My name is Stefan. Welcome to my personal finance blog! The millennial generation has the highest debt burden of any generation and this is why I decided to begin a blog. I hope to use this blog to educate and motivate my readers, and provide high-quality financial advice. #PersonalFinance Blogger | Dividend Investor | MBA | Tax Accountant | Caribbean Born | Millennial Advocate
Tracking your portfolio is one of the most exciting parts of investing. Everybody wants to know how much money they have, how their portfolio is doing against the market, and more. I have found it best to build your own spreadsheet to track all of this data. However, I found it incredibly hard to find a good guide to building a dividend portfolio.
Before Yahoo Finance made their API changes, it was very easy to make a portfolio in excel. Unfortunately, they switched their coding which broke many people’s personal spreadsheets coding. That is why I will teach you how to make your very own dividend portfolio on Google Sheets. You can find a free, simple to use template at the end of this post. You will learn how to build a dividend portfolio, a dividend tracker, and have access to a few criteria for spotting undervalued stocks.
Create Google Account
First, you need to create a Google account. Once you have a Google account created, access you’re Google Drive and open Google Sheets. If you cannot find this, simply type in Google Sheets on any web browser and it will take you to it.
Create your portfolio
Everybody will likely customize their portfolio to their needs but after many changes I have settled on the below headings. I refer to the Portfolio tab as the lead page because it consolidates all the information into one easy to read page. Any of the below headings that are highlighted green populate automatically in the portfolio template.
Sector: What sector does the stock belong to
Ticker: Stock ticker symbol
Quantity: Number of shares you own
Price paid: Average cost you paid per share
Cost basis: Total value of shares you bought
Current Price: Current price of stock via Google Finance
Current Value: Current value of your holing
$ Change: Difference between Current Value and Cost Basis
% Change: Percentage points your stock is up or down
Overall weight: Percentage of your portfolio in one stock
Yield: Current dividend yield
Annual Div/Sh: Annual dividend per share
Annual Income: How many dividends you receive per year
Yield on cost (YOC): What is your dividend yield on the price you paid for the stock
Portfolio Tab – This was the clearest I could get the picture.
Some other information I add on my personal portfolio, which is included in the template, is a pie chart of sector allocation as well as a chart showing the allocation per sector. This will let you know if you are overexposed or underexposed to certain sectors.
Unfortunately Google Finance does not automatically pull the dividend yield and annual dividend per share. Thankfully, there is a formula that can. Here is the secret formula for a dividend portfolio; you must type into your spreadsheet if you do not use the template:
=split(ImportXML(concatenate(ʺhttp://finance.google.com/finance?q=ʺ,(insert ticker symbol here)), ʺ//td[@data-snapfield=’latest_dividend-dividend_yield’]/following-sibling::*ʺ),ʺ/ʺ)
This formula will pull the per period dividend (that could be monthly, quarterly, or annually) for the stock. You will manually need to update the number of times a company pays out a dividend in the “Stock Data” tab.
One quick note: Sometimes this formula will return “#NA.” There are two ways to fix it. The first one is to give the sheet some time to populate. The second option is to change the ticker symbol and change it back to what you want. Sadly not everything will work properly instantly.
Stock Data Tab
The stock data tab is where most of the information for the Dividend Portfolio is pulled from. This helps make the Portfolio tab very clean. There are multiple uses for this tab:
Spot Undervalued Stock
A dividend portfolio on Google Sheets has options to many criteria thanks to Google Finance. Some of my favorites for getting a quick glimpse of value are the % off 52 week high vs % off 52 week low. Through conditional formatting, you can set your own personal criteria. I personally have a condition for the cell to turn green if a stock is 10% off its high and 7% off its low. You can adjust as you want.
Determine an approximate payout ratio
Payout ratio is simply calculated as dividend per share dividend by earnings per share. Simply put, how much of earnings are management paying out as a dividend. The stock data tab will automatically calculate the payout ratio for you. If you have a criteria on an appropriate payout ratio, you can create conditional formatting in this column to identify stocks that fall in your range.
For example, one of my four parameters is a payout ratio less than 70%. If you right click and go down to conditional formatting, you can create a criteria to highlight the cell green if it is less than 70% and red for greater than 70%. This makes sorting through information very easy.
