Saturday, December 29, 2007

Change Your Mind, Change Your Life!

This past summer, while on vacation, I read a fantastic book on investing. It has been a great inspiration to me and a continuing source of motivation! It was more a book on the philosophy of building wealth than a how to book, but it has helped me more than any other book on investing that I have ever read. Up until I read the book, I had always viewed my savings and investments as money put aside for my retirement. I had never considered the possibility of creating cash flow that would change my life in the present. One of the greatest things I learned from the book was that I needed a drastic change in the way I thought about making money. Over the years I have read so many books and magazines on investing and have watched endless hours of news and specials on the business channels, but I still had the 9 to 5 mind set. It was all about working a job to make a living and put a little aside so I'd have something someday down the road. Now I look at things from an entirely different perspective. When I consider a new investment or a new business prospect I'm looking more at how it will change my life today. It had made a wonderful difference in my life. Just changing the way I thought about making money has opened my eyes to so many more opportunities. I don't worry so much about my job anymore because I've started making a great deal of money outside the workplace. The more money I make outside work, the more I have to put into my investment accounts to earn even more money without more work. At the rate things are going, I will be able to make more and more money with less and less effort on my part. I am to the point that I am considering the possibility of early retirement, which I never thought would be possible before. Of course, when I say retirement, what I really mean is giving up working at a normal job. As long as I'm physically and mentally capable, I intend to keep active with some form of work. I would have to say that the real breakthrough for me in my whole wealth building plan was the day I decided to change the way I viewed making money.

Thursday, December 20, 2007

Paying Off My Credit Cards

For the past six months, I've been on a kick to pay off credit cards. I've completely paid and canceled 3 out of 5 major credit cards and am currently working on reducing the final two cards to zero balances. I plan on keeping 2 credit cards from now on. No more, no less. I don't see real need to have several credit cards. The more cards I have, the more payments I have. I know you're supposed to pay the balances in full each month and I think that's a wonderful idea, if you have the money to do it. However, since that is rarely the case for me, I think I'm better off to limit myself to no more than 2 revolving charge accounts.

I know what all the experts say about paying off your credit card debt before you start an investment program. They say that the interest you save is a guaranteed return??? I don't know about you, but my credit cards have never "returned" any money I've sent them. Yeah, yeah I know, you save on interest. But I happen to think it is more important to concentrate on increasing your cash flow, so you will eventually be able to avoid using credit cards altogether. Let's face it, we're always going to have some kind of bills to pay. So doesn't it make sense to cultivate the good habit of increasing your earnings each and every month by increasing your investments. Even if this means you're making credit card payments for another year or two.

I used to spend so much time worrying about bills. Got to get this paid, got to get those credit cards paid off, but I found that when I spent all my earnings on reducing debt, I simply began to get depressed a lot, feeling as though it was pointless to work so hard all the time, since all I ever did was pay bills and have nothing left to show for all the hard work. When I stopped worrying about the bills so much and concentrated instead on building up my investment portfolio, I became excited about working again. I know that every time I go to work a portion of everything I earn is mine to keep. It really excites me to think about putting this money to work, earning passive income (money I don't have to expend any additional labor on) and that the money I earn in this way will earn me even more money. It's kind of like getting a raise every single month! Who wouldn't be happier about going to work every day, when they knew that each and every month they were going to make more money, without having to do any more work. It just doesn't get any better than that.

Of course, I do intend to get my credit cards paid off and to keep them that way. But I'm satisfied with reducing my total debt by a certain amount every month. My car loan will be completely paid off by October of next year and I won't be needing a new car any time soon. So there will be plenty of freed up cash to pay off any remaining credit card debt then. I estimate it will take an additional year to completely pay off the credit cards and then I will have only my monthly living expenses, which are quite low by today's standards. With all that in mind, I intend to keep concentrating on building my investments and increasing my income, month after month and year after year. Life is good again!

Tuesday, December 18, 2007

Extra Income

I've previously written about some of my ventures into service type small businesses to earn extra income for investing. While things have slowed down, due to the seasonal nature of most of the jobs I usually contract, I have been able to branch out in new directions for the winter months to earn a little extra cash. During the month of December I was able to find a good deal on a used computer, which I upgraded and sold for a small profit. Then too, I contracted 2 computer repair jobs for co-workers, which netted even more profit with no outlay of cash on my part. I also got the idea that some of my lawn service customers who own rental properties might be in need of snow and ice removal services during the winter months. I contacted a few of them and picked up a couple of jobs near to my home, which will provide me with continuing extra income throughout the winter months. I'm not really talking about lots of extra money here. However, when you think about your long term investment plan, an extra $50 to $200 per month can go a long ways towards helping reach your financial goals. I usually set aside 50% of all extra income for investment purposes, so it has really given my savings and stock accounts a boost.

Another thing I've discovered is that every time I complete one job, it usually leads to another. I could see this eventually leading to a small business of my own, providing a variety of personal services, allowing me to give up my hourly job entirely. Most of the small jobs I've picked up pay me 2 to 3 times my hourly rate at my regular job. So truthfully, it wouldn't be too hard for me to replace my hourly income entirely and work less than I do now. I thought when I began to look outside my job for extra income, I would not have the time or energy to do a lot of extra work. What I've discovered though, is that I've become more organized and efficient with my time and resources and am able to easily complete 2 or 3 small jobs per week and still have plenty of personal time. I guess the whole point I'm trying to get across here is that if you want extra income, it can really pay off to assess your personal skills and see if you can market those skills to others. It has really been paying off in my case and I'm looking forward to increasing income for 2008.

