This blog is intended for educational purposes only. None of these posts are meant to give legal or financial advice. If you need advice you should consult an appropriate professional.

Monday, December 5, 2016

Financial Independence is a Slow Process

It would be nice one day to own myself and all of my time.  This is the state of financial independence where investments cover all expenses of life.  For the average person of modest means this is a VERY slow process.  It will probably take 20 years or more to achieve it.  My plan is to buy dividend stocks with the wages I make at work.  This is a method that is open to everyone.  Stock market investing has never been as democratic as it is now.  Sometimes I get discouraged at how slow the progress is.  Unless you're able to put away thousands a month you'll be plugging away at this for decades.  It's something to accept I guess and not let it bother you.  Very hard to do though.  Especially when employers totally call the shots and have so much power over our lives.  I'm sure there are faster and better paths to financial independence than buying dividend stocks with wages.  It's just that I haven't found one that works for me.  And believe me I've had a lot of hair brained schemes over the years.  I also have an interest in owning rental properties, but that path makes me nervous because of all the things that are involved.  My advice to myself and others is to keep plugging and to remember that every penny of dividends that comes in on its own puts you one step closer to freedom.

Sunday, February 7, 2016

Stay Away From Multi-Level Marketing

"I'd like to invite you to a meeting to discuss a ground floor opportunity." Most of us have probably heard those words from someone at some point in our lives. It's very likely that this "business opportunity" is a multi-level marketing scheme. There's nothing wrong with being a supporter of free enterprise and capitalism, but network marketing has several flaws as a business system. Three of these flaws are: overpriced products, applying sales pressure to friends and family, and focusing on recruiting instead of selling products.

The first problem with multi-level marketing is overpriced products. Why would someone pay ten times as much for shampoo just so 10 people can make a commission? It's very hard to find a good deal on any product in a network marketing company. Most of us work very hard for every dollar we get. After we get those dollars we have to pay bills to survive. Paying too much for products out of pity for a friend or family member is not high on the priority list. It's much better to buy a reasonably priced item from an online or brick and mortar retailer. Dollar votes are important. It's best to buy products with the best value to keep those businesses going in our competitive system.

The second thing about network marketing businesses that is problematic is the pressure recruits have to apply to their "warm list". When a relationship or friendship becomes about recruiting or selling it can damage or destroy the relationship. It's awkward to constantly be pressured to sign up or buy something from a company that is unknown. Real businesses are well known and don't include pressuring friends and family. If you want something you either buy it online or in person. There are no family members or friends pressuring you to do so. This is probably the worst aspect of the whole multi-level world. Relationships are hard enough without adding a commercial aspect to them.

Third is the focus on recruiting to create "passive income". When you join a network marketing company you have two job hats. One job hat is salesperson and the other is recruiter. Most of us don't even want one job much less two. If the focus was more on selling products and less on recruiting then that would be a definite improvement to the business model. It's not though. The focus is almost always on recruiting. That is not sustainable.  Real businesses sell products only. That's why they work. Even if someone joins a multi-level company they really should focus just on the product. There's everything right with wanting to create a passive or residual income. That helps free an individual from the daily grind. Network marketing is not a good way to do it though.

There are many more problems with the multi-level business structure than the ones listed above, but these are three of the big ones. For someone who wants to buy into a legitimate business system a franchise would be better. This takes building some capital to pay the franchise and startup fees. It would be better though to keep saving money until enough was accumulated to buy a franchise. A person could also just start their own business on a shoe string budget and build it up slowly. There's also nothing wrong with working as an employee and investing your money. Slow and steady wins the race. Multi-level marketing is very polarizing and is best avoided.

Wednesday, April 15, 2015

Three Reasons Why Money is Inherently Stressful

Money dominates our daily lives and thoughts.  So much of what we need and want requires currency to get.  Human beings used to be more independent of money when we were able to provide our own housing, food, and transportation.  It's very hard to be self-sufficient like that anymore the way society is structured.  The three main reasons I see for money being such a stressful thing are:  most of us aren't born with it, we need it for pretty much everything, and we have to get it from somewhere.

The majority of us aren't born with the proverbial silver spoon.  We have to find a way to make money on our own.  Even some families of great wealth don't spoil their children with every indulgence they could.  They make them fend for themselves.  For those who have a generous trust fund from cradle to grave I imagine survival is rarely or ever a worry.  For the rest of us it is.  Who we're born to is totally not our choice.  It's kind of like winning a lottery of sorts to be born into a wealthy family.  Of course it's more satisfying to rise from poverty or an adverse situation from your own wits.

Almost everything is transacted in money.  I personally wish we had a more developed barter or gift economy to take some of the pressure off the importance of money.  We don't though.  It's hard for me to go one day without spending anything, and I'm a saver not a spender. Just think about your typical day, and I think you'll agree with me that most of your needs are met with a monetary exchange.  We can change this somewhat by thinking through purchases carefully, doing without, or fixing things ourselves.

How do most of us get the money we need to keep on living?  We trudge off to an employer several times a week trading our one life for it.  Don't get me wrong working has other benefits besides money like interaction, structured time, purpose, and benefits.  I think if we're honest with ourselves though we have to admit the main reason we work is for the cash.  Nothing wrong with that, it's just the way our system is structured.  My goal is to slowly wean myself off employment income for survival.  This is not to say I won't still work.

