Tag Archives: getting rich

Alternative Plans For Financial Independence

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Is My Financial Independence Plan Flawed?

With respect to Financial Independence, I now realize that previously, I’ve put my entire financial independence strategy in just one well known plan.

My “Financial Independence Plan A” is pretty much your standard run-of-the-mill savings by frugal means and invest that savings like a fiend.  To be honest, so far Plan A is working for me, I’m doing about as well as can be expected in this economic environment.  While I’m not a millionaire yet, I’m on my way to achieving a net worth of a million in the next eight years following this path (fingers crossed).

But, what if something happens? What if Unemployment keeps rising and I get laid off? 

Getting laid off would severely affect my current employer paying income stream, and would be a serious blow to my investment strategy since eating and feeding my family would get in the way of investing (my family members are so inconsiderate that way, lol).

What if I get Madoffed?  Then I find myself much older and less inclined to want (or even able) to work as diligently?  Is having only one plan analogous to having all your eggs in one basket?

Alternative Plans for Financial Independence

I’m now pursuing at least two other paths for Financial Independence!

Financial Independence Plan B – “Side Job Income“:  Find a job (or create one via entrepreneurship) that in five years should pay at least a quarter of your current “primary job” salary earnings (or self-employed income).  Then take the entire income stream (minus taxes) and invest it in dividend stocks or decent bonds (perhaps municipal bonds – do this when and if the bond market comes back) with a decent yield that are still safe.

The advantages of Financial Independence Plan B are as follows:

  • In combination with Plan A, you should be able to save twice as much as you do if you are just using a Plan A.  This is a great accelerator to achieving Financial Independence!
  • The dividend stream should be invested back into your dividend investments, but alternatively (if you are willing to sacrifice slower growth), you can use a portion of that dividend stream for rewards such as vacations and other family/personal fun activities.  The family/personal fun activities provided by a dividend stream is the route that I am following as seen in the following articles:
  • If something happens to my primary job, I have this one to serve as a backup.  This second income source, dividend streams and the fact that I’m totally totally debt free means that I can get by without any real hardships.  However, my lifestyle (and especially my kids) would definitely have a dip in enjoyment since I would have to forgo vacations and they kids would have to stop playing sports and other fun and educational activities!

The primary disadvantage of Plan B is time.  You will have less time to spend watching TV, being with family, and leisure in general.

Financial Independence Plan C – “Being Smart about spending and saving money” – This is about getting the best deal on a product without doing something foolish like driving wasting gas money, while trying to save a dollar.  And about detecting and taking advantages of income making opportunities instead of giving away time, your work, and stuff away for free.  I will have a more detailed post about this in the future.

Both of my Plans B and C are evolving, so in the future, I’ll expand on each!

Do you have 2 or 3 alternative plans on becoming financially independent?  The beauty of such plans is that as long as they aren’t too expensive, anything goes since they aren’t necessary for you or your family’s livelihood.

Have a great weekend!

MR

Giving My Son A Financial Checkup On Getting Rich

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I’m very focused on teaching my kids as much about finances and making money, and have been teaching them the financial knowledge that I know over they years.

On a whim of the moment, I decided to get my son a financial checkup to see how he has progressed.  The following are the questions and results that he answered (his answers are in blue).

 

Getting Rich Questions:

1.) How did the rich get all of their money?

By having businesses and investments.

2.) Do you think you’ll be rich some day?

No, not really, just regular.

3.) Do you want to be rich?

Kind of.

4.) Do you think that rich people are rich because their family have been rich by making investments and owning businesses way back when?

No, some but not most

5.) What would it take from someone exactly like you to get rich someday?

Hard work, lots of hard work

6.) Do you think that everybody that is rich has a college degree?

Most, but not all.

7.) Do all rich people have fancy cars and houses?

No, not all of them.

Conclusion:

First, let me say that my son’s responses impressed me.  I know that I’ve worked with him, but still some of his answers surprised me.

I’m a little concerned about his answer on question #2 “Do you think you’ll be rich some day?“.  When he said that he doesn’t expect to be rich some day.  From a probability perspective, he’s right, only a few actually ever become rich.  But if you don’t try, your chances of becoming rich or well off decrease dramatically.  By having knowledge on finances, you increase your odds of being rich just be being in the known.  I know plenty of people who have made more money that I have but don’t have anywhere near the net worth that I have.  So, question #2 is a takeaway action for me to work on.

Second, I’ll have to boost his confidence that he can be rich based on his answer to question number 3 “Do you want to be rich?“, I didn’t think it was possible either until I started reading financial books.  Perhaps I can give him a leg up on this.  That way he can start earlier.

Overall, I think I’m doing a good job with his financial education, I’m very please with the results of this little checkup!  I’ll be doing future checkup and quizzes in the future just to get a reading on how I’m doing with my the financial teaching efforts.

MR

Getting Rich On An Average Income

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It’s much easier to become a millionaire if you make over $100,000  but what about someone making an average household income (less than $50,000)?

I think the majority of people believe that it’s not possible to become rich on such a small income, but it is and here’s how:

Minimizing Housing Costs

Instead of renting an apartment or house, offer to share an apartment or house with a friend for 1/2 the rent it would cost to rent a place by yourself.