This feature does not work properly for REITs as they use AFFO rather than EPS.
Track day-to-day performance
One final feature is the ability to track the one day change of your portfolio vs. the market. While most dividend investors will not use this feature, I have found it very useful for seeing if apps like personal capital accurately track my portfolio. I have found using this feature is more accurate than most apps that I use.
Stock Data Tab – Unfortunately the Image is not very clear.
There is no way to accurately pull the dividends you will receive from the stock in the appropriate month. You will need to manually make all entries on this tab.
I currently have this tab setup to be split between taxable, and retirement accounts but you can adjust as needed. This sheet keeps all of your dividend payments neat and easy to follow as well as allows you to see when stocks have increased their dividends.
That is all I have for a guide on how to build a dividend portfolio on Google Sheets. There are many other features such as charts, data validation, and other techniques you can use to make your personal portfolio as crazy or simplistic as you want.
Just like that half of the year is done! June was a terrific month for me with both my savings and dividends. Let’s jump right into my June savings rate, stock purchases, and dividends received.
After a very expensive month in May, purchased a new suit as well as paid for a vacation, I was back on track in June. In fact, I was well above my 55% goal. This month I managed to save a whopping 61% of my salary!
There were two reasons for this, I lowered my food expenses as well as my entertainment expenses. Despite spending a fair amount of money in Miami this month during my vacation I came in $250 under budget despite doing everything I wanted. With such a high savings rate, I was able to put almost $2,400 to work in the market.
June was a terrible month for most of the retail sector. Thanks to Amazon and their recent purchase of Whole Foods a large portion of the grocery stocks as well as REITs with these tenants had major drops in value. As I am trying to max out my ROTH IRA for the year as well as use some of my HSA funds, I took the opportunity to add a couple of REITs due to the tax advantages they have.
I purchased 21 shares of DEA, a government REIT, in my HSA. The best part was I got in right before the ex-dividend date so I recently received my first dividend check of $5.25 from them! This purchase added $21 of dividend income annually.
My second purchase was one that I was eyeing for a while. Once again, another REIT called KIM. I purchased 52 shares in my ROTH IRA. They have a wide array of tenants and will help diversify my REIT portfolio. This purchase added $56.16 in forward income.
With over $3,000 left for my ROTH IRA for the year, I will continue looking at REITs and Canadian stocks due to the tax synergies these companies get in tax-deferred accounts.
June Dividend Income
Before the month even began I knew that this was going to be huge for my portfolio. Since I began working I have regularly pumped money into the market. June was my first triple digit income month and I could not be more pumped! I am finally out of the double digits and am on my way to the four-digit club. However, that is a long way from now. Here were all the stocks I received dividends from this month:
Any ticker with an R next to it means retirement account. These range from 401(k), ROTH IRA, and my HSA. All stocks in my retirement accounts use a DRIP and select taxable stocks.
Compared to March 2017, I increased my dividend income by almost 20%! If we were going all the way back to June 2016, when I received $28.93 in dividends, this was a 255% increase. Not bad for one year’s work!
The dividends received this month would have paid for 8% of my necessary expenses. With the upcoming bank dividend increases – BAC is raising their dividend 60%! – I expect September to be even larger. However, I am most interest in December where my 401k funds will pay dividends and capital distributions. Considering 50% of my investments are in my 401k I am expecting to be close to or over $200.
How was the month of June for you? Did you have any new purchases that you made?
Identifying an undervalued dividend stock to add to your portfolio is an exciting task for dividend investors. As an accountant, I naturally try to set parameters to mitigate risk. When looking for a new stock for a portfolio I consider two factors; is the stock over/undervalued and is the dividend safe. However, there is no golden rule to figuring out these two answers.
This is why I set some simple dividend stock parameters to help identify undervalued, and safe, dividend growth stocks. Once the stock passes all parameters I put on my hard hat and perform in-depth analysis. My four metrics are as follows:
Parameter #1: Price to earnings (P/E) Ratio
The price to earnings ratio is widely used by many investors to determine how a stock is valued. While this metric certainly has many flaws, it is a quick way to glance at a stock and figure out if it may potentially be undervalued. I often see many investors put a set number on this parameter. Some may say a P/E less than 20, or a P/E less than the S&P 500 shows signs of potential undervaluation. However, I highly disagree with this method.
