe that it is possible that I can retire early. I have set a realistic target date of age 55. Not quite as young as 45, but not quite as old as 65. I think that if I am able to retire at the age of 55, I would still be in reasonable good health (hopefully) and be able to enjoy my retirement more. I might still work (maybe as a bartender or at Starbucks), but only because I want to; not because I have to. Much of the literature on this topic suggests that to be financially independent, it is necessary to save at least 25 times your expenses. This is consistent with the 4% withdrawal rate that we keep hearing so much about. I plan to do just or more.
So, what’s the secret to an early retirement? Your savings rate!
The solution is remarkably simple to understand, but difficult to execute. If you want to retire early, one way to do that is to increase your savings rate. More specifically, if you can increase your savings rate to an amount away higher than the typical 10% to 20% that the gurus recommend, you can be well on your way to early retirement.
One person who has championed this idea is someone you have probably heard of. That is Mr. Money Mustache and he runs a famous blog by the same name. In 2012, he wrote an article entitled The Shockingly Simple Math Behind Early Retirement. If you haven’t already, I highly recommend you read it. The information below comes from that article. I will try to provide some of the important points mentioned in the post.
Let’s Talk Math
Mr. Money Mustache makes several assumptions. They are that you:
“Can earn 5% investment returns after inflation during your saving years”
“Will live off the 4% safe withdrawal rate after retirement”
“Want your stash to last forever”
Mr. Money Mustache posted a table that shows the relationship between your savings rate and the number of years you would have to work towards retirement. Based on his calculations, if you have a savings rate of 10%, you can expect to retire in about 51 years, given the above assumptions. Increase your savings rate to 25% and you reduce the number of years to 32.
The math starts to get exciting at reaching a 50% savings rate. Then, it would only take you about 17 years to retire. And, what’s really exciting is that if you can increase your savings rate to 75%, then you can retire in a whopping 7 years!!!
Wow. Mindset is key. Don’t think there’s no way you can get your savings rate up to 50% and beyond. Try to figure out how you can do it. Nothing changes if nothing changes.
Admittedly, there is no perfect system or magic pill that’s going to get you to early retirement. There are drawbacks or things to be aware of with any approach. Let’s look at some things to be aware of with this approach.
First, it’s important to decide what you are going to do with your savings. If you save 50% of your income and put it in a checking account, you probably aren’t going to be making enough money in interest to follow this strategy. So, the savings should actually be put into investments. I’m a fan of stock market, but I’m also comfortable with the risks involved.
Perhaps one of the biggest concerns there is with the approach is that it relies heavily on the performance of the stock market. If the market severely drops in the couple of years before you retire, it might not work out so well. Also, the impact of taxes should be accounted for. So, it’s probably not a bad idea to have contingency plans and a safety buffer just in case. There’s also no substitute for a detailed plan for your retirement. But, with dedication, consistency and perseverance, I think this approach can work for some people. I know for sure that I’m going to give it a try.
I finally found the secret to retiring early. I realize that it’s not really a secret and that there is much information out there on the topic. However, I never discovered it until now. By increasing my savings rate to 50% and beyond, I will have more money to invest in my divided portfolio and other retirement savings. I am confident that by focusing on my savings rate, I will be able to achieve my new target retirement age at 55. So, you can expect monthly postings about my savings rate.
As always, I a not a financial adviser and you should do your own research before deciding the best approach for you. However, I hope you found this information useful. Let me know your thoughts by commenting below.
There are a few key ingredients to building wealth. These include your income, expenses, savings rate, rate of return and time. I will go into several of these topics in later posts. But for today, I wanted to focus on expenses. And, specifically, fixed expenses.
Generally, to build wealth, you can either increase your income or lower your expenses or both. It’s important to keep your expenses low. Expenses come in two flavors: fixed expenses and variable expenses. Fixed expenses are those that recur every single month at a fixed payment. Bought a new car? That’s an example of a fixed expense. Every month, you have to make your monthly car payment. Student loans, mortgages, are all examples of fixed expenses.