Friday, December 14, 2007

Never Spend Your Capital

Back in the 1980's I read a very funny book called "The Preppy Handbook." It was poking fun at the habits of people who lived the Preppy lifestyle. One thing I read from this book that really stuck with me was the rule that you "never touch your capital." The whole point was, once you committed a certain amount of money to your investment portfolio, you should never take it out again. It should always stay there, providing you with income in perpetuity. You may at times wish to redeploy the money into different investments, but it should never be spent. Once you start spending your capital you not only lose that money, you also lose all the future earnings from it. So I make it one of my cardinal rules that, if for any reason, I have to pull money from my investment accounts, it cannot be more than money I've earned in the form of dividends, interest or capital gains. My original investment capital remains intact. I like to think of it as my own personal money machine. It works for me 24/7, constantly earning whether I'm doing any work or not. You can work until you drop, but you're still only going to make so much from personal effort. The real money is in the compounding from your investments. Putting your money to work for you.

Thursday, December 13, 2007

Some Small Cap Stocks I Like

I came across a couple of small cap stocks in the past week that I've decided to add to my investment portfolio. The numbers look good on both, each company currently pays dividends, while retaining a portion of earnings for growth. If you're interested in checking them out for yourself, they are:

1. Deswell Industries Inc. (DSWL) I've purchased stock in this company already. It is a consumer goods company with a variety of products. They had a recent price of $6.55 per share which is well below their 52 week high of $13.04. Their dividend yield of 6.10% and the fact that they have $1.55 per share in cash was very attractive to me. Since their payout ratio is only 82% they are retaining earnings for future growth and should be able to maintain current dividend payouts.

2. American Equity Investment Life Holding Company (AEL) I've written before about how much I like insurance companies and this is one I plan on taking a position in, in the near future. Their dividend payout is only .70%, but with a payout ration of 5.00%, they are retaining a lot of earnings for growth and possibly for increasing dividends. Their recent price of $8.70 per share is well below their 52 week high of $14.07 and they are selling below their book value of $10.88 per share.

With both of these stocks I believe a lot of the risk has been removed from investing by their reduced price per share. I present these as examples of what I am currently investing in, as always, I would strongly recommend that you do your own research before you invest.

Planning Now For Gains in 2008

So the stock market wasn't too impressed this week with the Fed's rate cut of .25%. Can't say I was really too impressed with it either, but that's the breaks. At least they are doing something. I still believe this presents us with a favorable time to pick up some bargains in stocks while the prices are down. To that end, I sat down earlier today to work on my plan for the new year.

I was recently doing some work on a computer that belongs to a friend of mine when I came across a file that contained his "Action Plan" for the new year, with his job as an insurance salesman. I was impressed with his list of goals for the new year and his plan of action for achieving those goals. Even though I have a long term financial plan in place, I thought how much more I could do if I wrote out a list of specific goals at the beginning of each year and an action plan for achieving those goals.

It was really quite simple when I gave it a little thought. I came up with several specific goals, most of which should be easily attainable. Then it was a simple matter to identify the steps I needed to take to reach these goals. The plan doesn't have to be lengthy. In my case it is one simple page. I posted this page on a clipboard that I keep on my desk with a current list of my stocks and investment portfolio. It is so easy to make plans at the beginning of the year, then get sidetracked by other things and before you know it, the year has passed and you never really got around to completing your plans. So I wanted it in writing this year and I'm keeping it right in front of me, to review on a daily basis. I think this will provide me with a little more incentive to get things done.

Ideas that you have in your head may be some of the greatest ideas ever, but great ideas are easily forgotten, and once out of mind, they are of no real value to you. By committing your goals and plan of action to writing and reviewing them regularly, you will find it much easier to actually make some progress. I'm sure all of us have done this at our jobs. I know I have. So why not apply this same effective habit to our personal goals. I have very little doubt that by the end of next year I will have reached my goals and be much better off financially. It only took me about an hour to prepare my one page plan, I believe that it will prove to be the most profitable hour of work I put in for the entire year.

Tuesday, December 4, 2007

My Latest Stock Purchase

O.K., so I bought the shares in American Capital Strategies, ACAS. I'm still happy about my purchase and expect to do well with it. However, I thought I should follow up with a note about an article I read today that put this company in not quite as good a light. Apparently they have done quite well for the past few years, but as it mentioned in this article, they recently announced a change in the way they pay their dividends. Much like REITS, equity funds are required to pay out 90% of income as dividends. However, until recently, they did not count profits may from sales of businesses, or capital gains, as part of the profit on which dividends were paid. The article I read said this should be viewed as a yellow flag, since anytime a company changes the way they pay dividends, especially when they are a dividend play, you should proceed with caution. I'm all about proceeding with caution, but given that all the insider trading info I've been able to find indicates the insiders are making open market purchases, I'm inclined to believe that I'm in a good position here. If they were truly in any trouble, I can't see people on the inside buying up more shares. So I'm sticking with my original evaluation. I thought it was of interest that the author of this pessimistic article started out by saying how foolish this company had made him look since he had initially dismissed them as a poor investment, and during the same time period they had increased earnings and dividends along with price per share by a substantial amount.