The simple reason is that every industry has a different P/E. Autos and banks often have a low P/E due to consumer sentiment, technology often has a P/E higher than the S&P due to their high growth and consumer stocks are valued around the S&P 500 P/E. Example, if I am screening a consumer stock, I know that the S&P typically has a P/E ratio of 18-19 (higher now that we are in an overvalued market). With this in mind, I will look for stocks somewhere in the 15-16 P/E range for potential undervaluation. The key word here is potential. Each stock has a historical P/E that I would further look into if it passes all parameters. This metric is simply to identify companies to consider.
Parameter # 2: Current & Historical Yield
It is important for my portfolio to include companies with dividends. The second parameter I look for is the yield of the company. Most commonly, I look for companies with a starting yield of 3.0% or greater as I would like my portfolio to have an average yield of greater than 3.0%. Should a company have a yield below 3.0% I would refer to parameter #3. Companies with a yield over 5% are often a red flag to me. These companies usually have a high payout ratio (Parameter #4).
However, there are times where companies are unfairly punished in the market which causes their price to drop and their yield to rise above this threshold. One example is a REIT I recently bought that had a 3.2% historical yield but is now yielding 5.3%. This is often a sign of undervaluation which would lead me to do more research on the company and the industry they operate in.
Parameter #3: Dividend Growth Greater than 7%
Unlike the P/E ratio that varies per industry, I apply the 7% dividend growth to most companies. The only industries that I give exception to are utilities and telecom. These sectors are usually mature with little room for growth so I look for growth greater than inflation as they typically yield 4%+. You can easily find the 3, 5 and 10-year dividend growth on most financial websites.
If a stock has a yield lower than 3% I look for dividend growth above 10% due to parameter #2. Lowe’s is a perfect example of this as they currently have a yield of 1.75% but have been growing their dividend by an average of 21.12% over the past 5 years. I believe it is important to have these companies in your portfolio as your yield on cost will likely be higher on these stocks in the future than a company yielding 4% with 3% dividend growth. Of course, maintaining those aggressive growth rates will not last forever but it usually signals a low payout ratio.
Parameter #4: Payout Ratio
Last but not least is what I believe to be the most important parameter, the payout ratio. The payout ratio is the proportion of earnings paid out as a dividend to shareholders. If a company has a high payout ratio they often cannot sustain their dividend. There is a high correlation between payout ratio and dividend cuts which make this a crucial metric.
Through research, reading, and talking to other investors I believe a payout ratio less than 70% is healthy for a company. However, it is important to remember that each industry and company are different. Utilities, REITs, and telecoms often have payouts higher than this benchmark. I would compare these companies to their historic average and the industry.
If a payout ratio spikes above 70%, eg. 67% the year before and 77% this year, it is often a warning sign that requires more research. The energy industry is currently an example of this as many energy companies have seen their top line reduced due to lower oil and gas prices. If a company has a payout ratio greater than 100% it is a major red flag that their dividend is unsustainable. I would urge you to stay away from these companies.
While these four parameters are great for identifying undervalued dividend paying stocks, in-depth research should always be done. You should understand why is the company down, how is the industry performing, how the company will grow in the future and more. Historical performance does not dictate future growth but these parameters help weed out some of the dangerous investments.
For those that traditionally listen to the saying, “Sell in May and go away”, it may have backfired this year. Aside from a slight pull back in mid-May, the market continues to hit new highs almost every day. It seems with every new high there is a new bear. Almost every day I see people hesitant to put money into the market as it is overvalued. While it is true that finding good value is harder now, it certainly is not impossible.
Welcome to my May dividend update. It has been a long time since I have done one of these but I plan on doing this monthly as I gear my blog more towards a dividend blog rather than general personal finance. Usually, the second month of each quarter is my slowest for the year. However, I was able to double my income from the previous quarter as I continue marching on towards my 2017 goals.
May was hands down the most expensive month I have had since I began working. Due to the purchase a vacation (hotel, flights, Groupon activities) and the purchase of a new suit for work, it turned out to be a very expensive month. However, like all other months, I make an effort invest a minimum of $2,000 a month into the market. $1,200 of this goes into my 401(k) and HSA funds while the remainder goes towards my Roth IRA and taxable accounts. Here were two purchases I made in May:
I purchased 6 shares of the beloved O, Realty Income, at the beginning of May at a price of $55.26. This purchase will add $15.12 to my forward dividend income.