Sometimes you can negotiate to lower your fixed payments. Perhaps you don’t need all those amenities on your cell or cable bill. Try to negotiate to lower your fixed expenses where you can or shop around for better alternatives.
Variable expenses are those which vary in payments every month. Depending on your budget, these may include food, gas, entertainment and one-time costs such as those for a vehicle repair, or purchasing a gift. Even though these costs vary, you can sometimes have a general idea of how much money you spend per month on variable costs. However, regardless of whether the expense is fixed or variable, it’s important to keep those costs low.
My Fixed Expenses
I’ve been trying to figure out my savings rate, which has proved a little more difficult than I expected. So, I’m still working on it. The issue has to do with determining what my income is. But, I was able to determine what my fixed costs are. Part of my problem was that on my spreadsheet, I would list my monthly contributions to my dividend portfolio, and my Roth IRA as a monthly expense. I still do, as that is my way of paying myself first. I treat those items as fixed expenses, meaning that it’s mandatory that I do that every month.
However, in an effort to figure out my actual fixed expenses. I temporarily redid my spreadsheet to only focus on the traditional definition of fixed expenses. It turns out that I am in pretty good financial shape where that’s concerned.
Currently, I calculate my fixed expenses at $1879.49. That includes a mandatory payment to my student loans per month of 97.61. Now, I try to pay a minimum of $1997.61 to my student loans per month, so when I get rid of them in October, that extra money would likely be devoted to savings and investing (or a down payment on a house). I also recognize that some fixed expenses I have now will be substituted for other (perhaps larger) fixed expenses in the summer. I do believe my income will be adjusted accordingly to meet the upcoming change in my job assignment, and I might even come out ahead. But, as of today, I’m very encouraged.
The lower you can reduce your expenses, the higher your savings rate will be. I’ll be talking more about these concepts and going more in depth will concrete examples in future posts. I just couldn’t contain my excitement realizing that, other than my mortgage payment (which I contend is making me money every month), my fixed expenses are quite low.
What do you think? Do you calculate your savings rate every month? Do you know what your monthly expenses are? Let me know by commenting below.
Just wanted to bring to your attention that I recently added Emerson Elecrtric (EMR) to my dividend portfolio. EMR is a company that I’ve considered numerous times before but didn’t really have the will power to pull the trigger. Well, it’s a New Year. And with that comes new motivation. So, here are my reasons for adding EMR.
My portfolio is held at two separate institutions. The first is Capital One Investing and the other is Computershare. With Capital One Investing, I participate in their Advantage program. Basically, I invest in 12 stocks one time per month for $12 a month. That’s a whopping $144 a year in brokerage fees to participate in a psuedo DRIP. At present, I’m unwilling to spend more than at Capital One Investing. In fact, I will pay $1 extra per month for every additional company I invest in.
The $12 per month is kind of high, but because I’m invested in 12 stocks, the average price is about $1 per stock. Also, because I invest $1010 per month, the $12 for brokerage fees to me is a reasonable 1.19% of my investment amount.
However, things are a bit different with Computershare. There, I choose to invest in no-fee DRIPs. So, I don’t pay any fees for investing directly with the companies through their Transfer Agent.
So, one of the reasons why I chose EMR is because I can invest in their no-fee DRIP at Computershare.
More About EMR
Of course, fees are not the only reason to invest in a company. I like EMR because, for starters, it’s a Dividend King. EMR has raised it’s dividend each year for the past 60 years.
“Emerson Electric is a multinational industrial service firm with a market capitalization of ~$38 billion. Founded in 1890, Emerson Electric has more than 110,000 employees and 205 manufacturing locations across the globe.”
EMR is a solid company with a wide moat and is a staple in many dividend portfolios. Still, all is not rosy with EMR. For starters, I’m not a huge fan of their current dividend yield which is at 2.66%. I rather prefer to invest in companies with a minimum of 3% dividend yield. However, I’m hoping that yield on cost will work out in my favor decades from now when I’m ready to reap the benefits from my dividend investing.
Additionally, the current price of EMR is $73.14, which is very close to its 52 week high $74.45. So, I realize I might not be getting in at the best price. However, I’m a long term investor and I dollar cost average my way into stocks. I plan to do the same with Emerson Electric.