Friday, November 30, 2007

My Most Recent Find

I just wrote about the financial sector yesterday and how now might be the time to find some great buys. Today, while going over some dividend paying stocks and funds, I took another look at American Capital Strategies. Since I first looked at this publicly traded private equity fund about six months ago, they have increased their dividend from $3.68 to $4 per share, the dividend yield has increased from 9.7% to 10.7%. Their price to book is 1.07 with a price to earnings of 3.90 (they had earnings of $9.72 per share). Through all of the recent turmoil in the financial sector, their price per share has only dropped by a few cents. Anyone interested in picking up a good dividend payer might want to check them out. The ticker symbol is ACAS and they are listed on the NASDAQ. After reviewing all the information I could find on them, I am adding some of their shares to my own portfolio. I would suggest that before you buy, you do your own research and see if this fund is right for you.

Thursday, November 29, 2007

Are The Financials Making a Comeback?

I watched with interest yesterday as all the business channels reported on the Arab investment in Citibank. They were tripping all over themselves with glee over the possibility that this was a signal of a comeback in the financials sector. While I do believe this is a good sign that our depressed economy will recover from the housing and financial woes, I wouldn't put too much emphasis on this one event as a sign of a speedy recovery. I think it's wonderful that the Europeans, the Arabs and the Chinese want to invest their money in the U.S. While this could be attributed in part to the slide of the dollar against foreign currencies, making our stock prices seem cheap, I happen to think it's a vote of confidence from the world at large as to how resilient our economy and our businesses can be. While we may all be suffering to one extent or another from this downturn in the stock market, we should take heart in the fact that people from other countries are not so doubtful as to to future success of their investments here. As I've said before, it's always better to buy when everything is on sale. While we may be faced with further declines before things start to improve, I think we are looking at a wonderful buying opportunity right now and for several months to come. Like one reporter was saying, if you want to make this a time to remember, be the one buying when everyone else was selling. When the turnaround comes, you'll be so glad you did.

Focus On The Future

It is so easy to live our lives in the past. We've all done it at one time or another. Falling into the trap of holding on to past glories, grudges or mistakes and losing focus on what really counts. The past is over. Hopefully we've learned from our past experiences, but we all need to focus on the here and now and where we want to be and who we want to be in the future. No one can change the past, it is over and done with, but we can change our futures. The key is to live in the here and now. We all need to ask ourselves, "What can I do now, today, to make sure my life will keep getting better and better?" What do we want out of life? What will it take for us to get there? What could we do right now, right this minute, to help us get to where we want to be? Everyone should ask themselves these questions on a daily basis. It will help us all to live for the moment and to strive to attain our future goals. By asking ourselves these simple questions we can establish clearly what we wish to accomplish now and in the future. Once we've established our goals, then it is a simple matter of developing a definite plan to attain them. Don't waste time over what's already over and done with. By living for today and staying focused on our goals for the future, we open up our minds to new opportunities and new possiblities. We have to be able to see ourselves in a better life and then work toward that goal. I can't think of anything more sad than a person who reaches the end of their time on this planet and realizes that they've wasted their whole precious life worrying about the things they could not change. Even if a person never reaches all of the goals they set for themselves, just think of all the wonderful experiences they will have along the way.

Wednesday, November 28, 2007

Build Your Wealth Daily

Of all of the goals I've set for myself, I consider this one to be the most important of all. To add to my wealth on a daily basis. I try to always end the day with a little more than I start out with. I know we've all heard the expression "you can't get rich with nickels and dimes," but it is also true that fortunes have been made pennies at a time. We spend so much of our working lives striving to make the people we work for rich, how much more important should it be to us to increase our own personal wealth? I happen to believe it's is very important. So I make sure I spend some time every day figuring out how to improve my financial status in one way or another. Sometimes it's as simple as skipping a soda or a cup of coffee with my meals at the restaurant and putting that money away to increase my savings. Since the true tax rate on earned income is around 50%, every dollar you save is basically equivalent to $2 in earned income. Since the dollar you've saved has already had all the taxes taken out of it, you would have to earn $2 to equal the same amount that you saved. So don't overlook all that change you put aside each day, it can really add up to substantial amounts.

At other times I may review my stock portfolio to take advantage of dips in stock prices on my dividend paying stocks. When the prices are down and they haven't reduced the dividend payout, you can increase the yield on dividend paying stocks by purchasing more shares at the lower price and reducing your average price per share. This, in turn, increases the yield you will earn on dollars invested. If you do this on a regular basis, you will find that your dividend income will increase regularly. This involves very little work on your part, so isn't it worth the effort?

Another way I seek to improve my income is by coming up with ideas to earn more and add the additional money to my investment program. This is where I came up with the idea for purchasing a commercial carpet cleaning machine. I will use this machine myself at least twice a year to steam clean my own carpets, so I will save the $30 rental fee each time I use it. Then too, if I do an additional 20 carpet cleaning jobs for other people during the year, at an average price of $50 per job, I will earn $1,000 per year. Since I expect this machine to last at least 10 years, I will earn an additional $10,000 in income not to mention the $600 I will save on my own carpet cleaning by not having to rent the machine. This machine costs $700. With the extra income and the savings on machine rentals, by the end of the life of the machine I will have earned and saved over 15 times what I paid for this machine. Since I could easily get more than 20 jobs per year and the machine could well last over 10 years, it is staggering to think of how much of a return I could earn on this $700 investment. This is roughly the equivalent of earning 150% return on your initial investment each year.

These are just a few examples of the things I've come up with. Everyone is different. They have different talents and different situations, but we can all find ways to increase our wealth on a daily basis if we just give it a little thought. We spend so much of our time working hard for other people, why not direct some of that energy towards improving our own lives and making ourselves wealthier each day.

