It's now www.onemillionbucks.net.
One of my goals is to eventually make it to Fire Finances Top 100 Personal Finance blogs. Not yet sure how to do it... still working on it.
Until next time...
Some of them reply that they use some sort of points or reward card which earn them airline miles, gift certificates, cruises, electronics, whatever... the smarter ones reply that they earn "straight cash homey!"
I always recommend a cash back credit card in today's world of discount retailers, because one can almost always find these other "reward" items for less someplace else. See my article on why I love the Chase Freedom Cash Back Credit Card.
What do I mean? Let's look at the pro's and cons's between these two popular "benefit" credit cards:
- Cash Back Credit Card
- Airline Miles Credit Card
- Can be used anytime, anywhere, any increment, to buy virtually anything
- Cash has NO "blackout dates"
- Cash NEVER expires
- Note: You can still earn "miles" by joining free frequent flyer programs that virtually all airlines offer
The "Con's" of Cash:
- Inflation will erode the value of cash over longer periods of time
- It takes more discipline to use cash "wisely" once received
The "Pro's" of Miles:
- Airline tickets are one of the most expensive parts of travelling and "miles" that are exchangeable for tickets are a nice reward feature
- Most miles programs restrict the dates that you can fly (called blackout dates).
- Most airlines only reserve a few (sometimes none!) seats for "miles" usage; therefore, it's often times impossible to get on a flight unless you book almost a year in advance.
- A ticket, is a ticket, is a ticket: 25,000 miles are usually redeemable for one ticket within the continental US. These means you only obtain the true value of the ticket if you fly to an obscure or distant destination
- Let's say you want to travel from DC to the Caribbean: then you need extra miles, regardless of whether or not the flight is cheaper or more expensive then a domestic flight! (If you get cash back, then you can put that towards a flight anywhere in the world, not just what you are eligible for)
- Miles literally expire (unbelievable, right!) - Cash never does!
- You can always find a cheaper price (then retail value) on the online discount websites (my favorite is cheapair.com)
- If you earn cash back then you might have enough money to purchase two or more flights from a discount or local carrier. The same amount of miles card spending might only earn you enough miles for a single flight.
- Some airport destinations simply aren't even eligible for mileage usage.
Reward programs restrict or constrict your spending habits. Cash programs allow YOU to determine who, what, when, where and how you spend your hard earned dollars (and who better to make this decision then YOU!)
For the average investor there is somewhat defined, but often argued, "waterfall" of how one should invest their precious greenbacks. It's called a waterfall because as the cash fills up one category it then "falls" down to the next category, and so on...
The "Investment Waterfall" that I follow is shown below:
1. 6 - 9 Months worth of all family living expenses/bills in a high yield savings account such as E*Trade, ING Direct, etc. (No more then $100k per account to ensure you money is federally insured by the FDIC!)
WHY: No matter how strong you think your company is, or how secure you think your job is, you simply cannot predict the future! (See: "And Igby (Lehman) Goes Down!" article). You may need this cash while you look for a new job, and it may take this long (or more) to find one.
2. 401k: Contribute as much as your employer will match!
WHY: You simply cannot turn away free money, and it will grow tax free in the account.
3. Pay down credit card debt with interest rates exceeding 5%.
WHY: Over time the stock market averages 10% to 12% annual nominal growth. Subtract 3% inflation from this growth rate and you are averaging 7% to 9% net annual growth.
If you earn 7% to 9% growth, it will also be taxed, so you'll end up with say 5% to 7% in earnings.
Therefore, you should be indifferent between paying down debt costing you 7% versus earning a nominal 10% to 12% in stocks - either way you are achieving about the same return.
That said, I personally have a disposition toward paying off all non-investment related debt very rapidly (Investment Debt includes debt for a home loan or college loan which are an investment in real estate or an investment in an education that should result in stronger earning power. The key here is that these are appreciating assets, so a car loan does not count!!!)
