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.