I purchased 31 shares of SKT, Tanger Factory Outlet Centers, at a price of $25.93. This purchase added $42.16 to my forward dividend income. It is important to note that this was made in my HSA to due to the tax advantages it has for REITs.
As you can see, I added a grand total of $57.28 in dividend income during May, before my 401(k) dividends are added in. I believe right now many REITs, especially REITs with retail exposure, have been oversold and represent bargain purchase prices with high yields.
Now for what we have all been waiting for, my monthly dividend income. In February 2017 I received $5.78 in dividends. Not even enough to cover my Netflix subscription… Thankfully in May, I was able to almost double this total with $11.06 in dividends largely in part to my purchase of PAYX, Paychex Inc. This represents a 91.3% increase, WOW! See below for a comparison of the two months:
JPM High Yield (R)
Two things to note, Acorns is what I consider a savings account that pays better interest. If you are not familiar with Acorns, they basically invest your spare change for you. Example, if you spend $4.75 on an item, they will round the purchase to $5 and invest the 25 cents for you. While it may seem small, believe me, it adds up. Here is a referral link where we both get $5! Secondly, accounts with “R” mean retirement account; 401k and HSA.
Overall I was very happy with May. I am hoping by the end of the year I will be getting $25 for these 2nd month quarters. Stay tuned for June’s report to see if I can finally break into a triple digit month!
How did May treat you? Were there any surprises? What are your thoughts on value right now?
2016 was a life-changing year for me. I graduated school with an MBA, landed a job at a top accounting firm, and started to care about my financial situation. When I first arrived in the US as a freshman in college my mindset was on partying and enjoying life.
As I progressed through college my mindset started to shift as I grew tired of having less than $100 to my name. During the summer between my senior year and MBA, I got an internship. Going into the internship I wanted to save 30% of the income I received to invest.
Having successfully achieved that goal, it gave me great pride seeing my net worth near the five figures instead of the three figures. As I become more entwined in personal finance, I made the ambitious goal at the start of 2017 to save a whopping 55% of my salary, after taxes. Far above the recommended 10% by most financial advisors.
Once I put the habits in place, my finances started to run on autopilot.
The best part is that I do not feel like I am missing out on anything in life. I still go out, I still eat out and I still take vacations throughout the year.
Here are five strategies I use to save over 50% of my salary and still live life like a 20 something.
Live with a roommate
I do not have the luxury of living with my parents as an international. Housing is often the biggest cost in most people’s budgets. While I can certainly afford to live in the more glamorous places some of my friends live in, I am quite content living big in a tiny place. Having another person to split rent, utilities and food with is a huge saver.
Total savings – I estimate that having a roommate and living in a smaller place saves me roughly 13% of my salary a year compared to living on my own. To put a dollar amount to this, a roommate saves me over $6,000 a year!
Live within walking distance to work
Not having a car is one of the *best* decisions I have ever made. Not only are they lousy investments as they depreciate in value, they are simply just a pain to maintain.
Today, the cost of car ownership is an estimated $8,698 a year. If you add in the cost of parking in the city and gas it is likely far greater. I think I will stick to walking to work for now.
Total savings – This decision saves another 16% of my salary. In dollar value, we can say $8,698 for simplicity.
Attend free events
One of the perks of living in a city is that there is always action. Whether it be concerts, the NFL draft, or free museum entry on Sunday, there is always something going on. Take advantage of these events rather than spending an expensive night out at the bar or casino.
Total savings – Hard to estimate but I would say roughly 2% of my income.
Cook far more than normal
I have to admit this is one I sometimes struggle with. Cooking your own food is not only healthier, it is a major budget saver. Just last week I cooked a salmon dish that lasted me six meals. Total cost was $30 or $5 a meal. Compare that to buying these meals and it is easily $15 a pop.
Total savings – 10% of my salary. In dollar value cooking alone saves me over $5,000 a year. City food can be very expensive!