Saturday, November 24, 2007

Managing Cash Flow

I've recently found myself in the unenviable position of running short on cash. The holidays are here, I had to have some maintenance work done on my car and year end property taxes are due. Work has slowed some and my side jobs have dropped off which is normal during winter months. So I found it necessary to review my cash flow management. During the spring and summer, when I had extra cash flowing in from outside work, I got a little sloppy with managing my money. Not that I was squandering it by any means, rather I wasn't as concerned about running low on cash because there was a lot more coming in.

After carefully reviewing my personal balance sheet, I was able to identify a solution to my problem. Since my income from work and from my investment portfolio are more than sufficient to meet my current expenses, it was just a matter of allocation. To build up my cash reserves I simply reduced the amount of monthly stock purchases by 30%. Of this amount 10% will remain in my savings account with my bank and 20% will go into my money market account, where it will earn a higher rate of interest and still be readily available should I have a need for it. For the most part, I should be able to leave the money in the accounts and let it accumulate, building a nice cash reserve while still earning income in the form of interest. I have set all this up on an automatic investment plan through my online brokerage. I will still be adding to my stock account every month. My dividend income will still increase on a monthly basis and I will be in a better position to avoid any future cash crunches. Since I've set this all up on a percentage basis, as my income goes up each month, so too will my stock purchases, thereby generating even more passive income and adding to all three accounts. I really am not too concerned with stock prices, since my investment strategy is to buy dividend paying stock in solid companies with strong profits, low debt and room for growth. As long as their balance sheets remain strong, it's the income that they generate that I'm concerned with.

One of the best tips I've gotten on identifying a bargain dividend stock:

The historical average price that people are willing to pay for $1.00 in dividends is $24. The stock price may go higher or lower, but tends to gravitate towards the mean. So I always look for a stock that is selling below $24 and pays at least $1.00 per share in dividends. Of course I want them to meet the investment criteria I mentioned above and they have to have enough earnings per share to pay the dividends and still retain earnings for growing the business. Sometimes these stocks are a little hard to find, but it's well worth the effort.

Friday, November 16, 2007

Consider the Taxes

Most of my friends and family don't quite understand why I get so excited over my dividend income each month, when it is a relatively small amount compared to my paychecks. Aside from the fact that the income from my dividends goes up every single month and has doubled every year for the past few years, what really excites me about the income I earn in this way are the taxes I don't have to pay. Of course I pay taxes on my dividends, except for the first $500 which are currently tax exempt, and I pay taxes on capital gains just like everyone else. However, what most people don't seem to keep in mind is that you only pay income taxes on this type of income. When you earn money from a job, you pay income taxes and you pay social security taxes and medicare/medicaid taxes. You do not pay social taxes on dividend or capital gains income. So why wouldn't you be excited about increasing income with decreasing tax liability? It just makes sense to concentrate your efforts on building more investment income, as opposed to earned income, when the tax advantages are obvious. Add to the tax advantages the fact that there is no real physical labor on your part to earn the income from stocks and you can see why I'm so happy to see those dividends roll in month after month after month.

Thursday, November 15, 2007

IRA's and 401k's and Lions and Tigers and Bears Oh My!

Almost every book and every article I've ever read extol the virtues and wisdom of investing your money in an IRA or 401k. The party line goes, you get a tax break now for your investment and your money grows tax deferred until you begin drawing it out, sometime in the future at which point you may be taxed at a lower rate. Don't get me wrong, I don't think either type of account is necessarily bad, I just think that most people miss the part about "you MAY be taxed at a lower rate." I can't help but think, you also MAY NOT BE taxed at a lower rate. During my working years I can't really recall too many times when taxes have gone down. They mostly go up. So why should everyone assume that they're going to be taxed at a lower rate when they retire? Do they expect to be making less money? I'm planning on making more by then. Even if you expect your income to be less, it doesn't necessarily follow that you will definately be taxed at a lower rate than if you had paid the taxes as you went along.

I was born near the end of the baby boomer generation. The boomers have already begun to retire. And for the next several years, there will be millions more retiring. For them, I think their investments in their IRA's and 401k's are probably a good thing. But I think by the time I turn 59 1/2 and the government is looking for a lot more money to pay off debt and prop up social security, how can they help but start looking at all those plump retirement accounts as a source of revenue? There was a time when the government promised to never tax social security benefits. In fact there was a time when income taxes were first passed in this country that only the rich paid taxes. That was the only way the government could get the people to vote in an income tax. We've all witnessed what has happened since then. Taxes have sky rocketed, government spending is more out of control than ever and they just keep spending like a bunch of drunken sailors. So considering that the generations following the baby boomers do not number enough to cover all the governments expenses, where would you think the money will come from. I'm sure there will be some cut backs, but probably just token ones at best. It's my theory that within the next 15 years all the people who are drawing money from those tax deferred accounts are going to be paying through the nose. I could be wrong, but what if I'm not?

Tuesday, November 13, 2007

Cheap is Cheap no Matter How Much You Have

I recently read an article about people who become rich by being cheap and stingy. Make no mistake, you can acquire wealth in this way, even if it wouldn't endear you to a lot of people. However, the point of the article was that persons who acquire wealth in this way may end up with a lot of money, but it is often the only thing they know. How much better to acquire knowledge of making your money earn more money and expanding your income, than simply being stingy and hording what you earn. The whole reason I want to have money in the first place is to be in a position to make my life better and to help others. For me to help others on a continuing basis I will have to have the ability to make my income grow from year to year.