4. Roth IRA: Max it out for the year.
a. These are after tax contributions, so the investments will grow tax free!
b. You may withdrawal your contributions (not the earnings) for certain qualifying purchases / uses (e.g. - home purchase)
c. Tax rates (believe it or not) are at historical lows and chances are good that taxes will be higher in the future when you withdraw the cash.
5. 401k: Max out your 401k after your Roth IRA.
a. This will reduce your annual tax liability.
b. The earnings on your contributions will grow tax free!
6. Traditional Brokerage Account Investments or Real Estate.
WHY: A traditional brokerage investment account is good to keep your investments liquid (can easily be converted to cash). Real estate is another good investment (despite the bad news in the market) if purchased in the right location, at the right price. The interest expense on the loan is tax deductible among other perks.
7. Start your own business!
WHY: More millionaires make their fortunes by taking calculated risks and starting their own businesses then any other job category - even more then doctors, lawyers, and Ph.D's!
So those are the basics of the investment waterfall. I haven't advised what to invest in within these accounts, just the types of accounts to consider.
Also: If you can't sleep at night because you are going to be worried about outstanding debt, then pay it down! Even though "the math" doesn't make complete sense, this is about securing your future - both financially and mentally!
Let me know if you disagree or have any questions!
I was excited to see that I've cracked into the double digits in total page views (13) and some were even repeat viewers. Thanks for looking, and please add yourself as a follower, add a comment, or send me a question!
Secondly, I posted my blog into numerous blog collection sites a few days and ago and it is already paying dividends (figuratively).
I searched Google for "one million bucks blog" and I found the OMB! blog on the third Google page! It was via a link through the website: Blog Catalog.
So a big THANKS! to Blog Catalog for hooking me up!!! To repay the favor, I have moved up the blog catalog feed link button much higher on the list!!!
Instead of waiting until the first of the month I am going to post mid-month, as Austin says, just to get the ball rolling, baby!
NOTE: I want to be as transparent as I can without revealing my identity. As much as I want to build my net worth and achieve financial independence (the goal of chronicling my journey towards a net worth of 'one million bucks!'), more importantly, I don't want to create a riff among my friends and family by revealing how much I'm worth on paper.
They say that you're not supposed to discuss money, politics, or religion at a bar. I'm going to try to abide by that rule in the one million bucks blog as well (unless it affects our personal finances).
Suze Orman, the personal finance guru who usually caters to women's finances, is sometimes annoying, and she knows it, and frankly she's banking on it (good for her!), but her motto is spot-on albeit cheesy (and patented, so don't sue me!):
"People First, Then Money..."
This is true for two reasons:
1. The whole point of achieving financial independence through sound personal finance is so that we can spend more time with the ones we love: our friends and families.
2. Interpersonal relationships are the basis for creating wealth.
So here's the balance sheet breakdown (I'll give you the history of all these numbers later):
1. The checking accounts are non-interest bearing, split between E*Trade and Bank of America. I use bank of America because I love their "My Portfolio" feature which consolidates all of my accounts into one page which shows my total net worth. (I'll write an entry on this later). They also happen to be solvent right now, which not all banks can say...
2. The cash in the savings account is held in an E*Trade high yield savings account (3.30% as of 9.20.08). I use E*Trade (despite their unbelievably terrible customer service) for multiple reasons:
- They have a competitive rate (vs. ING Direct, HSBC Direct, Citi's e-Saving, etc).
- They don't have any minimum balance requirements.
- The don't charge any savings account fees.
- If you keep more then $50K of total assets with E*Trade, then they reimburse all third party ATM fees
- Lastly, it's one of the few places that has checking, savings, and brokerage services all under a single roof, while having inexpensive trading expenses.
3. My brokerage account (at E*Trade) is invested almost fully invested in a conservative 5-Star Morningstar rated fund called the Vanguard Wellington Fund. It's more or less a "place-holder" for me until I invest it in real estate. It's also great to be able to instant access to transfer cash from my high yield savings account to my brokerage account when I want to take advantage of inter-day market price swings.
4. Our Roth IRA's are in a mix of broad based, low cost, and in some cases sector specific (energy, health care, real estate) mutual funds (both US and International) at two different brokerage houses. I will go into more detail in a separate posting.