I cannot begin to tell you how much your attitude towards your finances matter. If you think you have to retire at 65 or later then you are setting yourself up for that life. I used to read endless amounts of financial advice but never acted. Once I started working I set a to do list and stuck to it. Some of these items included a minimum of 20% into my 401k, max out the HSA, as well as my Roth IRA contributions.
Total savings – Honestly this is priceless but based on my investing habits I can safely say this has helped me save 20% of my salary just by my 401k.
Overall, the most important point in this entire article is number 5. Having the right attitude will dictate your financial life. At the age of only 23, it is painful to think that I have already saved more than the average American. Take control of your finances, your wallet will thank you later.
It is crazy to think that I have not posted on my blog for a little over two months! Honestly, it felt like a couple of weeks. I just wrapped up my first busy season as a tax accountant and it was everything people have said. Thankfully I now have time to breath and plan on being very consistent with my posting schedule going forward!
A lot has happened over these last two months with regards to my finances and financial situation. I will explain a little about events that helped me save money during the month, what my saving rate was for the month, dividends I received during the month and any other cool details.
March was the peak of my busy season. During the week I never once left while the sun was out and on the weekends I was often in the office for over eight hours. When you combine this with my CPA studies (1 left!) it was literally work, eat, sleep. Thankfully during these long days, my firm often provides $25 for dinner if we work for more than 10 hours a day so I often split this money into lunch and dinner which was pretty sweet.
March also marked the month that I maxed out my 2016 Roth IRA in a matter of two months! More on this will come in a future article.
March Savings Rate
During March I managed to save 54.62% of my salary. This is actually my lowest to date and painstakingly below my 2017 goal of 55% savings. There are a couple reasons for me missing my goal. Utility bills were higher for the month as we pay water on a quarterly basis which led to some unexpected cost.
The real budget buster though was my entertainment category ie. Bars and alcohol. With more work naturally came a greater need to have fun so my life did not feel like it was being consumed by my job. Aside from the increase in entertainment I also had a reunion with my freshman class swim team at an Airbnb which led to some higher cost but a ton of great memories. All in all, this was not a bad month for spending despite the very slight miss in my goal.
March was a breakthrough month for my dividend income. I received a whopping $85.90 from dividends, which is a 410% increase from the prior year! Not only was this my best month yet, it also represented a whopping 41% of ALL my dividends received last year. Talk about a great feeling right there! Ever since I started my job I have constantly pumped over $2k every single month into the market which is really driving my net worth up as well as my dividend income! You can find my portfolio on my dividend page.
April started off like March but once April 18th came around (tax deadline day in the US) the month slowed down. I spent a couple days in Maryland working at a client and recently came back from a week in Chicago for work.
April Savings Rate
In April I managed to save 58.54% of my salary! This was well above my goal as described earlier. Like millions of Americans, I received a tax refund due to my very low income received in 2016. Going forward I am trying to get my refund to be as close to $0 as possible as I hate paying taxes. Not only are taxes the first or second biggest expense for many people, they also represent an interested free loan to Uncle Sam which is unacceptable. If you think about how much the stock market appreciated in 2016 and the start of 2017 it is safe to say the money could have been put to better use!
One area of concern for April was once again my entertainment budget as well as my food expenses. I got rather lazy in April and bought food almost every day. In May I am going to try to change this poor financial habit by cooking meals as much as possible. The entertainment expenses is a little trickier to reduce as the summer months are coming up which means I will be looking to take a vacation as well as enjoy the warm weather and numerous happy hours throughout Philadelphia in the coming months with friends and coworkers.
The first month of every quarter is always a low month for dividends. Most companies in my current portfolio pay out dividends in the third month so naturally, April and May will be lower for me.
During April I received $20 in dividends which is roughly a $4 increase from January and a 2,000% increase from the prior year as I had no dividends in April! A large part of the increase was my purchase at the start of the year in DOW chemical in my ROTH IRA.
My First Net Worth Milestone
Not only was April a great month for my personally, it was also a great month for me financially. During April I crossed a net worth mark I thought would take me at least one year to see.
Note that this will be reduced by $1,575 as my rent payment hasn’t been subtracted yet! Real number is: $25,772
I have finally crossed the 25k mark and will be going full steam ahead towards 50k! You can easily track your net worth with personal capital. Based on my current savings rate I should reach here around this same time next year.