I personally know a lot of people like this. One of them recently was commenting on a few of the customers where I work, who come in and sit for hours and drink coffee. He said they must not have any social life. It occured to me that he couldn't see what his own stinginess was doing to his life. Even though he owns two profitable businesses and has accumulated a great deal of money, he sleeps in his truck when traveling. He spends so much time watching over his businesses, to the point of paranoia, thinking that all of his employees are stealing from him. Since he spends so much time trying to catch people stealing from him, he spends very little time with his family, and I have yet to hear of any friends. This is not the way I want to live my life. Money is not everything. Yes, it's great to have but you should never pursue wealth as the be all and end all. You may just get to the end of your life and realize that you've spent all of your time on this earth chasing after dollars. Personally I intend to live life, money and wealth are secondary to that.

Monday, November 12, 2007

Buy When There is Blood In The Streets

O.K., so maybe there's no blood in the streets yet, but the stock market is certainly taking a beating. I've been watching several stocks that I've longed to buy in to, but the price was always just a little too high for my tastes. Now those prices have dropped and I'm moving on two of them already. There could be more fallout with the stock market, but the point is to pick up the bargains on quality stocks that will shoot back up in price as the market recovers. Is this a temporary lull or a full blown bear market? I don't know. But I do know that I'm not missing out on a buying opportunity. I sure like to make all the sales at my favorite stores and pick up bargain merchandise when the prices are 25% to 75% off, so why not pick up some assets while they're on sale. Most likely I'll have to hold on to them for a while, so I'm not looking for any short term, quick cash positions here. I'm looking to pick up some core stocks for my long term portfolio. Of course, as I've mentioned before, they will all be dividend stocks. So until the price recovers, I'll be drawing some cash from the dividends.

I'm still watching the papers and the internet for a good real estate investment. I know of an apartment building in my hometown that has just reduced their asking price by $550,000 on a 28 unit building. I think it would be a wonderful investment, but it is most likely a little more than I need to take on for my first property. Still, I think it's good to watch deals like this, since at some point down the road I may be ready to take them on. At any rate, I will be watching for the right deal to come along. With declining prices in real estate due to the mortgage meltdown, I should come out pretty good. I'm seeing all kinds of properties going for thousands less than they would have 6 months ago. So my target of purchasing my first property by next fall should help me pick up a bargain.

Sunday, November 11, 2007

Rough Week for the Stock Market.

It's been a pretty tough week for the stock market. My portfolio closed down approximately 8% for the week. I almost gave in to the herd mentality and was tempted to sell some of my stocks to retain the capital gains. However, I decided instead of creating a taxable event, I would stick with my positions for the underlying reasons I purchased the shares in the first place. From the research I've done on the companies I'm invested in, I believe their long term outlook is very good. While the market may be on the bearish side right now and could continue on this course for a while, I'm willing to stick with my choices. As long as the dividends keep rolling in I'm pretty happy. I'm taking all of my dividend payments in cash at the present time, letting them accumulate in my money market account so I can build up extra cash. I intend to scout out some new dividend stocks to add to my portfolio while the general direction of the market is down. What a great opportunity to pick up some quality stocks at a lower price. My stock investment plan has always been to accumulate dividend paying shares as rapidly as possible until the income from my portfolio meets my monthly expenses. Once I've reached this point, my earned income will be invested elsewhere. I've got a ways to go yet, but it is encouraging to see the dollar amount increase on a monthly basis. Just think if you had a job where you got a raise every month, wouldn't that be about the greatest thing you could imagine. While the news is filled with so much distress over the falling stock market, I find myself extremely excited about the possibilities of picking up a lot more shares with my hard earned investment dollars.

Thursday, November 8, 2007

A Little Extra Income.

In the spring of this year, business at my workplace slowed and like so many other businesses, my employers cut everyones hours. I can understand that, from a business point of view, every dollar saved on labor goes directly to the bottom line as profit. However, my bills did not slow down and I didn't want to cut down on my investment program. I also didn't like the idea of getting a second job. Don't get me wrong, I have no problem with working. But like Ronald Reagan once said, "I know hard work never killed anybody, but I figure why take chances." At any rate, I determined that I really only needed to make an extra $20 per week to keep up with my bills and my investments. So instead of getting an extra job, I decided to see if I couldn't drum up some extra work on my own.

I got the idea to cut grass on my days off. As it turned out, my next door neighbor needed someone to cut grass for them. They had the mower and weed eater, all I had to do was provide the labor, for which they paid $20 each time I mowed. So I had my $20 extra per week. In the mean time I had put the word out among friends and aquaintances that I was available for odd jobs in case they were needing any help. Little by little I picked up extra work here and there, doing window cleaning, steam cleaning carpets, painting and most surprising of all some commissioned art work. I say the art work was surprising because I'd never really thought about making any money at it. As it turned out I sold over $250 in sketches I did in my spare time.

What did I learn from all this? I found out how easy it was to make money without a regular job. I just wanted to make an extra $20 in income per week to cover the cuts at work. As it turned out, when I actually started looking for ways to make extra money without an extra job, I ended up making anywhere from $250 to over $500 extra per month. Since I always have three days a week off from my regular job, it was not really a problem to work one of those days.

Now I'm looking at ways to turn this experience in to a part time business. I've come up with a lot more ideas for making extra cash and I'm pretty excited about the whole thing. Who would have thought that there were so many different ways to make extra income?

