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.

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.

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.

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.

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?

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.

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.