This, of course, assumes my life stays the same. Once I complete my CPA I will be getting a bonus and I am expecting a raise later in the year as we have year-end reviews for my job coming up this summer.
There is one big caveat though. My ability to stay in the US! At the end of May or in early June I will find out if I have been selected for the H1-B Visa which will allow me to continue working in the US. If I am not this will throw a huge wrench in my plans and there is no telling what will happen after that!
College is often one’s last chance to live a care free life before adulting hits. I was your typical college student during the first three years of college. I spent money on alcohol, ate out all the time despite having a meal plan, and eagerly awaited the next source of income that likely did not come for another ten days — luckily ramen noodles and pizza rolls existed! However, during my senior year of college, one class forever changed my perspective on money.
Rather than taking a corporate accounting class that I could likely learn on my own, I decided to take something a little more fun, and quite honestly more important. I took a personal finance class. I learned about topics such as emergency funds, investing, and much more. If anybody has the opportunity to take a personal finance class, whether it be in college or a side class, I highly recommend you take one!
Here are some key perks of being financially literate before I graduated. Bear in mind that even if you have graduated many of these tips are still relevant to your own life.
Time to Make Mistakes
Everybody hates making mistakes. It can be very time consuming to fix a mistake or extremely costly depending on your situation. One of the perks of becoming financially literate early on is that you have a lot of *time* to fix your mistakes.
A real life example of this is actually a friend of mine who regularly reads my blog. This individual used to have a similar salary to me but lived far beyond his means. They were racking up credit card debt, and struggling to keep up with the minimum payments on their loans and credit card payments. Luckily, they saw my Facebook post about my blog and really immersed themselves in the world of personal finance. Since they have learned about FIRE and abolishing the paycheck to paycheck lifestyle, they are rapidly crushing their debt and are striving to build wealth.
This is not an uncommon story as thousands of people who read personal finance blogs have their financial epiphany. Imagine knowing that you had a higher net worth as a baby ($0) than you did at the age of 25 due to debt. That is scary… luckily time is on our side to fix our financial situation and begin building wealth.
Time to Compound Wealth
Albert Einstein famously said, “Compounding is the eighth wonder of the world.” When it comes to building wealth, compounding is arguably your second greatest asset. Wonder why? The answer is simple — time is the greatest asset. Without time, compounding will be minute in its effect.
One of my favorite examples is the example my professor showed the class on the very first day. Person A is a 25-year-old with no invested capital who contributes $10,000 a year into the stock market at a rate of return of 7% for 25 years. Person B is a 30-year-old with no invested capital who contributes $12,500 into the stock market also at a 7% rate of return. Both individuals are depositing a total of $250,000 by the age of 50 but one person comes out with a far superior net worth.
At the age of 50, person B would have a stock portfolio worth $548,315. Not bad for a $250k investment! While this surely is not a small sum of money, person A would have accumulated a whopping $676,765 by 50. This is the power of compounding and the power of having time on your side. Starting five years earlier generated an additional $128,000 in wealth.
Time to Develop a Wealth Building Strategy
Having a strategy to building wealth is crucial. You cannot just save your money and aimlessly invest it without knowing what your strategy is. For some, this strategy may be a simple, yet effective, index fund only plan. It involves minimal stress and has historically had 7-8% returns per year. For more savvy investors it may involve a mix of stocks, real estate, crowdfunding, P2P loans and much more.
It is important to understand that over time your strategy will evolve. Nothing should be static. Right now I am only investing in stocks because that is what I deem the best use of my limited capital. However, within the next three years, I have hopes of entering the real estate market to supplement my passive income from dividends.
While there are certainly other perks of being financially literate early in life, time is the common theme. Whether it be time to fix your mistakes, or the additional time to allow compounding to take effect, it pays to be financially literate early on.
Rather than wasting 5 or 10 years of my life blowing through my paychecks purchasing materialistic items that do nothing to benefit my life, I am building wealth. If I were not financially literate, I cannot guarantee I would be on the same course as I currently am.
How has being financially literate changed your life? If you are not financially literate, what are you doing to change that?
One of my goals for 2017 was to have a savings rate of 55%. Considering the average person in America saves a measly 5.7% of their salary—or $5.70 for every $100 in after-tax income they make—it is fair to say that I am setting myself up for success.