Sunday, November 4, 2007

Have a Plan Before You Invest

A lot of people don't really give any thought to an investment plan before they begin investing. They buy some stocks, bonds or mutual funds or maybe a combination of investments, but don't really have any definite goals set out that they wish to achieve. It is very important to take the time to figure out where you are financially and where you would like to be, so you can establish a plan to get you from point A to point B. You should set a specific time frame for accomplishing your goals. Your plan should be in place before you invest any money, otherwise you may just end up spinning your wheels so to speak. Once you've established your current financial position and you've set a goal that you would like to reach by a certain deadline, it is also important to keep an open mind about investing. In order to reach your goals, you may need to move beyond the type of investments you are comfortable with. I'm not saying you should get involved in high risk situations, like I said in my post yesterday morning, you should invest in what you know. Something to keep in mind though is that the more you know about a different types of investments, the less risk there is involved. Because you learn how to avoid the mistakes. Like it says in the Bible, "There is nothing new under the sun." So any type of investment that you may be considering, someone else has already been there. You may need to attend a seminar to learn about a new investment, or talk with people you know who have already done what you would like to do. For example, I'm planning to broaden my investment plan to include rental properties. I have to admit that I currently know little about investing in real estate. However, one of my best friends has owned and managed rental properties for over 20 years and has been very successful with his investments. Also, my younger sister has purchased several properties at very low prices and rehabbed them for rentals and resale and done very well. So in my case, I'm not jumping in to real estate blindly. My time horizon for making my first purchase is within the next 2 years. However, before I buy my first property, I intend to learn everything I can from their experiences. This will lessen the risk of, what for me, is a new investment, in the sense that I will be able to avoid many of the mistakes that a lot of first time real estate investors make. My comfort zone for investing has always been with the stock market, since that is where I have the most knowledge and experience. However, after reviewing my plan I saw the need to broaden my investments beyond the stock market. The point being, that once you have your plan and your time horizon in place, your mind begins to work on ways to help you accomplish your goals. You will be able to reach them, if you learn to not limit yourself. Opportunities for making money abound in this country, we simply have to educate ourselves and open our eyes and minds to take advantage of them.

Saturday, November 3, 2007

Invest in What You Know

Almost every book I've ever read advises you to invest in what you know. I've found this to be some of the best advice when decided where to put your money. In all of our lives we are surrounded by terrific sources of inside information. In my case, I work for a major restaurant chain. Every day I work, I see what goes on there. I see the products that sell the best and the ones that don't sell well. I have access to the packaging the products are delivered in, so I've been able to determine which companies the best selling products originate from. Then I'm able to look up the information on each company and determine their profitability and decide on the ones I think would make the best investments. Since our restaurant is part of a national chain, I know that all the other restaurants are ordering the exact same products. From this type of inside information, which is perfectly legal, I've been able to make some terrific investments in 4 great companies and have my eye on 2 more that I'm waiting to purchase stakes in as soon as the price is right. Another example of a type of inside information that is available to everyone would be the people you do business with personally. Who do you write checks to every month? Are they a publicly traded company? I've found it a lot easier to part with my money when paying the phone bill or the electric bill when I know that every quarter they are going to give me some of my money back in the form of dividend payments. A few more things to think about, where do you shop? Where do you go out to eat? Have you looked in to the stocks of the companies you frequent the most. Chances are very good that your not the only one going to these places over and over again. Take the time to look up their stocks. You'd be surprised how many of these companies may be way more profitable than you might think. Maybe they're not the ones you hear about in the news all the time, but then again, by the time they're in the news, they're usually over priced and ready to drop. Best to find these gems before they hit the news. I really love the idea that when I leave my job, even though they have no retirement program, I'll be making money off of them for years to come through the stock dividends I receive from the companies they do business with. So instead of trying to keep up with the latest trends or to try and figure out how the latest tech companies are going to make money, invest in the companies who make the products and deliver the services that you use on a regular basis. You already know how they make their money.

Friday, November 2, 2007

Investing in Insurance Companies

I've always liked the idea of investing in a good insurance company. I figured after all the years I've paid out insurance premiums and never collected a single dime, they just have to be making money, and I'd sure like to get some of my money back. But until recently I hadn't run across any with good enough financials to justify the going share price. I routinely search through smaller stock issues in hopes of finding an undiscovered little gem of a company that stands a good chance of paying off well. But being the type who likes the cash flow of dividends, my search criteria are usually pretty hard to meet. However, I did manage to find a small insurance company in the state of Florida that specializes in re-insurance, which means they underwrite the policies of other insurance companies. Their financials looked great, their profit has double every year for the past three years and they pay out a nice dividend while retaining earnings for future growth. They also have very little debt and a low stock price so I was able to buy several shares in the company. What's not to like? I've already gotten part of my investment back, in the form of 2 quarterly dividends to date, and the price has appreciated about 20% over what I originally paid. This one looks like a real keeper!

Thursday, November 1, 2007

7 Tips for Saving Money to Invest.

Tip No. 1

Never spend your change.

When I first began my savings program to build up money for investing, one of the easiest ways I found to trick myself into saving more money was to stop spending my change. I made a habit of paying for all my purchases with bills and pocketing the change. At the end of the day, all the spare change goes in a jar and when the jar is full, I take it to the bank and deposit it in my savings account. You'll be pleasantly surprised how much money you will accumulate this way. I once purchased 25 shares of stock in a large food company entirely with money I'd saved from pocket change.

Tip No. 2

Shop for the best deal on your car insurance.

I was astounded at the difference in prices and the huge amount I saved by switching my insurance. And no it isn't the company you might be thinking of, but I still have my insurance with a nationally recognized company for a whole lot less money.

Tip No. 3

Take your lunch to work.