I purchased $250 worth of EMR and am now the proud owner of 3.2 shares. This added $6.22 to my forward annual dividends. I plan to contribute $80 per month to the company.
What do you think of my recent buy? Let me know your thoughts by commenting below.
It’s that time for me to choose the inspirational quote to help me and my readers get through the month. It’s a New Year and, already, we are taking time off to celebrate Martin Luther King. For some folks, with a New Year comes new resolution to focus on. I have made my resolutions for 2018, and have created my financial plan. Indeed, I even decided to take part in the 52 week money challenge just for fun. Some people decide they don’t want to set resolutions, because they end up not sticking to them. Rather, they decide to create not just goals, but an action plan to meet those goals. I fully agree that having an action plan is important. And, my hope is that if you’ve made resolutions or goals for 2018, that you will achieve them all. To help with that, let’s take a look at the inspirational quote of the month.
Inspirational Quotes for January
Before I share with you the inspirational quote of the month, let’s review last month’s quote.
My inspirational quote for December was: “When you’re happy you enjoy the music. When you’re sad you understand the lyrics.” – Frank Ocean.
My inspirational quote for January is: “The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low and achieving our mark.” – Michelangelo Buonarroti.
This is a quote I’ve used before and I think it’s a good one to remember as we are setting our goals for 2018. I think it’s important to have challenging goals to work towards and not just ones that are super easy to meet. The goals should be realistic, but again, not too simple. So, as we are setting our goals for the New Year, let’s remember the famous words of Michelangelo.
Inspirational Quotes from the DGI Community
These are the inspirational quotes from the DGI community last month. As always, if you want your quote to appear in the section below, just leave me your quotes in the comments section before publication of the next edition of the inspirational quotes of the month.
Dividend Solutions – “Happy are those, who take life day by day, complain very little, and are thankful for the little things in life” – Unknown author. So true Dividend Solutions. So true.
Passive Canadian Income – “The future belongs to those who prepare for it today” – Malcolm X. A very true quote from another Civil Rights Icon.
Dividends Diversify – “Most people work for money; smart people have money work for them.” – Dividends Diversify’s Dad. This was a quote that Tom heard from his dad growing up. That’s a good lesson we should be teaching all of our kids at home and in school.
Dividend Geek – “Someone’s sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffet. I actually hadn’t heard this quote before, but I think it’s a good one. It can apply to many facets of life, including dividend investing. Think about it. The dividends you invest today (the seeds) will hopefully one day bring you a large reward later (the shade). Thanks Dividend Geek.
Dividend Daze – “The best preparation for tomorrow is doing your best today.” – H. Jackson Brown, Jr. Very similar to the Malcolm X quote above, and also very true. Tomorrow is going to come regardless of what we do. Might as well prepare for it the best way we can by doing our best today.
Because it’s the first month of the New Year. I’ve decided to also share with you a favorite poem of mine. It’s entitled, “Don’t Quit” – Anonymous.
When things go wrong as they sometimes will,
When the road you’re trudging seems all uphill,
When the funds are low, and the debts are high,
And you want to smile, but you have to sigh,
When care is pressing you down a bit,
Rest, if you must, but don’t you quit.
Life is queer with its twists and turns,
As everyone of us sometimes learns,
And many a failure turns about,
When he might have won, had he stuck it out.
Don’t give up, though the pace seems slow —
You may succeed with another blow.
Often the goal is nearer than,
It seems to a faint and faltering man,
Often the struggler has given up,
When he might have captured the victor’s cup,
And he learned too late when the night slipped down,
How close he was to the golden crown.
Success is failure turned inside out —
The silver tint in the clouds of doubt,
And you never can tell how close you are,
It may be near when it seems so far,
So stick to the fight when you’re hardest hit —
It’s when things seems worst that you must not quit.
There you have it. Hopefully, one or more of the above quotes will help inspire you to get through the month of January. As a reminder, if you want your favorite quote included in this monthly post, just leave it in the comment section below.
What is your favorite inspirational quote? Did you like any on the list? What do you think of the poem? Let me know by commenting below.