I have written numerous times about the importance of having a high savings rate. If this topic was not so important I would not keep writing about it several times a year. It does not matter how high your income is, it matters how much you save. This is the ONLY way wealth is generated, unless you are fortunate enough to have a large inheritance.
Today I want to share some ways I am saving over 55% of my salary which will allow me to reach my goal of $24,000 in investments by the end of the year.
As an international working in the U.S., I do not have the luxury of living at home with my parents. While many millennials are realizing that living at home with their parents is highly beneficial due to the enormous student loans we are required to take out for education these days, I am stuck with paying rent.
Rent is arguably one of the biggest expenses on anybody’s budget. For me, rent accounts for roughly 20% of my after-tax income. Luckily, this amount is a fairly low percentage as I live with a roommate. Should I have lived on my own, my rent would be roughly $500 higher before I add in the cost of paying for utilities.
Having a roommate increased my savings rate by roughly 13% and added an additional $6,000 into my bank account!
Food is one of those budget items that people can easily blow in a month. When I lived in college I found myself buying food almost every day despite my house having a well-equipped kitchen. This habit came more out of laziness than anything else and it cost me hundreds in food expense on a monthly basis.
Ever since I began working and cracked down on my spending habits, food has been one of the hardest items to cut back on. I personally love eating a good meal, but what I have found is that you can cook a restaurant quality meal at home for half the price. Not to mention the quality of the food may also be better!
One of my roommate and I’s best purchases for our apartment was a slow cooker. That thing is simply amazing! I usually toss some meat in it overnight with the appropriate seasoning and when I wake up my food is ready to go.
By cooking my own food I have reduced my monthly food budget from almost $400 a month to $200 a month. This increased my savings rate by roughly 5% or $2,400 a year!
Entertainment is a very vague category. It can involve going to the bars, eating out or even a vacation. Just like food, this is a category that destroys your savings rate if you do not carefully monitor it.
Some of the best ways to cut cost in this category are to find free actives around you to go to. As I live in a city, there is always some cool events going on. When I was in college I went to a free concert that had bands such as Imagine Dragons playing, before they were famous, that was a ton of fun. Finding events like these can be just as much fun as a $100 concert and it is a lot easier for the budget.
Travel can also be a very expensive category. Whether it be local or foreign travel, try to see if there are credit card bonuses you can use. Mad Fientist has a credit card rating system with their reward value on his site that I recommend checking out as it can amount to hundreds in savings. I would also recommend visiting places where you may have a friend as it can substantially reduce your price of lodging.
I estimate that free activities and travel hacking will save me close to $2,000 a year or another 4% increase in my savings rate.
Just by cutting my cost in these three categories I am able to add an additional $10,400 to my savings and increase my savings rate by 22%. When I add in my 401(k), HSA, and IRA contributions, I should be well over my goal of 55%.
Challenge yourself and reduce your expenses; your wallet will thank you later!
In order to build wealth, you need to build a gap by having your income exceed your expenses. Using a budget is perhaps the most powerful tool you can use to analyze this gap. Why the budget? The budget tells you exactly what your money is being used on. To put it simply, it shows your cash inflows and outflows of any given month.
Unfortunately, most people do not take advantage of this effective tool. Some people scribble numbers on a piece of paper or excel spreadsheet while others store all this data in their head. In most cases, people see budgeting as this boring chore. What most people don’t realize is that using a budget is the fastest way to figure out their financial system and develop a plan on taking control of their finances.
Before I created my 2017 goals, I developed a budget. More specifically, I used a zero sum budget. The goal of this is exactly what the title says, sum to zero.
To be honest, I did not even know what a zero sum budget was until I created my 2017 budget. Here is how a zero sum budget works.
The Race to Zero
Start by entering your income for the month. From here, minus any expenses and see what is your net income which is income after expenses. If you cover all your expenses during the month and have $500 left over you are not done yet. You see, the purpose of a zero sum budget is to give your money a purpose. This is why I personally love this type of budget.
Rather than letting the money sit in your bank, you must tell that $500 where to go. You must assign it a purpose. Some ideas are using the money to help get you out of debt, build your emergency fund, invest in retirement, or grow your wealth. Give every dollar a purpose. The more money you have working for you is the less money you need to work for in your everyday job.