I used to buy my lunch at work every day. While I got by cheap, usually around $5 and I only work 4 days a week (10 hour days), that still amounted to $1,040 per year. I found that if I took soup and crackers (one of my favorite lunches) it only cost me $1.70 per day, or $343.60 per year. A savings of $696.40 per year! As an added bonus, I lost 20 lbs.!

Tip No. 4

Use your coupons and motor club discounts.

Manufacturers coupons are the same as having extra cash instantly. The trick is to use only the ones for items you already purchase. I didn't realize how much I could save this way until I tried it out for a few weeks. I have also had a membership with a national motor club for years and yet never took advantage of the discounts offered on auto service, motel stays and entertainment. Now that's the first thing I look for when needing my car serviced or when planning a trip.

Tip No. 5

Adjust your thermostat.

In the fall of the year I set my thermostat at 60 degrees and leave it there until spring. If it gets a little cold, I dress warmly. In the spring I shut the heat off and open the windows until the heat or my allergies make me turn on the air conditioning. Then I set the thermostat on 78 degrees and leave it alone. The point is, adjust the heat down as low as is comfortable for you and the air up so your utility bills stay low. Money you don't use in utilities may just buy you some shares in a utility company that will pay you dividends to help pay those utility bills.

Tip No. 6

Shop out of season.

I love doing this. I get most of my clothes this way. I'm really big on brand name clothing, but I nearly go in to cardiac arrest when I see the full priced items. Now I buy my spring and summer clothing in the fall and winter clothing in January through March. I get the same brand names for anywhere from 50% to 90% off the original price.

Tip No. 7

Buy your cars used.

It's always better to purchase a good low mileage car that's been maintained than to purchase new. New cars depreciate in value faster or almost as fast as you make the payments. If you can pay cash for the car and save having to pay interest on a loan, all the better. Wouldn't you much rather be putting that money in to something that's going to pay you instead of making car payments?

My Take on the Credit Crunch and Housing Woes.

There has been a lot of doom and gloom in the news lately about the problems with the credit markets and the increase in foreclosures due to some poor lending practices in the housing markets. While this has caused a lot of uncertainty in the U.S. economy, it's my opinion that we really have very little to worry about. In fact, unless you're one of the unfortunate people who took out one of these mortgages or, like myself, waited a little too long to unload shares in REITs, this could actually turn out to be a good thing.

I've been around long enough to remember a very similiar situation in our economy. Back in my 20's, when I was more interested in partying than in investing, our country was faced with a Savings and Loan crisis. It seems the Savings and Loans had played fast and loose with some adjustable rate mortgages and they had gotten themselves into a bind when the foreclosures started to reach epic proportions. Peoples interest rates adjusted and therefore their monthly payments went through the roof and many of them simply turned in their keys and walked away because they simply could not afford to make the payments. Sound familiar? The situation now is so similar it is almost spooky. The American dollar is down against foreign currencies, the price of gasoline has syrocketed, the government has had to step in to help stabilize the economy (although the Feds interventions are a lot less drastic than were required during the Savings and Loan crisis). So why do I say this could be a good thing?

In the years following the S&L crisis you couldn't throw a rock without hitting a great opportunity for increasing personal wealth. That is, as long as you were one of the sane ones who ignored all the people preaching doom and gloom and actually assessed the situation for what it was. When the American dollar dropped so low back then, it made our goods less expensive and more attractive to foreign countries. Our exports began to boom, just as they have now. The price of oil and gasoline were outrageously high, so everywhere you looked there were large gas guzzling cars and trucks for sale and nobody wanted them, because they were all switching to more fuel efficient vehicles. Which is exactly what is happening now. When the country en-masse switched to driving mostly smaller vehicles our gasoline consumption dropped dramatically and the price of oil and gasoline followed suit. Basic economics, the law of supply and demand. As for real estate, after the dust from the S&L disaster began to settle, people began to realize that expensive properties were going extremely cheap. Those who had the good sense to buy some of those investment properties at or near rock bottom made out like bandits in the ensuing years as the real estate markets began to recover and prices shot back up to or above their previous levels. I believe 2008-2009 will be the big buying opportunity again in investment real estate and I have no intention of missing out on this one.

As for the stock market, I believe it is a victim of sorts of the information age. With all the business news channels, the internet business websites, every little obscure bit of news from around the globe is analyzed to death. I believe a lot of the fluctuations in the market are irrational and you just have to pick stocks in well run companies who have a solid financials and you have to stick with them and ignore all the hoopla and sensationalism from most of the business news. If you invest in solid companies who reward their shareholders with regular and increasing dividends, the effects of market fluctuations are most likely to be temporary ones. Remember, your supposed to buy low and sell high, which almost no one ever does. So when everyone else is fleeing the market, that's the time to be doing your homework and finding the bargains. I can tell you from personal experience, there will be plenty!

So, in summation, while things might seem pretty bleak right now, in my view we are faced with a great window of opportunity within the next couple of years. I've already put my plans in motion to take advantage of what I see as another great shift in wealth in the U.S. economy.

Tuesday, October 30, 2007

Short Term CD's or Money Market Accounts?

My niece from Wisconsin called me last night to ask about investing. Seems she's getting a lump sum insurance payout and she doesn't really know what to do with it, but she didn't want to blow the money. We discussed several different investment options including stocks and mutual funds, but she seemed more interested in something simple that would give her some income and protect her from loss of capital. We got in to a discussion of laddering certificates of deposit as compared to investing in a money market account. Both options are relatively safe investments, although the returns are pretty lackluster. I told her that I've never invested in certificates of deposit because I don't want to tie up the money. But I certainly see the appeal and the good sense of purchase a 6 month CD, one per month for six months and then having them mature each month thereafter. I personally have always preferred money market accounts. The interest rate is comparable to CD's and the liquidity allows for easy transfers in and out of the account. My money market account at my brokerage provides a convenient way for me to transfer cash to and from my investment account. It also allows me to earn money on the cash from stock sales until I've decide where to re-invest the capital. She decided to invest her money in CD's since she has very little knowledge of stocks and mutual funds and she may have need of the cash in the near future. For now though, I think I'll stick with the money market accounts.