In conclusion the three reasons I see money as being stressful are:  we're not born with it, we need it for most everything, and we have to get it from somewhere.  If we were born at an earlier time I think things would have been somewhat different.  I see myself as being more self-sufficient if born centuries ago.  It is imperative to avoid debt and learn how to save if we are to have a better more free life.

Thursday, March 26, 2015

One Person's Passive Income Is Another Person's Active Expense

Passive income is a wonderful thing.  It really does give you freedom in a system where almost everything is transacted in money.  Receiving passive income is the side of the equation you want to be on.  For example my electric bill is a largely passive income to my utility company but an active expense for me.  In that case it would be better to be the electric company.  Who can do that though?  I would like to focus on three types of income that are passive to the receiver and active to the payer:  interest, rent, and dividends.

Interest is the cost of borrowing money you don't have.  How many of us can pay for an education, car, or house with cash?  Not many.  So what do we do?  We borrow from our friendly well-dressed banker.  But borrowing comes with a cost, and that cost is interest.  The lender wants the spread between interest charged and interest paid to the depositor to be as big as possible.  The spread along with fees are how lending institutions make their cash.  As a payer you're most likely paying interest and principal with income earned from a job.  As the depositor all you have to do is let the money sit and earn interest although the interest rates of the last 7 years or so have been pathetic.

Rent is something I pay right now for the apartment I live in.  I haven't owned anything as of yet in my life.  It is a goal of mine to own in the next 5 years though.  Most people go to work everyday or most days to make money to pay their rent.  They once again use active income to give someone else passive income.  It's almost like a balance sheet of sorts.  One side is active the other passive.  There's nothing wrong with renting.  It's a lot less hassle than owning.  I have found though that landlords oftentimes don't want to fulfill their end of the bargain which is wrong.  If you're going to be a landlord be responsive and respectful of your tenants.

Dividends are my favorite.  If you own a stock that pays a dividend you'll get some kind of cash every quarter even if it's $.18 (I got a paper check for that amount once).  Dividends are active in 2 ways.  People in the company you own have to get up and go to work to make you that profit.  Also customers have to pay for the products or services the company peddles, and they're most likely paying with active income.  So buyers and workers.  On the other side of that equation are owners.  Aim to be more of an owner over time.  You'll own a small piece of the means of production.  My goal is to live on dividends alone at some point.  Not easy to do by any means!

Interest, dividends, and rent are passive to some and active to others.  For me being a landlord is on the horizon in the next couple of years I hope.  I think it would be very satisfying to offer someone a nice place to live at a reasonable price.  How rare that is!  Try to figure out ways to receive more passive types of income as you age.  These aren't the only 3 of course, but they are 3 of the most popular and achievable.  Happy hunting!

Tuesday, March 17, 2015

Keeping Your Head Up

These are difficult times we live in.  Jobs are hard to come by, and if and when you get one it very well might be low paying, part-time, and dead end.  That's the situation a lot of people are in so don't feel bad if that's you.  Just to pay for the basics these days is hard much less trying to get ahead.  We don't really have much choice but to try though.  Here are some things you can do to make life a little smoother in these topsy-turvy days:  keep your expenses low, avoid debt at all costs, and build dividend income.

Keeping expenses low is the key to being free in this money world.  Unless you can be totally self-sufficient (which is nearly impossible) you'll need some kind of money to survive.  The more money that goes out every month however the more you need coming in.  Most likely it will be coming in from a job you work for an employer.  Those are hours of life you and I are trading for money to pay our bills.  This concept is called keeping your overhead low.  Businesses do it, why not you?  With low overhead, let's say $1000-$1500 a month you can survive on even low wage jobs.

Debt is a burden!  It limits your freedom.  The problem is the vast majority of us don't have the cash lying around to pay for a house, car, and education among many other things.  So what do we do?  We borrow.  The people that have the money loan it to us through an intermediary called a bank.  Remember you don't own anything until you have clear title to it.  I have avoided all debt like the plague since I was in credit card debt in the 90's during and after college.  It can be a very limited life because you have to pay for everything up-front.  It's nice though not to owe a soul any money.  Strive to be a debt free person in a decade or less.

Of all my hair brain schemes dividends have been the only form of passive income I've consistently and dependably been able to build for myself.  I'm always open to other ideas, but for me personally dividends from stocks have been the best thing going.  I started dividend investing 11 years ago and now have $150 a month in dividend income.  That's discouraging when I think about it.  Why bother right?  Believe me I've had those thoughts.  I figure though any passive type income is better than none.  We're taught zilch about this type of thing in our education system so I still figure I'm ahead of the pack.

Don't blame yourself if you're out of work or not doing as well as you think you should.  Jobs are going the way of the dinosaur as are traditional pension plans.  I'm in a low paid job right now that is way beneath my abilities, but I'm doing the best I can.  Remember to cut yourself some slack on your way to being sound financially.  Money is a pain in the butt really.  I wish we didn't need it for everything, but we do.  Therefore follow these basic guidelines, and your life should be better.