According to a Dave Ramsey survey, people who used a zero sum budget pay off 19% more debt and save 18% more money. The sooner you implement a zero sum budget as part of your financial planning, the sooner, you begin supercharging your wealth. Remember, every dollar counts.
Analyzing A Zero Sum Budget
One of the biggest problems I have found with budgets is that the majority people may create a budget but never actually analyze the numbers. If you are spending more than you make each month you need to start cutting back. If you went over your monthly food allowance you need to question why. Did you eat out more this month? Is this how you normally spend or is this a one off event?
This is the type of analysis that helps improve that gap I spoke about earlier. When I was reviewing my January budget I started by analyzing every single line in my budget beginning with the income. My income was roughly $200 higher than I originally budgeted, due to my employer reimbursing some expenses I incurred. From here I went down every line item to ensure that I was under my budgeted amount for each item.
Some items I went over on were Roth IRA contributions as well as miscellaneous investments. Obviously, these are investments that I hope will appreciate over time so this is not a concern to me. However, I found myself agitated as I dipped into my emergency fund to purchase a stock. This showed me that I need to be more discipline with my money as my emergency fund is not supposed to be used for this purpose.
Give your money purpose! Creating a zero sum budget will give you the “why” to help you analyze your gap between income and expenses.
What type of budgeting do you use? How do you give your money purpose?
I know, I know… It is the end of January and I am only putting out my 2017 goals now! However, it is not my fault that I have not been able to post for the last two months. I moved into a brand new apartment in December when I started my job and did not get internet until two months later! Can you imagine a millennial in 2017 going two months without internet?
To be honest, it really was not that bad. But this is a story for another day.
Today I want to share my 2017 goals and discuss a slight change in my investing philosophy. My goals will be a mix of financial goals, blog goals, and personal goals that will hopefully inspire you to make some lofty goals yourself. I will give a six month update in June and then again at the end of the year to track my progress!
Save 55% of my salary
This is perhaps my biggest and most important goal of 2017. As many of my loyal readers know, I am a huge fan of increasing your savings rate. Wealth is not created by your salary. It is created by the amount you save. I have friends that make more money than me but spend all their money on wants rather than experiences or their future retirement.
Do yourself a favor and begin paying yourself first. You do not want to be that guy/gal who lived your life in your 20s and is still working in your 70s.
Invest $24,000 for the year
My goal is to simply invest $2,000 a month. Half of this amount will be invested into my 401(k) while the rest will go towards maxing my Roth IRA for 2016 as well as 2017 and maxing my 2017 HSA. In my Roth IRA and HSA, I plan on continuing my dividend growth investing strategy to maximize the tax benefits of these amazing retirement accounts. Any additional money I have left over will be allocated between saving for my first rental property as well as purchasing dividend stocks in a regular trading account.
Visit two new places
While I am limited to where I travel until I hopefully get my work visa (If I don’t get it I must leave the US L), I plan on visiting one new state this summer and hopefully one new country once my work visa is approved. Travel has long been one of my passions and I hope to see two new countries a year to expose me to a multitude of different cultures.
Release a new article at least once a week
Life has become very busy since I began working. I have already traveled to three different cities in my short month and a half of work and I will be entering what we call “busy season” until the April 15th tax period is over. This goal will be more challenging than others depending on where we are in the accounting cycle but I am committed to growing this blog and helping my readers improve their financial situation.
Make $200 a month in side income
The last of my goals is to have a successful side hustle. While $200 a month may not seem like a hard task for many, it can make a significant difference in goal #1, 2 and 3. Like goal #4, this will be easier in some months rather than others but I am a firm believer that nothing comes to you in life without hard work.
While I was at a session in New York, we had a career focused talk. Here are some important tips that helped me set these goals. Write down your goals, list them in importance from one to five and throw the rest away. Studies show that having more than five goals makes a person become unfocused as there are too many moving parts. Secondly, write your goals down. As silly as it may sound in a digital age, those that write their goals down are 40% more likely to achieve their goals. As somebody who has done this on a blog, I guarantee you that this works as you feel accountable to yourself and your readers.
Now that I have shared my top 5 goals, what are some of your 2017 goals?