5. It's the exact same story with our 401k accounts. I will go into more detail on another posting.
6. The real estate figure represents my portion of equity that is invested in a partnership that owns a single family home investment property. The property is currently rented and produces about $900 positive cash flow per month. I'll go into a separate posting on this as well.
7. The liabilities are simply revolving credit card debt on the Chase Freedom card. It's is a bit high this month because we made a few automotive fixes and paid for some items related to an upcoming overseas trip.
That's all for the first posting... will provide more detail later. Let me know if you have any questions of course!
So the market is down...but if you're smart (and all 13 of my blog readers are), hopefully you've been hording some cash on the sidelines for just such and end-of-summer barn-burner stock market sale.
Hopefully you've also realized the economy sucks and there's chance you could lose your job (not to stir the pot even more then it already has been stirred). Hopefully that made you put about six months of living expenses (a bit longer then average unemployment duration) into a high yield savings account.
And hopefully you have a little extra sitting on the sidelines on top of that for the Sale at Penny's. What the hell am I talking about? All I am saying is that when the market plummets like this, it's time to buy. And when it goes down even more the next week you ask? Don't kick yourself for not predicting the bottom, just buy more!
I don't care what you buy, as long as it's DIVERSIFIED! Don't be a fool and try to predict which financial stock will sky rocky or fizzle out tomorrow.
I reco the Vanguard Total Stock Market Index Fund (I own some). It's similar to the Wilshire 5000 Index, which tracks thousands of the largest stocks. These stocks make up about the vast majority of the U.S. equities market. It's like a turkey pot pie - it has everything! Large caps, small caps, growth, value, etc.
You can do the same thing with the rest of the world too buy buying a bit of the Vanguard Total International Stock Index Fund, which is similar to the Morgan Stanley....
Yeah it sucks your portfolio is down 20%, but hell - the world is on sale right now - let's do some shopping!
AND LEHMAN GOES DOWN!
A group of Wall Street Journal writers crafted a wonderful article with a timeline of how the formerly powerful Wall Street players painfully pondered their piles of green paper and the ultimate ramifications of those rancid ruminations (too much alliteration?). The piece that they wrote was entitled: "The Players Remaking Financial World". I found it on Yahoo! Finance.
Right after Lehman filed for Chapter 11 bankruptcy, Merrill Lynch, a veritable wall street blue blood, ran like greyhound bitch (meaning female dog, not Cruella de Vil) in heat to the welcoming arms of Bank of America's CEO Ken Lewis.
Seemingly moments later AIG, one of the worlds largest insurance company's, was about to implode when all of sudden good 'ol Treasury Secretary Paulson swooped and in asked: "Do you feel lucky, punk? Well do ya?" The answer was yes, and Uncle Sam gave them a monster loan to the tune of $85 bil.
Let's also not forget that husband and wife "F-Team" of Fannie Mae and Freddie Mac were just taken under the governments wing just a week or two ago as well...
The Dow lost almost a 1,000 points this week and then picked most of it back up upon hearing the news that 'W.' and Paulson are going to setup a $700 billion mega fund (at the time of writing) to buy up all these worthless home mortgages that are the root of the issue...
So, 5 Lessons Learned:
1. No institution is ever to big to FAIL (even if the government helps you, you've still failed!)
2. Wall St. is lucky that the Treasury Secretary used to be drinking the Kool-Aid at Goldman not too long ago...
3. Nothing is more fun then increasing the national debt by about 8% overnight
4. You don't always get what you pay for (Boss: "We paid how much for this mortgage? OK. And how much is it worth today? Hmmm... Want to skip town and go to American Samoa?")
5. The landscape of investment banking will forever be altered, and it has become evident that these banking firms were operating under a fundamentally flawed business plan.
Have a look at my next post on the silver lining in all of this...
By the way, I still haven't had a chance to post my balance sheet yet b/c of all this craziness is more fun to write about for the moment...
Well there is now a website offering a unique service that provides OMB fans with a unique approach to achieving your goals (and it’s FREE!).