Monday, October 29, 2007

Getting Started Investing in Stocks

My first investments in the stock market were in the form of mutual funds. Back in 1993, when I first returned to Missouri, I made very little money, so I only had $35 a month to get started. That didn't stop me though. I opened a savings account and let the money build up until I had enough to buy in to my first mutual fund. Within a few years I was able to build my account and eventually owned 7 different funds. I didn't do to bad, but it seemed to me that with the fees charged to my account and the fact that the mutual funds didn't really increase much in price, I could probably do better with individual stocks. To test my theory, I purchased a few shares of Mobil Oil. A few months later they announced their merger with Exxon and my shares of stock zoomed from $65 to around $120. I had almost doubled my money in less than a year! That convinced me. I sold all my mutual funds and started investing in stocks.

I have always followed the pay yourself first rule, at least to a point. I have never quite been able to put aside 20% of my gross income, like so many money experts seem to recommend. However, I've always decided on an amount my budget would allow and pay myself before I pay any of my bills. I can't say I've never touched the capital. It is very seldom that do, but "time and unforeseen occurance befall" us all. For the most part though, I've left the money alone to accumulate.

Along the way I've had some really good years and some pretty lean ones. This year has been a pretty rocky road for stocks, but I've still done pretty well. I think the biggest change I've made to my portfolio this year was to convert all my stock investments to dividend paying stocks. I had carried a lot of growth stocks, but the thing I noticed with growth stocks is that the "growth" can dissappear very rapidly in a down market. The same was true with dividends re-invested in the stocks that paid them. So I now have my dividends paid into a money market account where they earn interest every month until I decide to where to re-deploy the capital. I'm not suggesting that this is the best way to invest, but it has worked well for me.

I currently own stock in about 20 different companies. My investments are pretty diverse. I own shares in a couple of banks, a few consumer goods companies, some Canadian energy trusts, a couple of utility companies and some Greek shipping companies. Right now I'm concentrating on building my positions and increasing the amount I recieve on dividends each month. This strategy has worked out pretty well, since my budget doesn't allow for much of an increase in my monthly deposits to my account. That will all change before long, since I'll have one of my major bills paid off and I'll be rid of a monthly payment of over $300. I'm planning to keep making this payment, but I will pay this amount to my investment account instead of to the creditor. In the mean time I've been picking up extra work so I can keep increasing my current investment amounts. Everything is working out pretty well so far.

Saturday, October 27, 2007

A Little History About Myself

I was born to a family of 10 children in the early 60's toward the end of the baby boomer generation. My father, although blessed with many talents and a hard working man (when he kept a job) was an alcoholic and a wife beater. By the time I came along my mother had had enough and they were divorced not long after I was born. Being the 60's there were not many opportunities available for a single mother with 10 children, still my mother being the strong willed type managed to keep a roof over our heads and keep us all together. She married my stepfather a few years later and I was blessed with a younger sister who has always been my best friend. Not long after they were married, my stepfather moved us to the bootheel of Missouri, not far from Poplar Bluff, where he worked as a farmhand and a share cropper. Needless to say, we were very poor. I remember a lot of tough times, having to do without a lot because we just could not afford it. After 10 years together, my mother discovered my stepfather was having an affair and decided to take the kids and move back to central Missouri where she was originally from. I suppose she had hopes that he would come to his senses, and perhaps he would have eventually, but he met with a tragic death in his early 30's. I wanted to tell this story, not for the sake of garnering simpathy, but to give the reader an idea of where I came from. I started life with very little in a material sense and in the sense of a financial education. I've always believed that your life, no matter how good or how bad it starts, is really what you make of it. As an adult, I made a lot of poor choices in my early years and for that I have only myself to blame. However, I also realized that there are many ways you can bring about positive changes in your life. I have spent the last several years educating myself about investing. From the start I had intended to learn about investing, make a pile of money and then write a book about how I did it. Not so much to profit from the book, but to help others who were starting the way I did, with nothing. Most investment books and articles I have read and most of the programs I have seen on television seem to be geared towards people who already have at least some money. When I say I started with nothing, I mean I literally had only the shirt on my back to start over again at the age of 33. Even now, I don't have a great job, I don't make a lot of money from my hourly wage or from my investments. It's very unlikely that I will ever inherit any money or come in to any great windfall of cash. However, I do have the knowledge and the experience that I didn't have back then and things are really starting to fall in to place. So instead of waiting to write the book, I decided it would be a good idea to chronicle the story in blog form and readers could follow along for the duration. At this point, I don't have much doubt that I will reach my goals, but telling the story as I go is very appealing to me and I hope will be of interest to others who might want to follow along. I most certainly welcome advice from others along the way and hope that my example might inspire people who, like myself, may not see any way out of the wage slave racket of going to work day after day and spending all their hard earned cash to pay bills and just get by. Opportunities and money abound in this country, that's why so many people want to come here. Sometimes when you're so close to something every day, you don't really notice it. I've finally realized it was time to open my eyes and my mind to all the possibilities and to take action to get from where I am to where I want to be. The future starts NOW!