So you would normally spend $1,000 a month on rent, but instead you’re splitting the cost of rent with a friend.  This act enabled you to put $500 a month into safe mutual fund or ETF  for a total investment of $6,000 a year!  After 10 years, the money you save in such investments will be as follows:

Realistic
Growth Amount Interest Annual Simple
Year Saved Rate Interest
1 6,000 6% 360
2 12,360 6% 741.6
3 19,102 6% 1146.1
4 26,248 6% 1574.86
5 33,823 6% 2029.35
6 41,852 6% 2511.11
7 50,363 6% 3021.78
8 59,385 6% 3563.09
9 68,948 6% 4136.87
10 79,085 6% 4745.09
Aggressive
Growth Amount Interest Annual Simple
Year Saved Rate Interest
1 6,000 9% 540
2 12,540 9% 1128.6
3 19,669 9% 1770.17
4 27,439 9% 2469.49
5 35,908 9% 3231.74
6 45,140 9% 4062.6
7 55,203 9% 4968.23
8 66,171 9% 5955.38
9 78,126 9% 7031.36
10 91,158 9% 8204.18

 

Using the Realistic Growth Model above, we can see that after 10 years of  using this technique, we would have saved almost $80,000.

At this point, I would take half of that money and buy a multi-unit rental unit.  I would then live in one of the units and rent out the other units.

At this point, I’m now a landlord, and I still have almost $40,000 for other types of investments.  After one year, I can determine if being a landlord is for me or not.  If I don’t like it, I’ll sell it all and put the money in financial investment like stocks, bond, mutual funds, etc.

Saving:  $6000 (this varies greatly depending on how many people are in your household).

Minimizing Food Cost

Instead of buying expensive or highly processed foods,  why not make eggs, beans and vegetables as a main stable of your food consumption?  Eggs and beans are excellent sources of protein, and very healthy for you to boot.  I also have a can of peanuts that I munch on for snacks.

You can save a lot of money by growing your own vegetables (and canning them for the winter months).  You know exactly where the vegetable came from, and since you grew them, you get exactly what you wanted.  No worries about insecticides or some bacteria tainting them!  Both cheaper and safer is a winning combination!

Listen to an mp3 player or an audiobook while you work.  That way you can enjoy your time tending the garden while you weed, plant, etc (a win-win)!

As a supplement, why not try some extreme couponing too!

Saving:  $3000 (this also varies greatly depending on how many people are in your household).

Buying Used or Bargain Needs

Instead of buying everything new, look on Freecycle.org first, then Craigslist!

You want to watch movies or listen to CD’s?  Borrow them from the library (if one is close by).  If you have internet access, go google what you want to listen to, or play the type of music that you want to listen to on www.Pandora.com.  You can watch movies online via hulu.com! Obviously there are also other options…  Google them using keywords phrases like “free online movies” etc…

Skip unnecessary monthly costs that add little value!  There is really no need for cable TV, or even a land-line if you have an internet router (go with MagicJack, or even Skype).

Savings: $1,000 (this varies too much to predict, so I pick a low number).

Retirement Accounts:

If your employer has a 401(k) take advantage of it!  The amount deposited is tax-deductible!  Try to at least save 10% ( or at least $5,000)

If you employer doesn’t have a 401(k), put that $5,000 into a Roth IRA!

Summary

Without even cutting into vacation spending, We are able to save $10,000 and with retirement contributions another $5,000 for a total of $15,000 savings.

So with what I mention above that’s $15,000 a year that we could be saving on our way to becoming rich.  If you continue to keep focused, it would be fairly easy to become a millionaire in a bit over 30 years.

Best of luck to you,

MR

Getting Rich – Levels of Wealth – Part 2

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As mentioned in my previous review of the book, the full name of Getting Rich is “The Complete Idiot’s Guild to Getting Rich“.  But also as I mentioned before, don’t be fooled by the title!  It’s a good book!!!

Today, I’m going to talk about a portion of the book that I identified with and which influenced the way I approached my financial habits with respect to wealth creation!  The most powerful portion of the book for me was “The Five Levels of Wealth”  (also called Waschka’s Wealth Levels).

Before reading these levels, let me explain the book’s definition of TSG.

Target Savings Goal (TSG) is simply the amount invested yearly, so that after so many number of years of continual contributions, your investment nest egg will last (an hopefully outlast) you when you retire (or for some other goal).

The Five Levels of Wealth

  • Wealth Level 1
    You are able to maintain your standard of living and at the same time, save enough money to achieve your Target Savings Goal (TSG), the annual amount you need to save to meet your needs at retirement.
  • Wealth Level 2
    Your portfolio is large enough to produce, on its own, a total return each year equal to your TSG, as well as keep up with the inflation.
  • Wealth Level 3
    Your portfolio produces a total return large enough to cover your desired lifestyle and inflation.
  • Wealth Level 4
    You have accumulated enough assets to produce a total return sufficient enough to substantially increase your current and future lifestyle while at the same time keeping up with inflation.
  • Wealth Level 5
    You have accumulated enough assets to produce a total return well beyond what you would ever spend.  You now have the option not to work, raise your standard of living, and bestow large charitable gifts.

Some level (especially Level 2) has sub levels within them.  Currently I am withing Level 2, my got is Level 3!  Anything above Level 3 is just gravy 🙂

Wealth level 2 is special because it has sublevels until you get to Wealth Level 3!

Thanks for listening to me take a small trip down memory lane…

-MR

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