The website is called Stickk.com (the extra ‘k’ is for slang for ‘contract’). The premise of the site is fairly simple:
1. Set a goal
2. Define the penalty if that goal is not met
3. Now write the contract!
It all started when Dean Karlin, a graduate of both MIT and Yale Universities (dumb ass, right?) wrote a contract with his MIT buddy which indicated that which ever one of them did not lose 40 lbs within six months would give the other one half of their annual salary! In fact, one of them actually paid the other $15,000 for a partial loss…
Taking the leap to Stickk.com, a user writes an actual legal contract to achieve their goal of say, not eating the Burger King Baconator every day for lunch, and can create a “good” penalty of having to give money to your favorite charity or allowing your spouse to buy a new pair of shoes, or a “bad” penalty such as having to give money to the Republicans if they are Democrats, or to Ralph Nader, if they are Republican.
In my case, I think I would hate to give money to some skinhead Nazi’s - not much is worse then Nazi’s in my book. That’s why Indiana Jones is always fighting them.
So take a look and give it a try if you think you really need that extra kick in the pants to get the job done.
PS - I must give an appreciative nod to Daniel Akst (please don’t sue me for copyright infringement!) who wrote a great article in “The American” magazine about this subject (I did ‘borrow’ the Don Corleone reference though - for a movie fan, this was too good to pass up).
While this card has all the normal bells and whistles of a typical cash back card (and no fee of course either) such as 3% cash back in any ‘category’ that you spend the most in every month (max’s out at $600 per category though, which is lame), the reason why this card blows all other cash back cards completely out of the water like that sub in The Hunt for Red October is as follows:
Although you can get your first cash check after accruing only $50, if you wait and accrue $200, then they give you an extra $50 for free!
If you want to, you can also convert the cash ‘points’ into ‘reward’ points, which is the genesis of the “Freedom” name, but what’s the point of that….
I challenge any of you out there to beat this cash back card, since, like you, I am always looking for a better deal….
Alan Corey's book and blog about how to make a million bucks under the age of 30... haven't read it, but I'm sure writing a book with this title can't hurt the cause.
A really strange video entitled "one million bucks" (I take no responsibility for this one)...
Until the next time, always remember what the SLC Punk's Dad says:
"I didn't sell out -- I bought in"
Anyway - As the market continues its wild turbulence and Lehman Bro's tinkers on the brink of extinction not seen since the likes of... well Bear Stearns just a couple weeks ago actually, there are so many topics that I want to discuss that I am not sure where to start.
I guess to begin I can talk about how to make money from writing a blog. Frankly speaking I am still not quite sure. But I have setup Google Analytics, Google AdSense, and Google Search on my website so that if anyone ever shows up to read the blog, perhaps they will kindly click on one of the sponsored links or do a Google search so that I might pick up a dollar or two. I was pretty pleased with myself just for figuring this out in my first week of writing...
That said, I next need to figure out how the heck to get people to read the blog, or at the very least visit the site and ignore the blog. To that end, what do you want to know? What can I help you with out there?
I should be able to help you with a lot of things... I graduated summa cum laude from my university and I have training in areas such as the CFA, CPA, Accounting, Finance, Marketing, Real Estate, Excel modelling, etc...
In the meanwhile, I sit here in a Country Inn and Suites on a business trip pondering the question: how low can the stock market go? I asked my buddy who is a CFA at a local private wealth management shop this question and he reassured me: never fear, the end is (probably) near!
Click on (very small) articles below to enlarge and read... great info from The Leuthold Group.
And perhaps some lonely soul out there might even learn a thing or two...or more importantly, perhaps I might even make a buck or two off of sharing some illusory ruminations on how to reach the goal that makes all other goals truly possible: FINANCIAL INDEPENDENCE - however you choose to define it. Perhaps together we can figure out the age ol' answer to the Joker's question: "Where does he get those wonderful toys?"
I'd like to tell you more, starting with my net worth, where I came from, and where I think I am going (financially speaking that is), but alas it's past 7PM on a Monday and I'd rather go home and see the wife. Until next time...
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